I. Introduction

The monetary value of a film lies in the ability to exploit it. Since no company has the ability to exploit films in all media, much less in all territories, films must be exploited by entering into distribution agreements with third parties. The provisions of these distribution agreements are the life blood of all film companies, which live or die based on the provisions of their distribution agreements.

II. Types Of Distribution Agreements

Distribution agreements come in many flavors, and it is important to know what type of agreement is in question before analyzing any given issue. The various types of distribution agreements are discussed below.

A. Production/Finance/Distribution Agreement

In a production/finance/distribution agreement, commonly referred to as a "PFD agreement," a film company, typically a studio, hires a production company to produce a film, and the studio agrees to directly finance production of, and to distribute, the film. Under these agreements, the production company is little more than a dependent agent of the studio and is subject to the complete control of the studio on all aspects of production. The grant of distribution rights to the studio is always of all rights in perpetuity throughout the world, making the studio the complete and absolute owner of the film. The production company usually retains only a theoretical interest in net profits, if any, generated by the film.

B. Negative Pick-Up

A negative pick-up is similar to a PFD agreement except that the film company, again typically a studio, agrees to pay a fixed price upon delivery of the film to the studio. Because the studio does not advance the cost of production, the production company must obtain a loan to finance production, and the lender will almost always require a completion bond to guarantee completion and delivery of the film to the studio in order to trigger payment. Because of the introduction of the lender and the completion guarantor, these transactions are more complex than a PFD agreement.

Because the studio does not directly finance the cost of production, it usually does not have the same extensive controls over production as in the case of a PFD agreement. Thus, the production company typically retains more creative discretion than under a PFD agreement.

In most cases, the studio acquires worldwide rights in perpetuity upon delivery of the film to the studio. In some cases, however, the rights are limited to a specified term or territory (such as the U.S. and Canada), or there may be an exclusion of certain ancillary rights. To this extent, a negative pick-up resembles a pre-sale (discussed below), but it is common usage to refer to an acquisition of U.S. rights as a negative pick-up, instead of as a pre-sale.

C. Pre-Sale

A pre-sale is a limited distribution agreement for a particular country entered into prior to completion, and often even prior to commencement of production, of the film. Thus, most pre-sales involve a foreign distributor committing to pay a fixed dollar amount (referred to as an advance or a minimum guarantee) upon delivery of a film in exchange for specified rights in the film in a given country for a limited term. In most cases, no ancillary rights are acquired (e.g., merchandising, publishing, and soundtrack rights). In addition to the advance due upon delivery, the distributor commits to pay "overages," which are contingent payments based on the success of the film.

D. Rent-A-System

In a rent-a-system deal, a producer licenses certain film rights to a film company, typically a studio, for a limited term, but the studio is not required to pay an advance to the producer to either finance production or take delivery of the film. In fact, in some cases the producer pays all distribution expenses relating to the film. In exchange for the absence of fixed payments by the studio, the studio agrees to a very low distribution fee, and the remaining revenues are remitted to the producer. In essence, the studio avoids any risk of loss relating to the film, particularly if the studio does not pay distribution expenses, and the producer bears the full risk and reward of the success or failure of the film. Because of the absence of financial commitment by the studio, and the limited upside from the low fee, studios have little incentive to adequately market and push a rent-a-system film, so such films often flop.

E. License

In common usage, a license refers to any limited grant of rights to a film, with the owner retaining other rights to the film. For example, a pre-sale is merely a license entered into prior to completion of a film. Thus, licenses encompass a broad array of grants of rights, ranging all the way from a one-day pay-per-view television license to a grant of all worldwide rights for a term of twenty-five years.

F. Sales Agent

Under a sales agent agreement, a sales agent acts as the film owner's agent in consideration for a commission paid to the agent. Thus, there is no grant of rights from the owner to the sales agent. However, if the sales agent is exclusive and has the authority to enter into licenses for and on behalf of the owner, then the sales agent resembles a licensee. Because a sales agent does not pay an advance to the owner, and because the sales agent's distribution expenses are typically relatively low, the sales agent is usually entitled to a relatively low distribution fee.

G. Distribution Agreement

Many agreements are ambiguously referred to as "distribution agreements" and are unclear as to whether the intent is to grant a license of rights or to create a sales agent relationship. In most cases, these agreements contain pivotal wording referring to a "grant" of rights, resulting in such agreements being licenses, not sales agent agreements.

