Indiefilmlaw's Blog
Ideas, Inspiration and Legal Resources for Artists, Filmmakers, Producers and Film Students

Apr
09

Five Legal Questions To Ask BEFORE Crowd-funding You Next Film (or Creative) Project

Intro

I recently had the opportunity to share the stage at a Chicago VentureShot Community panel presentation on crowdfunding an independent film project. My client successfully raised enough funds to produce his film through the Crowdfunding site KickStarter.com. Due to the unpredictable life with three small children I was not able to physically attend although I did participate in real-time using Twitter. What follows is a series of questions that were discussed during he panel.

If you are considering using a crowd-funding platform (e.g. Kickstarter) to raise funds for your production, here are five questions at you should ask BEFORE you launch your campaign.

1. Are there legal distinctions to using Kickstarter to collect funding for projects rather than doing it the traditional way of seeking investments from friends, family, fools or private investors?

Yes. The biggest difference between the (current) crowd funding method and the traditional equity-investor model is the value proposition being offered in the crowd-funded model. I say “current” because crowd-funding today does permit solicitation or sale of an ownership interest.

2. What are the legal steps to protecting projects before putting them on a Crowdfunding site?

I recommend my clients look at three areas of legal protection before putting a project on a Crowdfunding site.

First, consider forming a legal entity to protect you, your partners and the assets of the business. The most common entities are corporations and limited liability companies.

Second, do a trademark clearance search to make sure the brand names you want to use (e.g. the name of the production company and/or the name of the Film (or project)) are not in use by someone else. Nothing is worse than investing thousands and sometimes tens of thousands of dollars in a project only to learn that you have to change your name.

Third, make sure you have a clear chain-of-title for all the eighths you need to exploit. This means properly documents and executed Option Agreements, Script Purchase Agreements, Talent / Cast & Crew Agreements, Right of Publicity Waivers, Music/Film Score clearances and any other waivers or releases necessary to reproduce, promote, distribute and creative derivative works from the Film.

3. Are there legal upper bounds to funding through Kickstarter specifically?

Wile there are no dollar limits on the amount of money that can be raised using Kickstarter, there are limitations. For example, a project must reach its funding goal before time runs out or no money changes hands. Also, once a funding goal is reached, the project must be started or the money must be returned to the backers.

4. What are the legalities of taxation on film projects through Kickstarter? A they different per state?

Although the federal Film Tax incentives are no longer available many states still offer some. Each state is different and many require a certain amount of money be spent in the state, in a certain period of time, in order to qualify for the incentive. Consult a qualified lawyer to determine eligibility for Film Tax Incentives.

5. If you can’t finish a project that has been fully funded on Kickstarter, what legal liability comes into play?

Yes. Kickstarter’s Terms of Use requires completion of project and fulfillment of offers. Otherwise, one must refund any backer whose reward they do not or cannot fulfill. Crowdfunding sites recognize that projects may not adhere to the original timetables and that delivery goals may need adjustment. If the problems are severe enough that the creator can’t fulfill their project, creators need to find a resolution. Steps could include offering refunds, detailing exactly how funds were used, and other actions to satisfy backers.

CrowdFunding describes the collective cooperation, attention and trust by people who network and pool their money via the Internet to support efforts initiated by other people or organizations. Leavens, Strand, Glover & Adler has a decades long history assisting Filmmaker and Film productions clients (funding portals, broker-dealers, technology solution providers, software developers, investors and entrepreneurs). We provide guidance on regulatory and industry trade association compliance.

Mar
13

What does it mean to be a creative professional in Chicago? That is the topic for discussions during the Chicago Tribune’s Trib Nation event Chicago Forward: The Future of the Arts in Chicago being held tonight, March 13, 2013 at 6:00 PM. In the Chase Auditorium at 10 South Dearborn. The event proposes to discuss the “arts and culture scene in Chicago.” You can register here.

Panelists include Chicago Tribune editorial page editor Bruce Dold and critic Chris Jones as moderators, among with celebrity chef Rick Bayless, Chicago’s cultural commissioner Michelle Boone, artist and playwright Tony Fitzpatrick and renowned architect Jeanne Gang.

