Background
4.7.1
.
4.7.2
Grants are payable only in respect of the disposal, or intended disposal,
of eligible intellectual property, for reward.
4.7.3
Copyright (and associated rights) in a film are eligible intellectual property
only where the film has resulted wholly or substantially from work performed
in Australia. All stages in the production of a film are taken into account
when determining its Australian content.
4.7.4
For promotional expenditure to qualify for grant entitlement, it must
be of an allowable type and be incurred for the purpose of creating or increasing
demand for the disposal of copyright (and associated rights) in the film to
persons resident outside Australia for use and enjoyment outside Australia.
Disposal is defined as including the sale, grant, assignment or supply (s.107
of the Act) and also must be for reward. (s.111 of the Act refers).
4.7.5
Film industry applicants promoting intellectual property must demonstrate
that they are promoting the disposal of intellectual property in the form
of copyright.
The law of copyright is governed by the Copyright Act 1968. Apart from the
certain crown prerogative rights, no copyright exists in Australia in subject
matters except under the Copyright Act.
Copyright exists in:
(a) Works - original
literary, dramatic, musical or artistic works whether published or unpublished;
(b) Subject matter other than works - sound recordings, cinematograph
films, television and sound broadcasts and published editions of works.
These two categories are not exclusive. For example, copyright may exist in
a cinematograph film as a whole, but may also exist in relation to each of
the works the film is comprised of: the script (a dramatic work), drawings
in an animated film (an artistic work), the music composed for the soundtrack
(a musical work).
There are three types of licence in copyright:
An "ordinary",
"bare" or "non-exclusive" licence - this is permission
to the licensee to do something which would otherwise be an infringement
of copyright. The licensor may still do the act himself and may grant licences
to other persons to do the act.
A "sole licence" under which only the licensee and the licensor
may do the act.
An exclusive licence" permission to do the act is exclusive for the
licensee and not even the licensor may do the act.
Only an exclusive licensee (or an assignee may pursue an infringement action.
A bare licensee or a sole licensee may not pursue an infringement action.
To be eligible for an EMDG grant in terms of section 37(e)(i), film industry
applicants must demonstrate that they are promoting the disposal of rights
in relation to work or things set out in the Copyright Act where they either:
a) own the copyright or
b) have an exclusive licence to undertake any of the acts of copyright in
relation to a particular territory
4.7.6
Film industry applicants must own the copyright or hold the exclusive right
to do one or more of the following acts (as specified in Section 86 of the
Copyright Act 1968):
(c) make a copy of the film;
(d) cause the film to be seen or heard in public;
(e) communicate the film to the public
4.7.7
This exclusive right can be held as owner, assignee or licensee, but not as
agent.
Disposal Of Eligible Film Rights
4.7.8
In general terms rights can only be disposed of to those persons who will
further exploit these rights (eg film distributors, television networks, video
distributors). The screening of a film to the general public (eg cinema or
television audiences), including four walling activities, does not constitute
disposal of film rights.
4.7.9
The granting to non-Australian residents of any of the following rights (on
an exclusive basis) to market territories other than Australia for either
a specified or indefinite period would constitute disposal of rights in terms
of the EMDG legislation:
(a) cable and other pay television;
(b) television distribution;
(c) theatrical distribution;
(d) non-theatrical distribution;
(e) video cassette;
(f) DVD and laser discs;
(g) the right to enter into agreements with distributors of the above mentioned
rights.
4.7.10
The granting of ancillary rights in a film to a non-Australian resident (on
an exclusive basis) in certain circumstances may also constitute an allowable
disposal of rights.
4.7.11
Although film industry applicants must own or hold an exclusive licence for
copyright, they are not required to promote the disposal of exclusive licences.
It is sufficient to assign part of intellectual property rights to third parties
(eg. assign partially as to place, time).
4.7.12
A holder of eligible rights who grants a licence to an overseas resident may
continue to incur eligible expenditure in respect of that territory for that
film in relation to the promotion of increased royalties from those rights.
(Refer to s.38 of the Act and guidelines 5.11.1 - 13).
Key principles to be applied in assessing film industry applications where
expenses are claimed for the promotion of disposals of intellectual property
in the form of copyright
4.7.13 1.
