The Alternative Dispute Resolution (“ADR”) techniques of arbitration and mediation are fast becoming the most effective methods an independent film producer has for protecting his or her rights in the film distribution process.  Innovative, risky, yet creative films have garnered the appreciation of the public, creating an atmosphere in which the American independent film business is flourishing.[1]  This burgeoning industry consists of individuals and companies who are engaged in the production and/or distribution of all motion pictures other than those generated by the acknowledged major Hollywood studios.[2]  While films produced by major studios continue to dominate the market, there has been a recent increase in independent film production and distribution.[3]  Experience and novice independent film producers are taking advantage of a strong economy, new film-making technology, previously unexploited markets, and a desire for more “creative films” to make the Independent film genre one of the fastest growing revenue generators in the film industry.[4]

                Taking creative ideas, and turning those ideas into a successful film, demands collaboration between film producers, distributors, and exhibitors.  Distribution is essential for a film’s financial success, given that it is primarily the distributor’s responsibility to create revenue for a film.  Distribution lays the foundation for generation a revenue flow that recovers production expenditures and funds future projects.[5]  The role of a distributor is to organize and facilitate the commercial exploitation of the film.  Characteristically, when compared to films produced by major studios, independent films are individually financed low-budget projects.  Frequently, an independent film producer, if not financially broke when production commences, is absolutely penniless when the film is finished.[6]  Therefore, while the distribution component is important to all film producers, it is of vital importance to the independent film producer.

                In order to keep the distribution revenues flowing, lawyers are increasingly choosing to use the ADR methods of arbitration and mediation to avoid the delays associated with litigation.[7]  Entertainment industry lawyers have noted that the use and acceptance of ADR is growing throughout the entire industry.[8]  The film industry has extensive experience with arbitration due to its involvement with various labor unions that use arbitration to resolve labor disputes.[9]  Lawyers representing independent film producers with limited resources to dedicate to litigation efforts recommend ADR as the most effective way to level the playing field between their clients and distributors.[10]  Moreover, lawyers who represent financially able distributors acknowledge the benefits of mediation and arbitration, especially in foreign distribution deals.[11]

                This field guide addresses the emerging use of the ADR processes of arbitration and mediation in independent film distribution contracts.  The focus will be primarily on arbitration, secondarily, on mediation.  Part II of this guide provides a background of the independent film business, spotlighting the distribution aspect.  Part III provides a short explanation of ADR and its application within the entertainment industry.  Part IV identifies arbitration as very useful in the context of a distribution deal between an independent movie producer and a distributor.  Part V discusses the advantages of arbitration in a film distribution dispute.  Part VI explains the benefits of conducting distribution dispute arbitration through an arbitral institution.  Part VII considers the rapidly growing foreign market for independent films, and the necessity of arbitration in foreign distribution contracts.  Part VIII examines the heightened need to use an arbitral institution in the context of a multinational distribution dispute.  Part IX is a synthesis of this guide, providing a conclusion regarding the value of using arbitration in an independent film contract.

II.              BACKGROUND:  THE FILM INDUSTRY

                The film business consists of three major areas: production, distribution, and exhibition.  Production entities identify and develop stories and scripts, work with agents to cast actors, assemble creative talent (i.e., directors, cameramen, and stylists), locate studio facilities and shot locations, and, above all, organize financing of the project.[12]  When the production process is complete, in order to generate the maximum income achievable for the film, it must be made available to as many consumers throughout as many territories as possible.[13]

                The exhibitor shows the finished film to consumers.[14]  In the context of film, the term “exhibition” is used in a broad sense to include all methods by which audiovisual works are displayed to the public.[15]  The most common forms of exhibitors are theatres, video stores, and television broadcasters; less common forms include airplanes and trains.[16]  The primary commercial function of the exhibitor is to collect revenue from consumers, retain a fee, and deliver the remainder to the distributor.[17]  The secondary function of an exhibitor is to inform distributors and producers about the types of films local consumers want to see.  The exhibitor has the closest connection to what consumers desire.  Exhibitors are geographically limited to serve consumers that come to their premises, or those within reach of their broadcast signal.[18]  Exhibitors, therefore, need products that appeal to consumer interests in their market area.[19]  The exhibitor communicates the consumer demands to distributors, who communicate that desire to producers.  The result is the production of high demand films, such as the unfailing action-adventure genre films.[20]  Thus, one can understand why it is hard to get exhibitors to accept independent films without big stars or action sequences.

