Distribution: The Fine Print

by Donald R. Simon, Esq.

Originally published in Screen Magazine, August 18-24, 2003, at 20-1.

You’ve just completed your dream project. It’s time to distribute it to the masses. And as luck would have it, a distribution company is interested in doing that for you.

You are handed a standard form distribution agreement. I’d be willing to bet Maggie’s farm that the first section you flipped to was the "Royalties" section. Maybe even a few of you turned to the "Terms" or "Definitions" sections.

While these portions of a distribution contract are very important, one must never underestimate all that legalese between the "Royalties" section and the signature line. I am speaking of the dreaded, yet essential, "boilerplate" sections

These sections can have a major impact on your rights and obligations during and after the term of the contract. Boilerplate language may: 1) extinguish all pre-existing oral and/or written agreements between the parties; 2) determine who can sue, where that suit may be brought, and what events must occur in order to initiate litigation in the first place; and 3) stipulate what party will bear the costs of litigation brought by a third party.

Not all distribution contracts are created equal. Theatrical distribution contracts will be much different than "straight-to-video" releases. Music distribution will be much different than television distribution.

Most distribution agreements, however, will contain a section called "Representations and Warranties." It may be similar to the following:

Producer makes the following representations and warranties to Distributor, which shall survive the termination of this Agreement: (A) that it has full, complete and unrestricted right and power to enter into this Agreement; (B) that it owns or controls all rights, title and interest in and to the Program and the Supporting Materials licensed hereunder; (C) that it has the right and power to license to Distributor all of the rights licensed herein without being in breach or violation of any other agreement; (D) that neither the Program nor any part thereof, nor any of the Supporting Materials, nor any licensed use hereunder of the Program or the Supporting Materials violates or infringes upon the trademark, trade name, copyright, patent, literary, artistic, dramatic, personal, civil or property right or the right to privacy or the right to publicity or any other rights of any person, firm, partnership, corporation, or any other entity; and (E) that all costs, expenses, liabilities and obligations relating to the production of the Program and Distributor’s use hereunder of the Program and the Supporting Materials (including, without limitation, talent fees and residuals, applicable union or guild payments, clip licenses, and clearance fees) have been or will be paid for by Producer, except as otherwise set forth herein.

Essentially, the Producer is certifying that he/she can enter into this agreement, that by entering into this agreement the Producer will not be violating any other pre-existing agreements with any third party, that no intellectual property laws will be violated by distributing the Program, and that all rights to elements of the Program (e.g., stock footage, voice-overs, music, talent agreements) have been secured, or "cleared" for distribution purposes.

Among the above clauses, the one stating which party will be responsible for clearance of program elements is perhaps the most important. Improper clearance can stop your project dead in its tracks. As such, the clearance issue can be an important negotiating tool if your distributor wants your project bad enough.

Another common provision in a distribution agreement is the "Indemnification" section. It may look like this:

Producer shall at all times indemnify and hold Distributor harmless from and against any and all claims, damages, losses, costs, liabilities and expenses, including attorney fees, arising out of or caused by any matter, aural or visual, contained in the Program, its packaging and/or Supporting Materials, or by a breach by Producer of any representation, warranty or agreement made by Producer herein. In the event of any claim or service of process upon Distributor involving this indemnification, Distributor shall promptly notify Producer of the claim. Producer shall promptly adjust, settle, defend or otherwise dispose of such claim at its sole cost.

You’d think lawyers got paid by the word! This provision lays out how a breach of one (or more) of the representations and warranties will be handled. Notice that the producer may be responsible for the distributor’s attorneys’ fees. Be wary of this. Attorneys’ fees for an infringement lawsuit can be enormous. It is also important that a similar indemnification clause be added whereby the distributor agrees to indemnify the producer.

The "Governing Law" section sets forth the rules on where a lawsuit concerning the agreement may be brought. In the following example, let’s say the distributor is based in California and the producer is in Chicago:

This Agreement shall be governed by and construed under the laws of the State of [e.g., Illinois]. The parties hereto expressly consent and submit to the jurisdiction any court of competent jurisdiction in the State of [e.g., California] and agree to accept service of process outside the State of [e.g., California] in any manner to be submitted to any such court pursuant hereto.

Be careful when signing an agreement that forces you to bring or to defend a lawsuit in a jurisdiction other than your own. In the above situation, the Chicago-based producer would be required to bring or to defend the lawsuit in California. This can be very expensive and maybe even cost-prohibitive. Distributors often have deeper pockets than producers, and so it is often easier for them to handle a lawsuit in the producer’s jurisdiction. Use this section as another point of negotiation.

Finally, the "Merger" section. Some look like the following:

This Agreement embodies the entire understanding between the parties with respect to distribution of the Program set forth herein. This Agreement supersedes and is in lieu of all existing agreements or arrangements between the parties relating to the subject matter hereof.

This paragraph declares that the contract reflects the entire agreement between the parties with respect to distribution and it voids all other pre-existing oral and/or written agreements. Here’s a common scenario: early on in the negotiations, a producer and distributor agree to a 25% royalty on public television distribution and a 20% royalty on sales of the producer’s project to pay television. This royalty structure is set forth in a deal memo. When the long-form agreement is produced, producer is to receive only a flat 20% for "television." If the producer signed the agreement anyway, what royalty will the producer get? Answer: 20% on "television."

Boilerplate language can have a tremendous effect on your rights and obligations. Adequate review of these sections is essential to ensure the full benefit of your labors. Consider consulting an attorney familiar with distribution issues before committing to a distribution agreement.