© 2017 by Duarte Entertainment & Media Law

Distribution and Licensing

Business and Legal Checklist

 

The following is a brief list of the basic business and legal steps to be taken by the production company, or other licensor, in the distribution and licensing of a film or television production. Such licensing may occur at any point in the life of a production, from pre-production to completion and thereafter. The issues are listed in an order which may not necessarily be the order in which they are addressed by a licensor or its lawyer. Not all of the steps are necessarily undertaken by a lawyer.

 

□ Complete all of the relevant steps in the Development Business and Legal Checklist and, if the production is not yet completed, in the Production Business and Legal Checklist. In particular, obtain and review title and copyright reports and a title opinion at this stage if one has not already been obtained or if more than 60 to 90 days have elapsed since the previous report. If the title changes, obtain a title report and opinion for the new title.

 

□ Register copyright in the finished production in the Canadian Intellectual Property Office and in the relevant copyright offices which may be required by the licensee. If the production is not completed, register the necessary copyright in the script if it has not already been registered.

 

□ Review errors and omissions clearance procedures and take the necessary steps to fulfil the procedures to completion of the production.

 

□ Identify the licensee and, particularly if the licensee is not known to the licensor, perform a credit check and corporate and bankruptcy status check on the licensee.

 

□ Establish and define the film or video production to be licenced and the languages, territories, media and other distribution rights available for licensing, having regard to the following:

 

□ restrictions set out in chain of title agreements (e.g., theatrical rights are sometimes excluded from agreements for television scripts, merchandising rights may be reserved by an author)

□ restrictions set out in any applicable guild or union agreements (e.g., theatrical rights may not be included in rights granted for a television production unless a further payment is made)

□ restrictions set out in co-production or other financing agreements (e.g., in many treaty co-production agreements each co-producer may reserve certain exclusive territorial distribution or other rights to itself)

□ restrictions set out in the agreements with cast, crew, producers or other key creative contributors (e.g., credit, photo approval, re-editing control or consultation rights, moral rights of authors)

□ rights in the production previously licensed to other licensees

□ requirements of government subsidy or other assistance programs (e.g., non-Canadians may be restricted from credit or other decision-making participation in a production both during production and following completion of the production.

 

□ Determine if the rights available for licensing can be licensed exclusively or only non-exclusively. Does the licensee require exclusivity of each right licensed?

 

□ Determine the duration of the licence and whether sub-licences can extend beyond the term. Consider implications of long-term licences for tax credit eligibility. Consider renewal terms and performance targets or other conditions of renewal.

 

□ Determine if the proposed licence will conflict with the time periods (known as "windows") during which the same or overlapping rights have been licensed exclusively to other licensees, whether in the same or in an overlapping language, media or territory.

 

□ Determine if the proposed licence will conflict with the market protections (known as "holdbacks") which have been accorded to other licensees to prevent the use of licensed rights in any manner that can adversely affect the market value of licensed rights to such other licensees. Holdbacks may be accorded to a licensee on the following basis:

 

□ Territory — Rights licensed for use in one territory may be protected by holdback obligations on the timing of the use of the same rights in an abutting territory in which there may be spill-over of video unit sales, television signals, satellite signals and the like (e.g., a Canadian pay television licence may include an obligation to hold back United States ("U.S.") conventional television broadcast on network or border stations or on U.S. stations which are retransmitted into Canada on Canadian cable).

 

□ Media — Rights licensed for use in one media may be protected by holdback obligations on the timing of the use of the same rights in another media in the same or an abutting territory (e.g., a Canadian pay television licence may allow theatrical release in Canada but include an obligation to hold back Canadian conventional television broadcast until a period of exclusive pay television broadcast expires).

 

□ Publicity — Holdbacks on the start of promotional, advertising and publicity activities by other licensees may be accorded to protect territory and/or media holdbacks.

 

□ Sequels, Remakes — Holdbacks on the period of delay before the release of sequels, prequels, remakes or other derivative productions may exist to protect the market of an existing production.