While organizations such as the Arts & Business Council of Chicago and the Illinois Arts Council, have long held conversations in the community around identification of the basic challenges facing artists, filmmakers, actors, musicians, and other creative professionals, hopefully this panel will identify actionable initiatives that offer real solutions to shared needs.

I am attending and will be live tweeting via the hashtag #ChicagoForward. Follow me on twitter at @adlerlaw.

Please feel free to tweet your questions and include your comments below. I will post a follow up with highlights after the event.

Feb
20

Are you getting the most out of your online marketing efforts? Last year, Google announced a change to its search rankings algorithm, lowering results for known pirate sites. Critics asked why the company would not do the same for Youtube, since that site is widely viewed as a repository for pirated films and music.

Read the full post at VoxIndie

Do you have questions about filmmaking, marketing and distributing films? We have answers! Learn more about ecommerceattorney.com and our media and entertainment services.

Oct
16

A federal district court in Tennessee has determined that cast decisions are protected by the First Amendment against claims of racial discrimination under Sec. 1981. This was a case of first impression.

Reality television is so popular with both audiences and participants that prospective contestants are suing to get on TV. Recently, two such men filed a lawsuit in the U.S. District Court for the Middle District of Tennessee, Nashville Division, in what may have been a bit of strategic forum shopping. Both the U.S. Supreme Court and California courts have ruled that applying such anti-discrimination laws to works of creative expression such as television shows can violate the First Amendment. The men, both African-Americans claimed their consitutionally-protected rights under the federal § 1981 statute and Cal. Civ. §§ 51, 51.5. The men had unsuccessfully applied to be cast as The Bachelor in the ABC television program of the same name.

The novel complaint was filed as a class action on April 18, 2012, against ABC. Plaintiffs made their claims on behalf of the class of all people of color who had unsuccessfully applied to star as either The Bachelor or The Bachelorette. The plaintiffs, represented by private counsel, asked the court for declaratory, injunctive, and monetary relief, alleging that they were the victims of ABC’s racial discrimination. Specifically, the plaintiffs claimed that ABC has intentionally and as a matter of corporate policy refused to cast people of color in the role of the Bachelor and Bachelorette for all 23 seasons of the two programs.

The court dismissed the case on First Amendment grounds. Allowing the case to proceed would have the effect of regulating the content of speech, with the government effectively telling people what they can and cannot depict on TV or speak about in public.

May
04

One of the definitive features of Social Media, and arguably the most contagious, is the ability to express one’s approval and share that with others by clicking “like,” friending, following, pinning or mentioning, among many others. However, unlike other issues that have dealt with the murky area of postings on social networks such as Facebook, there is no explicit guidance on whether some or all of such action merits any constitutional protection. So, although clicking the “like” button on Facebook seems like a relatively clear way to express your support for something, it doesn’t follow that it is constitutionally protected speech. As with most of the legal issues raised by Social Media, a recent case provided visibility to the issue but little in the way of guidance.

Exactly what a “like” means — if anything — was the focus of a Virginia case involving six people who claimed they lost their jobs because they supported their boss’ political opponent in his 2009 re-election bid, which he won. One of the plaintiffs had gone to the political opponent’s Facebook page and clicked the “like” button. The workers sued, saying their First Amendment rights were violated.

Yesterday, a U.S. District Court Judge in Virginia ruled that clicking the “like” button does not amount to expressive speech. In other words, it’s not the same as actually writing out a message and posting it on the site. Marcus Messner, a journalism and mass communications professor at Virginia Commonwealth University who specializes in social media had this to say: “[g]oing to a candidate’s Facebook page and liking it in my view is a political statement. It’s not a very deep one, but you’re making a statement when you like a person’s Facebook page.”

Unfortunately, legal issues remain. Expressing one’s political views is a definitive feature of American democratic society. However, in this case, the judge did not rule that this manifestation of one’s opinion was constitutionally protected speech.

