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Not an Option: The Ins and Outs of Shopping Agreements

The motion picture and television industries have become increasingly informal in recent years. In the past, agents would sign actors and writers before trying to sell their services or material, members of producing teams would sign collaboration agreements with their partners before taking a project to a studio, and producers would enter into written option agreements with writers under which they would pay money to exclusively option the motion picture and television rights to a property. These days, however, many agents will “hip-pocket” new artists and promote them without a contract to avoid commitment; a collaborator will walk a project into the studio on the mere promise of a partnership with his teammates; and producers will frequently enter into so-called “Shopping Agreements” with writers.

Although many producers and the studios do, of course, still option rights, a growing number of independent producers have been turning to the Shopping Agreement, which offers them a simple, no-cost alternative to an option for obtaining the exclusive right to pitch a script, book, TV series format or other property to buyers. While this type of contract is not new to Hollywood, it has become much more prevalent. Typically, under a Shopping Agreement, the producer simply promises to use her best (or even good faith) efforts to obtain a proposal from a studio, network or other production company for a development deal for the property. In exchange, the writer grants the producer the exclusive right for a limited period to “shop” the property to selected potential buyers. If the producer fails, nothing is lost and the parties go their separate ways. If the producer does obtain an attractive offer from a buyer, and if the writer wants to negotiate with that buyer, then the producer will be attached to the project and the writer and producer will separately negotiate their respective rights and producer deals with that buyer. If they enter into agreements with the buyer, they will both get to keep their separate compensation.

Although this seemingly simple agreement does have benefits for both the producer and the writer, it is often used as a shortcut to avoid both the negotiating time and expense required for an Option Agreement. Like most shortcuts, however, it also poses substantial risks to both parties and must be carefully drafted.

I discuss below the customary key terms of a Shopping Agreement and how they differ from an Option Agreement. I will also illustrate some of the pitfalls that can arise from using a Shopping Agreement.

Oral vs. Written Contract

Unlike an Option Agreement, the Shopping Agreement does not transfer any exclusive rights in a copyright and is simply a contract for services. Consequently, it can legally be oral or written. Because of this fact, some producers and writers are tempted to enter into an oral Shopping Agreement in order to keep things “friendly” and uncomplicated between them and to avoid legal fees. This is almost always a mistake. The flimsiness of an oral agreement has never been better expressed than in Samuel Goldwyn’s famous statement: “An oral contract isn’t worth the paper it’s written on.” Because friendships can turn cold and memories can fail, the Shopping Agreement should always be in writing and signed by both parties.

The Consideration

The producer customarily pays no money under a Shopping Agreement. The producer’s promise to use her good faith efforts to obtain an offer for a development deal is usually the sole and sufficient consideration for the writer’s grant of the shopping right. This element of the Shopping Agreement of course benefits the producer, who doesn’t have to spend her limited development funds as she would under an Option Agreement. It is not so good for the writer, both because he would normally be paid money under an Option Agreement (and must be paid money if the producer is a signatory to the Writer’s Guild of America Basic Agreement), and because the producer arguably has no “skin in the game” under the Shopping Agreement and may not be very invested in the project.

Term

Since there is no payment to the writer, the term of the Shopping Agreement is usually shorter than an Option Agreement — generally only six to nine months. Also, unlike an Option Agreement, the Shopping Agreement generally does not give the producer the unilateral right to extend this term. While this short term benefits the writer, it can pose a potential pitfall for the producer who may lay the groundwork for a deal with a production company during the term, only to be cut out by the writer once the term expires. To protect against this outcome, the producer may add the following post-term clauses: (a) if, upon the expiration of the term, negotiations are in progress with a buyer, the term will be automatically extended until such negotiations are either concluded or abandoned, but not longer than 90 days; and (b) the writer may not, within 12 months after the expiration of the term, enter into any agreement concerning the property with any company to which the producer submitted the property during the term unless the producer is made a party to such agreement and engaged as a producer of the applicable production on terms to be negotiated in good faith between the producer and such company. In respect to clause (b), however, the smart writer (or smart lawyer for the writer) will insert a common exception: If the writer adds a new material element to the project after the term, such as, for instance, attaching Mark Wahlberg as executive producer, then the writer shall have no further obligation to the producer — the theory being that the new element is what sells the project. This is known as a “changed elements” clause.

Writer’s Approval of Potential Buyers

The Shopping Agreement generally allows the writer more involvement in the selling of the property than the Option Agreement, while putting more restrictions on the producer. Where an Option Agreement typically permits the producer to shop the property to any company she wants, the Shopping Agreement typically gives the writer written approval over where the producer can submit the property. This restriction allows the writer to keep track of the producer’s activities and prevents the producer from making poor choices (e.g., pitching the writer’s insightful biopic about F. Scott Fitzgerald to The Food Channel). The Writer’s Guild of America Basic Agreement, while it allows limited shopping of material with restrictions, gives its member writers approval over which companies can be shopped by signatory producers and imposes financial penalties for violations of this provision. Because this approval right may sometimes delay the producer’s efforts, the producer may ask the writer to pre-approve a list of target companies in the agreement. In addition to this approval right, the writer may ask, if he is an extrovert and is “good in a room,” that the producer schedule all pitch meetings with prospective buyers so that the writer can attend them and communicate his passion about the property.