 

□ Determine if any holdback required by the proposed licensee conflicts with any existing licence of rights in which the holdback cannot be enforced.

 

□ For television use determine the limitations, if any, applicable on the number of exhibition days and/or number of "runs" or "plays" during the licence period, the ability of the broadcaster to place the commercial breaks or to edit the content of the production to fit a broadcast time slot and the obligation, if any, to deliver a version edited for television (i.e., a television "cover version").

 

□ Establish any requirements for the production's content classification (e.g., a family viewing rating may be required) and the remedies available to the licensee if the production must be edited for censorship purposes or cannot be exhibited in a territory due to a negative ruling of a censorship or classification authority.

 

□ Establish the limits of the licensee's rights, if any, to recut or add material to the production.

 

□ Provide for the obligation of the licensee to use only one title or to notify the licensor of all foreign language titles and to indemnify the licensor for any change of title or inclusion of material other than the delivered production in advertising and promotion of the production or in the production itself.

 

□ Determine if there is a right of the licensor to use promotional materials created by the licensee and/or to license others to use such materials in other territories.

 

□ Obtain the licensee's execution of assumption agreements for the payment of guild or union residuals directly to the guild or union concerned, if applicable (e.g., ACTRA performer residuals).

 

□ Establish and define all of the licensee's marketing, release, foreign language versioning, closed captioning, materials quality, home video encoding and anti-piracy, credit and other commitments, including any required prime time broadcast for some subsidy programs and a commitment to show the production in Canada within two years of completion for the federal Canadian production tax credit program (or to show the production in a particular province for any particular provincial production tax credit program).

 

□ Determine if the proposed licensee requires a security interest in the production and, if so, establish whether the required security interest conflicts with security interests granted to guilds, unions, the completion guarantor, production lenders and other parties with a continuing interest in the revenues of the production. The licensee should consider obtaining an agreement from secured parties which have priority over the licensee that they will not disturb the licensee's rights if the licence agreement is in good standing.

 

□ Obtain security for payment from the licensee (e.g., letters of credit).

 

□ Review the required delivery items, including insurance, against those available or to be produced with funds from the production budget and against those which the completion guarantor is prepared to guarantee.

 

□ Review the representations and warranties requested of the licensor for accuracy and compatibility with rights held by the licensor.

 

□ Determine the extent of any obligation by the licensor to indemnify the licensee or vice versa.

 

□ Establish the date for delivery of the completed production and all related items and documents to be delivered and determine how delivery is to be completed. Consider contractual notice and cure and/or binding arbitration provisions for resolution of delivery disputes. Make provision for delays arising from force majeure.

 

□ Prepare and timely deliver all documentation specifically required as a condition precedent to the operation or effectiveness of the agreement or of any payment under the agreement, which commonly includes:

 

□ financing and completion guarantee documentation

□ insurance documentation

□ chain of title documentation

□ agreements for stars and other required key personnel (e.g., director, director of photography)

□ budget

□ final shooting script (and revisions as and when they occur)

□ character designs and storyboards for animation productions.

 

□ Establish all delivery items and prepare and timely deliver all delivery items which are required, including:

 

□ physical delivery of at least one of each of the following of the production, and of any available trailer or television promotional spot of the production:

□ a release print (or broadcast quality tape in the case of a production on videotape only)

□ a duplicate master (i.e., an internegative in the case of film or a duplicate master videotape in the case of a production on videotape only)

□ screening video cassettes of the production

□ a laboratory access letter establishing that the licensee has permission to access and make copies from original sound and visual elements including:

□ the original negative, internegative and/or interpositive of a film

□ the optical sound track of a film

□ the magnetic mixed soundtrack (usually with dialogue, music and sound effects separated on each of three tracks)

□ original "outs" and "trims" from the production

□ textless title scene backgrounds

□ trailer or promotional elements for any trailer or television promotional spots

□ an approved billing block

□ a statement of credit and billing block contractual obligations

□ a statement of distribution and dubbing restrictions

□ a certificate of the national origin of the production

□ a statement of prior distribution confirming the nature and extent of any distribution in the territories and media licensed