H. Output Agreement

An output agreement commits a licensee to acquire particular rights to a specified number of films produced in the future by a production company. In effect, an output agreement is a pre-sale agreement for a number of unspecified films. Typically, the output agreement governs the overall arrangment, and a separate license is entered into with respect to each film once the film is designated.

I. Co-Production

The term "co-production" originally designated an agreement entered into between two film companies in two different countries pursuant to a co-production treaty between the two countries. Pursuant to these treaties, if the film was produced in part in each country, the film would qualify for certain quota and subsidy benefits in each country. Each film company would own the rights within their respective country. However, the term "co-production" has mutated over time to refer to any agreement between two or more film companies relating to the production and ownership of a film. These types of arrangements resemble either a partnership (when there is a sharing of profits and losses) or a separate ownership (where there is no sharing of profits and losses).

For simplicity, the balance of this article will generally refer to all the types of distribution agreements list above, other than sales agents, as being licenses between licensors and licensees, regardless of the particular type of distribution agreement in question.

III. Rights

Every type of license must carefully define the rights it covers. Even in the case of a sales agent agreement, in which there is no grant of rights to the sales agent, this issue must be carefully dealt with in order to define the rights that the sales agent can license to third parties on behalf of the owner. The rights granted can be roughly broken down into the following subcategories: term, territory, language, media, and exclusivity.

A. Term

1. Commencement.
An increasingly contentious issue is when does the grant of rights commence – e.g., upon execution of the agreement, upon posting of a letter of credit for payment, upon delivery of the film, or upon actual payment? This issue is important because a current grant of rights typically precludes any intervening interference with the rights, such as by the subsequent grant of a security interest by or the attachment of a judgment lien against the licensor. In addition, the timing of the grant of rights impacts the potential remedies of the respective parties upon a breach by the other.

As a rule, licensees want the grant of rights to occur as soon as possible, preferably upon execution of the agreement. Likewise, licensees prefer that the licensor's exclusive remedy for any breach of the license by the licensee is to sue the licensee for monetary damages, as opposed to the licensor having any right either to not grant the rights in the first place or to rescind a prior grant of rights. On the other hand, licensors do not want the grant of rights to occur until full payment of any required advance, and they want the right to retain or rescind the grant of rights if there is any default by the licensee.

This tension is increased when any required advance payment is secured, such as by a letter of credit, because licensees invariably view posting a letter of credit as the equivalent of making a current payment. To add complexity, the bank financing a film's production wants to retain a security interest in the licensed rights at least until any required advance is paid, and it is loathe to permit a current grant of rights. The net result of this tension has led to ludicrous complexity, sometimes involving holding assignments in escrow and providing for the subordination of multiple interests in an inter-party agreement.

2. Termination.
In most cases, a license has a fixed term ending on a specified date or after a specified number of years. In some cases, however, the term is automatically extended for an additional period of time if the licensee has not recouped its advance and expenses by the expiration of the initial term of the license. On the other hand, licensors often insist on provisions accelerating termination upon default of any material obligation of the licensee under the license. These provisions can be quite troubling to licensees, as they give the licensor the right to terminate a license by claiming a purported breach by the licensee.

3. Hold-Backs.
In many cases, licenses contain specific provisions requiring the licensee to holdback the exploitation of specified media until particular time periods have expired. For example, there may be a nine-month hold-back on video exploitation, meaning that video units may not be sold prior to nine months after the initial theatrical release of the film in the territory. These hold-backs are typically to prevent overspill (inadvertant broadcast into an adjacent territory) or piracy, such as the unauthorized duplication and sale of video units outside the territory by third parties. In some cases, however, hold-backs are imposed merely so that the licensor may claim the world premiere with respect to its release of the particular media, such as a requirement that foreign licensees may not release theatrically until the U.S. theatrical release. In this case, the hold-back will be subject to some outside date, such as six months after payment of any advance by the licensee, so the licensee is not held up forever. In most cases, however, foreign licensees are more than willing to wait for the U.S. theatrical release, because the worldwide trade publicity that it generates will help propel the film in the foreign territories.

Licensees should be equally vigilant to impose similar hold-backs on licensors, to prevent licensors from releasing early in adjacent territories, resulting in overspill or piracy in the licensees' territories.

