Option Agreement for Potential Franchise Film

October 24, 2003


Michael I. Rudell

Provisions in Option Agreement for Potential Franchise Film

(Originally published in the Entertainment Law column in the New York Law Journal, October 24, 2003.)

At a recent seminar held in New York City by the ABA Forum on the Entertainment and Sports Industries, the topic was “Books to Film in an Era of Franchises and Tentpoles.” The panelists discussed provisions ordinarily contained in an option/literary purchase agreement between an author and a studio and, in particular, examined those that are in issue when the project is considered as a potential “franchise.” The applicable provisions relate to character rights, sequels, authors’ rights of control or consultation and injunctive relief.

For the purpose of the discussion, a “franchise” was defined as a project which would have a continuing and substantial life beyond one motion picture, primarily because the main character or the main concept could appear in one or more sequel productions. Examples are James Bond, Indiana Jones, Harry Potter, Batman and Spiderman. The franchise not only produces enormous revenues from exhibition of motion pictures in theatres, on television and by mean of home video, but also from merchandising and commercial tie-up exploitations.

The agreement between the producer and the author customarily defines “literary property” to include, not only the book which is the subject of the agreement, but also the themes, plots, and, most noteworthy for the purposes of this discussion, the characters contained in the book. Thus, in the absence of other ameliorating provisions, the author grants to the producer, for motion picture, television and allied purposes, the exclusive rights to the characters contained in the book. It is these characters that the producer of a would-be franchise intends to use in sequels to the first motion picture.

A sequel generally is defined as a production which shows one or more of the characters contained in the original film (or literary work) in new and different situations. A sequel may be a producer’s sequel, which is one based upon an original screenplay created by or on behalf of the producer, or an author-written sequel, which is one based upon a literary work written by the author of the book.

Although, in the literary purchase agreement, the producer acquires rights in and to the characters contained in the literary work, it does not generally acquire motion picture, television and allied rights in and to author-written-sequels. Rather, the literary purchase agreement will provide that for a period of time (“the holdback period”) the author may not authorize the release of any motion picture or television production based upon the author-written sequel. If, after the holdback period, the author wishes to dispose of motion picture and/or television rights in and to the author-written sequel, the author will be obligated first to offer those rights to the producer. If the author and the producer are not able to reach agreement, then, generally, the author may offer those rights to another producer, with various possibilities. One might be that the original producer has the right to match any offer made by the second producer; another might be that the producer has the right to acquire such rights by topping by a certain percentage any offer made by the second producer.

If the author wishes to license rights to an author-written sequel to a second producer, he still faces hurdles because that second producer will not be able to make sequels to the picture it produces, nor will it be able to use material contained in the original book (other than the characters as they appear in the author-written sequel) or the original film in the production of its motion picture. Thus, flashbacks and other duplicative material found in the author-written sequel literary work may not be used in the second motion picture.

At the time the author and the producer enter into their agreement, the author already may have written several books containing the main character. In such an event, it is likely that the producer will bargain to obtain the right to produce a motion picture based on any of those books and any future ones written by the author containing that character. In such a scenario, issues arise as how much will the producer pay the author for each subsequent book which is made into a film and by what time must the producer produce a sequel to the original picture in order to maintain rights to produce further sequels. Obviously, an author would not wish to tie up character rights to a valuable property in perpetuity if the producer is not continually exercising rights with respect to that character.

For example, the agreement might provide that the producer must exercise its right to produce a sequel within three years following its theatrical release of the original film. In such a situation, additional questions arise such as what happens if the original film never is released, or what happens if principal photography starts by a certain time but is not completed. In the event that the sequel movie is not produced within the applicable time period, all rights to produce further sequels revert to the author although, of course, the producer retains the rights to any film theretofore produced. This is a rolling concept, so that the same provisions will apply to the second, third and fourth sequel which is produced.

Many authors are concerned about the manner in which their principal character will be depicted in a motion picture. This is especially true if the film will be the first time that the readers of the author’s works will see a physical embodiment of a character for which they have conjured up images in their mind. For some authors, it is extremely difficult to bring oneself to sign a document in which the author agrees to waive all rights of droit moral and the right to seek injunctive relief, which are provisions contained in almost all literary purchase agreements. Producing a film, which is a collaborative effort among many entities, is a sharp deviation from an author’s engaging in a craft in which he or she solely controls what is written on the page.

Very few authors are able to bargain for a right of approval over essential creative elements (which would include the screenwriter, the screenplay, the director, the producer and the actors who are to play the leading roles). When an author is able to obtain such controls, they may be accompanied by provisions requiring that there be pre-approved lists containing names of creative talent. There also may be provisions granting relief to the producer in the event of production exigencies.

Certain authors are able to bargain to serve as an executive producer of the production. This generally does not provide for creative control to the author, but does allow for input under the right circumstances.

A further possibility is to provide that the author will be meaningfully consulted on all of the above major creative elements, with the producer retaining the right of final approval. In such a case, it is possible to construct a mechanism in which the author is provided with information about the various choices sufficiently in advance in order to allow him to evaluate and perhaps meet with the candidate.

A further possibility is to list in the agreement certain events which cannot occur or character traits which must be adhered to. For example, most authors would not wish to see their character die or become physically maimed in the film. Negotiations regarding these points often tend to be quite philosophical; for there may be gray areas in a requirement that a character may not be shown taking drugs or conducting an unethical activity. If the producer is willing to engage in a discussion of this nature, it will insist that the character traits be totally objective in order to enable the producer to know with precision whether or not it has breached a contractual requirement.

Even if an author is successful in obtaining rights of approvals and/or a designation of character traits, a hurdle to overcome is the contractual provision which generally states that in the event of a breach or threatened breach of the agreement by the producer, the sole remedy of the author is to obtain money damages at law, and no event will the author be entitled to seek injunctive relief to enjoin or restrain the distribution of the film. If this provision remains in the agreement, an author may believe that if the producer breaches one of the bargained-for provisions giving the author approval or specifying character traits, the damage could be irreparable, and money damages alone would not be sufficient. There also exists the issue of how an author would be able to prove the extent of the money damages.

An author with significant leverage may be able to provide that the “no injunctive relief” clause does not apply in those instances in which the producer breaches the approval clause or the clause providing for adherence to specified character traits. At the least a producer will insist that the provisions be so specifically drawn that there can be no doubt about whether or not it has breached the agreement.

Because of the significant sums of money at stake and the potential long life of the project, the agreement between the author and producer regarding a potential franchise film tends to be an extremely challenging one to negotiate.