Video Age International October 2016

56 October 2016 V I D E O A G E E rrors & Omissions Insurance is a key element of all licensing transactions in the intellectual property marketplace. Whenever a television program is produced and then placed in the hands of distributors and end- users, E&O will be a necessary element of the deal. This is the result of the extraordinary risk and exposure that accompanies the dissemination of intellectual property. Aggrieved parties, who believe that their copyright or trademarks have been infringed upon or that their other valuable propertiesrightshavebeenviolated,willfrequently seek recourse in the courts of law to make them whole for the damage incurred. The potential risk to a distributor who has acquired rights can be enormous. In the American legal system, aggrieved parties have the right to commence an action against any of the parties arguably involved in the wrongdoing. These parties can include sales agents, distributors, terrestrial and cable programming networks, and OTT platforms. The industryhas beenable toameliorate the risk with a commonly used strategy—purchasing an insurance product that will provide a “guarantee” that moneys will be available to satisfy any legal judgment that might eventuate, including legal fees. While virtually all agreements involving the licensing of intellectual property will have representations and warranties from the owner, producer or licensor that the material used in the program will not infringe upon any third party rights, the mere “promise” to protect, defend and reimburse (customarily called “an indemnity”) is relatively empty, absent some means of assurance that there will be a financially capable entity that will “make good” on any liability ultimately determined to accrue. The production of any audio-visual program is a complicated matter. Frequently one is faced with the need to option underlying rights, to commission the creation of a screenplay, to depict actual living persons, and to use visual and musical elements owned by others. Each of these is incorporated in the final program, and each of these carries specific risks that individuals may come forward asserting their rights have been violated to their financial detriment. E&O Insurance was identified long ago as an appropriate remedy to the obstacle presented to licensees who are eager to acquire rights to distribute and exploit, but are not prepared to expose themselves to significant financial liability as a result of problems arising uniquely within the producer’s control. Timing it Right It is strongly recommended that E&O insurance be obtained as early as possible in the process of production. This is a result of the simple fact that when the insurance is first obtained, it is incumbent on the rights holder to disclose all “claims” or “clouds on title” that may be present in the project insured. If there is some question that is known to the producer, that fact will need to be openly disclosed in the standard insuranceapplication. The earlier in the process that application is made, the less likely it would be that the impact of press and publicity surroundingproductionwould incentivize claims coming “out of the woodwork.” If there are potential problems regarding “clear title” of which the producer has knowledge (that is, a state where all constituent elements have been, to the best knowledge of the producer, properly licensed), it is crucial that they be fully disclosed to the insurance underwriter in the process of obtaining insurance coverage. Upon disclosure, the underwriter will assess whether the potential claim is such that the premium paid for the insurance coverage should be increased, or even, in certain cases, whether insurance will be declined. The sooner producers can complete their E&O insurance application, the better off they will be. Limits of E&O In addition, it is important to note those matters that E&O insurance will not insure against. E&O will not protect a producer who knowingly has infringed the intellectual property rights of a third party. This is consistent with the “unclean hands” doctrine in the law, which precludes individuals profiting from their own misdeeds. Thus, if producers knowingly and intentionally includes copyrighted footage owned by someone else in their program, and has not obtained an appropriate license for thematerial, any otherwise available insurance coverage will be disclaimed. Lawyers Needed The extremely complicated and confusing world of intellectual property clearances is one of several very good reasons why production Errors And Omissions Insurance (Continued from Cover) E &O— From a Distributor’s Perspective “E&O is absolutely required as a deliverable for any license deal for the U.S. and Canada. It is not required for any license deal for any other territory in the world, except for the U.K. and Australia, where major broadcasters such as Skyb and Foxtel have started to ask for it and it is a deal breaker. In Italy, Germany, France, Spain, Brazil, Japan and South Korea it is not required. In fact, they do not even know what E&O insurance is. A couple of years ago, I made a deal with a broadcaster in Australia that demanded E&O by licensing the TV series to an Australia distributor that had a domestic umbrella E&O and they sublicensed the series to the Australian broadcaster. I ended up paying five percent as a service fee to the Australian company. At times, an E&O is waived when a movie or a documentary had a fairly substantial distribution for at least five years and no legal action or lawsuits have been made against it. It really depends on the company and their legal department.” Ettore Botta, president of Space WoW, Los Angeles It is strongly recommended that E&O insurance be obtained as early as possible in the process of production. (Continued on Page 58) E&O— From A Lawyer’s Point of View “AProducer’s E&Oinsurance is toprotect against claims that theydidn’t get all of the rights in the project they are producing. There is also distributor’s E&O insurance, in case there is a claim that the way that they distributed caused problems. Producer’s E&O is optional if the buyer of the program in the U.S. does not require it. On smaller budget projects, producers often don’t get it at all and elect to go “self-insured” because the deductible for any claim is so high that they figure that they will end up settling any claims on their own. Producers may also not want to spend for E&O insurance due to budget limitations, as the costs of the premium for the policy vary significantly, depending on the size of the budget and the assessment by the underwriter of the level of risk. Bigger distributors in the U.S. typically get distributor E&O policies because they worry about claims. However, mid-to- smaller size sales agents and distribution companies may elect not to get distributor E&O because the premiums can be expensive and because they don’t think they will create any distribution-related claims.” Anita First, esquire at Anita First Law Corporation, Los Angeles