The right of publicity is similar to the appropriation form of invasion of privacy. The principal difference is that the right of publicity seeks to ensure that a person is compensated for the commercial value of his name or likeness, while the right of privacy seeks to remedy any hurt feelings or embarrassment that a person may suffer from such publicity.

Celebrities may have difficulty making an invasion of their privacy claim because they necessarily sacrifice some solitude and privacy by virtue of their fame. How can a celebrity claim that the unauthorized use of his likeness on a product embarrassed and humiliated him while at the same time that person willingly appears in television commercials? By thrusting themselves into the public eye, celebrities waive much of their right of privacy. On the other hand, celebrities have an especially valuable property right in their names and likenesses. Most courts have held that the Right of Publicity extends to everyone, not just celebrities. But clearly the right is most valuable for celebrities because they can license their rights for large sums.

Under either a publicity or privacy theory, subjects can recover for some unauthorized uses of their names and likenesses. A problem arises, however, when one person’s publicity/privacy rights come in conflict with another person’s rights under the First Amendment. Suppose a newspaper publisher wants to place a picture of Cher on the front page of its paper because she has done something newsworthy. Is her permission needed? The answer is no.

Although Cher’s name and likeness is portrayed in the newspaper, this “product” is also a form of “protected expression.” Products such as books, movies and plays are modes of expression protected under the United States constitution.  The First Amendment allows journalists to write about others without their consent. Otherwise, subjects could prevent any critical reporting of their activities. When one person’s right of publicity conflicts with another person’s rights of free speech under the First Amendment, the latter often but not always prevails.

However, when the likeness of Elvis Presley is used on an ashtray, there is no expression deserving protection. The seller of this product is not making a statement or expressing an opinion or view about Elvis. He is simply trying to make money by exploiting the name and likeness of Elvis. Since there are no competing First Amendment concerns, the right of publicity in this instance might well preclude the unauthorized use of Elvis’s likeness. In summary, the law draws a distinction between products that contain protected expression and those that do not.

The right of publicity is derived from state law and these laws vary significantly.  In some states the legislature has enacted statutes that specifically address the scope and duration of the right. Other states rely on the common law, also known the law of precedent that arises from case decisions made by judges.

Courts have struggled with the issue of whether the right of publicity descends to a person’s heirs. In other words, when a celebrity dies, does his estate inherit his right of publicity? Can the estate continue to control the use of the celebrity’s name or likeness, or can anyone use it without permission?

Some courts have held that the right of publicity is a personal right that does not descend. These courts consider this right similar to the right of privacy and the right to protect one’s reputation (defamation). When a person dies, heirs don’t inherit these rights. Suppose, for instance, that you were a direct descendent of Abraham Lincoln. An unscrupulous writer publishes a biography falsely claiming that Abe Lincoln was a child molester. You couldn’t sue for defamation or invasion of privacy because you did not inherit these rights from your ancestor. Perhaps this is why many scandalous biographies are not published until the subject dies.

In California prior to 1984, courts held that the right of publicity was personal and was not inherited by one’s heirs.  In 1984, however, the California legislature changed the law. Civil Code Section 3344.1 provides that the right of publicity descends for products, merchandise and goods, but does not descend for books, plays, television and movies. The statute was recently amended to extend protection so that heirs can enforce this right for up to 70 years after the death of a celebrity.  In California, a form available on the Secretary of State’s website is required to register a claim as successor-in-interest for the right of publicity.  Code Section 3344.1 requires any person claiming to be successor-in-interest to the rights of a deceased personality register their claim with the Secretary of State’s Office.   Other states have their own registration requirements.

A similar statute, California Civil Code Section 3344 prohibits the unauthorized use of the name and likeness of living individuals. Both statutes provide exceptions for uses in the news and public affairs arenas in an attempt to balance First Amendment rights against rights of publicity and privacy.

An interesting case is Hicks v. Casablanca Records, which concerned a movie made by Casablanca Records called “Agatha.” The movie was about the well-known mystery writer Agatha Christie. The story was a fictionalized account of the 11-day disappearance of Christie in 1926. The film portrayed her as an emotionally unstable woman engaged in a sinister plot to murder her husband’s mistress. An heir to Christie’s estate brought suit to enjoin Casablanca from distributing the movie, alleging infringement of Agatha Christie’s right of publicity.

The Christie estate lost the suit. The court found that Casablanca’s First Amendment rights outweighed the estate’s right to control the name and likeness of Christie. Because of this case and other similar rulings, we can conclude that a person’s right of publicity does not prevent others from including a person’s name, features or biography in a book, motion picture, news story.

However, the First Amendment rights of journalists and filmmakers don’t always prevail. The United States Supreme Court weighed the Right of Publicity against first amendment rights in the case of Zacchini v. Scripps-Howard Broadcasting. Zacchini also known as the “human cannonball,” was shot from cannon into a net 200 feet away at a county fair. At one performance,  a local news reporter videotaped his entire act and broadcast it as part of the local news without his consent. He objected and filed suit.  The court held in his favor explaining that the value of his act depended on the public’s desire to witness the event, so televising it detracted from the demand of people willing to pay to see his act.

The Court recognized Zacchini’s Right of Publicity and rejected the news broadcaster’s First and Fourteenth Amendment defenses. In so doing, the Court noted that the decision was not merely to ensure compensation for the performer; rather, it was to provide “an economic incentive for him to make the investment required to produce a performance of interest to the public.” So it cannot be said that the First Amendment rights of journalists are always paramount to subjects right of publicity.

UNFAIR COMPETITION

The law of unfair competition prevents a person, for instance, from establishing a movie studio and calling it “Paramount Pictures” if he/she is not affiliated with the well-known company. A person would also be barred from displaying the Paramount logo or using any other mark that might mislead or confuse consumers by leading them to believe that films are genuine Paramount movies when they are not.

The names of persons and businesses may become associated in the public mind with a supplier of products or services. The name can thus acquire a secondary meaning, and the supplier can acquire trademark rights even if he does not register the name as a trademark. In Dallas Cowboys Cheerleaders, Inc. v. Pussycat Cinema, Ltd., the defendant exhibited a pornographic movie, “Debbie Does Dallas,” which portrayed a “Texas Cowgirl” engaged in sex acts. The character wears a uniform strikingly similar to that worn by the Dallas Cowboys Cheerleaders. Ads for the movie showed the character in the uniform and included such captions as “Starring Ex-Dallas Cowgirl Cheerleader Bambi Woods.”

