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Monday, June 27, 2016

The Star Trek Fan Film 10 Commandments

I'm going to take another break this week from my Comics Startup 101 series to tackle the new Star Trek Fan Film Guidelines released by CBS and Paramount. The Comics Startup 101 series will return next week addressing protecting your intellectual property.

The Impact of the Star Trek Fan Film 10 Commandments

I recently blogged about the legality of fan art, and you can find that post here. One of the main takeaways from my last post on fan art is that I believe it to be in violation of an IP owner’s rights. However, unless the fan art is being sold, most IP owners would not feel the need to sue or otherwise take actions against a fan artist. A few days after my last post on the fan art question, CBS and Paramount, the studios controlling the rights to Star Trek, announced ten “Guidelines for Avoiding Objections” fan film creators can follow in order to avoid the legal wrath of the studios. These Fan Film 10 Commandments, as I like to call them, are a great tool for determining how far is too far when using IP you don’t own for fan art, fiction, films, etc.

The guidelines were released as a reaction to a lawsuit filed by the studios against producers attempting to create a high-quality, feature-length Star Trek film set before the original Star Trek series titled Axanar. You can find more background information on the lawsuit here, but one of the key facts to keep in mind is that this unlicensed fan film had raised more than $1 Million through crowdfunding. Even though CBS and Paramount have allowed fan films and fan series to be produced in the past without legal challenge, they apparently felt the planned Axanar film went too far. After a bit of a backlash from the Star Trek fan community, including a harsh statement from the director of Paramount’s upcoming Star Trek Beyond film, the studios released a set of guidelines for fans to follow in order to prevent the studios from objecting or taking legal action against the fan-created films.

Here are the “Guidelines for Avoiding Objections”:

1) The fan production must be less than 15 minutes for a single self-contained story, or no more than 2 segments, episodes or parts, not to exceed 30 minutes total, with no additional seasons, episodes, parts, sequels or remakes.

2) The title of the fan production or any parts cannot include the name “Star Trek.” However, the title must contain a subtitle with the phrase: “A STAR TREK FAN PRODUCTION” in plain typeface. The fan production cannot use the term “official” in either its title or subtitle or in any marketing, promotions or social media for the fan production.

3) The content in the fan production must be original, not reproductions, recreations or clips from any Star Trek production. If non-Star Trek third party content is used, all necessary permissions for any third party content should be obtained in writing.

4) If the fan production uses commercially-available Star Trek uniforms, accessories, toys and props, these items must be official merchandise and not bootleg items or imitations of such commercially available products.

5) The fan production must be a real “fan” production, i.e., creators, actors and all other participants must be amateurs, cannot be compensated for their services, and cannot be currently or previously employed on any Star Trek series, films, production of DVDs or with any of CBS or Paramount Pictures’ licensees.

6) The fan production must be non-commercial:

· CBS and Paramount Pictures do not object to limited fundraising for the creation of a fan production, whether 1 or 2 segments and consistent with these guidelines, so long as the total amount does not exceed $50,000, including all platform fees, and when the $50,000 goal is reached, all fundraising must cease.

· The fan production must only be exhibited or distributed on a no-charge basis and/or shared via streaming services without generating revenue.

· The fan production cannot be distributed in a physical format such as DVD or Blu-ray.

· The fan production cannot be used to derive advertising revenue including, but not limited to, through for example, the use of pre or post-roll advertising, click-through advertising banners, that is associated with the fan production.

· No unlicensed Star Trek-related or fan production-related merchandise or services can be offered for sale or given away as premiums, perks or rewards or in connection with the fan production fundraising.

· The fan production cannot derive revenue by selling or licensing fan-created production sets, props or costumes.

7) The fan production must be family friendly and suitable for public presentation. Videos must not include profanity, nudity, obscenity, pornography, depictions of drugs, alcohol, tobacco, or any harmful or illegal activity, or any material that is offensive, fraudulent, defamatory, libelous, disparaging, sexually explicit, threatening, hateful, or any other inappropriate content. The content of the fan production cannot violate any individual’s right of privacy.

