Film Producer Goes After Residuals Under Digital Copyright Act

LOS ANGELES - In the ongoing clash between producers and distributors over residual payments, one entertainment lawyer is contending a hidden statute in the Digital Millennium Copyright Act is the key to recouping payments for actors, directors and producers.

Producers of the 2006 movie "10th & Wolf" claim New York independent film distributor ThinkFilm - whose chief executive officer and president is former Lionsgate president Jeff Sackman - abused its
bargaining power during distribution negotiations and is now refusing to pay guild residuals.

Los Angeles Doll Amir & Eley partners Hunter R. Eley and Gregory L. Doll filed a suit in the Central District Tuesday in an effort to prove ThinkFilm violated a statute requiring distributors to sign guild assumption agreements when the producer transfers copyrights to the distributor.

"This is an unprecedented issue that hasn't been previously litigated," Eley said. "It stands to make a big impact on the way business is done and how residuals are paid."

It's the first time the provision is being used in a residual payment dispute since it was codified into federal law in 2005.

"The provision has largely been forgotten because it doesn't have anything to do with the digital era," said Edwin Komen, a partner in Sheppard Mullin Richter & Hampton's entertainment, media and communications group.

Congress presumably included the statute to help balance the economic leverage distributors have with independent producers, Komen added.

"10th & Wolf," co-written and directed by Robert Moresco, who won an Oscar for co-writing "Crash," features heavy-hitting actors Dennis Hopper, Brian Dennehy and Giovanni Ribisi.

In the movie, James Marsden plays a soldier who discovers his dead father was a high-ranking member of the Philadelphia Mafia. He returns from the first Iraq War as an FBI informant in the Mafia, betraying his brother and cousin who joined the mob ring.

The movie aired on cable and is available on video or DVD. But Eley said the producers are unaware of the gross revenue generated by the film, because ThinkFilm refuses to turn over those figures.

The producers of "10th & Wolf" claim ThinkFilm refused to sign an assumption agreement during negotiations that would have made the distributor responsible for paying residuals.

ThinkFilm required producers to include residual worksheets as part of the delivery agreement. Eley said "10th & Wolf" producers concluded ThinkFilm would be responsible for payment of guild residuals since they requested those worksheets.

After agreeing on major terms of the distribution agreement, producers assigned copyright privileges to ThinkFilm.

According to the section in Title 28 of U.S. Code, when part or all copyright ownership is transferred from the producer to the distributor, and the distributor has reason to know the film was produced subject to collective bargaining agreements, the distributor assumes residuals payments under the agreements.

"The question is: Can the parties lawfully contract around the requirement of the statute?" asked Lawrence Y. Iser, name partner at Kinsella Weitzman Iser Kump & Aldisert.

A judge will have to decide whether ThinkFilm illegally negotiated and entered into a contract with the producers knowing the statute requires the distributors to pay residuals, Iser said.

In the complaint, "10th & Wolf" producers are also seeking declaratory judgment, claiming the contract provision is unconscionable because ThinkFilm has substantial experience in distributing motion pictures and greater bargaining power over the independent producers of
the movie.

They allege ThinkFilm engaged in fraudulent, unlawful and unfair business practices by refusing to sign the assumption agreements.

Iser said if the ThinkFilm can contract around the statute, then "10th & Wolf" loses and ThinkFilm isn't responsible for residual payments.

Since similar cases have yet to be litigated in court, the "10th & Wolf" argument against ThinkFilm could change how distributors negotiate agreements.

"Once people become aware of these dormant provisions, it might have a significant impact on how we conduct our business practices and structure our distribution agreements," Komen said.

District Court Judge Stephen V. Wilson, who issued a permanent injunction against file-sharing company Grokster, is set to preside over the dispute.

The bottom line for plaintiffs' lawyers is compelling ThinkFilm, who collects the revenues, to pay in accordance with the guild collective bargaining agreements.

"Distributors in the business know all too well what the statute says, but they use their bargaining power and economic leverage to get around the
statute,"Eley said.