The Dallas Cowboy Cheerleaders brought suit alleging that they had a trademark in the particular combination of colors and the design of their uniforms. The court agreed and issued an injunction against further distribution of the film. Filmmakers should take note that if they portray people or products in a way that is likely to confuse the public as to the origin of a product, they may be liable for unfair competition.

The creator of Sherlock Holmes was Arthur Conan Doyle. He published most of his Sherlock Holmes stories from 1887 to 1927.  One might think that Sherlock Holmes is now in the public domain and any writer could freely borrow his character for inclusion in their own story.  However, some of Doyle’s stories were published in periodicals as late as 1927, they may be within the protection of U.S. copyright laws. Works published before 1923 are most likely in the public domain, at least under U.S. law. For those stories published after January 1, 1923, they could remain protected until 2023.

Arthur Conan Doyle

According to the lawsuit all the Sherlock Holmes stories entered the public domain under the laws of the United Kingdom and Canada in 1980. However, with the passage of the U. S. Copyright Act of 1976 the author of a work that had passed into the public domain in the United States, or his heirs, were entitled to restore the work to copyright in the United States under certain conditions. In 1981, Dame Jean Conan Doyle, the last surviving child of Sir Arthur Conan Doyle, applied for registration of the copyright to “The Case-Book of Sherlock Holmes,” a collection of stories. This work is comprised of 12 stories that were first published in various periodicals between 1921 and 1927, and the collection was first published as a book in the United States in 1927.

The complaint asserts that the Doyle estate sent a letter to Pegasus Books threatening to prevent publication of “In the Company of Sherlock Holmes” unless it was paid a license fee. Kingler’s prior publisher, Random House, had reluctantly paid $5,000 fee for an earlier Klinger collection he edited titled “A Study in Sherlock,” even though Klinger believed he was not legally required to do so. The suit asks the court to make a declaratory judgment, establishing that the basic “Sherlock Holmes story elements” are in the public domain under U.S copyright law. Klinger claims that the stories in his new collection avoided drawing on copyrighted elements introduced in any of the Holmes stories published after January 1, 1923.

In a 2004 decision, a U.S District court judge Naomi Reice Buchwald determined that of Doyle’s 60 Sherlock Holmes stories, nine might still be under copyright.[2]Although the character of Sherlock Holmes is in the public domain, various storylines, dialogue and characters that first appeared in these nine stories could be protected under U.S. copyright law. A copyright for a derivative work based on a prior work does not create copyright protection retroactively for the underlying work but can protect new material that has been added.

Sherlock Holmes continues to be an enormously popular character, even though he is 125 years old. He was recently featured in two Warner Brother films, the BBC’s “Sherlock,” and the television series “Elementary.” The most recent Warner Brothers film “Sherlock Holmes: A Game of Shadows,” starring Robert Downey Jr., had an international box office gross of $543 million from distribution in more than 50 countries.

Robert Downey Jr. as Sherlock Holmes

BBC’s Sherlock

The case raises the issue of which elements of the Sherlock Holmes stories are in the public domain, and which may remain under the protection of copyright law. Copyright can sometimes, but not always, protect characters and plot. Recognition of copyright protection for fictional characters goes back to Judge Learned Hand, who suggested that characters might be protected, independent from the plot of a story. He wrote “It follows that the less developed the characters, the less they can be copyrighted; that is the penalty an author must bear for making them too indistinct.” So, while a writer cannot secure a monopoly on hard-boiled private eyes, one could protect a finely drawn character like Sam Spade.

While plots can be protected, stock scenes cannot. The doctrine of scènes à faire excludes from copyright protection scenes that flow from common unprotectable ideas. These would include “thematic concepts or scenes which necessarily follow certain similar plot situations” and ordinary literary incidents and settings which are customary for the genre. Thus, a writer cannot preclude others from using such common devices as a car chase or cattle drive in their stories.

The situation becomes even murkier when one considers that the Sherlock Holmes stories are subject to a confusing web of differing copyright laws across the globe.  There is no such thing as an “international copyright” that will protect an author’s work everywhere.  Protection against unauthorized use in a particular country depends on the laws of that country. In other words, Copyright law is applied territorially by every country within its borders. Thus, the duration of copyright protection differs from country to country. Each country enforces its own laws, irrespective of the nationality of the author, or where the work was created or first published. The United States has joined several international copyright conventions to protect American works from infringement in foreign countries. These accords essentially provide for reciprocity of treatment for authors. For example, France agrees to protect the works of American authors in France. In return, the United States protects the work of French authors in the United States.

This means that the United States will protect a French author in the United States in the same manner and extent as the United States protects American authors. It does not mean that French authors will have the same rights in the United States that they have in France under French law. Thus, it is often said that copyright laws are territorial in their application. French law applies in France; American law applies in the United States. This application can produce unexpected results, because American copyright law and French copyright law are quite different. American law focuses on economic rights while French law protects author’s creative rights. The issue of whether a work is in the public domain can vary from jurisdiction to jurisdiction, because each country applies its own laws. This poses a potential minefield for publishers of works with international appeal.

U.S. law recognizes the work-for-hire doctrine under which the “author” of a work can be the employer of an artist, not the artist himself. Few countries recognize this doctrine. On the other hand, some countries have doctrines that do not exist under U.S. law. France expressly recognizes the moral rights (“droit moral”) of authors. U.S. copyright law only recognizes moral rights in the realm of fine art. Moral rights prevent others from changing the author’s work (the right of integrity), or removing the author’s name from the work (the right of paternity), even if the author has sold the work and the copyright to it.

Under French law, the rights of integrity and paternity are perpetual, inheritable, inalienable and imprescriptible. Thus, the heirs of an artist can object to the use of their ancestor’s work, even if that work’s copyright has expired.

In Huston v. Turner Entertainment,[3] the late American director John Huston was determined by a French court to be the author of the American film “The Asphalt Jungle.” Under American law, Huston’s employer was the author or owner. When Turner Entertainment which had acquired the film, sought to distribute a colorized version of it in France, over French television Channel 5, Huston’s heirs initiated an action in the French Courts under the French moral rights law, seeking an injunction and damages against Turner and Channel 5.