8) The fan production must display the following disclaimer in the on-screen credits of the fan productions and on any marketing material including the fan production website or page hosting the fan production:
“Star Trek and all related marks, logos and characters are solely owned by CBS Studios Inc. This fan production is not endorsed by, sponsored by, nor affiliated with CBS, Paramount Pictures, or any other Star Trek franchise, and is a non-commercial fan-made film intended for recreational use. No commercial exhibition or distribution is permitted. No alleged independent rights will be asserted against CBS or Paramount Pictures.”

9) Creators of fan productions must not seek to register their works, nor any elements of the works, under copyright or trademark law.

10) Fan productions cannot create or imply any association or endorsement by CBS or Paramount Pictures.

As you can tell from the guidelines, Commandment 6, with its six subsections, seems to be pretty important. Basically, the primary thing that will attract the attention and ire of an IP rights holder is trying to profit from their IP. If they are not followed, the other two Commandments that are likely to trigger a response from rights holders are 7 and 9. If a rights holder believes the fan art is harmful to the reputation of its IP, then it will probably act. A rights holder will also act if it believes someone is trying to obtain rights to its works.

Commandments 1 through 5 seem to apply only to Star Trek related fan films, but they may prove instructive. If your work is substantial enough to pose a financial threat to the rights holder’s authorized works, then it will probably cause them to act. Additionally, if your work incorporates elements that could create confusion as to whether or not it is authorized (e.g., clips from the show, actors associated with the show, or misrepresents who is creating it), then it may force them to act.

What does the CBS/Paramount Fan Film 10 Commandments mean for fan film, fan fiction, and fan art going forward? While I am certain some fans will find these guidelines to be drastic and overbearing, I actually think they help shed light on how IP rights holders view unauthorized use of their intellectual property and are very instructive in gauging the risk of creating fan art, fan fiction, and fan films. While not every rights holder will be as permissive as CBS and Paramount, these Commandments offer clear guidance as to what will be allowed, and I’m guessing other companies use similar criteria in their decision making.

Monday, June 20, 2016

Comics Startup 101 - Intellectual Property Overview

Comics Startup 101: Legal and Business Tips for the Independent Comics Creator

Part 5: Intellectual Property Overview

This post is part of a series that grew out of my Comics Startup 101 panel I presented with comics creators at various comic book conventions around the Midwest. You can find the first post discussing doing a clearance search here, the second post discussing choosing a business entity here, the third post discussing contracts (part I) here, the fourth post discussing contracts (part II) here. Today, we will give a brief overview of intellectual property law that impacts comic book creators.

As always, I must disclaim that this is not meant to be an in-depth guide, nor is it meant to be complete legal advice. Any information provided in these posts is general in nature and should not be relied upon as legal advice. Meaningful legal advice cannot be given without a full understanding of all relevant facts relating to an individual’s situation. As such, you should consult with an attorney for specific legal advice that you might need.

Intellectual Property Overview

As a creator, you should be aware of the laws relating to intellectual property. Generally speaking, there are three areas of intellectual property law – patent, copyright, and trademark. A fourth area of law, right of publicity, is sometimes lumped in with intellectual property rights even though it arises from a person’s right to privacy. In all likelihood, you will not have to worry about patents as you create your comic, and we will not discuss them here. Copyright, trademark, and right of publicity law will be important to you.

Copyright protection is granted by federal law.[1] It protects “original works of authorship fixed in any tangible medium of expression.”[2] Included works of authorship are “(1) literary works; (2) musical works, including any accompanying words; (3) dramatic works, including any accompanying music; (4) pantomimes and choreographic works; (5) pictorial, graphic, and sculptural works; (6) motion pictures and other audiovisual works; (7) sound recordings; and (8) architectural works.”[3] The Copyright Act grants exclusive rights to the creator of the work for the life of the creator plus seventy years,[4] or 95 years from the date of first publication or 120 years from the date of creation, whichever is shorter, for works made for hire, anonymous and pseudonymous works.[5] Technically, you do not need to register your copyright.[6] However, in order to enjoy the full benefits of copyright protection, you must register your copyrighted work with the U.S. Copyright office within three months of publication of the work.[7] Some of the benefits of registration include 1) a public record of your copyright claim, 2) statutory damages and attorney’s fees in an infringement lawsuit (if registration is filed within three months of publication), 3) and the ability to prevent the importation of infringing copies of your work.[8] A copyright registration may be filed with the Copyright Office at any time during the term of copyright protection, but there are certain benefits to registering early within the copyright term as we discussed above.[9]

