FIVE MISTAKES EVERY INDIE FILMMAKER SHOULD AVOID
As an entertainment attorney in Los Angeles, I get countless emails, questions, and other inquiries from filmmakers, about how to start their own “indie” film company or produce their own films. As an initial matter, as an entrepreneur myself, I commend people who have the courage to create their own opportunities, instead of waiting for opportunity to knock…once. However, over the years I’ve seen people make the same mistakes over and over again. The underlying misconception is that “indie” somehow means “unconstrained” and thus that an indie filmmaker can cut certain corners. I actually believe that it is quite the contrary. Not only are many of the same legal issues present with an “indie” film as with a “major” but there are also certain issues that are more prevalent, such as deferred compensation and ownership, which can get murky in the “indie” scenario and that can ultimately determine whether the film will be exploited. With that said, I’ve put together this list of 5 common mistakes I’ve seen filmmakers make, in hopes that you can avoid making them. By no means is this document intended to serve as an exhaustive list of the mistakes or legal issues that might arise in the filmmaking process nor does it mean that your project will be a failure if you make any of the mistakes I warn against below.
1. DON’T START WORKING ON YOUR PROJECT, ESPECIALLY WITH ANOTHER PERSON, WITHOUT FIRST PROPERLY SECURING YOUR INTELLECTUAL PROPERTY RIGHTS. Failing to properly secure your intellectual property rights may be the biggest mistake of them all. I’ve found that many filmmakers don’t truly understand the value of their intellectual property, or think that theft of their idea won’t happen to them, or just decide not to secure their rights because they think it is too expensive (Note: it costs $35 to register your script online). They tell other people their story ideas, let people read their scripts, etc., all without first registering it with the Copyright Office. I often hear, “I haven’t registered with the Copyright Office, but I did file with the WGA.“ Filing with the WGA and registering your work with the Copyright Office is not the same thing. While filing with the WGA can protect you in some instances, such as in a writing credit dispute where you sell something that gets rewritten and you don’t receive the appropriate credit, WGA filing alone doesn’t help you in a copyright infringement suit under the U.S. Copyright Act. In fact, you cannot bring a copyright infringement suit under federal U.S. Copyright law unless the work is registered with the Copyright Office. In addition to allowing you to bring a suit for copyright infringement in federal court, registering with the Copyright Office also entitles you to significantly higher damages (i.e. money that the infringing party will have to pay you for using your work without your permission) in addition to recovery of attorney fees and other costs, which can start adding up, and which costs have actually prevented copyright owners from suing.
2. DON’T ENGAGE OR WORK WITH ANOTHER PERSON OR USE ANOTHER PERSON’S WORK WITHOUT FIRST OBTAINING A WRITTEN AGREEMENT DETAILING THE NATURE OF THE RELATIONSHIP. It is not uncommon for two or more friends to collaborate on a film project. One may be a good writer, one may be an idea machine, and one may just have a trust fund. Collaborating on creative projects can be risky business (Note: This use is not intended as an infringement of any intellectual property rights associated with the film of the same name circa 1983). The Unites States copyright laws provide that even a small contribution of original material by one person to a work may be enough to render the work a “joint work.” Absent an agreement to the contrary, this means that you each would own the copyright to the work, which of course may lead to any number of issues when trying to sell or otherwise exploit the film.
Sometimes, you don’t collaborate with another person, per se, but instead you use something another person has written as the basis of your work (FYI this is known as a “derivative work” and is one of the exclusive rights given to a copyright owner under the U.S. Copyright Act for which you must obtain the copyright owners permission). For example, I’ve had several clients come to me and tell me that they have read this interesting book and that they have written a screenplay based on the book and now they want to try to sell the screenplay. My first question is always, did you get permission from the book’s author or copyright owner. You can just about guess what the typical answer is, so, I’ll spare you. The mistake of not getting the appropriate permissions can be costly, both in time and money, because in order to exploit your project you will have to pay the copyright owner for the right to use it— that’s assuming that they are even willing to give you the permission. If they don’t give you permission, you’ve spent countless hours on a project that you can never exploit. Virtually no one is going to buy a screenplay from you without a clean “chain of title” (i.e. you own or have the exclusive right to exploit the screenplay in its entirety).