What work or thing does the application relate to, and what are the acts of
copyright in relation to that work or thing set out in the Copyright Act?
For a film industry applicant, these rights, as outlined at section 86 of
the Copyright Act, include the right:
(a) To make a copy of the film;
(b) To cause the film to be seen or heard in public;
(c) To communicate the film to the public.
2. Does the applicant:
(a) Own the copyright;
(b) Have an exclusive licence to undertake any of the acts of copyright in
relation to a particular territory.
3. Does the applicant have the ability to dispose of that copyright and propose
to dispose of the copyright in an overseas market?
(a) Disposal meaning the sale, grant, assignment or supply (Section 107 EMDG
Act);
(b) Disposal can include either the granting to a third party of an exclusive
sublicence or the granting of part of the intellectual property rights (eg.
assignment partially as to place, time).
4. Has the applicant incurred eligible expenses?
(a) Under an agreement with a film distributor, this will only occur where
a producer meets/reimburses expenses of the distributor;
(b) This will not be satisfied if the applicant has been paid or is entitled
to be paid any consideration for the expenses (s.46 (1) of the EMDG Act.
(c) This will not be satisfied if the applicant is acting as an agent.
Arrangements between film producers and film distributors
4.7.14
Film production companies will either promote their product directly or they
will use an Australian or overseas distribution company to do the promotion.
In either case the producer must have assigned to it the copyright ownership
from the film's investors so as to enable the producer to be able to promote
the copyright.
Where they promote directly they will claim promotional expenses and export
earnings as any other applicant will do.
Where a production company's product is promoted through a distribution company
(often termed distributor or distribution agent) there are likely to be some
arrangements between the two parties that are relevant for determining the
eligibility for EMDG grants.
The agency agreement between the producer (applicant) and the distributor
should be obtained so as to be able to understand the relationship between
the two parties.
Arrangements between a producer and a distributor generally involve the producer
transferring or allocating some rights to the film to the distributor. These
rights are commonly termed "marketing" rights but they may not give
the distributor the exclusive rights to do acts of copyright. Rather, such
rights often give the distributor the commercial rights to exploit the film
or to promote the film so that overseas third parties can enter into contracts
with the producer to themselves do acts of copyright (eg. showing the film
to the public overseas).
Distributors acquiring this type of limited right from the producers are
not entitled to receive EMDG grants. The EMDG entitlement remains with the
film producer.
For all claims received from film industry applicants, Austrade will examine,
where relevant, the distribution agreements between producer and distributor
to confirm that applicants satisfy the requirements of section 37(e)(i) of
the Act, that is, they own (or are an exclusive licensee for) the copyright.
Where an Australian based distributor (who does not own eligible IP rights)
receives export earnings from the disposal of intellectual property rights
in a film, the export earnings are those of the intellectual property rights
holder (usually the producer) who granted the marketing rights for the IP
to the Australian based distributor. The date of receipt of the export earnings
in the hands of the IP rights holders (and acquittal of any marketing expenses
setoff in the accompanying royalty statement), shall be the date the Australian
based distributor accounts to the rights holder, i.e. the date of receipt
by the IP rights holder of the distributor's royalty statement.
Film production applicants claiming for distributors' promotional activities
4.7.15
The distributor will often agree to pay the producer an advance on future
sales. This is commonly referred to as a 'distribution advance' or as a 'distribution
guarantee'. No future payments will be made from sales to the applicant until
the advance is fully recovered out of sales proceeds from the film.
The distributor then promotes the film and, commonly, many of its promotional
expenses will be reimbursable by the producer (hence the producer potentially
becomes entitled to an EMDG grant)
Promotional costs spent by a distributor may be claimable by the producer
applicant where they are for activities eligible under s.33 of the EMDG Act
and where they are acquitted in the applicant's accounts.
Acquittal of expenses for a production company claiming EMDG grants will
usually occur by offsetting eligible export earnings against the expenses
owed to the film distributor. The date of acquittal will be the date that
the applicant receives the relevant royalty statement
example
A film producer receives its first royalty statement from its distributor
in September 2001. The royalty statement shows sales achieved and recoverable
marketing costs relating to the film. The period of the statement was March
to June 2001.At what point can the film producer claim export earnings and
costs for EMDG purposes?
2001/02 grant year because this is when the applicant first recognised the
revenues and costs.