                Distribution is the process of supplying the finished film to the venues where the film will be shown.[21]  This definition may seem oversimplified as it does not explain the complicated nature of the distribution process.  Moreover, this definition does not reveal how difficult it is for an independent film producer to obtain distribution, let alone a favorable distribution contract.  In comparison, major studio films do not have a hard time securing adequate distribution because such studios are semi-vertically integrated.[22]  This means that the studio owns a production facility and a distribution company, so it need not seek outside distributors.[23]  Furthermore, the fact that the studio has invested a significant amount of money in production gives the studio an incentive to finance distribution of the film in order to recoup its expenditures.

                An independent producer who lacks financial capacity and industry credibility has weak bargaining power when negotiating a distribution deal.  Whereas major producers who have stars signed onto their project and track records to demonstrate their success can obtain a distribution deal before actual production, independent film producers usually have a finished film before they enter into distribution negotiations.  Thus, independent producers have a hard time acquiring distribution deals.[24]  While negotiating a distribution deal, the bargaining power of the parties is determined by the perceived desirability of the film and how much risk each party is willing to take.[25]  Because the producer has a finished product, the distributors know exactly what they are bargaining for.[26]  The distributors gauge from experience the amount of risk they will assume, and the financial ramifications of that risk.[27]  Thus, in a negotiation over acquisition of film rights, the distributor often has stronger bargaining power than the independent producer.[28]  This is an extremely vulnerable position for the independent producer.[29]  In order to maximize their leverage independent film producers need to know how to generate competition among distributors.[30]  Generating such competition is achieved by strategic release of a film into the distribution marketplace.  This entails such tactics as ensuring that all screenings are shown on a big screen to a large audience, staging a carefully planned major film festival premiere, or restricting sneak previews in an effort to minimize pre-premiere discussion and stigmatization.[31]

                The distribution deal is created when the film producer licenses to the distributor the exclusive right to exploit the film, for a definite amount of time, in specific medias and specific territories.[32]  It is important to recognize the necessity of “exclusivity” in the distribution contract.[33]  Exclusivity means that throughout the entire distribution process only one party holds the rights to exploit a film during a particular time period in a particular territory.[34]  There is a period of time, or “window”, in which the theatrical exhibitor can exclusively exploit the film.[35]  Subsequent to the theatrical window, the film is released to allied and ancillary markets.[36]  Such ancillary markets include home video, cable and network television, merchandising, music and print publication, and even airplanes.[37]  Media refers to the means utilized to exploit the film, e.g., television or video.[38]  The initial media for exhibition of a film is typically theatrical.[39]  A territory is the geographical region in which the distributor exploits the film.[40]  It is common for territories to be divided up into foreign and domestic markets.[41]  These territories can be sub-divided into smaller areas.[42] 

                Typically, the distributor pays the independent producer an initial advance for the use of the film.[43]  The distributor recoups any monies it has expended in financing distribution process, and retains a fee for its services.[44]  The producer will receive back-end payment, i.e., money upon completion of the contract, if and only if, the film makes enough money to cover the distributor’s fee and all of the various expenses.[45]  The distributor and the producer will only gain a profit if the distributor is able to stimulate both business and popular appeal for the film in each media and territory.[46]

                The distributor oversees the entire process of launching a film in a certain media and territory.  The distributor must arrange numerous licensing agreements with different sub-distributors, or exhibitors.[47]   As a method of soliciting the film to exhibitors and sub-distributors, the distributor is typically required to enter the film into various film festivals or film markets such as The Sundance Film Festival and The International Film Festival at Cannes.[48]   The film markets serve to generate business deals, as well as popular word-of-mouth. 

                The distributor is largely responsible for the successful performance of all licensing deals it acquires.[49]  The distributor must give each licensee a window of time in which the licensee can exploit the film.[50]  The window of use licensed to each exhibitor must be coordinated, so that there are no conflicting periods of use, and maximum revenue is realized.[51]  For example, once a film has been exhibited on broadcast television, it may not be desirable to pay cable exhibitors.[52]  To stimulate the success of the film, the distributor must conduct a promotional marketing campaign that will encourage exhibitors to license the film and consumers to go see the film, rent the video, or turn to a channel.[53]  Distributors are also in charge of making sure that all materials needed for exhibition are delivered to the exhibitors.[54]  For example, the distributor is responsible for getting the film printed, booking screens for exhibition, and ensuring production of enough videocassettes to fill shelves.[55]