B. Territory

Typically, the territory is defined by reference to particular countries, including the military installations, ships, and airlines flying the flag of those countries, wherever located. Also common is the inclusion of territories, possessions, and even former colonies of the main country. In many cases, a territory includes certain areas or countries adjacent to the main country because of the use of a common language in those areas. Extra caution must be used whenever two or more language rights are granted to different parties within a particular territory. For example, licensors commonly grant German-speaking Swiss rights to one party, and French-speaking Swiss rights to another party. While this seems logical in theory, in practice it is impossible to bifurcate a Swiss theatrical release in this manner; only one party can license Swiss theatrical rights. Because of this limitation, one party needs to be licensed all language rights (i.e., French, German, and Italian) for Swiss theatrical rights. In common practice, the U.S. and Canada are always combined, and most agreements define worldwide rights by the words "throughout the universe" (lawyers being cautious animals.)

New technology poses a significant impediment to the creation of territorial boundaries. For example, if someone in Germany can download a film over the Internet from a server in Pakistan, the owner of Pakistan rights effectively owns worldwide rights. Thus, it is important to impose restrictions on the use of distribution over the Internet or any similar media until technology is developed and used that restricts access to people within a given territory.

C. Language

Language restrictions are incredibly important, particularly within Europe where territorial restrictions have little meaning given the mobility of video units and television satellite footprints covering all of Europe. Thus, a language restriction is often the only meaningful restriction on rights. A typical language restriction requires the licensee to exploit the film only dubbed or subtitled in a particular language. Even a subtitling requirement is becoming meaningless in Europe because of its prevalence of people speaking English as a second language. Thus, for example, free television satellite transmission in the English language is commonly prohibited, even if the film is subtitled. DVDs present yet another problem: They can permit the user to choose one of several languages installed on the disk, so it is necessary to prohibit licensees from using this capability.

The licensee should insist on imposing similar language restrictions on the licensor in order to prohibit the licensor from exploiting or granting the same language rights to third parties in adjacent territories. Otherwise, the licensee will be flooded with same-language videos shipped in from adjacent territories and will be subject to same-language satellite overspill. For the same reason, the licensee should not permit the licensor access to the licensee's foreign-language version (dubbed or subtitled) of the film.

D. Media

1. Theatrical and Non-Theatrical. Theatrical rights include all normal theaters open to the public, including drive-ins. Non-theatrical rights include quasi-public showings, such as on airlines, campuses, and military installations.

2. Video and DVD. Video rights are normally defined to include any type of video units, including laser disks, whether for sell-through or rental. The contract should specifically include DVD if that right is intended to be included, as DVD is typically thought of as a separate right.

3. Television. Television rights generally include a broad panoply of rights, including free television, pay television (both basic and premium), and pay-per-view. The contract should specifically reference video-on-demand and near-video-on-demand, which are typically thought of as separate rights. Video-on-demand allows a television viewer to order a film to commence at any time. Near-video-on-demand is similar, except that the film starts only at periodic intervals, such as every hour. To this extent, near-video-on-demand closely resembles pay-per-view, and the custom is to define near-video-on demand as a service with twelve or more simultaneous choices. Do not be fooled by the reference to "video" in the definitions of video-on-demand and near-video-on-demand; both rights should properly be included under television rights, not video rights, as they are analogous to, and competitive with, other television rights.

4. Ancillary Rights. Ancillary rights are such film-related rights as soundtrack rights, music publishing rights, novelization rights, stage play rights, and merchandising. Merchandising, in turn, generally includes interactive games based on the film.

5. Future Media. Because of rapid technological advances, distribution agreements must include a reference to all future media, whether now known or hereafter developed, with respect to all categories of rights. In the absence of such a provision, a contract that merely provides for video, for example, may not cover DVD.

6. Derivative Rights. Derivative rights are the rights to exploit other works that are based on the film, such as sequels, prequels, remakes, and television series. Most licenses exclude derivative rights, although many licenses do give the licensee a right of first negotiation or last refusal with respect to the licensing of derivative works.

E.    Exclusivity

If a license is silent on exclusivity, it may be interpreted to be non-exclusive, meaning that the licensor can grant competing rights to a third party. For this reason, most licenses are expressly exclusive.

IV. Advance Payments

A.    Amount

Simply for want of a better gauge, most advances are calculated as a fixed percentage of the estimated budget for the film. The fact that advances are a function of the budget, and are not based on the inherent worth of a film, leads to absurd results, including a tendency for producers to inflate a budget or pad it with producer fees or payments to affiliates, as well as a reckless disregard for the amount of the budget in the first place. Another oddity of this approach is that the amount of the advance is generally not adjusted up for cost overruns (referred to as budget overages) or down when a film is produced for less than the budget. This latter fact has burned a number of licensees, who agreed to pay a fixed percentage of a stated estimated budget, when in fact the film was produced for far less.

