INTRODUCTION
An option and literary purchase agreement is a legal contract in which the author of a book, magazine, screenplay, or any other copyrighted work grants exclusive rights to another party, typically a film company, to acquire the copyrights to adapt and produce the work into a motion picture, such as a movie or TV show. The right to purchase granted in the contract is limited to a specific period known as the option period. An option fee is paid for the right to purchase, and the actual production right is subsequently purchased within the option period. Poorly drafted contracts of this nature can give rise to various issues, hence, there are several key considerations worth noting.
OPTION FEE
The option fee, paid at the beginning of the contract, establishes a binding agreement between the parties and grants exclusive rights to the purchaser to acquire the right to produce within the specified option period. Clear provisions should be included in the agreement to indicate that the option fee is non-refundable, even if the purchaser fails to exercise the option. This is so especially if the causes of such failure are not attributable to the seller.
PURCHASE PRICE
In an option agreement, the most important item to discuss and reach a consensus on is the purchase price. Without the purchase price, the purchaser may have paid the option fee for nothing. If the parties fail to agree on the purchase price after paying for the option, the purchaser may have paid for an option to purchase that cannot be exercised, a worthless right. The author may demand an excessive purchase price that the purchaser may be unwilling or unable to pay. The purchaser may be able to part with an amount too small for the author, the haggling on the purchase price may end in a stalemate, and the right to purchase may never be exercised after all.
Determining the purchase price is of utmost importance and requires careful negotiation. Failure to reach an agreement on the purchase price could render the option fee futile. Considerations such as inflation, project size, and available funding should be taken into account. A percentage of the production cost, along with a base amount and a ceiling, can provide a flexible and fair framework for the purchase price.
CHANGES TO THE WORK
Addressing potential changes to the original work is crucial to avoid disputes. The parties must agree on the purchaser's right to modify the work while preserving the author's intended message. Waiving moral rights may be necessary in cases where significant changes are required. This clause may settle situations where the author may be embarrassed at the poor adaptation, changes, and modifications that may be made to the original work by the producer by providing for such changes.
In some circumstances, the author's interest in granting the right may not only be for pecuniary gains but also for the wider publication of his work or to send his message to a wider audience. He would have failed to realise that dream with the contract if the producer radically changed the story such that it lost the message sought to be conveyed.
The idea behind preserving the work in its original form is the rationale for “moral rights” in intellectual property. Countries like France expressly grant these rights, but there is no express recognition of them in the USA. But even in climes that recognise moral rights, that will have to be waived in the agreement if the purchaser intends to make changes. There is therefore a need for parties to agree on this.
CREDIT ATTRIBUTION
Credit attribution in the produced work is another important point of contention. The agreement should establish a consensus on how the author will be acknowledged and credited for their original work, considering any modifications or additions made during adaptation. The work subsequently produced by the purchaser may take a different form and may have undergone some modification in plot, settings, story, and character. There may have been valuable additions and improvements to the original work as well.
Therefore, the argument over whether the author should be expressly acknowledged and given credit for the work in the body of the work could lead to serious disagreements. The author may not be credited, whereas the purchaser may feel he has gotten his due; this is a serious point to be considered at the pre-contract stage and calls for a consensus ad idem.
WARRANTY AND INDEMNIFICATION
Warranty and indemnification provisions protect the purchaser from claims of breach and ensure that the author holds no conflicting or pending rights. Determining the extent of warranties, whether absolute or to the best of the author's knowledge, is a critical consideration. Warranties must certainly be made by the author to the purchaser. This protects and will ultimately indemnify the purchaser in the event of a claim of breach of any right of a third party. The argument is often whether such warranties should be absolute or to the best of the knowledge of the authors or sellers. The writer will often warrant that the work does not defame or invade anyone’s privacy or infringe on another’s copyright. Purchasers prefer warranties to be absolute, while the seller often wants the warranties to be to the best of his knowledge and belief.
Another important warranty should be that there are no similar rights already held by a third party that may conflict with or inhibit the exercise of the right granted in the contract. On the whole, the warranty must be certain that there is no supervening or conflicting interest or even litigation pending over the rights sought to be transferred. The warranty will necessarily go with indemnity; when a seller indemnifies a purchaser, the seller agrees to reimburse the purchaser for any litigation costs and monetary judgement that may result from a breach of warranty by the writer.
RENEWAL OF OPTION AND EXTENTION OF OPTION PERIOD
We live in a world of uncertainty, and the business environment is even more uncertain and sometimes unpredictable. There is therefore a need to provide in an option agreement a clause to allow for renewal of the option contract if the right is not exercised or not gainfully exercised within the first term. The purchaser may not successfully get enough funding to exercise the right.
Moreover, there are lots of supervening circumstances that may interfere, delay, or outright make the exercise of the option impossible. Where such circumstances or events are beyond the control of the parties, the option period should be extended to cover the period of such circumstances where it was impossible to exercise the option. Natural disasters, pandemics, war, riots, and government policies, are some of the circumstances to consider under this heading.
ASSIGNMENT
Parties need to agree to what extent the rights granted in the contract may be reassigned to a third party by the purchaser. The purchaser may not have the funds to solely finance the production and so may wish to finance the same in collaboration with a third party, who may also retain some rights in the original contract. Assigning those rights may amount to a re-assignment of the rights granted in the option agreement.
More so, the financier may expressly want to be sold the right to produce under a scheme that will enable the purchaser to make some profit from the production. It is therefore important to agree that “this option agreement and the rights granted hereunder may be assigned by the producer to any other person, firm, or corporation, without the consent of the seller." Where it is with the consent of the seller, it should be noted that the same should not be unreasonably denied.
DISPUTE RESOLUTION
Dispute resolution mechanisms, such as arbitration, should be included to provide a fair and efficient means of resolving conflicts between the parties. An arbitration clause with specific ways of appointing the arbitrators should be mentioned, preferably, arbitrators should be from the industry.
Arbitration, mediation or negotiation should be adopted to avoid the rigours of litigation which will be time-consuming and expensive for both parties, in some cases, the cost of arbitration may be higher than the purchase price or option fee and before the lawsuit is decided in court, the option period would have elapsed. Arbitration is therefore advisable as the suitable means of resolving disputes arising from option and literary purchase contracts.
TERMINATION
The termination clause of this contract must be designed to protect the interest of the purchaser. Ideally, the purchaser ought to have the right to terminate the contract at any time and forgo his right to purchase, or even after purchase, abandon the production and call off the contract with a notice to that effect, especially as there should also be a clause that the purchaser is under no obligation to produce. So cannot be said of the seller, who ought not to be allowed to call off the contract at any time, as this may infringe on the right of the purchaser to exercise the option or even hinder an ongoing production after a purchase.
Furthermore, there the option and literary purchase agreement must protect the purchaser by ensuring that any circumstance that may necessitate a termination by the author must be communicated to the purchaser and adequate notice given. Also, what would constitute adequate compensation to the purchaser under the circumstance must be clearly defined in the contract.
CONCLUSION
In conclusion, the option and literary purchase agreement is a complex and significant contract that holds the key to the adaptation and production of copyrighted works into motion pictures. It is crucial for the parties involved, particularly the author and the purchaser, to address several critical aspects to ensure a fair and mutually beneficial agreement.