3. DON’T BUY THE COW WHEN A GLASS OF MILK WILL DO. The process of making a film or any creative work can be a very collaborative process. Creating a film can also be expensive, so, often times a filmmaker may engage a friend to provide certain services in exchange for backend compensation or percentage of ownership in a film’s proceeds. To be sure, giving someone 50% ownership of a film to serve as a producer on the film may not seem like a big deal when the film has yet to be made; but it can mean millions of dollars and other logistical nightmares if the film is a hit. Many filmmakers decide to create partnerships, LLC’s and other entities with their collaborators (i.e. buying the cow) without thinking about the costs (e.g. taxes) and consequences (e.g. diluted ownership interest, splitting of assets upon dissolution) related to forming such entities. By no means am I suggesting that partnerships and other legal entities don’t have their place in the process, as they may be valuable tools for limiting your liability. What I am saying is, consider the pros and cons before jumping into these relationships. For instance, if you want a friend to come on as a producer, a producer agreement or hiring a producer to do the work as a “work for hire” (i.e. the glass of milk) may be just as effective, without giving up ownership rights to the film or incurring other liabilities associated with forming certain legal entities. As we discussed above, all agreements should detail the nature of the relationships before collaboration begins. Accordingly, even a “work for hire” or producer agreement should be in writing, and should be clear on key terms, such as ownership, compensation, delivery requirements, etc. Failure to clearly state the nature of the relationship could render the project a “joint work” or lead to costly litigation. Can anyone say The Social Network? (Note: This use is not intended as an infringement of any intellectual property rights associated with the film of the same name circa 2010).
4. DON’T FORGET THAT THE BIGGER THE DREAM THE BIGGER THE BUDGET. Filmmakers are often very creative people, but many of them aren’t very good with the business-side of things. Often times I see people that have these elaborate details and dreams about what the film will look like, but haven’t thought about how much it will cost. Whether it’s talent salaries, overnight deliveries of scripts to potential cast members or financiers, insurance, or anything in between, filmmaking is both expensive and time-consuming, which is why a detailed, realistic budget is one of the first things a filmmaker should have in place. Of course, circumstances may arise that may require the budget to change, but like with any good roadmap, a budget helps to keep the players accountable and on the right track. In fact, a well-drafted budget can help the process of securing investors much easier because investors will have a clearer understanding of how their money will be spent. The budget doesn’t need to be fancy, but it does need to be more than a rough estimate of general costs. A good budget is a comprehensive document that is your roadmap for your entire production process (including pre- and post-production elements). If numbers aren’t your forte or if you have trouble balancing your own checkbook like yours truly, it may be worth it to bring someone on board to help you create this important document.
5. DON’T ACCEPT MONEY FROM AN “INVESTOR” WITHOUT AN AGREEMENT CLEARLY DETAILING THE NATURE OF THE “INVESTMENT.” As we discussed above, filmmaking can be very expensive. Often times the filmmaker doesn’t have the money to fund the project, so they look to “investors.” Clients and filmmakers often come to my office and tell me all about how these investors are going to fund their movie. However, when I ask to see the investor agreements, offerings, and/or private placement memoranda, the filmmakers look at me as though I’m speaking Yiddish. While I can appreciate the need to secure financing to develop and produce films, filmmakers should never accept money from anyone unless they are clear about the nature of the contribution and what the “investor” expects in return, if anything. Is it a gift, which doesn’t need to be repaid? Is it a loan, which requires repayment on a payback schedule? Or, is it the type of arrangement where the “investor” gives you money in exchange for a share/percentage of future profits? If it is the latter, then you are entering into a securities transaction. This is because someone is investing in your project with the hopes of having some share of ownership interest, just like a shareholder of a corporation. Securities are heavily regulated by federal and state laws, and violating these laws, whether intentionally or not, can result in hefty civil and criminal penalties. While many templates for these types of security transactions are available online, each deal is different, so, it is never a good idea to enter into such an agreement without the counsel of a knowledgeable entertainment lawyer who understands film finance and securities law implications.
THE LEGAL STUFF: While I am sure that all of you reading this are savvy and sophisticated enough to know this, my malpractice insurance depends on it, so here goes: The information provided in this document is not legal advice, but rather general information on legal issues commonly encountered, and does not create any attorney-client relationship between you and Danny Andrews or Danny Andrews, A Professional Corporation. Any and all information provided by Danny Andrews or Danny Andrews, A Professional Corporation herein is not intended as a substitute for the advise of your legal counsel. If you have any questions about these materials or any other entertainment or intellectual property matter, please feel free to contact Danny Andrews. His contact information can be found at www.dannyandrews.com.