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2012/05/04/national/a000546D71.DTL#ixzz1tu98hw97

Apr
12

April 11, 2012
Via Chris Henson, New Orleans Indie Movie Examiner

“The film industry in New Orleans, and in Louisiana in general, is booming. But it is not only the major studio productions coming to the Crescent City. Independent filmmaking has also exploded in the area. Non-profit organizations like the New Orleans Video Access Center (NOVAC) help promote, encourage, and expand film knowledge and practice throughout the city, which only benefits the region’s rapidly growing industry. Through a broad range of classes, workshops, and trainingm NOVAC helps cultivate a sustainable film community by providing access to resources, education, and locally generated content.”

Continue reading on Examiner.com NOVAC guides local filmmakers with film financing and ‘Making the Deal’ – New Orleans Indie Movie | Examiner.com

Mar
27

Pinterest tightens copyright rules CBS News

Pinterest

Pinterest (Photo credit: PixByDee)

Unfortunately, given that consumers are putting masses of copyrighted photos onto their boards, that becomes a problem. After all, Pinterest doesn’t want to take the legal heat for making coin on the backs of someone else’s intellectual property.

See Also: Pinterest Terms Of Service Get Updated

If Web movie views double, Netflix — not content — is king CNET

Also, a world where Internet-delivery is king means the company — the Web’s top video-rental service — should be in a stronger position to negotiate content licenses. IHS forecasts online viewings will more than double to 3.4 billion this year


Mar
14

It is increasingly common for film producers to use LLCs as a way to raise funds for production and limit liability of the producers and investors. Below is a checklist of provisions that should be discussed with production counsel prior to forming your LLC.

1. Introductory Clauses and Definitions (Both are optional but common; these will be included unless noted otherwise)

  • Recitals as to the “persons” forming the LLC
  • Recitals as to the objectives of the LLC
  • Recitals as to the possibility of or intention to admit additional members
  • Appropriate recitals if the LLC replaces a previous agreement between the parties

 

2. Basic Membership Structure

  • Analogous to a corporation: In LLCs the role of “Director” is fulfilled by the “Manager”; the equivalent of a shareholder is the “member”;
  • All common units or division between common and preferred? By default, LLCs have one type of ownership, these are called “Units of Membership Interest” or just “Units”; you can think of them like shares of stock
  • Different classes of preferred?
  • Do all members have the same rights, or should there be different classes for voting, distributions, or both?
  • If the LLC is being formed for the purposes of producing a film, careful consideration should be given to the rights (voting, non-voting), obligations (additional capital) and priority of distribution (before deferred compensation is paid to cast & crew?) of investor’s Units.

 

3. Purposes

  • Should the LLC be organized for “Any lawful business activity” or limited to something more specific? (By default, the LLC will be organized with a broad, general business purpose, unless noted otherwise)
    • Specific line of business (e.g., manufacture lighting fixtures)
    • Performance of a Specific contract? (e.g., perform the obligations under a certain government contract)
  • State that the purpose of the LLC is for a certain business, but then add another provision allowing “any lawful business?”

 

4. Duration (By default, the LLC will be organized for unlimited duration unless noted otherwise)

  • Continue until dissolved?
  • Some fixed term?
  • Automatic renewals after that?

 

5. Membership Certificates

  • Not necessary – can provide that a notice will be provided to any member specifying his or her interest on request
  • Can develop one and put it as an exhibit
  • Do you want to provide details, such as who can sign certificates, etc. e.g. “Secretary”
  • Procedures for replacing lost certificates?

 

6. Seal – If Desired (highly uncommon)

 

7. Statement of Limited Liability (By default, the LLC will provide for limited liability of the members, unless noted otherwise)

 

8. Capital Contributions

  • Often listed in an exhibit (Can be cash, stock of another company, or services)
  • Should the agreement provide for the amendment of that exhibit from time to time?
  • If no additional capital contributions are allowed, the agreement might so provide.
  • If additional capital contributions are called for, the procedures for making them should be spelled out.
  • The liabilities and responsibilities of the parties in the event a member does not make a required capital contribution when one is called for should be spelled out in detail, including procedures to be followed.
  • This is a good place to think about what “intellectual capital” is being contributed to the LLC. For example, is one of the members also the screen writer?

