M.E.L.O.N.

Agreeing to License - Part 2: Turning On The Boilerplate – Indemnification Clauses

by Mark A. Pearson, Esq.

The following is the second in a series of articles that will try and explain some of the pros and cons of entering into a licensing agreement in today’s entertainment industry. 

   There are any number of different types of licensing agreements that come across my desk in a typical work week.  Some are short-form agreements, and others spell out every detail of the parties’ intentions over 50 pages or more.  One thing they all have in common; boilerplate provisions.  You know; the stuff that gets jammed into the last few pages of the license under the heading Miscellaneous.  Well, I’m here to remind you that while they may not be the sexiest part of a license, boilerplate provisions can solidify a good license or create possible pitfalls in a bad one.

   This week we focus on an important boilerplate provision known as the Indemnity Clause. An Indemnity or indemnification Clause is a provision in which one or both parties to the license agree to hold harmless the indemnified party from liability to a third party for loss or damage resulting from such liability.

   As we discussed in Part 1, there is a trend in the entertainment industry toward licensing intellectual property rights.  Music and motion pictures licensed for distribution would be an example.  Inherent in the licensing of intellectual property is a fear on the part of the licensee that a third party’s rights may be violated by the licensor’s work.  For example: Two musicians write a composition together and record a master of the song.  Musician A, a rather shady character, licenses the exclusive right to distribute the master to Distributor.  Distributor distributes the master and pays royalties and advances to Musician A.  Meanwhile, Musician B, who owns all rights to the master, knows nothing about the agreement between Musician A and Distributor.  When Musician B finds out about the agreement she sues both the Distributor and Musician A jointly and severally for copyright infringement and to recover monies earned under the license.

   In the example, a solid indemnity clause in the agreement with Musician A would protect the Distributor from liability stemming from Musician B’s rights in the master.  Without an indemnification Clause, or with a poorly worded and thus unenforceable Clause, Distributor might be liable to Musician B for big bucks!

   A good Indemnification Clause starts with setting forth a clear intention to indemnify. You should start the clause by stating the intention of the parties to provide indemnity.  Next, set forth the indemnitor and indemnitee.  The indemnification may or may not be unilateral. If there is a third party involved in the indemnification (an insurance provider for instance), make sure they are included. The clause must state that the indemnitee need notify the indemnitor of a claim or lawsuit in a timely manner, and how long the indemnification will last.  Will indemnity survive the termination of the license and for how long?  Finally, always include a clear statement on the losses, damages and liabilities covered, including whether or not future losses are covered. 

   You cannot draft an Indemnification Clause without understanding what can and cannot be indemnified.   First and foremost, the indemnification must be as against liability to a third party.  Public policy dictates that an Indemnification Clause is not enforceable if it seeks to indemnify against illegal activity, wrongful acts or a breach of a fiduciary duty.  In the example listed above, you might make an argument that the Distributor was negligent in not discovering Musician B.  In some jurisdictions negligence might void the Indemnification Clause.  Other jurisdictions make a distinction between active and passive negligence, allowing for indemnification if the negligence was passive. Arguably, the Distributor not discovering Musician B is passive negligence, if negligence at all. The important thing to remember is; if the Indemnification Clause is clear and knowingly bargained for, it is more likely to be enforceable even if it covers negligent acts.  A simple way of making it apparent that the Indemnification Clause was knowingly bargained for is to put it under its own heading.  Get it out of the Miscellaneous bin.

   Once you’ve established a clear definition of whom and what is being indemnified, here are some other things to think about when drafting your clause.  It’s implied that the indemnification covers legal costs and attorney’s fees, but it never hurts to make sure you expressly set forth langue covering those costs and fees.

   A big issue revolves around the issue of consent to settle.  If you are an indemnitor you want to make sure you have approval over any settlement that the indemnitee enters into.  Going back to our example, imagine if Musician A had the legal right to enter into the agreement with the Distributor, but Musician B filed the lawsuit anyhow.  Distributor could simply settle with Musician B to avoid the hassle, and send the bill to Musician A.   Now, imagine if Musicians C, D, E & F also came forward and filed claims against the Distributor, who in turn settles with all of them.  Ouch!  On this same note, Indemnitors may also want to participate in the indemnitee’s defense, including selection or approval of the attorney.

   Finally, you’re going to want to think about how the Indemnitee is going to be paid in the event of a lawsuit or settlement.  Will the Indemnitee be able to withhold payment under the license in order to pay for the cost of defending? Back to the example; under their license, Distributor is paying a royalty to Musician A on the master Distributor is exploiting.  Musician B sues, and Distributor notifies Musician A that it is seeking indemnity under the agreement, and will be withholding payment of royalties to pay for its legal defense. Here at BEAT-LAW, we’ve seen instances where the indemnification clause called for a bond to be established upon commencement of a lawsuit, or where the indemnitee is able to call for advance payment from the indemnitor to cover all legal fees.  If you are the indemnitor, you’d prefer that no payment be made until after final adjudication of any claim or lawsuit. Whatever the parties agree upon, make sure your Indemnification Clause clearly covers this issue. Do not remain silent!

