Warranties and Representations – What these contract clauses really mean.

If you're like most of the entertainment industry folks I come into contact with, you've signed a few contracts in your day. And, if you're like most of those folks, those contracts have required you to make certain “warranties and representations”. But, what's interesting to me (and a little scary) is that when I ask my clients whether they've read and understood what they're signing, often as not, the answer is either a blank stare, or a simple “No. That's what I have you for.”

As flattering as that may be, it's also very troubling. You see, after the “grant of rights” language in most entertainment deals, the “warranties and representations” section may be the most important part of the contract. Failing to know and understand what you're signing is a recipe for trouble.

So, what does this mysterious language do?

Definitions

Most of us are familiar with the term “Warranty” from our experience as consumers of products in the marketplace. In contract law, a warranty has various meanings but generally means a guarantee or promise which provides assurance by one party to the other party that specific facts or conditions are true or will happen. This factual guarantee may be enforced regardless of materiality which allows for a legal remedy if that promise is not true or followed.

Similarly, Black's Law Dictionary defines “Representation” as: “A statement made by one of two contracting parties to the other, before or at the time of making the contract, in regard to some fact, circumstance, or state of facts pertinent to the contract, which is influential in bringing about the agreement.”

So, the representations are the statements that induce the parties to make the contract, and the warranties are the promises that guarantee the parties the benefit of their bargain.

What am I promising when I sign this contract?

In most entertainment rights deals, the seller of rights makes the bulk of the representations and warranties.

First and foremost is ownership of the rights being sold.

Second is the related notion that the seller has the right and authority to sell the rights in question (meaning that it is under no prior commitments not to sell them, and isn't otherwise prohibited or prevented from making the deal).

Next up, most deals require the seller of rights to warrant and represent that the no part of what's being sold is in the public domain. Obviously, a buyer doesn't want to purchase something that is otherwise free for the taking.

Also, the buyer will require the seller to represent that the material is Non-Infringing. That is to say, that the buyer's use of the material will not infringe the copyrights or other property rights of any person or company, nor be invasive of privacy, or defamatory toward any person.

Finally, the seller will have to warrant and represent that there are no liens, claims or other encumbrances on the property being sold.

Are these terms negotiable?

To a certain extent, yes, the warranties and representations can be negotiated. If for example, the material being sold is a new retelling of a public-domain story, or involves a true-life story, certain of the representations and warranties can't be given. But, most purchasers of rights won't simply strike those clauses entirely. They'll want to carefully carve out only what's actually at issue.

Understand what you're signing, and trust your representatives.

What's important is that the parties read these sections of the agreement carefully, and understand what they're signing. The lawyers negotiating a deal only know the information they're given or discover during a typical investigation. If you're involved in a rights deal that involves anything but your own, original creation, it's incumbent on you to let your representatives know what other rights may be involved in the deal.

Consequences

So, what if a party makes warranties that turn out not to be true? Typically, when there's a breach of warranties, the breaching party is required to Indemnify the non-breaching party. But that's a subject for a different blog post.

What do you think about all this? Post your comments below.