Monthly Archives: July 2013

Is your indemnification clause worth the paper it’s printed on?

Like the Representations and Warranties clauses, almost every entertainment industry contract contains an indemnification clause. Few laypersons really understand the concept of indemnification, much less the operation.

Unfortunately for many producers, writers and directors, the indemnification clause creates a false sense of security

What is an indemnification clause?

An indemnification clause protects a party to a contract from legal issues related to the party performing the contract.

In other words, if a party (the indemnitor) breaches one of its warranties or representations, it promises to defend and hold harmless the other party (the indemnitee) from and against any and all losses, claims, damages, etc. suffered as a result of the breach.

Basically, the indemnification clause makes every party an insurer. Indemnification clauses have been a feature of writing contracts for years. In practice, what this means is that the writer, author, or creator of literary material will be expected to defend any lawsuits against the producer, and/or reimburse the producer for any out-of-pocket losses, damage awards, etc. resulting from a breach.

Thus we might see a writer with barely two nickels to rub together promising to protect giant movie studios and publishing companies against not just court judgments, but against the skyrocketing cost of defending even frivolous lawsuits.

What if the indemnitor is insolvent?

The obvious question is: “What good is having an indemnification clause, if the person who's supposed to indemnify me can't afford to do so?”

Sadly, the answer is what you'd expect. It may not be of any value at all. Unless the indemnitor has an insurance policy to cover such things, or property and other assets sufficient to cover things, it's unlikely the indemnification clause will be of much use. Producers should always carry their own insurance, to address this very eventuality. And, others can insis on being named as additionl insureds on such policies. Of course, it's possible the indemnitor will receive a windfall, or realize tremendous success at some point, so it's better to have the clause than not, but counting on it is folly, plain and simple.

Is the indemnification clause negotiable?

Sometimes, it is possible to negotiate the language of the indemnification clause to limit its scope somewhat. For example, where a producer is adding material or having other writers work on the material as well, the scope of indemnity should be limited to the indemnitor's own work only. And, it's often possible to limit the coverage to claims that are “actually adjudicated”, and not to settlements entered into voluntarily by the indemnitee.

But, as with all negotiations, success will depend on the parties' relative bargaining power.

At the very least, indemnification should flow both ways in a deal. That is, the parties should indemnify each other against problems that arise from their own errors, omissions, or wrongdoing.

Conclusion

The indemnification clause is a part of every agreement that shouldn't be taken lightly. It's important to read and understand your entertainment business contracts, and to negotiate the language to best serve your purposes. Your entertainment lawyer can help.

 

Seeking investors for your film project?  Things just got a little easier (almost).

Seeking investors for your film project? Things just got a little easier (almost).

It's about time the SEC got its act together to implement The JOBS act.

SEC Adopts Rules implementing [some] provisions of the JOBS Act of 2012

If you're planning to finance your film, play, musical or other project by seeking investors, things may have just gotten a little bit easier for you. A few days ago, on July 10th, the Securities Exchange Commission finally took a long-awaited step toward implementing key provisions of the JOBS Act of 2012 that will allow issuers of securities under Rule 506 to cast a wider net in seeking investors. The regulations were supposed to have been out long before now, but discord and disorganization at the SEC got in the way.

Lifting the ban on General Solicitation

The new provision can be found at Rule 506(c) of Regulation. It allows general solicitation and general advertising in Rule 506 securities offerings, provided that all purchasers of the securities are accredited investors and the issuer reasonably believes, and takes reasonable steps to verify, that such purchasers are accredited investors.

What this means, put simply, is that if you're financing a film, play, or musical, and you're seeking investors, you can advertise the opportunity to the public at large, provided you only sell units to persons who qualify as “accredited investors” (For more about what that means, see my previous post.)

The commission also adopted a rule prohibiting certain “bad actors” from availing themselves of the exemption provided by Rule 506.

Similarly, new Rule 144A(d)(1) clears the way for the offering of securities to persons other than qualified institutional buyers (“QIBs”) in Rule 144A offerings, including by means of general solicitation, provided that the securities are sold only to persons that the seller reasonably believes are QIBs.

New filing and reporting requirements

The SEC also voted to propose amendments that aim to improve the SEC’s ability to monitor developments in the Rule 506 market and to address concerns about fraud.

The rule changes would:

  • Require issuers to file a Form D at least 15 calendar days before engaging in general solicitation in a Rule 506(c) offering and to file a final amendment to that Form D not later than 30 calendar days after completion of the offering;
  • Prohibit an issuer from using the Rule 506 exemption for one year if the issuer, or any predecessor or affiliate of the issuer, failed to comply, within the last five years, with Form D filing requirements;
  • For a temporary two-year period, require issuers engaging in general solicitation under Rule 506(c) to (confidentially) submit their solicitation materials to the SEC;
  • Require additional information in Form D filings regarding the issuer and its website, the type of securities offered, the purchasers involved in the offering, the use of proceeds from the offering, the types of solicitation methods used, and the accredited investor verification methods used;
  • Require issuers to provide legends on solicitation materials that explain that the offering is limited to accredited investors and disclose the risks involved; and
  • Expand Rule 156 of the Securities Act to provide guidance for private funds about when information in sales literature could be fraudulent or misleading. Rule 156 currently provides investment companies with such guidance.

Don't jump into this yet. This is the first step, but it's not law yet. Everything takes effect 60 days after being published in the Federal Register. Stand by.

The Commission has yet to issue rules to implement the much-anticipated crowdfunding components of the JOBS Act.

Conclusion

This is a highly technical area and requires great care to ensure that everything is done correctly. If you're planning to raise financing for a project, contact us for a consultation.

 

Episode 42 – Attack of the Interns

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I've just posted the latest episode of my podcast over at Entertainment Law Update. You can listen right here, or go visit the site for show notes.

Please subscribe in iTunes, Android, Microsoft, Blackberry or your favorite podcatcher. and Let us know what you think. Give us feedback in the comments below, or call in with your words of wisdom. (310) 243-6231

In this Episode:

  • More about Aereo, Google Books and Joel Tenenbaum
  • Interns prevail in Black Swan lawsuit
  • Happy Birthday Copyright called into question
  • Will.I.Am sues Pharell Williams over “I Am” trademark confusion
  • and more…

Continue Reading

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.” Continue Reading

Why it’s dangerous to rely on free online entertainment law contract forms

Boilerplate contracts: 3 Legal Risks Last week, I read an interesting post by Betty Wang, over at Findlaw’s Free Enterprise blog, titled “Using Boilerplate Contracts? 3 Legal Risks.”, in which she outlines several good reasons why so-called “boilerplate” agreement templates can be dangerous. It’s a short piece, and worth reading. Application to the Entertainment Industry… Continue Reading

Producer beware: “Work Made For Hire” agreement creates a “statutory employee” relationship.

  Recently, employment practices in the entertainment industry have been under closer scrutiny, as several major studies have been targeted in class-action lawsuits by interns who believe they should've been paid minimum wage, received overtime, benefits, etc., as employees. Using interns as unpaid labor is a long-established practice around Hollywood, so these recent lawsuits have… Continue Reading

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