Trademarks are used as source indicators for goods and services (also known as service marks).[10] Trademark rights can be protected as long as your trademark is in use, and, if the mark is registered with the USPTO, you have filed all the required documents showing continued use.[11] Trademark rights arise from use in commerce.[12] Generally speaking, the first person or company to use a trademark for their goods or services has acquired some rights to prevent others from doing so, even if the trademark is not registered with the USPTO.[13] In order to have the broadest protection available, a trademark should be registered with the USPTO. The benefits of registering a trademark with the USPTO include “[p]ublic notice of your claim of ownership of the mark; [a] legal presumption of your ownership of the mark and your exclusive right to use the mark nationwide on or in connection with the goods/services listed in the registration; [t]he ability to bring an action concerning the mark in federal court; [t]he use of the U.S. registration as a basis to obtain registration in foreign countries; [t]he ability to record the U.S. registration with the U.S. Customs and Border Protection (CBP) Service to prevent importation of infringing foreign goods; [t]he right to use the federal registration symbol ®; and [l]isting in the United States Patent and Trademark Office's online databases.”[14] It is important to note, however, that in order for a trademark to be registered with the federal government, it must be used in interstate commerce.[15] It is possible for an image or logo to be eligible for both trademark and copyright protection.[16] For example, Superman’s S shield arose as a copyrightable image/design, but it has also become an indicator of goods and services for DC Comics and a registered trademark for belt buckles,[17] toys,[18] sporting goods,[19] electronic games,[20] motion pictures,[21] comic magazines,[22] and many other types of goods. So, it is both copyrighted and a trademark.

The right of publicity is the final area of law you will need to be aware of as a creator. Even though the right of publicity might not technically be an intellectual property right, it is nonetheless lumped in with these for good reason. It arose out of a person’s right to privacy.[23] However, as the law developed over time, it was accepted that in addition to a right to privacy, a person has a right to control how their likeness was exploited for financial gain.[24] The right of publicity allows someone, typically a celebrity, to control how their image or likeness is exploited for commercial purposes.[25] The right of publicity has been adopted in some form in over half of the states.[26] The right differs from state to state and can apply to “sound alikes; look-alikes; use of the celebrity’s nickname in a fictional work; use of address; statues; and the use of a robot that barely resembles the celebrity but evokes her image.”[27] Generally speaking from my own experience, the right of publicity is a very broad legal doctrine that can pose serious problems for creators trying to evoke the likeness of a living person or celebrity.

Next week: Protecting your intellectual property.

[1] U.S. Copyright Office, Copyright Basics, http://www.copyright.gov/circs/circ01.pdf (last visited April 15, 2016).

[2] 17 U.S.C. §102(a).

[3] Id.

[4] 17 U.S.C. §302(a).

[5] Circular 15a, Duration of Copyright, 1, U.S. Copyright Office, http://www.copyright.gov/circs/circ15a.pdf (last visited May 24, 2016)..

[6] 17 U.S.C. §408(a).

[7] 17 U.S.C. §407(a).

[8] U.S. Copyright Office, Copyright Basics, http://www.copyright.gov/circs/circ01.pdf (last visited April 15, 2016).

[9] See Id.

[10] What is a trademark?, United States Patent and Trademark Office, http://www.uspto.gov/learning-and-resources/trademark-faqs (last visited April 18, 2016).

[11] How long does a trademark registration last?, United States Patent and Trademark Office, http://www.uspto.gov/learning-and-resources/trademark-faqs (last visited April 18, 2016).

[12] Must I register my trademark?, United States Patent and Trademark Office, http://www.uspto.gov/learning-and-resources/trademark-faqs (last visited April 18, 2016).