The French Supreme Court ruled that the transformation of the work from a black and white film to a colorized version was a breach of Huston’s moral rights, even though these rights were not recognized in the United States. It did not matter that Huston was a U.S. citizen directing a movie for a U.S. company (MGM), which was shot on the MGM lot in Los Angeles. Moreover, the contract with Huston granted MGM all rights, and provided that American law would govern any dispute. France’s highest court found for Huston’s heirs on the grounds that French moral rights laws may not be violated in France regardless of the terms of a contract made elsewhere. The court held that it was against public policy to permit foreign law or foreign contracts to change the French system of moral rights within France.  Ultimately, the French courts entered judgment against Turner Entertainment for 400,000 francs and against French Channel 5 for 200,000 francs, and prohibited distribution of the colorized film in France.

So, while Sherlock Holmes is a brilliant detective, even he may find it difficult to sort out the conflicting copyright laws of different nations.

[1]Klinger v. Conan Doyle Estate, Ltd., 1:13- cv-01226, U.S. District Court, Northern District of Illinois (Chicago).

[2] Pannonia Farms, Inc.,   v   USA Cable, 2004 U.S. Dist. LEXIS 23015; 72 U.S.P.Q.2D (BNA) 1090

[3] Huston v. Turner Entertainment, French Court of Cassation, 1991, cited in article “International Copyright Litigation in U.S. Courts: Jurisdiction, Damages and Choice of Law” by Lionel S. Sobel; Emerging Issues in Intellectual Property Practice, CEB Program Handbook, p. 83, April 1994, California Continuing Education of the Bar.

New Line’s film had its world premiere in Wellington, New Zealand, on November 28, 2012 and has been the subject of intense promotion and advertising. I was in Wellington right before the world premiere and was surprised at the massive and ubiquitous nature of the promotion across the city. Not only were Hobbit characters placed on buildings, but museum stores and numerous other outlets carried movie merchandise. Tourism New Zealand spent $10 million dollars promoting the trilogy. The promotion began when I boarded my Air New Zealand flight to Wellington and was delighted to watch the most entertaining in-flight safety video I have ever seen. It starred Tolkien elves, dwarves, Hobbits, and a wizard. The video has become an online hit viewed by millions. The carrier has even rebranded itself the “Airline of Middle Earth,” and plastered a plane with images from the film.

Asylum’s film, on the other hand, is a low budget indie film reportedly made for $2 million dollars. Asylum claimed that the word “Hobbits” as used in its film did not refer to the fictional Tolkien creatures, but to a human sub-species whose skeletons were discovered in Indonesia in 2003. In Indonesia, archaeologists discovered a human sub-species with the Latin name Homo Floresiensis, which they nicknamed “hobbits” because of their small stature.

The legal dispute, in its simplest terms, comes down to this. Asylum claimed it had the right, under the First Amendment, to make a movie about ancient Indonesian people and refer to a name commonly used to describe the short-statured ancients in its movie title. Plaintiffs, on the other hand, asserted that Asylum infringed on their trademarks and tried to ride on the coattails of its massive promotional campaign and trick moviegoers to purchase the Asylum movie, thinking they are buying the Warner/New Line film.

On August 31, 2012, Plaintiffs sent Asylum a cease-and-desist letter demanding that it refrain from using the “Hobbit” Marks. The parties then discussed Asylum’s asserted fair use defense and possible changes to the title, design, and promotional materials. Asylum changed the design of its promotional materials, but refused to remove the word “Hobbit” from the film title for the domestic release of the picture.

On November 7, 2012, Plaintiffs filed a complaint against Asylum for trademark infringement, false designation of origin, trademark dilution, false advertising, and unfair competition. Then, approximately three weeks before the scheduled release of the Asylum picture, Plaintiffs filed an application seeking a temporary restraining order stopping the release of the Asylum film.

As most movie aficionados know, there is a long history of independent filmmakers trying to cash in on viewer interest in topics made popular by the major studios. Roger Corman produced Black Scorpion, which imitated the Batman movies, Forbidden World, a knockoff of Alien, and Piranha, which borrows liberally from JAWS. Asylum has produced a number of low- budget films that resemble major studio releases. The company made a low-budget version of H.G. Wells’� The War of the Worlds, which was released the same year as Steven Spielberg’s film based on the same 1898 public domain book. Blockbuster reportedly ordered 100,000 copies of the Asylum film, far more than it had for any of Asylum’s previous titles.   Seeing how profitable such films can be, Asylum produced several low-budget knockoffs, sometimes called mockbusters, including Transmorphers, Almighty Thor, Abraham Lincoln vs. Zombies, Snakes on a Train, and Paranormal Entity.

The major studios were not amused, but it was questionable whether they could legally stop Asylum. 20th Century Fox threatened legal action over the release of The Day the Earth Stopped, a film similar to The Day the Earth Stood Still.^� Last May, Universal Studios filed suit against Asylum over their film� American Battleship, claiming infringement of their movie� Battleship. Asylum then changed the title to American Warships.

For the most part, Asylum has been successful in releasing its pictures and defending them from legal assault. The company claims that it has released more than 150 films and has only been sued twice for trademark infringement. One case was settled, and Asylum prevailed in the other.

Asylum’s legal success involved the film Haunting of Winchester House. Asylum was sued by the owners of the Winchester Mystery House, a popular tourist attraction in San Jose that consists of a 160-room Victorian-style mansion as well as a museum, gift shop, and café. The attraction is billed as the world’s most haunted house. Sarah Winchester, according to legend, created this mansion to fend off ghosts.

The owners objected to Asylum’s plan to produce and market its movie, which allegedly was based on a “terrifying true story.” When Asylum asked for permission to film at the Winchester Mystery House, the owners informed Asylum that they had signed a contract with another producer for exclusive rights to the Winchester story.

The Asylum movie begins with a shot of a Victorian-style structure, but not the actual Winchester Mystery House. The movie includes the ghost characters of Sarah Winchester, her adolescent daughter, and her brother, who was deaf and could not speak. These characters, as well as the ghosts of those killed by Winchester guns, haunt Sarah Winchester’s home. However, the real Sarah Winchester did not have an adolescent daughter or a brother who was deaf and unable to speak.