   Next Month: We keep the boilerplate turned on, and explore what happens to your license if there’s a bankruptcy

For questions or comments, please email Mark at: [email protected]

Agreeing to License Part One: Free to Roll With The Changes

by Mark A. Pearson, Esq.

The following is the first in a series of articles that will try and explain some of the pros and cons of entering into a licensing agreement in today’s entertainment industry.

As the various business models of the entertainment industry continue to reinvent themselves almost on a daily basis, one prevailing trend is the growing use of licensing.  More entertainment product is now self-produced by artists than ever before.  The “Studio System” and “Major Label” business models are quickly becoming obsolete.  It’s beyond the scope of this article to make any grand sweeping speculation as to why the industry models are changing.  Are these changes the result of the economy, backlash against the ‘old systems’, or technology changes?  The answer probably lies somewhere in the murky gray area known as “a combination of all of the above”.  The point is that change is here, and change means an influx in the use of licensing throughout the entrainment industry as the shift continues toward independent production.

Take the music industry, for example.  Under the old model, record labels hired talent evaluators to find artists, signed those artists to a recording contract, paid for the artist to record an album, created and distributed the album, and then profited off the sale of the album.  The label owned the copyright to master recordings that made up the album, and shared in the copyright of the song publishing with the songwriter.  The artist made money off of royalties paid by the label (including their advance) based on sales of the album, and on royalties paid to the songwriter by a performing rights organization (ASCAP/BMI) for use of the song.

Writers' Strike: Pt. 4 - That's a Wrap

by Howie Cockrill

After 100 days of strike, the writers and the producers have come to an agreement that will see both parties through until the next negotiation in 2011.

Both sides had to make difficult concessions, and the industry as a whole no doubt took a big hit.  The estimates range from $1.3 billion to $1.5 billion lost by the industry and dependent businesses. 

While the WGA made a number of demands throughout the course of the strike, the most ground-breaking and newsworthy were those pertaining to the writers’ share of online revenue. 

Film/TV Business: Writers' Strike Pt. 3

by Howie Cockrill

In the Part 1 and Part 2 of this article, I discussed the “who” and “what” of the current WGA strike and some of the history leading up to the current situation. 

In this article I’m going to touch on a few areas that are being affected or are affecting the WGA strike.

Copyright: The 3 "C"s - Compensation, Control & Credit

by Tony Berman

If you’ve ever been hired or hired someone to perform creative services or to create an artistic or technical work, either orally or by signing on the dotted line, this is an article you should read.

Regardless of:

• Whether the deal terms are straightforward or complex,
• Whether you’re dealing with your best friend or a faceless corporation and
• Whether the negotiating process is informal or formal –

this article will give you a FRAMEWORK for thinking about what terms are crucial to you and what is open for discussion. 

This framework is applicable to deals involving copyright, trademark, patents and publicity rights – essentially the entire spectrum of intellectual property. 

In short – if you buy, sell or trade creative services or works, and the very thought of negotiating a deal gives you a massive migraine, you need a simple way to organize the deal points in your mind. 

In addition to some aspirin, you need perspective and context.   

You need the Three C’s.

Film/TV Business: Writers' Strike Pt. 2

by Howie Cockrill

Following up on "Writers' Strike Part 1," in which I discussed the basic "who" and "what" of the current strike by the WGA against the AMPTP - this article is geared toward giving some background information to understand where the current dispute comes from.

The topics are:

• Timeline - WGA and AMPTP
• 1960 WGA Strike
• 1988 WGA Strike

Film/TV Business: Writers' Strike Pt. 1

by Howie Cockrill, Esq.

If you watch television, live in Los Angeles, read Entertainment Weekly, are in the entertainment industry or know someone who is – chances are you’ve heard that there’s a writer’s strike going on.

But who is involved and what do they want?  And, aside from some extra facial hair on our favorite actors and talk show hosts, what have the effects been?

This will be a multipart article giving a broad-brush, non-partisan view of the current writer’s strike  - essentially “Writer’s Strike 101.” 

Music Biz: Hit Songs & Commercials

Even though the majority of television and radio advertising commercials use music or songs written specifically for the advertising campaign, many campaigns use past or present hit songs to sell the product.

By using a hit song, the agencies attempt to capitalize on the instant recognition of the song and the continued recall of the product because of its identification with a familiar song.        

Television Biz: Writing for Television

Despite all the criticisms heaped upon the medium, television is still capable of nurturing some of the finest writing talent in the entertainment industry. Based on sheer volume alone, the regular writers for a network television show work 6 or 7 days a week approximately 11 months a year.

Yet, while the pace can be grueling, the rewards are often substantial in terms of big salaries and major recognition. Some of the finest television writers, such as James Brooks, occasionally make the leap to writing for the big screen.                

How does an aspiring writer get in the door?  Unfortunately, it is difficult to submit spec scripts to         television shows without an agent. Some shows do accept un-agented submissions, but they are in the minority. Many shows have intern positions which can provide valuable experience and access for the aspiring writer.