B.   Timing

Whenever a license is entered into prior to completion of a film, the timing of any advance payment is critical. Often, between 10% and 20% of the advance is paid as a deposit upon execution of the license. This is risky from the licensee's point of view, because the licensee typically has no security for repayment of the deposit, such as a security interest in the film, and licensees are typically not beneficiaries of the completion bond. Thus, if the film is never produced, they may lose their deposit.

The most contentious issue for most licenses is defining the event that triggers payment of the balance of the advance. Typically, payment is made upon "delivery" of the film to the licensee, and the battle is over what constitutes "delivery." Licensors (and particularly their banks) want delivery defined as the mere sending of a notice to the licensee that the film materials are ready and available for duplication once the licensee has paid the advance. On the other hand, licensees typically want the right not only to inspect the physical material, but also to screen the film in advance. Also, licensees want payment of the advance to be subject to such conditions as confirmation that the film conforms to the script and the accuracy of all representations and warranties made relating to the film (such as good title, no infringement, no liens, budget, cast, director, etc.).

Industry practice has resulted in a lopsided victory in favor of licensors and their banks on this issue because even if the license itself provides protections for the licensee, banks typically will not fund production of a film unless the licensee signs a notice of assignment and distributor's acceptance that waives all defenses to payment and creates direct liability from the licensee to the bank. A sample of such a notice is included as Form C in the appendix to this book. If the licensee does not sign this notice, the bank does not loan the funds, and the film does not get made. Thus, the licensee is in a Catch-22 situation. Under customary industry practice, the most that the licensee can hope for is the right to inspect and accept the technical quality of the physical material. Any disputes as to this limited issue are typically subject to expedited binding arbitration. The only other conditions are, typically, that the film must be based upon the script and that the key cast include certain actors named as "essential elements." Thus, the licensee is typically required to pay the advance even if all of the licensor's other representations and warranties are inaccurate.

C. Security and Letters of Credit

Often, the licensor (or its bank) insists that payment of the advance be secured in some manner. This security can take a number of forms, including a large initial deposit that is subject to forfeiture, a letter of credit, or a guarantee from a third party. The licensor's bank will typically have the licensee sign a notice of assignment and acceptance, discussed above, which effectively waives all conditions precedent to paying the advance other than availability of physical material.

In many cases, the licensor or its bank do not trust the distributor to pay the advance upon delivery, in which case they will ask the distributor for a letter of credit. A letter of credit is a direct contractual commitment requiring the distributor's bank (referred to as the "issuing bank") to pay the licensor or its bank (referred to as the "beneficiary") the amount of the advance upon delivery.

As a condition precedent to issuing the letter of credit, the issuing bank will always require the distributor to agree to reimburse the issuing bank for any payment the issuing bank makes under the letter of credit, and this reimbursement obligation is usually secured by a deposit of cash by the distributor with the issuing bank. Thus, distributors loathe letters of credit, because they view them as equivalent to the current payment of cash. On the other hand, licensors and their banks love letters of credit, because it guarantees them payment upon delivery, as most issuing banks honor their letters of credit, and if they don't, it is easier to sue and collect from a bank than from a distributor.

The mechanics of a letter of credit work as follows: All the parties agree in advance to the exact wording of the letter of credit and, critically, the documents required to be presented to trigger payment under the letter of credit, referred to as the "draw-down documents." The draw-down documents are the key to the letter of credit: At one extreme, if the draw-down documents require presentation of a notice of acceptance signed by the distributor, then the letter of credit becomes worthless because the distributor can hold up payment by not signing. At the other extreme, if the draw-down document is simply a notice of delivery from the beneficiary, the distributor risks having to make payment without the opportunity to inspect the delivery materials. In most cases, the resolution is to permit the distributor to inspect the delivery materials for technical quality only, and the draw-down documents are either (a) a notice of acceptance signed by the distributor or (b) an arbitrator's award that delivery has occurred. The distributor should also insist that the draw-down documents include all the documentary delivery items for which the exact form of the documents can be fixed in advance. In all cases, however, the letter of credit must be payable upon presentation of pre-agreed documents; there can be no requirement that the bank confirm the existence of facts outside the written documents. For example, a letter of credit could never state that payment will be made when the bank confirms that delivery has occurred, as banks simply don't do this. The banks want only to compare the signed draw-down documents to the pre-agreed forms in order to make payment.