The trial court dismissed the case against Asylum on summary judgment. On appeal, the appellate court agreed, stating that in trademark infringement cases involving First Amendment concerns, the finding of likelihood of confusion must be particularly compelling to outweigh the First Amendment interests of filmmakers. The owner of a trademark does not have the right to quash an unauthorized use of its mark by another who is communicating ideas or expressing points of view.

However, with its Hobbit movie, Asylum apparently crossed the line. So the question arises, where exactly is that line? How closely can a filmmaker imitate another work or title without having a judge halt its distribution?

It is rare for a court to restrain distribution of a film especially when copies have already been shipped. Films, like newspapers and books, are protected expression under the First Amendment. A party seeking a preliminary injunction must show that it is likely to succeed on the merits and will suffer irreparable harm if the relief is not granted.

A basic principle of copyright law is that ideas, themes, facts, subject matter, and historical incidents cannot be copyrighted. Anyone can write a book about George Washington, and they can even borrow facts from prior books without infringing those authors’ copyrights. Moreover, film titles generally cannot be registered as trademarks. Only a distinctive title to a series of books, periodicals, newspapers, or television programs like Bonanza could be registered. The reason is that trademarks are used to identify the origin of goods or services. Single books or films are one-offs. Their titles describe that particular work, not a series of works. Courts can, however, protect titles from confusingly similar uses, under the law of unfair competition, if the title has acquired a secondary meaning. A secondary meaning is when the title is sufficiently well known, that consumers associate it with a particular author’s work.

While courts are very protective of filmmaker’s First Amendment rights, the law is also concerned about protecting consumers from being misled about the origin of products, which is what the laws of unfair competition and trademark address.

There have been a number of cases in which courts have wrestled with a conflict between the freedom of expression of a filmmaker and the owners of trademarks and other rights. A commonly cited case is Rogers v. Grimaldi, which Asylum relied upon in its defense.  In that case, Federico Fellini conceived, co‑wrote, and direct­ed a film entitled “Federico Fellini’s `Ginger and Fred’.” The movie was a fictional work about two re­tired dancers. The dancers made a living in Italian cabarets imitating Fred Astaire and Ginger Rogers, thus earning the nickname “Ginger and Fred.” The story was a satire about the world of television. According to Fellini, the characters did not resemble or portray Fred Astaire and Ginger Rogers. However, Ginger Rogers brought suit, claiming that Fellini violated her rights of privacy and publicity. Her complaint alleged that the defendants violated her rights by creating the false impression that the film was about her or that she sponsored, endorsed, or was involved in the film, and that it violated her right of publicity, and defamed her by depicting her in a false light.

The district court decided that Fellini’s movie was a work protected under the First Amendment, and that a trademarked term could be used in the title of an artistic work if the use of the term has some artistic relevance to the work and does not explicitly mislead consumers as to the source and content of the work.

The Court of Appeals affirmed the lower court, explaining that movies, plays, books, and songs are all works of artistic expression and deserve protection, even though they are also sold in the commercial marketplace and thus can be the subject of consumer deception. Consequently, when the title of a movie or a book has acquired secondary meaning—that is, when the title is sufficiently well-known, that consumers associate it with a particular author’s work—the holder of the rights to that title can prevent the use of the same or confusingly similar titles by other authors.

The court concluded that filmmakers can use a celebrity’s name in the title of an artistic work where the title does not explicitly denote authorship, sponsorship, or endorsement by the celebrity or explicitly mislead as to its content. The court also held that Oregon law on the right of publicity does not bar the use of a celebrity’s name in a movie title, unless the title was “wholly unrelated” to the movie or was “simply a disguised commercial advertisement for the sale of goods or services.”

Other cases have given less weight to the First Amendment rights of filmmakers. In American Dairy Queen Corp. v. New Line Productions, Inc., the defendant produced and was preparing to release a film entitled Dairy Queens, which was described as a mockumentary satirizing Minnesota beauty contests. The plaintiff was the Dairy Queen ice-cream chain, which claimed trademark infringement and dilution of its trademark. The district court found that the likelihood-of-confusion factors weighed in favor of the plaintiff. Then, it considered whether the defendant’s First Amendment interests were sufficient to outweigh the plaintiff’s trademark interests in its Dairy Queen trademark. Ultimately, the court found that because other alternative titles like Dairy Princesses or Milk Maids were available, “the balance between the public’s interest in free expression and its interest in avoiding consumer confusion and trademark dilution tilts in favors [sic] of avoiding confusion and dilution.” Dairy Queen Corp. won because the court distinguished � Rogers v. Grimaldi on the grounds that the Rogers case involved a title that directly referred to the content of the film – performers known as Ginger and Fred. On the other hand, defendant’s film was about beauty pageants in Minnesota, without any  connection to plaintiff’s ice cream stores. The Dairy Queen decision has been widely criticized.  Moreover, there are many cases that stand for the principle that filmmakers can refer to trademarks in their film, provided they do not do so in such a manner as to mislead moviegoers that the trademark owner is somehow affiliated or endorsing the picture.

In Dallas Cowboys Cheerleaders, Inc. v. Pussycat Cinema, Ltd., the defendant exhibited a pornographic movie, “Debbie Does Dallas,” which portrayed a “Texas Cowgirl” engaged in sex acts. The character wears a uniform strikingly similar to that worn by the Dallas Cowboys Cheerleaders. Ads for the movie showed the character in the uniform, and included such captions as “Starring Ex-Dallas Cowgirl Cheerleader Bambi Woods.” In fact, Bambi Woods had never been a Dallas Cowboys Cheerleader.

The Dallas Cowboy Cheerleaders brought suit, alleging that they had a trademark in the particular combination of colors and the design of their uniforms. The uniform in which they appear and perform consists of a blue bolero blouse, a white vest decorated with three blue five-pointed stars on each side of the front of the vest and white fringe at the bottom of the vest, tight white shorts with a belt decorated with blue stars, and white boots. The trademark was not registered at the time, although Plaintiff contended that it was protected as a common law trademark.

The defendant contended that the film was a parody or satire on female cheerleaders and was protected expression under the First Amendment. Moreover, the defendant claimed that no one could rationally believe that the film originated or was associated with the actual Dallas Cowboy Cheerleaders.