□ a short form assignment of rights to the licensee or distributor for purposes of their registration of their copyright interest in the production

□ a copy of the script "as produced" and/or a final dialogue transcript and continuity report describing each shot and the music, effects and dialogue

□ a music cue sheet

□ an errors and omissions insurance cover note naming the licensee as an additional insured

□ a final certification of the production as a "Canadian" film or video production or as a certified treaty co-production, as applicable

□ a complete credit list

□ a press kit and production notes

□ a transparency of the key art for the title treatment and for any promotional artwork

□ a selection of still photographs and duplicate negatives or transparencies of the same

□ a Motion Picture Association of America rating certificate or other censorship or classification rating (if applicable)

□ a copy of all production documentation (a "Document Bible") including:

□ performer agreements

□ director agreement

□ key crew agreements

□ composer agreement

□ music licences

□ all chain of title documents including options and writing agreements

□ certificates of authorship (if applicable)

□ certificates of copyright registration of the script and of the production in Canada and, if applicable, in the U.S.

 

□ Establish and define the licensee's rights of approval (e.g., cast, director, script) and restrictions on such rights such as the licensor's rights of joint approval or consultation.

 

□ If the licensor participates in the revenues of the licensee from the production, define the revenue, the licensee's expenses recoverable from revenue, the licensee's advances to the licensor recoverable from revenue, the licensee's fees, the sub-licensees' fees, cross-collateralization of revenue and expenses, expense caps and floors, and bad debt or return reserves and their liquidation. Determine if the recoupable expense and revenue definitions comply with requirements of investors in the production (e.g., Telefilm Canada's policies).

 

□ In home video licences, establish the basis of any participation royalty (e.g., rental versus sell-through royalties), on what base the royalty is applied (e.g., wholesale price versus retail price), any applicable minimum wholesale and/or retail prices, the permissible number of free units for distribution, whether any music mechanical royalties apply with respect to music in a production released for home video use, who will bear the home video expenses (including blank tape and lending and rental rights collective payments), and the inventory sell-off period at the end of the licence, if any.

 

□ Establish standards and practices for the allocation to the production of recoupable expenses in common with other productions, the allocation of revenues in common with other productions (e.g., revenues from a package of productions) and the valuation of revenues or recoupable expenses of the licensee which arise from non-arm's length transactions between the licensee and third parties.

 

□ Determine if the licensee will be entitled to participate in any royalties due from copyright collectives such as those for cable retransmission, blank tapes or lending and rental rights.

 

□ Establish promotion and publicity obligations or restrictions upon each party. Determine who will enter and promote the production in festivals.

 

□ Establish the licence fee or revenue guarantee payable and the payment schedule, including performance bonuses, the method of payment, the treatment of blocked funds in foreign countries, the treatment of currency conversions including the applicable exchange rates, and the applicability of withholding taxes. Determine the impact of value-added taxes, withholding taxes and currency conversion on net proceeds to the licensor.

 

□ Determine if and under what circumstances the licensee will increase its fee or advances to cover increases in the production budget for enhancements such as higher profile cast ("breakage").

 

□ Establish the licensor's rights to receive statements and copies of sub-licences and to audit the books and records of the licensee and related sub-licensees.

 

□ Determine the consequence to the licensee and the status of rights licensed in the event of default by the licensee including failure to pay, failure to report, insolvency or bankruptcy.

 

□ Establish the mutual contractual credit obligations of the parties including the licensee's obligation to abide by the licensor's credit obligations to third parties and note if any credit is subject to approval by the Canadian Audio-Visual Certification Office.

 

□ Complete the balance of the agreement taking into consideration the points common to agreements in the film and television industry generally.

 

□ Establish limits on sub-distribution such as the requirement that all Canadian distribution be by Canadian companies for the first two years of distribution of productions qualifying for the Canadian production tax credit.

 

Written by Tony Duarte

© 2015 Thomson Reuters Canada Limited

Excerpted from “Canadian Film & Television Business & Legal Practice”, Thomson Reuters: Toronto, 2015

 

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