 

9. Capital Accounts

  • Agreements generally provide that no interest shall be paid on any capital account and that no member is entitled to the return of his or her capital account.
  • Required by tax law and also as a practical matter so that members know the value of their interests from time to time.
  • Tax law contains some complex but mandatory rules, agreement should incorporate those by reference and provide that capital accounts should be maintained in accordance with those rules.
  • Same for allocations of income, gain, loss, deductions, and credits.
  • Provide that, if LLC provisions are inconsistent with tax law, the tax law governs.
  • Consider review by a tax expert.

 

10. Distributions

  • Procedures for calling for and making distributions (can be open-ended – i.e., distributions made when members agree).
  • Made in proportion to their membership interests?
  • Is it appropriate to have mandatory quarterly distributions in the amount of each member’s expected tax liability so that such liability could be paid with the quarterly estimates?
  • Prohibition of any distribution which would violate relevant laws.

 

11. Dissolution

  • When specified in the relevant documents
  • When the members (or managers) decide
  • Appointment of a “liquidator”
  • Final accounting procedures
  • Assets sold, distributed to members, or a combination?
  • Priorities for distribution
  • creditors (include members who are also creditors?)
  • members, in accordance with the law or relevant documents
  • Requirement that certificate of formation be canceled upon dissolution

 

12. Management

  • By Members or Managers?
  • Generally, Members elect Managers, who then appoint officers
  • Management by members
    • Who is a member?
    • Member of record as of a certain date?
    • Need to prepare a list of members entitled to vote?
    • Can an interested member participate fully, or only for those transactions in which the member is not interested?
  • Meetings
    • When? How frequent? Where?
    • Is action by written consent OK?
    • Telephone meeting OK?
    • Notices of meetings
    • Quorum
    • Adjournments
    • Minutes or records of meetings
  • Committees
    • How appointed?
    • Whom do they represent?
    • How can they be removed?
    • What powers do they have?
    • Any additional compensation for members serving on a committee and attending committee meetings?
  • Majority rule for all things, or supermajority for some? (What vote is required to effect a decision?)
    • If supermajority, this must be defined (e.g. 60%, 75%, etc.)
    • Appointment or removal of certain officers or individuals?
    • Material change in the nature of the business?
    • Transactions over a certain dollar amount?
    • Borrowings, pledges or leases over a certain amount?
    • Any merger or acquisition or any sale of a portion of the business?
    • Any change in the governing documents?
    • Admission of new members or removal of existing members?
    • Transactions between the LLC and any of the members?
    • Liquidation? (Usually by unanimous consent, unless otherwise noted)
  • Management by Managers
    • Issues similar to those in the by-laws of regular corporations
    • How many managers?
    • How elected? How removed?
    • Term of office
    • How are vacancies to be filled?
    • Meetings – regular / special
    • Other issues similar to those above
  • Officers
    • Issues similar to those in a corporation
    • Which officers?
    • How appointed?
    • To whom do they report?
    • Removal
    • Resignation
    • Compensation

 

13. Indemnification

  • Decision as to whether to take maximum advantage of all flexibility allowed by state law
  • Generally this is done – sometimes even including any flexibility authorized by new laws.
  • Procedures for indemnification
    • Who authorizes?
    • Include advancing defense costs?
    • Indemnification even after termination of relationship of indemnified party with the company?
    • Exclusion for claims brought by the person seeking indemnification?

 

14. Insurance

  • Include authorization to purchase Director and Officer insurance.

 

15. Transfers of Membership Interest

  • Allowed, but only with the consent of [ALL Members? ALL Managers? By vote of Members of a certain class?]
    • only if the transferee executes the same documents executed by the other members?
    • Exceptions for such things as transfer to related parties or affiliates?
  • Rights of the transferee until the transferee is admitted as a substitute member?
    • Generally, transferee has no right to vote or participate in the management of the business.
  • Should there by a right of first refusal on the part of the LLC, or the other members of the LLC, if a member wants to transfer its interest to an unrelated party?
  • Transfer to Bona Fide Purchasers?
  • What is the formula by which Membership interest is valued? [e.g. Appraisal, “Book Value”, Modified Book Value”?]
    • Discount/Penalty for early withdrawal by a member?