The court disagreed and issued an injunc­tion against further distribution of the film. The court found that the association with the Dallas Cowboy Cheerleaders, both in the film and in the advertising, had the single purpose of exploiting the Dallas Cowboy Cheerleaders’ popularity in order to attract an audience to view sex acts in the movie.

Then there is the Agatha Christie case. Casablanca Records produced a film titled “Agatha” about the famous mystery writer Agatha Christie. The story is a fictionalized account of an 11-day disappearance of Christie in 1926. Christie is portrayed as an emotionally unstable woman who engaged in a sinister plot to murder her husband’s mistress. The heir to Christie’s estate brought suit to enjoin Casablanca from distributing the movie, alleging unfair competition and infringement of the right of publicity.

During her life, Agatha Christie agreed to have her name used in connection with various motion pictures and plays based on her books. Her heir alleged that Casablanca’s use of the name “Agatha” and “Agatha Christie” would cause confusion in the minds of the public in general, and Agatha Christie readers in particular, by creating the impression that the movie and novel were authorized or even written by Ms. Christie. The court, however, summarily dismissed this claim, without much explanation other than finding that the heir “can prove no set of facts in support of [this] claim which would entitle [them] to relief.”

These cases were decided by different judges, under different state laws, and federal and state laws have evolved over time. Still, it is difficult to distinguish how the use of the word “Agatha,” is not likely to confuse moviegoers about the origin of the film about her, but the use of the word “Hobbit” is likely to confuse moviegoers about the source of Asylum’s movie.

The judge in the Asylum case seemed to be greatly influenced by Plaintiffs’ data showing that Asylum’s title was likely to mislead moviegoers about its movie. Plaintiffs presented evidence from a weekly tracking study conducted by Nielsen National Research Group (“Nielsen”) in which 30 to 40 percent of survey respondents indicated confusion about the source of “Age of Hobbits.” The survey included 1200 respondents divided into two groups. The Test Group was shown an image of the “Age of Hobbits” poster while the Control Group was shown the same poster with an alternative title. Thirty percent of those in the Test Group who had an opinion about the source of “Age of Hobbits” (about 200 respondents) said they believed the movie was made or distributed by Plaintiffs. On the other hand, only 6 to 14 percent of the respondents in the Control Group, who were shown the movie poster “Age of Java Men,” associated the film with Plaintiffs.

The court also mentioned that Asylum’s release of its film three days before the release of the Plaintiff’s film demonstrated intent to capitalize on the publicity surrounding Plaintiffs’ film, and its similar artwork and prominent use of the trademark showed intent to deceive.

Which type of deal is best for a filmmaker? That depends on how much revenue is generated, the amount of expenses and whether they are capped, and the size of distribution fees. Let us consider three different scenarios.

First, suppose $1,000,000 is generated in Gross Receipts from sales and rentals of DVDs. Gross Receipts for the home video media are  generally defined as the wholesale revenues received, less any returns. If the suggested retail price of a DVD is twenty dollars, the wholesale price would be about half or ten dollars. However, prices are negotiable and Wal-Mart is known to drive a hard bargain and pay substantially less for DVD’s.

Under a standard distribution deal with a 25% distribution fee and recoupment of $100,000 in expenses, a filmmaker would receive $650,000. Under a 50/50 net deal, with the same Gross Receipts and cap on recoupable expenses, the filmmaker would receive $450,000. Under a royalty deal with a 20% royalty, the filmmaker receives $200,000. Clearly the standard distribution deal appears to be the better choice.

But now suppose the film generated $175,000 in Gross Receipts. With the same distribution fee and expenses, the filmmaker receives $31,250 under the standard distribution deal, $37,500 under a 50/50 net deal, and $35,000 under a royalty deal. In this case, the 50/50 net deal delivers the most revenue to the filmmaker.

Now, consider a third scenario with only $100,000 in Gross Receipts and the same distribution fee and expenses. Here, the filmmaker receives zero under either a standard distribution deal or the 50/50 net deal. However, under a royalty deal, the filmmaker receives $20,000. The fact that distribution fees and expenses now outweigh Gross Receipts is irrelevant in a royalty deal, because the filmmaker gets 20% of the wholesale price, no matter the extent of fees and expenses incurred. Moreover, under a royalty deal, there is little room for a distributor to engage in creative accounting. Once you determine how many units have been sold, and determine their price, a simple calculation reveals what the producer is due.  Many creative accounting disputes concern the deduction of expenses which is irrelevant in a royalty deal, since expenses are not counted in calculating the producer’s share of revenue.

Consequently, the best choice for the filmmaker depends on a number of factors especially how much revenue is generated; which is unknown when the deal is negotiated. Since none of these types of deals is always best, it is important for the filmmaker to pencil out the numbers before deciding which formula they want.  Most deals are more complicated to assess because they cover multiple media, and the distributor’s fee varies by media (i.e., 35% for theatrical, 25% for broadcast television). Moreover, domestic distributors usually insist on cross-collateralizing expenses among media. Thus, if there is a loss on the theatrical release but a net gain on television, then the revenue and expenses are pooled. This enables the distributor to recoup its theatrical loss from television revenue. Particular care must be taken when the home video arrangement is a royalty deal that does not allow deduction of expenses. These royalties should not be offset against expenses incurred in other media.

DVD’s are sold on consignment, meaning the buyers can return any product for a 100% refund. Sometimes large numbers of DVD’s are returned. Therefore, most distributors insist on holding back some revenues as a reserve to make sure they do not pay the filmmaker a share of revenue based on sales that are returned.  DVD sales are dominated by mass merchants like Wal-Mart, Best Buy, and Target. However, only a few companies have a direct relationship with Wal-Mart, therefore the other distributors have to go through an intermediary such as Anderson Merchandisers.

One should also keep in mind that while home video sales have been declining VOD sales have grown. Some home video companies manufacture a limited number of DVD’s, or none at all, and focus on distributing the film digitally through NetFlix, Amazon, and other outlets. Without the cost of manufacturing, these deals can be quite profitable. However, one has to be careful in licensing rights to avoid conflicts and maximize revenues. The filmmaker may only want to grant VOD rights on a non-exclusive basis. Moreover, filmmakers can often negotiate with a home video company to retain the right to sell their film directly to the public from their own website.