                Importantly, the distributor is responsible for collecting licensing revenues from exhibitors.  The distributor keeps transaction records to account to the producer for all revenue received from exhibition of the film.[56]  If the film makes enough money to generate a back-end profit (i.e., gains a profit – less the advance, fee, and expenses), the distributor pays a percentage of such profit to the producer.[57]  In the past, it was rare for an independent film to generate back-end profit, but the recent popularity of independent films has changed this trend.[58]  Currently, new movie making technology serves to help create high quality, low-budget films that are often one-tenth the cost of an average studio film.[59]  This offers independent producers, as well as distributors, profit and recoupment possibilities that are increasing exponentially.[60]

                III.   ALTERNATIVE DISPUTE RESOLUTION WITH A FOCUS ON
                                                MEDIATION AND ARBITRATION


 
                Alternative Dispute Resolution is characterized as private resolution of legal conflict without reliance upon litigation.[61]  Avoiding the delays of litigation, ADR typically reaches a quicker resolution of the dispute, and limits expenses.[62]  There are many types of ADR, including:  negotiation, mediation, binding arbitration, mini-trials, private judging, court annexed ADR, summary trials, and moderated settlement conferences.[63]  An agreement to enter into ADR proceedings is created by contract.[64]  Because ADR proceedings are based on contract the parties have the ability to create the guidelines for the dispute hearing and award.[65]  The parties can select which kind of ADR they will use.[66]  The parties can set the procedural rules of an ADR institution, or the parties can generate their own rules.[67]  The parties can select the mediators, arbitrators, or neutrals (the judges).  These neutrals are chosen because they are particularly knowledgeable about the disputed issue.  Neutrals have neither precedent, not legal rules, to adhere to in creating an ADR judgment.[68]  The private quality of ADR helps to ensure confidentiality in regard to facts and issues of the dispute.[69]  Furthermore, ADR’s private nature allows the judgment to be entered without setting a court precedent.[70]

                The film industry is increasingly using mediation and arbitration to resolve disputes.[71]  Mediation is a private method of dispute resolution involving a neutral third party who tries to help disputing parties reach a mutually agreeable solution.[72]  Unlike arbitration, a decision made through mediation is not binding.[73]  In mediation, the neutral helps both sides “recognize the interests and desires of the opposing party, and to craft a mutually satisfactory solution.”[74]  Mediators work to facilitate mutually agreeable compromise of the parties’ viewpoints and contentions, while arbitrators evaluate and deliver a final binding resolution of the dispute.[75]  Mediation focuses on participants viewpoints individually and in relation to one another; thus it is a process that helps to mend long-term relationships that have become frayed by temporary disputes.[76]

                In a recent survey, film industry companies and lawyers agreed that their experience with resolving disputes through mediation has been excellent.[77]  They emphasize the value of having a strong neutral that is familiar with the intricacies of the particular aspect of the film business at issue.[78]  Although arbitration is used more in the entertainment industry, many entertainment lawyers feel that a dispute is more easily resolved through mediation.[79]  In the entertainment industry, mediation is primarily used to promote party communication and stabilize relationships so that the parties can continue to work together in the future.[80]  Lawyers note that mediation promotes an opportunity for moderation and compromise of viewpoints, which leads to a quicker settlement.[81]

                Mediation is not used as much as arbitration in film distribution disputes because mediation is non-binding.[82]  In the film distribution industry, the need to concretely determine the use of rights necessitates a binding decision.[83]  A detriment of mediation in this context is that parties can conduct a full mediation of the issues and then continue to operate in bad faith unaffected by the mediation order.  Lawyers prefer arbitration due to the fact that it provides more finality for the parties; a party cannot appeal and reverse an arbitration award simply because the outcome was not in their favor.[84]  The certainty of a final award allows the distribution process to continue, and money to keep changing hands.

                Arbitration involves submitting a dispute to a neutral arbitrator for the purpose of obtaining a final, binding award.[85]  The arbitration agreement confers jurisdiction upon the arbitrator(s) who will decide the case.[86]  The arbitrator’s power to fashion an award is only limited by the agreement of the parties.[87]  The parties can designate a specific issue to be resolved, and the arbitrator has no power to decide issues other than those specified by the parties.[88]  An arbitrator has the power to create an award that does not follow any set legal rule, so long as the arbitrator is acting in good faith pursuant to his jurisdiction.[89]  If one party does not voluntarily comply with an arbitration award, the other party can have the award confirmed by a court in a short hearing.[90]  Upon confirmation, the award is the same as any other court judgment.[91]  The judgment creditor can have a law enforcement officer seize the judgment debtor’s assets to satisfy the award.[92]  Importantly, binding arbitration awards are very hard to overturn.[93]  One California case, Moncharsh v. Heily & Blasé[94], reasoned that in return for a quick, inexpensive and conclusive resolution of a dispute, the parties agree to take the risk that the arbitrator may make mistakes and commit errors of fact and law.  Overall, the grounds for an appeal to vacate an award are narrow, such as when the award was procured by corruption or fraud, or if the arbitrator lacked jurisdiction.[95]