Eligible export earnings
4.7.16
Export earnings qualify under the scheme where they relate to the disposal,
by the claimant as principal, of eligible copyright in a film (or, where applicable,
of an exclusive right in relation to such copyright) to non-Australian residents
for use and enjoyment outside Australia.
4.7.17
Export earnings in relation to a grant year shall be calculated on the basis
of the timing of actual receipt of consideration by the claimant, either in
Australia or overseas. Sales advances and similar payments from non-Australian
residents in respect of completed films would be recognised as income at the
time of receipt.
4.7.18
Export earnings derived from the disposal of rights in a film, which is owned
jointly by a number of persons, will, subject to the terms of the specific
production/investment agreements etc be allocated between those persons in
the following manner:
(a) up to the time when all production and marketing costs are covered
(break-even point), earnings will be allocated to the copyright owners in
accordance with their percentage shares in such copyright;
(b) after the break-even point is reached, earnings will be allocated between
the producer, investors and others in accordance with the agreed break-up
of profits.
Both distributor and production company claiming EMDG grants in relation
to same film
4.7.19
Each distribution agreement will need to be analysed to determine which entity
holds copyright or an exclusive licence in respect of a film.
Where a claim is received from any party (producer, distributor) in relation
to a particular film, Austrade will identify any other parties that have claimed
or intend to claim a grant in relation to the film. This may necessitate waiting
until all claims for the year in question have been received so that Austrade
can be certain that grants are only paid to the owner (or exclusive licensee)
of the copyright.
4.7.20
If the distributor does acquire all or some share of the film's copyright
then it may be able to claim EMDG grants in its own right as a business that
owns and promotes intellectual property. They could claim distributor's share
of overseas sales as export earnings and relevant promotional costs incurred
where these costs have not been on-charged to the producer in the royalty
statement.
Pre Selling Expenditure
4.7.21
Expenditure incurred by the owner or owners of copyright in a screenplay (to
a yet to be produced film) will be eligible provided it can be substantiated
that:
(a) the expenditure was incurred by way of promotional activities that
fall within the EMDG Act's section 33 table;
(b) the expenditure was incurred for the purpose of promoting the disposal
of eligible intellectual property (see above guidelines and especially 4.7.13);
(c) it can be satisfactorily demonstrated that a film was proposed to be
made;
(d) the film was intended to be based upon that screenplay;
(e) the screenplay resulted, wholly or substantially, from work performed
in Australia;
(f) the film is also intended to have the requisite Australian based work
inputs;
(g) the expenditure must be considered reasonable in relation to the nature
and purpose for which it was incurred.
4.7.22
In addition, the person(s) incurring the expenditure must:
(a) hold ownership of copyright in the screenplay (either from the outset
or by way of assignment), or
(b) hold an exclusive licence to exploit the screenplay
Promotional Films & Trailers
4.7.23
The eligibility of costs associated with the production of promotional films
is dependent upon:
(a) the purpose(s) for which the film has been produced, and
(b) the nature of the expenditure. Specific guidelines are as follows:
4.7.24
Such films must have been produced to promote the disposal of eligible intellectual
property (see above guidelines and especially 4.7.13);
4.7.25
Production costs are allowable expenditure only to the extent of bought-in
costs incurred by the claimant.
4.7.26
If the film was produced initially for an ineligible purpose the costs of
obtaining print copies are prima facie eligible subject to the other relevant
criteria outlined in this guideline.
4.7.27
Costs of freight, projection and other costs associated with promotional films
meeting the above criteria are eligible.
4.7.28
Production costs are ineligible where the promotional film -
(i) was produced primarily for the purpose of attracting investment;
(ii) is disposed of for reward in its own right or as part of the ultimate
film or series;
(iii) is intended to be used in the final production of the film or series;
(iv) has been taken from an existing film, except for the additional costs
incurred in incorporating it into the promotional state.
4.7.29
Where a promotional film or trailer is used to promote a film series, production
costs are ineligible unless the claimant can clearly demonstrate that the
pilot film has not been used to attract investment and that it is not intended
to form part of the film series.
4.7.30
The costs of producing trailers for supply with films are ineligible
- however the cost of film trailers and the like to promote the
disposal of eligible film rights may be eligible.
© Australian Trade Commission