Let me offer one final piece of advice. Filmmakers should never sign a short form deal memo to be followed by a long form contract. Once you sign a short form, you may have a binding contract with the distributor. When the long form arrives, if you do not like some of the provisions, you may have a big problem. If the distributor refuses to make the changes you want, you have an agreement but not on the terms you want.  Your options are not good. You cannot easily disavow the deal memo, yet you may not want to proceed without certain terms in the long form. A short form deal memo is short because many terms are left out. By agreeing to the short form, you are agreeing to a deal without knowing all its terms. Therefore, you should insist on going directly to a long form. If you are unable to work out all the terms to your satisfaction, you can walk away with all your rights unencumbered. Many distributors try to get filmmakers to commit to a short form deal memo because it is easier to negotiate. Nonetheless, if and when the long form arrives, the filmmaker cannot just walk away. The short form often does not include such provisions as a detailed audit and accounting clause. If there is a dispute between the filmmaker and a distributor, a judge will not insert terms that he/she thinks are fair. The contract is only those terms agreed upon by the parties.

Mark will be speaking about distributing independent film at the SPADA (Screen Production and Development Association) annual conference November 22, 2012 in Wellington, New Zealand.

If a domestic distributor is willing to take the plunge and release a film theatrically, it will almost always insist on securing ancillary rights for home video and television media. A theatrical release, even for a hit film, often generates less revenue than its costs because of the substantial expense for prints and advertising (P & A): a 35 mm print costs $1200 to $1500. Thus, a major studio releasing a film on 4,000 screens will spend $6 million dollars. Shipping heavy film canisters has cost major studios up to $450 million a year. On top of that, the price of a single full page advertisement in the New York Times can add another hundred thousand dollars.

However, print outlays are plummeting as theaters convert to digital projection. 77% of screens in the USA now have systems that can exhibit a digital copy, which costs about $150. The savings are so enormous that the studios have been subsidizing the conversion to digital projectors by paying exhibitors “virtual print fees.”  While many theaters have taken advantage of this subsidy, the studios have announced that they will soon phase out this support. Smaller theaters face a terrible dilemma. If 35 mm prints are no longer available, and they cannot afford a digital system, which can cost $150,000, they will go out of business. In a few years, it may be difficult to view a movie on celluloid. Eastman Kodak has filed for bankruptcy, and hundreds of art house cinemas are predicted to go out of business. This can only make it more difficult for independent filmmakers to secure a theatrical release. Screen Digest predicts that almost all screens will be digital by 2015.

Aside from wide releases, even a limited release to a hundred theaters can cost a million dollars or more. If a film is released digitally, the print costs are dramatically reduced, but the advertising outlays remain the same. Consequently, a distributor that bears the financial risk of a theatrical release will insist on securing the rights to home video and television media to offset any theatrical losses. These so-called ancillary media are usually more profitable than the theatrical release. A film that becomes known to the public as a result of its theatrical run does not require much more publicity for its home video release. And, television exhibition is the most profitable of all.

When a distributor licenses a film to a cable channel it does not incur any advertising expenses because the channel promotes its own programming. The seller simply negotiates the deal and delivers a copy of the film, which is often returned after the cable television window expires.

The sequence of release windows is also changing. Traditionally, films were first exhibited in theaters, followed months later by home video (DVD’s), followed by a release to television beginning with Pay TV, VOD, and eventually free television. The order of these windows was intended to maximize revenue. However, a release that generates maximum revenue for a distributor does not necessarily do the same for the exhibitor. Distributors want to capitalize on public awareness arising from the theatrical release by quickly issuing the film into the home video market. A short delay also inhibits piracy because illegal sales are more likely as long as there is no legitimate way to buy a DVD.

Some distributors have gone so far as to experiment with a simultaneous release in theaters and in home video. However, theater owners strongly object to such releases or any shortening of the gap between windows, arguing that moviegoers are less likely to buy box office tickets if they know the film will soon be available on DVD. The gap from the end of the theatrical release to the start of the home video release has been falling and now is in the range of 90 to 120 days.

In 2011, Universal Pictures attempted to release its movie “Tower Heist” on Comcast’s Video–on-Demand three weeks after its theatrical debut. The Regal and AMC theater chains objected and the third largest theater chain, Cinemark, refused to book the picture at all if it was available on VOD so soon after its debut. This caused Universal to back down and cancel the VOD release.

As mentioned earlier, exhibitors and distributors have competing interests. The exhibitor and distributor enter into a lengthy and complex agreement, which sets out how they share revenue. The agreement may require the exhibitor to give certain advances or guarantees to the distributor to secure a film. Additionally, the exhibitor may agree to play the film for a minimum number of weeks. In the past, a distributor releas­ing a major motion picture would split revenues on a sliding scale, with a 90/10 ratio for the first few weeks after the theater owner deducted its overhead costs. The distributor received 90% of the revenue and the exhibitor 10%. In subsequent weeks, the split would become more favorable for the exhibitor, shifting to 70/30, 60/40, or 50/50.

This sliding scale formula gave exhibitors an incentive to retain the picture for a long run. As the weeks pass, the exhibitor’s share increases. Of course, for major studio films, revenues tend to drop sharply after the initial few weeks. Giving the exhibitor a larger share of revenue in later weeks makes sense because the distributor wants to encourage the theatre owner to exhibit the film as long as possible.

However, major studios have now adopted a new formula for sharing revenue with exhibitors. The revenues are split according to the magnitude of the overall national box office. The distributor receives 48% to 63% of box office receipts, with more receipts earning the distributor a larger percentage.  On average, a major studio receives 53% of the box office gross. For art house fare, distributors average around 45%. The exhibitor no longer has the same incentive to hold a picture, and pictures tend to be released wider and pay off faster. For major studio films, 80% of the box office revenue is often received in the first two weeks of a picture’s release.

One aspect of exhibition has not changed. The exhibitor retains 100% of all sales at the concession stand. This is a major profit center for theaters; it can be said that theater owners are really in the fast food business. The candy and popcorn they sell have huge profit margins. However, nobody goes to the theater for the food. So, theater owners have an incentive to fill the house with a lot of moviegoers, even if they only earn a relative minor portion of the ticket price. This is why they prefer major studio films designed for mass consumption rather than art house fare that appeals to a niche audience.