[13] What are “common law” rights?, United States Patent and Trademark Office, http://www.uspto.gov/learning-and-resources/trademark-faqs (last visited April 18, 2016).

[14] What are the benefits of federal trademark registration?, United States Patent and Trademark Office, http://www.uspto.gov/learning-and-resources/trademark-faqs (last visited April 18, 2016).

[15] See What is “interstate commerce”?, United States Patent and Trademark Office, http://www.uspto.gov/learning-and-resources/trademark-faqs (last visited April 18, 2016).

[16][16] See What is a copyright?, United States Patent and Trademark Office, http://www.uspto.gov/learning-and-resources/trademark-faqs (last visited April 18, 2016).

[17] Trad. Reg. No. 4656403, Registered Dec. 16, 2014.

[18] Trad. Reg. No. 2211378, Registered Dec. 15, 1998.

[19] Id.

[20] Id.

[21] Trad. Reg. No. 2226415, Registered Feb. 23, 1999.

[22] Trad. Reg. No. 1173150, Registered Oct. 13, 1981.

[23] Stacey L. Dogan & Mark A. Lemley, What the Right of Publicity Can Learn from Trademark Law, 58 Stanford Law Review 1161, 1167-73 (2006).

[24] Id at 1167-74.

[25] Id at 1174.

[26] Id.

[27] Id. At 1174-75 (internal citations omitted).

Saturday, June 11, 2016

Is fan art legal?

I'm going to take a quick break this week from my Comics Startup 101 series to answer a question I've seen asked a lot lately.

Is fan art legal?

Being an intellectual property lawyer who is passionate about comics, one of my pastimes at conventions is to walk artist alley and the exhibition hall floor and guess who is selling prints and merchandise bearing unauthorized images of characters and actors. Whenever I have hosted my Comics Startup 101 panels at conventions and we start talking about intellectual property, the question of whether fan art is legal frequently comes up. The short answer, in my opinion, is no.

However, let’s take a more nuanced look at the reasons why I feel this way. Just to make sure we are all on the same page, when I speak of fan art, I am talking about art generated by a fan of a particular character, story, movie or other medium that is created without authorization from the owner of the property being depicted or from the person being depicted.

In order to determine whether fan art is legal under intellectual property laws, we have to look at copyright, trademark, and right of publicity laws. Below, I am going to briefly discuss these areas of law as they relate to fan art. Keep in mind that these are very complex areas of law that can fill entire books. What I will be discussing here is just a brief overview.

Trademarks are used to identify the source of goods and services.[7] Trademark rights arise from use in commerce, [8] and they can be protected as long as your trademark is in use.[9] Generally speaking, the first person or company to use a trademark for their goods or services has acquired some rights to prevent others from doing so, even if the trademark is not registered with the U.S. Patent and Trademark Office (“USPTO”).[10] In order to have the broadest protection available, a trademark should be registered with the USPTO. It is important to note, however, that in order for a trademark to be registered with the federal government, it must be used in interstate commerce.[11]

Of particular interest to our discussion, it is possible for an image or logo to be eligible for both trademark and copyright protection.[12] For example, Superman’s S shield arose as a copyrightable image/design, but it has also become an indicator of goods and services for DC Comics and a registered trademark for belt buckles,[13] toys,[14] sporting goods,[15] electronic games,[16] motion pictures,[17] comic magazines,[18] and many other types of goods. So, it is both a trademark and protected by copyright.

The right of publicity is the final area of law we need to discuss. Even though the right of publicity might not technically be an intellectual property right, it is nonetheless lumped in with these for good reason. It arose out of a person’s right to privacy.[19] However, as the law developed over time, it was accepted that in addition to a right to privacy, a person has a right to control how their likeness is exploited for financial gain.[20] Therefore, the right of publicity allows someone, typically a celebrity, to control how their image or likeness is used for commercial purposes.[21] The right of publicity has been adopted in some form in over half of the states.[22] The right differs from state to state and can apply to “sound alikes; look-alikes; use of the celebrity’s nickname in a fictional work; use of address; statues; and the use of a robot that barely resembles the celebrity but evokes her image.”[23] The right of publicity is a very broad legal doctrine that can pose serious problems for creators trying to evoke the likeness of a living person or celebrity.