 

16. Withdrawal

  • Can be governed by the agreement.
  • May not be able to prevent withdrawal, but agreement could make such withdrawal a breach and establish certain rights and remedies.
  • No member can withdraw or be repaid its capital contribution.
  • No withdrawing member can receive any of its capital contribution unless all debts of the LLC have been paid or provided for.
  • Exception for any restrictions on withdrawal upon consent of all the other members?

 

17. Books and Records

  • Complete and accurate books and records to be maintained and kept at (designated place).
  • Often the company’s principal place of business
  • Must maintain a complete and accurate list of all members and their membership interests.
  • Provision allowing any records to be kept electronically.

 

18. Fiscal Year

  • Important to establish – often the calendar year.

 

19. Tax Classification

  • Generally a partnership and members should agree not to do anything inconsistent with that.
  • Should designate a “tax matters partner” and should establish the duty of the tax matters partner to file returns, consult and notify members as appropriate, etc.
  • For what things might the tax partner be required to obtain permission from the other members? (Perhaps anything contemplated by §§ 6222-6232 of the Internal Revenue Code?)

 

20. General Provisions

  • Entire Agreement
  • Amendments (Vote required?)
  • Governing Law
  • Notices
  • Successors and Assigns


Feb
07

While almost any project can find traction with someone, few have the capacity to capture a wide audience. So how does a filmmaker, make it? No promises here, but below are traits that I’ve identified in all the filmamkers I’ve worked with who’ve gotten funding and distribution.

  1. Know thyself. I have always asked my clients to answer three questions when they walk into my office: Who am I? What am I? Why am I? The ability to answer these three fundamental questions is directly proportionate to your success as a filmmaker.
  2. Know thy market. Identify your target audience — preferably, audiences. Research and use social media and blogs to find out what is relevant and why.
  3. Know thy investor. Be it the three F’s (Friends Family & Fools), Grants, Loans, Business Angel Investment or Venture Capital, the vast majority of projects will need some money at some point. Take the time to conduct due diligence on those people with whom you want to partner on your project. Meaning, if you take a little time to learn about who you want to invest in your business, you send a message that you value the time they might spend to conduct due diligence on you and your company.
  4. Know thy chain of title. Nothing brings a project to a screeching halt like the inability to quickly and easily confirm that every actor, location, trademark, photograph, song or other creative contribution has been signed, sealed and delivered.
Nov
15
Cinemark

Image via Wikipedia

According to recent headlines, Independent theater owners across the country feel increasingly squeezed by the top four major theater chains. In a recent California case, Flagship Theatres of Palm Desert, LLC v. Century Theatres, Inc., (Los Angeles County Super. Ct. No. SC090481) the plaintiff  (Flagship) brought an antitrust action against the owners of a competing theater concerning the distribution and exhibition of motion pictures.

Flagship owns a movie theater called the “Cinemas Palme d‟Or” (the Palme) with 10 screens. Flagship owns no other theaters. Century Theatres, Inc. (Century) owns a nearby movie theater called the “Century 15 at the River” (the River) with 15 screens. Century owns a large theater circuit of over 1,000 screens, and in 2006 Century was acquired by Cinemark USA, Inc. (Cinemark), resulting in a combined circuit of several thousand screens.

The crux of the action involves Flagship’s allegations that Century and two film distributors have used the power deriving from both the size of its theater circuit and its many theaters in noncompetitive markets to undermine the competitive process through which theaters bid for and obtain licenses to exhibit first-run films.

The complaint alleged claims for restraint of trade in violation of the Cartwright Act (Bus. & Prof. Code, § 16700 et seq.), unfair competition in violation of the unfair competition law (id., § 17200 et seq. (hereafter UCL)), and intentional interference with prospective economic advantage. Flagship later filed a first amended complaint and a second amended complaint, alleging similar claims and adding Cinemark as a defendant. Flagship also eventually dismissed the distributor defendants.

According to one of the Plaintiff’s, the basis of the case is rooted in the 1948 Supreme Court ruling against Paramount which decreed that studios could not own theater chains. “It’s all about allowing independent theaters into the marketplace, which means more movies, and more diverse movies, get shown.”

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