Another ongoing struggle is whether movies should be released on DVD before being offered for digital download. The major studios find digital downloads quite profitable because they avoid all manufacturing and shipping costs. 20th Century Fox released Ridley Scott’s sci-fi thriller “Prometheus” for HD download on Sept. 18, 2012, three weeks before its release on DVD. The film was made available through Amazon, iTunes, Vudu, Xbox, and CinemaNow. Sony and the Weinstein Company have also experimented with early digital releases.

The economics of independent films have become increasingly tricky. Due to a flood of independent films, licensing fees have declined, and many specialty distributors have disappeared. Filmmakers can no longer expect to auction their film off to the highest bidder at Sundance or Toronto. This occasionally occurs for a breakout film, but it is hardly the norm, even for films shown at top festivals. Hence, instead of an all-rights deal with one domestic distributor, many filmmakers end up opting for “split rights” deals. Rather than one deal with a domestic distributor that controls all media in North America, the filmmaker enters into a series of deals with different distributors, each of which is granted limited rights. This can benefit the filmmaker, because with several distributors, there is no cross-collateralization of expenses against revenue. So, if the home video release loses money, those losses would not be recouped by the home video distributor from TV sales controlled by a different company.

Although a theatrical release is risky, it is important for building awareness and prestige that filmmakers sometimes book their films directly into theaters. A rent-a-distributor or “service” deal is an arrangement in which the producer bears the marketing costs of releasing a film theatrically. Traditionally, distributors cover these costs, whether the title is one they produced or acquired from an independent producer. With a service deal, the producer is essentially renting the distribution apparatus and bearing all distribution costs. The distributor is willing to receive a reduced distribution fee — perhaps half of the traditional 35% — in return for not advancing any expenses. The producer assumes all financial risk. One of my clients recently self-released a documentary on 80 screens at a cost of $600,000. While it did not earn back its distribution costs from the theatrical release alone, the film became a best-selling documentary on Amazon and received substantial license fees from Netflix and other outlets.

For a distributor, such a deal makes sense if there is an open slot in its release schedule. Many distribution and marketing staff are full time permanent employees, and if the distributor does not have a title to release one month, the staff must nevertheless be paid. Why would a producer bear the financial risk of releasing a film theatrically? Often, it is because there is no other alternative as no distributor is willing to bear the costs to release the film in the traditional manner. It bears noting that relatively few independent films nowadays secure a theatrical release. Indeed, many indies are unable to secure distribution in any media.

Another reason a filmmaker may desire a theatrical release is because it will generate more attention than if the picture is released directly to home video and television. Many publications will not review a film unless it opens theatrically in their region. Therefore, a theatrical release, even if unprofitable by itself, can boost television and home video revenues. There have been some spectacular self-release successes including Mel Gibson’s “The Passion of the Christ.” This picture cost $30 million to produce, $15 million to market, and generated more than $600 million. In its first weekend, the film reportedly earned $83 million in the United States.

Another method used to get films into theaters is known as a “four wall” release. This is an arrangement between the producer and theater owner that bypasses the distributor. Here, the filmmaker rents the theater from the exhibitor and takes the financial risk that is normally borne by the distributor and exhibitor. The filmmaker, in turn, retains all the box office receipts. If a lot of tickets are sold, the filmmaker can do well. However, if ticket sales are meager, the filmmaker can suffer disastrous losses, since the filmmaker is paying for the theater, as well as bearing all print and advertising costs.

Self-distribution not only requires money, but enormous time and effort. Most successful campaigns require the filmmaker to be available for media interviews, develop a rich website, conduct research to find and reach out to their audience, and accompany the film to openings. Some filmmakers earn additional income through speaking fees, websites, and DVD screenings.

The theatrical release, while often difficult to secure and expensive, can significantly help a filmmaker advance their career. The exposure gained from one film can induce investors or a studio to finance their next project.

Self Defense Seminar with Mark Litwak, Date: October 20, 2012

This seminar explains how writers and filmmakers can prevent problems from arising by properly securing underlying rights, and by encouraging the other party to live up to agreements by adding performance milestones, default penalties, and arbitration clauses. Details available here.

Consequently, producers need to be careful in defining the scope of territories granted to distributors. It is customary for independent producers to enter into separate foreign and domestic deals. If, for example, the filmmaker assigns Bermuda to an international distributor, that could prevent their domestic distributor from making a lucrative deal with HBO. Indeed, it may deter a domestic distributor from acquiring the title. Thus, to maximize revenues a producer has to make sure they don’t sacrifice a beneficial deal because they thoughtlessly assigned away rights to a small territory.

The term “distributor” is so broad that it encompasses many different types of companies. The major studios such as Paramount and Sony typically distribute pictures directly to theaters, license them to television channels like Showtime, and manufacture their own packaged media (i.e. DVDs) for sale to mass merchants and video rental outlets. Many majors studios may also distribute their pictures in selected foreign territories and contract with local distributors elsewhere.

Smaller independent distributors exploit movies in a variety of different ways. Some book films into theaters and then assign television and home video rights to third parties for licensing in those media. Others are basically home video labels that manufacture and market DVD’s. Some of these companies license directly to television while others use intermediaries. However, sometimes home video labels decide to release some of their films in theaters to build awareness for the picture. They may pay a third party to book the title into theaters. A filmmaker seeing such theatrical releases may perceive the company as a theatrical company when they are not. So it can be difficult to tell what kind of distributor they are dealing with.

A theatrical release, even if perfunctory, may help the distributor persuade filmmakers to make a deal even if it is unprofitable by itself. If a smaller distributor attempts to theatrically release an indie film, they face stiff competition from the majors. Because the major distributors have a steady flow of desirable movies, they have the clout to demand the best theaters and dates, often relegating independents to whatever dates and venues are left.

Complicating matters further, some home video companies deal directly with mass merchants like Wal-Mart, while the others have to go through intermediaries like Anderson Merchandisers, that ship and pack product from numerous companies for delivery to mass merchants.