Based on what we’ve discussed above, I believe most fan art to be a violation of intellectual property laws. Typically, we have a fan creating an image of a popular character, such as Iron Man, without the permission of Marvel. Even though the fan’s image may be distinct from other interpretations of Iron Man in the past, a copyright holder has the right to reproduce their works and to create derivative works. It is my belief that a fan creating an unauthorized Iron Man image is in violation of Marvel’s copyright rights. Additionally, because Marvel licenses Iron Man’s image for use on merchandise, the fan could be in violation of Marvel’s trademark rights. If the fan is selling copies of their art, then the question of whether it violates Marvel’s rights is even easier to decide in Marvel’s favor. The right of publicity comes into play if this fan art is of Robert Downey, Jr.’s Iron Man. Not only would the fan be in violation of Marvel’s intellectual property rights, he could also be in violation of RDJ’s right of publicity.

If you are going to create fan art, then you should tread carefully. In all likelihood, drawing an image of your favorite character and posting it online will not get you sued. It’s generally not in large media companies’ interests to go after fans. If anything, you might get a request to remove the image. However, if you are creating unlicensed fan art and selling it online or at conventions, the risk of legal trouble increases greatly.

You might be asking, “What about fair use?” It is true that fair use is a limitation on a copyright holder’s exclusive rights. If a work of art qualifies for the fair use exception, then it is found to not infringe another’s copyrighted material. The language of the statute reads:

“…[T]he fair use of a copyrighted work, including such use by reproduction in copies or phonorecords or by any other means specified by that section, for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright. In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include—

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

(2) the nature of the copyrighted work;

(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

(4) the effect of the use upon the potential market for or value of the copyrighted work.

The fact that a work is unpublished shall not itself bar a finding of fair use if such finding is made upon consideration of all the above factors.”[24]

Fair use is a strong defense against a copyright infringement claim. However, you may have to go to court to assert it, which could be costly, and it is not always consistently applied, which makes it difficult to predict an outcome. Relying on fair use to save you is not the best idea.

So, is fan art legal? Unless your work qualifies for fair use under the copyright act and doesn’t infringe on any trademark or right of publicity rights, then it might be. However, your typical artist alley renderings of Iron Man, Benedict Cumberbatch’s Sherlock Holmes, or all of the Doctors are most likely going to be found an infringement. Draw carefully.

[1] U.S. Copyright Office, Copyright Basics, http://www.copyright.gov/circs/circ01.pdf (last visited April 15, 2016).

[2] 17 U.S.C. §102(a).

[3] Id.

[4] 17 U.S.C. §302(a).

[5] 17 U.S.C. §106(1).

[6] 17 U.S.C. §106(2).

[7] What is a trademark?, United States Patent and Trademark Office, http://www.uspto.gov/learning-and-resources/trademark-faqs (last visited April 18, 2016).

[8] Must I register my trademark?, United States Patent and Trademark Office, http://www.uspto.gov/learning-and-resources/trademark-faqs (last visited April 18, 2016).

[9] How long does a trademark registration last?, United States Patent and Trademark Office, http://www.uspto.gov/learning-and-resources/trademark-faqs (last visited April 18, 2016).

[10] What are “common law” rights?, United States Patent and Trademark Office, http://www.uspto.gov/learning-and-resources/trademark-faqs (last visited April 18, 2016).

[11] See What is “interstate commerce”?, United States Patent and Trademark Office, http://www.uspto.gov/learning-and-resources/trademark-faqs (last visited April 18, 2016).

[12][12] See What is a copyright?, United States Patent and Trademark Office, http://www.uspto.gov/learning-and-resources/trademark-faqs (last visited April 18, 2016).

[13] Trad. Reg. No. 4656403, Registered Dec. 16, 2014.

[14] Trad. Reg. No. 2211378, Registered Dec. 15, 1998.

[15] Id.

[16] Id.

[17] Trad. Reg. No. 2226415, Registered Feb. 23, 1999.

[18] Trad. Reg. No. 1173150, Registered Oct. 13, 1981.