But what does the distributor do if the beneficiary fraudulently signs, or forges a signature on, the draw-down documents and presents them? For example, if the only draw-down document is a notice of delivery, what if the beneficiary signs and presents the notice while the film is still in production? The answer to this dilemma is that there is always a three-business-day delay between presentation of the draw-down documents and payment by the issuing bank, and this waiting period can be extended by contract. During this waiting period, the issuing bank typically notifies the distributor of presentation of the draw-down documents (and the distributor should require this notification in its contract with the issuing bank), and the distributor can run to court and seek an injunction blocking payment if the distributor has a valid complaint. In general, the only valid complaint is for outright fraud by the beneficiary; courts will not block payment under a letter of credit because of a mere good-faith dispute.

Letters of credit are of two basic types: "standby" and "payment." Under a "standby" letter of credit, the distributor is expected to pay the advance directly, and the issuing bank stands by to make the payment if the distributor defaults. Thus, one of the draw-down documents under a standby letter of credit is always a document from the beneficiary stating that the distributor has defaulted. Under a "payment" letter of credit, the distributor is not expected to pay the advance, which will be paid, in all cases, by the issuing bank under the letter of credit. One problem with a standby letter of credit is that if the distributor pays the advance directly and thereafter declares bankruptcy within ninety days of paying the advance, there is a risk that the beneficiary will be forced by the bankruptcy court to repay the advance. The beneficiary can avoid this risk of repayment if payment is made directly under a payment letter of credit. This risk can also be avoided by requiring a standby letter of credit to remain outstanding for an additional ninety days if the advance is paid directly by the distributor.

D. Withholding Taxes

Many countries require the licensee to withhold taxes on any license payments, including advances. Licensors typically deal with this problem with a "gross-up" clause, which means that the licensee is required to pay the distributor an additional amount sufficient to cover all withholding taxes, so the licensor receives the same net payment. These provisions can be quite unfair to licensees, particularly if the licensor obtains the benefit of a tax credit in its home country for the withholding taxes.

V. Controls And Approvals

A. Licensee

A frequently contentious issue is the level of controls or approvals that the licensee will have over production of the film. Whenever the licensee has committed to pay the advance upon availability of the physical elements, the licensee's exclusive remedy for any breach of its control or approval rights will be merely an action at law for damages, as opposed to the right to withhold payment of the advance. Thus, these type of licenses rarely grant significant control or approval rights to the licensee, as the licensee's remedy would be meaningless. Instead, the licensor typically makes representations and warranties to the licensee (discussed below).

B. Licensor

Licensors are often wildly zealous in attempting to impose various controls and approvals over exploitation by licensees. For example, licensors may seek control or approval over (a) sublicensing, (b) packaging with other films, or (c) pricing. These restrictions are generally imposed out of the licensor's motivation to protect its right to overages, but licensees typically (and properly) object to these type of approvals and controls, as they can effectively hamstring the licensees' exploitation of the film. While they may be properly imposed on a sales agent, they are wholly inappropriate when a licensee has paid a significant advance.

VI. Representations And Warranties

Typically, the licensor makes extensive representations and warranties to the licensee with respect to various matters relating to the film. For example, there are typically several representations relating to the validity of the grant of rights, including good title, no liens, no claims, and no infringement on the rights of third parties. There are usually representations that the film will be based on a particular script, that it will be made for a certain budget, and that it will include certain named individuals as the key actors or director. Foreign licensees often request a guarantee that the film will receive a U.S. theatrical release by a major studio, but it is typically impossible for a licensor to guaranty this, particularly a specified minimum number of theaters or a minimum prints and advertising expenditure.

The problem with all the representations and warranties is that even if the license states that their accuracy is a condition precedent to payment of the advance, they are all overridden by the standard notice of assignment and acceptance requested by the licensor's bank. Thus, the licensee will only be left with a claim for monetary damages against the licensor -- often a single-purpose production company.

VII. Licensee Protections

      A. Chain of Title

One way for the licensee to protect its grant of rights is to carefully check the film's chain of title, including the chain of title leading from any underlying book and the screenplay. The licensee should also undertake a search of the public records available through the U.S. copyright office, a state security filing, and a litigation check to search for any voluntary or involuntary liens against the rights, and a general search of news articles, which can provide invaluable clues to potential problems. Even the most thorough search, however, will not reveal all potential problems, as it will not disclose outright plagiarism under a new title or undisclosed and unrecorded grants of rights. To protect against these type of problems, it is common to obtain (or be named as an additional insured under) an errors and omissions insurance policy, which generally insures against the risk that a film infringes on the rights of third parties.