All this is to say that distributors operate differently and filmmakers need to do their homework before making commitments so they understand exactly how each distributor proposes to release their film and how the revenue stream will be divvied up. If multiple companies in the chain of distribution deduct significant fees and expenses, the revenue stream that goes to the filmmaker/investors can become a trickle. So when a distributor says they distribute to theatrical, home video and television media, you should ask: “O.K. Exactly how you do that? What intermediary companies do you use, and what kind of fees and expenses do they deduct?”

One type of home video deal is known as a sub-label deal. Here two companies split the responsibilities for acquiring, marketing and distributing titles. Typically one company, such as Lionsgate, handles the physical distribution of titles and collection of revenue from its buyers. The other company, the sub-label, is responsible for acquiring titles and creating the key art and marketing materials. The two share revenue.

There is nothing inherently wrong with a sub-label deal, provided the filmmaker understands how distribution fees are collected and expenses are recouped, and the amounts are reasonable. However, I have seen many of these deals where the filmmaker thinks they are sharing in the wholesale price remitted by buyers like Blockbuster or Wal-Mart. The filmmaker is unaware that he/she is really receiving just a share of what is remitted to the sub-label from the parent company.

In these deals, “Gross Receipts” has been defined and calculated on the revenue received by the sub-label after the parent company has deducted its fees and expenses. The cumulative effect may be that little or no revenue flows down to the filmmaker. The filmmaker thinks he/she is receiving 25% of the wholesale price of each DVD sold but actually is receiving 25% of the funds remitted from the parent company to the sub-label. A well-drawn contract will carefully define “Gross Receipts” as the wholesale price which is the amount remitted from the home video buyers, and not the amount remitted to the sub-label. Filmmakers need to ask specific questions when selecting a distributor in order to avoid unpleasant surprises.

Almost all distributors nowadays try to acquire so-called ancillary and new media rights so they can license movies to such companies as iTunes, Netflix, Hulu and Amazon. Many of these new media buyers don’t like to acquire individual titles and prefer to deal with aggregators who can license them bunches of films at a time.

Book Recommendations:

The Reel Truth: Everything you didn’t know you need to know about making an independent film.  By Reed Martin.

This book offers  filmmakers of all persuasions an impeccable, thorough, intelligent guide to navigating one’s way through the film industry.

Contracts for the Film and Television Industry: 3rd Edition

The long awaited third edition of my Contracts book, now including 80 contracts, has just been published.  For more information, click here.

Self Defense Seminar:

Date: October 20, 2012

Location: West Los Angeles College, 9000 Overland Ave., Culver City, CA 90230 (Free parking is available in the campus parking structure.)

This seminar explains how writers and filmmakers can prevent problems from arising by properly securing underlying rights, and by encouraging the other party to live up to agreements by adding performance milestones, default penalties and arbitration clauses.

Self Defense Class

California Lawyers for the Arts

President Obama signed last week the JOBS (Jumpstart Our Business Startups) Act, a collection of laws that dramatically relaxes regulations on raising capital for startup companies. The Act has provisions that for the first time will allow internet crowdfunding of small businesses, such as producing indie films. Crowdfunding is a method of raising capital by obtaining small amounts of money from a large number of investors. Although existing companies like kickstarter.com enable filmmakers to raise funding through donations (i.e. gifts), this new law, when it becomes effective, will allow filmmakers to raise up to one million dollars in equity investments by soliciting the general public without complying with the onerous security regulations currently in place.

Up until now, it has been difficult for filmmakers to raise financing either through a public offering or a private offering. A public offering is made to the public at large and requires SEC approval. A company selling stock on the New York Stock Exchange is an example of a public offering. Registration for a public offering is both time-consuming and expensive, costing hundreds of thousands of dollars, and not a realistic alternative for most low-budget filmmakers.

A private offering, on the other hand, is generally restricted to people the promoter already knows, or as the law states, with whom the promoter has a “pre-existing relationship.” Advertising is generally prohibited. While a private offering is not nearly as expensive as public offering, the fees for the creation of a Private Placement Memorandum (PPM) can easily exceed $25,000, which is not an insignificant expense for a small entrepreneur.

The new law had bi-partisan support. It passed Congress with a 73-26 Senate vote and a 380-41 House vote. It allows non-accredited investors to participate in funding rounds. Non-accredited investors are essentially everyone who is not rich. In the past there have been significant limitations on the number of non-accredited investors a filmmaker could accept in an offering, typically no more than 35.

The SEC has 270 days to implement additional regulations, and it is not clear at this time how restrictive or liberal these rules may be. So it will be early 2013 when filmmakers will be able to actually start raising funds. Investors with a net worth under $100,000 are limited to investing the greater of $2,000 or 5% of their annual income or net worth, whichever is greater. Wealthier investors can invest 10 percent of their annual income or net worth, not to exceed a maximum aggregate amount sold of $100,000. Offers must be made through a Broker-Dealer or a “funding portal” that is registered with the SEC, pursuant to rules and regulations to be developed. Such intermediaries will need to provide detailed disclosures to investors and make sure potential investors confirm that they are willing to risk losing their entire investment.

The company seeking funding will need to disclose its financial condition including: a) If the target offering amount is $100,000 or less, then the most recent year’s income tax returns (if any); as well as financial statements of the issuer certified by the principal executive officer of the issuer as being true and complete in all material aspects; b) If the target offering amount is over $100,000, but not more than $500,000, the issuer must provide financial statements reviewed by an independent public accountant; and, c) If the target offering amount is over $500,000, the issuer must provide audited financial statements. So crowdfunding is not going to be as simple as soliciting investors from your blog or facebook, and the costs may not be any less than what it currently costs to prepare a PPM. However, being able to use the internet to attract many small investors could make it much easier to raise funds. Investors risking $2,000 may be more willing to tolerate on the risks of filmmaking than those being asked to invest larger sums.

Besides the ability to raise funds through crowdfunding, the Act made a major change to Reg D 506 offerings, which are offerings limited to accredited investors (i.e. wealthy people). For the first time the restrictions on public solicitations have been removed which means that the offering company could solicit investors including approaching them over the Internet. The SEC has 90 days to develop rules to implement this change.

Critics of the new law claim that these changes will open the floodgates for scammers to raise funds from unwary investors. With that in mind, investors may want to read the article I wrote for the Vanderbilt Law Journal about protecting film investors