[19] Stacey L. Dogan & Mark A. Lemley, What the Right of Publicity Can Learn from Trademark Law, 58 Stanford Law Review 1161, 1167-73 (2006).

[20] Id at 1167-74.

[21] Id at 1174.

[22] Id.

[23] Id. At 1174-75 (internal citations omitted).

[24] 17 §107.

Tuesday, May 31, 2016

Comics Startup 101 - Contracts, Part II

Comics Startup 101: Legal and Business Tips for the Independent Comics Creator

Part 4: Contracts, Part II

This post is part of a series that grew out of my Comics Startup 101 panel I presented with comics creators at various comic book conventions around the Midwest. You can find the first post discussing doing a clearance search here, the second post discussing choosing a business entity here, and the third post discussing contracts (part I) here. Today, we will talk about understanding and using other parties' contracts.

The Contracts of Others

When dealing with contracts from other parties, keep in mind what we talked about in the post on negotiating power and your own contracts. How much will it cost? What will I be doing for them? What will they be doing for me? How long is the agreement? These are some of the primary questions you should be asking, and the answers to them should be reflected in the agreement you are reading. You should also make sure that you understand every section, paragraph, and sentence of the agreement. You do not want to unknowingly give away your rights to your creation or give them an unlimited license to your work. One final tip, if an agreement seems too short, make sure they are not incorporating outside documents into the agreement. I have seen too many people read a one-page contract and fail to follow up with any other document mentioned in it or any hyperlink with additional terms and conditions buried in the agreement. Failing to do so could lead to your unwittingly agreeing to unfavorable contract terms.

For an example of making sure you understand everything in your contract and the possible ramifications, let us look at Alan Moore. Alan Moore gave us, along with Dave Gibbons, one of the most popular and revered graphic novels of all-time: Watchmen. Since creating Watchmen, V for Vendetta, and many other notable titles for DC Comics and its imprints, Moore has had a falling out with the company. His primary reason: he is upset about language in his contract that would return the rights to his creations to him when the comics went out of print.[1] This is a great example of making sure you understand the language in your contract and how it might apply. Moore is upset because this language allowing him to regain the rights to his creations was written into the contract, but the comics have proved so popular that they have never gone out of print. While the language is there, it has become meaningless. So long as DC continues to print Watchmen and V: For Vendetta, Moore will not see the rights to these creations returned to him. While it is easy to understand why he is upset by this situation, it sounds as if it was clearly spelled out in the agreements he signed. As stated above, it is important to understand all of the language in the contracts you are agreeing to and understand the ramifications of that language.

Next: In two weeks, we will start our discussion of intellectual property issues in comic books.

[1] Itzikoff, Dave, The Vendetta Behind ‘V for Vendetta’, NYTimes.com, Mar. 12, 2006, http://www.nytimes.com/2006/03/12/movies/12itzk.html?_r&_r=0 (last visited March 25, 2016).

Monday, May 23, 2016

Comics Startup 101 - Contracts, Part I

Comics Startup 101: Legal and Business Tips for the Independent Comics Creator

Part 3: Contracts, Part I

This post is part of a series that grew out of my Comics Startup 101 panel I presented with comics creators at various comic book conventions around the Midwest. You can find the first post discussing doing a clearance search here, and the second post discussing choosing a business entity here. Today, we will be discussing negotiating contracts and using contracts to protect your work.

Contracts

I cannot stress enough how important contracts are to businesses. It is important that you have your own contracts for services you provide and the people you hire. It is also important that you pay attention to the contracts you sign. If you sign an agreement, then you are bound to all of the provisions contained in the contract.

1) Negotiating power

When you are presented with a contract, remember that it is a negotiation. If someone presents you with a contract to sign, read it. If you have no questions about anything in the contract and have no objections to what is being stated in the contract, then you can sign it. If there are things you don’t understand, ask for clarifications. If there is language in the agreement you are uncomfortable with, ask for changes. In most cases, the worst thing they can do is say no.

