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.

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. 

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.

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[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).

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.

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. 

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

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[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).

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

           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. Today, we will be discussing different business entities to consider when launching your career in comics.

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. 

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.

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[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.

Comics Startup 101 - The Beginning

Comics Startup 101: Legal and Business Tips for the Independent Comics Creator
Part I - A Clearance Search

Introduction

            Congratulations! If you are reading this, then you have an idea for a comic and want to create it yourself. This series of posts grew out my Comics Startup 101 panel I presented at various comic book conventions in the Midwest with comics creators. Hopefully, you will find what follows to be a helpful guide when proceeding down the path of creating your own comic.

However, 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.

This leads me to one of the best pieces of advice that I can give you: develop a great support team you can trust to help you on your journey. I recommend this to any small business owner, which you are about to become. Your support team should consist of at least these three people: a mentor or advisor, an accountant, and an attorney. Now, let’s take your idea for a comic and start at the beginning.

The Beginning – A Clearance Search

            You have an idea for a comic book. What’s next? One of the first things you should do is conduct a clearance search. By conducting a clearance search you will make sure that no one else is making a comic with the same title, a similarly-named character, or a character that is too closely related by way of powers, origins, background, etc. Doing this simple step early could save you a lot of trouble and money later on. It also allows you to distinguish your creation from other characters and, if used properly, gives you the ability to create something unique.

            For an example of why doing a clearance search is a good idea, let’s look to Fawcett Publications and their Captain Marvel character. Captain Marvel was a character originally created by Fawcett Publications[1] shortly after Superman was created. Many of you now know the character as Shazam.[2] National Comics Publications, previously known as Detective Comics, Inc., believed that Captain Marvel infringed on their Superman copyrights.[3] After a twelve year legal battle, the Second Circuit Appeals Court found that National Comics had valid copyrights in Superman[4] and that Fawcett’s Captain Marvel infringed upon them.[5] While there was evidence presented at trial that Fawcett intentionally copied elements of Superman,[6] I believe that this case would be decided differently today. These characters share similar traits, but their origin stories differ significantly.[7] In the end, Fawcett agreed to settle and ceased printing Captain Marvel comics.[8] Eventually, DC Comics acquired the rights to Captain Marvel and started using the character in its own universe.[9] Further muddying the waters, during the time Fawcett ceased publishing Captain Marvel, Marvel Comics acquired the trademark rights to Captain Marvel as a publication name.[10]

            To conduct a comprehensive, in-depth clearance search will cost you a few hundred dollars upwards to a few thousand. There are services out there that will conduct searches of registered trademarks, domains, business entities, general internet searches, and more for you. Most of these will uncover possible trademark conflicts. It is a bit harder to do a copyright search. However, if a copyrighted work is commercially exploited, you should be able to discover it by using similar methods. While it is highly recommended that you conduct a comprehensive clearance search, if you want to conduct an initial search on your own to gauge potential risk, I would recommend the following steps:

1)      searching the United States Patent and Trademark Office (“USPTO”) trademark search database for your character’s name or book’s title,

2)      searching the U.S. Copyright Office database for your character’s name or book’s title,

3)      conduct a WHOIS search for domain names using your character’s name or book’s title, and

4)      run a few internet searches for your character’s name, book’s title, and a description of your character, plot, etc.

These searches are not guaranteed to uncover every potential risk, but it will give you an idea of whether something else is out there. If you are comfortable with what you’ve uncovered, then you may proceed at your own risk. Otherwise, if you are not comfortable with what you’ve found, you may want to consult with an attorney.
Next week: Business entity choices.

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[1] National Comics Publications, Inc. v. Fawcett Publications, 93 F.Supp.349, 354 (S.D.N.Y. 1950).

[2] Exclusive: Geoff Johns Hopes Lightning Strikes Shazam!, Vaneta Rogers, Newsarama.com, Jan. 26, 2012,  http://www.newsarama.com/8995-exclusive-geoff-johns-hopes-lightning-strikes-shazam.html (last visited May 09, 2016).

[3] National Comics Publications, Inc., 93 F.Supp.352 (S.D.N.Y. 1950).

[4] National Comics Publications, Inc. v. Fawcett Publications, Inc. et. al., 191 F.2d 594, 598 (2nd 1951).

[5] Id. at 597.

[6] Id.

[7] National Comics Publications, Inc., 93 F.Supp 355-56 (S.D.N.Y. 1950).

[8] Lage, Matt (2001). "Visual Expression: Will Lieberson - Fawcett Comics Executive Editor". In Hamerlinck, P.C., Fawcett Companion: The Best of FCA (1st ed.). TwoMorrows Publishing. pp. 94–95.

[9] Buxton, Mark, The Rich History of Captain Mar...Er, Shazam!, Comic Book Resources, Aug. 29, 2014, http://www.comicbookresources.com/?page=article&id=55178 (last visited May 09, 2016).

[10] Id.; see also Trad. Reg. No. 0976419, Registration Date Jan. 8, 1974.