    B. Practical Protections

A licensee can protect its position by implementing a number of practical protections. First, it should seek to avoid making any deposits or other payments prior to delivery of the film. Not only is it difficult to obtain a refund if the film is not made for any reason, but many licensees have been snared by the age-old problem of "in for a penny, in for a pound" and find themselves throwing more and more money at a lousy film that has gone over budget. A licensee should also seek to obtain some controls or approvals over production, as well as a number of conditions precedent to payment of an advance. These protections will, however, be swept aside if the licensee signs the standard notice of acceptance and assignment to the licensor's bank.

A licensee should, of course, seek to obtain the most expansive definition possible of the term, territory, language, and media granted. The licensee should resist any clause permitting the licensor to terminate the license upon an actual or alleged breach by the licensee; in fact, the licensee should insist on an express clause stating that the license may not be terminated in such event to avoid any risk on this issue. The licensee should also obtain representations and warranties from the licensor regarding the film, although these representations and warranties are only as good as the financial solvency of the licensor.

To strengthen its rights, and to avoid any risk of losing its rights in the event of a subsequent bankruptcy of the licensor, the license should be drafted as a "purchase" or "acquisition" of rights, as opposed to a "license," and the licensee should make every effort to avoid being appointed as merely a sales agent. Similarly, licensees prefer to receive all money from exploiting the film directly, as opposed to having money paid to an escrow or collection account to secure the payment of overages to the licensor.

C. Modifications

Licensees generally want the unfettered discretion to edit or modify a film, including adding a logo or "presented by" credit for the licensee. Licensors are generally reluctant to permit the right to edit, and they may not be able to grant this right in any event if they have granted third parties, such as the director, discretion over any editing of the film. In addition, in some countries, such as France, droit morale rights (moral rights) of "artists" (including the director and screenwriter) may prohibit editing a film. In most cases, the end result is that the licensee has the right to edit the film only when required for purposes of censorship approval or to meet time restrictions of particular media, such as airline and television exploitation.

VIII. Licensor Protections

Licensors can undertake a number of steps to maximize their protections in the event of a default or bankruptcy by the licensee. One obvious approach is to limit the term, territory, language, or media granted to the licensee or, better yet, to appoint the licensee as the sales agent of the licensor, as opposed to granting any rights to the licensee. An alternative approach is to grant rights, but to provide an express termination right in the event of a breach by the licensee.

Generally, a clause providing for termination of a license in the event of bankruptcy of the licensee is not enforceable, but it is sometimes possible to achieve the same result by providing for termination if certain key personnel of the licensee leave, which typically occurs in bankruptcy. The safest course is to record any termination right in the U.S. copyright office, either by recording the long-form license itself or a short-form summary that incorporates the termination right.

The licensor can also use any of the normal means to secure payment of any advance, such as a letter of credit or a guaranty from a third party. The licensor will want to trigger payment of the advance by simply mailing notice of availability of the physical material and will want to eliminate any licensee approvals required to pay the advance. If substantial overages are anticipated, the licensor may want to protect its right to such overages by having the right to approve sublicenses or requiring sublicensees to make payments to an escrow account.

IX. Governing Law, Jurisdiction, And Remedies

In most cases, the license will be expressly governed by the laws of a particular country or state. These clauses apply only for interpretation of the license and do not confer jurisdiction for litigation. Many lawyers have a knee-jerk reaction to impose exclusive jurisdiction in their home territory over any disputes, but this is an unwise approach if the other party has no assets in that jurisdiction; in most cases, it is better to provide for non-exclusive jurisdiction and venue in a particular location, leaving open the possibility of suing the other party wherever their assets are located, to avoid the time, expense, and delay of having to re-enter a judgment in the other jurisdiction.

A related question is what type of remedies will be available in the event of a breach by the other party. Typically, both parties want the right to obtain equitable relief, such as an injunction, against the other, while vociferously objecting to a similar remedy against themselves. Under most licenses, after payment of the advance by the licensee, the licensor's remedies are limited to an action at law for damages in the event of any subsequent breach by the licensee.

X. Conclusion

Licenses are living relationships in the context of a fast-changing industry, and there are endless opportunities for ambiguity, disagreements, and disputes. Because licenses embody an on-going relationship that typically involves the sharing of profits through the payment of overages to the licensor, they are closely analogous to partnerships. As in the case of partnerships, more important than the written agreement is the character of the parties. Each party should know and trust the other party or risk proving the proficiency of the license through litigation.