While negotiating contracts, do keep in mind which party has the negotiating power. Do you desperately want to work with them? Then they may have the negotiating power to dictate terms. Do they desperately want to work with you? Then you may have the negotiating power to change terms you dislike. Are there other options for you if the other party isn’t willing to work you? Then you have some leverage. Keep all of these in mind as you are negotiating your contracts, and remember, with great negotiating power comes great responsibility – use it wisely and don’t abuse it.

2) Using your own contracts

If you will be hiring others to work on your comic, you should have them sign a contract. The basics that should be in the agreement: how much you will pay them, what they will do for you, and when they will do it. It is also a good idea to clearly spell out who owns the intellectual property, artwork, etc. Failing to do so could lead to major problems down the road.

For an example, look no further than the Angela saga involving Todd McFarlane and Neil Gaiman. In 1992, McFarlane asked Gaiman to write a story for his Spawn comic book series.[1] Gaiman and McFarlane did not have a written agreement outlining copyright ownership, “nor, for that matter, of how Gaiman would be compensated for his work, beyond McFarlane's assuring Gaiman that he would treat him "better than the big guys" did.”[2] The story in question, Spawn #9, introduced three new characters, one of which was called Angela,[3] and was a huge success.[4] This character was very popular with the readers of the Spawn series, and McFarlane and Gaiman agreed to use her in her own mini-series.[5] After a few years had passed, Gaiman claimed that he was a co-owner of the character and sued.[6] A court found that both owned an interest in the character,[7] and McFarlane conceded that Gaiman was a co-owner of Angela.[8] After a decade of litigation, the two sides settled,[9] with Gaiman transferring his rights to the character to Marvel Comics.[10] Had McFarlane and Gaiman entered into an agreement spelling out agreed upon compensation and ownership rights at the beginning of their relationship, a lengthy legal battle could have been avoided and Angela might still be in the Spawn universe.

Next week: Contracts, Part II

[1] Gaiman v. McFarlane, 360 F.3d 644 (7^th Cir. 2004), at 649.

[2] Gaiman v. McFarlane, 360 F.3d 644 (7th Cir., 2004), at 649.

[3] Id at 650.

[4] Id at 651.

[5] Id.

[6] Id at 652.

[7] Id. at 644.

[8] Id at 657.

[9] Gaiman v. McFarlane (W.D. Wis. 2012).; Associated Press, Neil Gaiman, Todd McFarlane settle long-running Spawn lawsuit, CBC.com, Jan 31, 2012, http://www.cbc.ca/news/arts/neil-gaiman-todd-mcfarlane-settle-long-running-spawn-lawsuit-1.1277283 (last visited (March 14, 2016).

[10] Boucher, Geoff, FIRST LOOK: Neil Gaiman’s avenging Angela will make Marvel history, EW.com, May 09, 2013, http://www.ew.com/article/2013/05/09/neil-gaiman-angela-age-of-ultron (last visited March 14, 2016).

Monday, May 16, 2016

Comics Startup 101 - Choosing a Business Entity

Comics Startup 101: Legal and Business Tips for the Independent Comics Creator

Part 2: Choosing a Business Entity

Diving In – Choosing a Business Entity

You’ve conducted a clearance search and have decided to move forward with creating your comic. The next thing to consider is whether to form a corporation. As I mentioned before, this is a good time to discuss your goals with an attorney and accountant. They can help guide you in the process.

You do not have to form a corporation in order to create your comic. Many people are self-employed without doing so. However, the benefit of forming a corporation is that you limit your personal liability for your business.[1] In this section, I’m going to primarily discuss the formation of a limited liability corporation. It is one of the most popular and easiest to form corporate entities for small businesses. Every state allows for the creation of LLCs. However, the laws and regulations governing an LLC vary by state.[2] You will have to choose the proper state for the creation of your LLC. Most likely, you will choose to form the LLC in the state where you reside or will conduct most of your business. However, some people choose to register in other states, such as Delaware, that cater more toward corporate entities. Cost, taxation, and personal and business location will be the main factors to consider in determining whether to form a corporation in your home state.