Nature of Producer’s Rights

Another pitfall of the Shopping Agreement for the producer lies in the important distinction between a property right and a contractual right. Under an Option Agreement, the producer is granted the exclusive option to purchase the motion picture and television rights to the property during the specified term and consequently has exclusive control of these rights during this period. No one can circumvent her during the option period — not even a major studio. In contrast, under a Shopping Agreement the writer, retains full control and ownership of the rights at all times. The producer is simply granted the contractual right to shop the property to selected buyers. It is true that the Shopping Agreement generally provides that during the term (and sometimes after, to the extent described above), the writer will not enter into any contract with a company shopped by the producer unless the producer is engaged by that company as a producer of the project. But, in reality, if the writer becomes dissatisfied with the producer and decides to go around her back and sell the rights himself, it will be very difficult for the producer to stop the resulting sale. Her sole recourse will usually be an expensive and time-consuming breach of contract lawsuit.

Nature of Writer’s Rights

As noted, the Shopping Agreement generally provides that the writer retains 100 percent ownership of all rights in the property unless and until he enters into a development agreement with a buyer. Despite this ownership, a rare but serious pitfall for the writer can arise if the producer is allowed to add to, or subtract material from, the property during the term. Such modifications may consist simply of giving a few notes, suggesting a couple concepts or making minor tweaks. Nevertheless, I have seen nasty situations arise where a bitter producer, unhappy that the writer did not extend her shopping period or accept a proposed deal, later claimed that the minor revisions she made to the property transformed the property into a “joint work” under U.S. copyright law, making her a joint owner of the copyright with joint control over the sale of the property. Although this happens with screenplays, it more often occurs when the property being shopped is a TV series format, since such formats are fairly fluid and are often revised during the term. The problem can arise under Option Agreements, but is much more likely to arise under Shopping Agreements where the relationship between the writer and producer is often not clearly defined. It is critical that the writer protect himself against this calamity. One way is to provide in the contract: (a) that the producer shall have no right to alter or develop the property in any way absent a separate written agreement with the writer; and (b) that the producer’s services are a work-made-for-hire under U.S. copyright law specially commissioned by the writer for use as part of a motion picture or other audio-visual work and, accordingly, the writer is the exclusive author and owner of all results and proceeds of producer’s services including, but not limited to, any materials created by the producer and the copyrights therein and extensions and renewals thereof. That way, if the producer does make revisions, the writer will own them. The Shopping Agreement should further provide that upon the expiration of the term, the producer will have no further right to shop the property to any parties, or to use or disseminate any elements of the property for any purpose whatsoever and will immediately return to the writer all physical materials respecting the property in her possession.

Warranties and Indemnities

As in an Option Agreement, the writer will typically warrant and represent that he is the sole and exclusive owner of the property and that nothing contained in the property, to the best of his knowledge, infringes upon or violates any personal, contractual or proprietary rights of any person or entity. The producer will typically warrant and represent that she has the unrestricted right and power to enter into the agreement and that she will not enter into any agreements on the writer’s behalf or commit him to any obligations or expenses regarding the property. Because of the problem discussed in paragraph six, it is also helpful to have the producer warrant and represent that she will not make any changes or alterations of any kind to the property without the writer’s separate written agreement. The parties generally agree to indemnify each other for any damages, claims, liabilities, etc., arising from a breach of these warranties and representations.

Writer’s Approval of Proposed Deals

Without a doubt, however, the biggest difference between the Option Agreement and the Shopping Agreement, and the biggest pitfall of the Shopping Agreement for the producer, is the difference in the writer’s power to approve the terms of the sale of the property. Under an Option Agreement, the purchase price, back-end compensation, passive royalties and other terms regarding the writer’s sale of the property are agreed upon in advance by the writer and producer. At any time during the option period, the producer (or her assignee) can exercise her option and purchase the motion picture and television rights to the property by simply paying the agreed-upon purchase price. The writer cannot change his mind or withhold approval. In stark contrast, under the Shopping Agreement, the writer reserves the exclusive right to approve or disapprove, usually in his sole discretion, any prospective deal for the sale of the property that the producer presents to him. In fact, the producer may bring the writer a solid offer, but the writer can veto it because he doesn’t like the company, because he is holding out for an unrealistic amount of money or simply because he no longer likes the producer. The Shopping Agreement will typically provide not only that the writer retains approval, in his sole discretion, over any proposed deal regarding the property, but also provides that the producer is not an agent of, or partner or joint venturer with, the writer and has no authority to enter into any contract on the writer’s behalf or to commit the writer to any obligations or expenditures of any kind; no agreement for the option, sale or assignment of any rights in the property will be valid unless it is in writing and signed by the writer. The producer will often seek to modify this restriction. However, the experienced writer, or the attorney for the writer, will usually agree at the most to state that the writer will exercise his approval rights reasonably and in good faith — a vague term that is difficult to enforce.

Consequently, while the Shopping Agreement may seem like a cheap “quickie” alternative to an Option Agreement, there are significant drawbacks to using this type of contract. Because of these drawbacks, both parties are usually better off investing a little more energy and money to negotiate an Option Agreement that clearly establishes the amount and types of compensation the writer will receive if his property is purchased, gives the producer control over the property and defines the scope of the producer’s and writer’s respective rights in the property. A little investment at the beginning of the relationship can prevent a lot of headaches up the road.

[This article is not intended to be legal advice of any kind. It is purely intended for the purposes of general education and general discussion

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