In determining whether or not to form a corporation, you will need to consider your risks, your ability to grow, and your ability to follow corporate formalities. If you are still uncertain about the longevity of your career as a comic creator, you may not want to form a corporation. If you do not believe that there is much personal risk to you in creating this comic, then you may not want to form a corporation. If you are not very good at observing and following certain, specific procedural rules, then you may not want to form a corporation.

1) Sole Properietorship

There is no requirement that you form a corporation in order to make your comic. There are many people out there who do not form a corporation to conduct business. If you don’t want to deal with the hassle and formalities of forming and running a corporation, you don’t have to. You may conduct your business yourself. However, you will be responsible for all of your business’ debt, liabilities, and losses. The main reason to form a business entity such as an LLC is to limit your personal liability for the expenses of the business.

2) Limited Liability Company

In order to create an LLC, you must file articles of organization with the proper state entity (Sec. of State, Department of Financial Institutions, etc.).[3] Depending on the state and the structure of your LLC, you may also have to draft and adopt an operating agreement.[4] You will also have to determine how your LLC will be taxed. Many LLCs are treated as separate tax entities, and instead of the LLC being taxed, the profits distributed to members are taxed on their personal income tax returns.[5] Different types of LLCs have different default classifications.[6] By consulting with an attorney and accountant, you can determine what LLC and tax classifications are the most appropriate for your business. As stated before, these rules can vary from state to state.

a) Single-member

In many states, you may form a single-member LLC.[7] If you are going to be the only person running the company, then this might be your LLC of choice. A single-member LLC provides you with many of the same legal protections as a multi-member LLC. However, the primary difference between the two is how the IRS treats a single-member LLC. Unless you specifically opt-out of it, the IRS will treat a single-member LLC as a disregarded entity for tax purposes.[8] This means that you will not have to file a separate tax return for your LLC. You will file the earnings and losses of your LLC along with your personal tax return.

b) Multi-member

A multi-member LLC is appropriate if your business will involve more than one person as an owner/member. The requirements are the same as for the single-member LLC. You must file with the proper agency in your state. However, it is more important to draft and adopt an operating agreement when you are in a multi-member LLC. You need lay out the responsibilities of the members, liabilities, voting procedures, dissolution procedures, and many more issues.

3) Corporations

Even though I said I’d mostly focus on LLCs, I felt I needed to at least touch on corporations. Generally speaking, there are not many instances where a corporation would be the proper entity of choice for an independent comic creator. Corporations are complex legal entities that require a significant amount of time and money to start and operate.[9] If you are just starting out making comics, then I would recommend an LLC or sole proprietorship. If your career is advancing and growing, then it could make sense to try and form a corporation.

a) S Corp.

The S Corporation deserves a short mention based on possible tax benefits it confers.[10] The primary benefit of an S Corporation is that it avoids possible double taxation on a corporation (corporate income tax and shareholder tax).[11] However, there are specific requirements a corporation must meet before they can qualify as an S Corporation.[12] Additionally, it is possible for an LLC to be taxed as an S Corporation, which could provide some tax savings.[13] In order to determine if an S Corporation or an LLC taxed as an S Corporation might be the right business entity for you, it is recommended you speak with your attorney and accountant, as the laws governing the taxation of these entities can vary from state to state.[14]
Next week: Using Contracts.

[1] Small Business Administration, Limited Liability Company, https://www.sba.gov/starting-business/choose-your-business-structure/limited-liability-company (last visited May 16, 2016).

[2] Id.

[3] Id.

[4] Id.

[5] Id.

[6] Id.

[7]Internal Revenue Service, Limited Liability Company, https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Limited-Liability-Company-LLC (last visited May, 2016).

[8] Id.

[9] Small Business Adminstration, Corporations, https://www.sba.gov/starting-business/choose-your-business-structure/corporation (last visited May 16, 2016).

[10] Small Business Adminstration, S Corporations, https://www.sba.gov/starting-business/choose-your-business-structure/s-corporation (last visited May 16, 2016).

[11] Id.

[12] See Internal Revenue Service, S Corporations, https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/S-Corporations (last visited May 16, 2016).

[13] Small Business Adminstration, S Corporations, https://www.sba.gov/starting-business/choose-your-business-structure/s-corporation (last visited May 16, 2016).

[14] Id.