IV.            IDENTIFYING THE NEED TO USE ARBITRATION IN THE FILM

DISTRIBUTION CONTEXT

                There is a heightened necessity of using arbitration in the film distribution context.  Disputes over the method of performance of the distribution contract frequently arise.[96]  Some examples of performance disputes relate to the following:  whether or not the producer has properly delivered all necessary materials to the distributor, whether or not the distributor’s promotional marketing was sufficient, whether or not the distributor entered the film into the necessary film festivals or markets, and whether or not the distributor used its best efforts to solicit sub-distributors or exhibitors in various territories around the world.

                Another, and maybe more important, reason for the special need of arbitration is that distributors have been known to be creatively deceptive in their methods of accounting for revenue of a film.[97]  An example of this is bad faith characterization of distribution expenses.[98]  A dishonest distributor can misapply expenses incurred on one film to another film, leaving an independent producer’s profit negligible, or perhaps, forcing the producer into bankruptcy.[99]

                To illustrate, consider the example of the distributor who goes to Cannes to solicit an independent producer’s film for licensing deals.  The distributor is most likely marketing numerous films and representing many different clients.[100]  In the marketing of those films, there are operational overhead costs which might include:  rental of a suite of rooms to serve as headquarters, airfare, local transportation, lodging and meals for staff, shipping of materials, duplication of video cassettes, and entertainment of foreign buyers.[101]  The deception occurs when the distributor has more of an interest in certain films, be it due to production participation, or a more substantial business relationship.  The distributor will acquire an independent film, expecting it to have a low licensing response.[102]  The distributor then focuses its energy on its preferred films and uses revenue generated by the independent film to cover its operating costs.[103]  Under these common circumstances, the independent producer’s film benefits the distributor while the producer receives little or nothing in return.[104]  The producer is ruined at the outset because the distributor is expecting the film to fail and does not adequately promote the film.

                Although the film may not experience good sales, the distributor gains in a number of ways.  The distributor collects a distribution fee.[105]  As noted above, a distributor can characterize revenues from the independent producer’s film in a way that helps to cover the overhead of attending markets.[106]  Furthermore, the distributor can characterize advertising of its own services as advertising needed for promotion of the movie.[107]  The distributor may earn fees by marking up the cost of various deliverables and pocketing the profit.[108]  Finally, the distributor may secretly receive kickbacks from poster designers, trailer makers, and film developing laboratories.[109]

                Arbitration is the mechanism that equalizes the powers of the independent film producer and the distribution company in a dispute over performance of the distribution contract.  Financial limitations preclude many independent producers from bringing claims of breach of contract against a financially powerful distributor.  The inability to obtain enforcement of the distribution contract creates a situation in which a dishonest distributor continues to knowingly perform in bad faith without worry of reprisal.[110]  The ADR tools of mediation, and more specifically arbitration, allow independent film producers the opportunity to effectively protect their rights.[111]  Therefore, it is necessary for an independent film producer to negotiate for an arbitration agreement.[112]  Distributors may not eagerly agree to arbitration because they are more likely to have breach claimed against them; they want the strategic protection of litigation.[113]  Nevertheless, and independent producer who can explain the benefits of using arbitration in a film distribution context will have a better chance at convincing a distributor to agree to arbitration.

V.            THE BENEFITS OF ARBITRATION IN A FILM DISTRIBUTION

DISPUTE

                There are numerous reasons why arbitration, as compared to litigation, is specifically useful for the independent film distribution industry.  Reduction of litigation costs, the possibility of quick resolution, and the guarantee of an arbitrator who has industry knowledge are all contributing factors.[114]  Arbitration appeals to parties who desire confidentiality and an atmosphere conducive to continuing positive working relationships.[115]  Significantly, arbitration provides for a scenario in which creative people can come together to produce a creative outcome.[116] 

                Within the distribution process there is a unique need to have a quick method of final resolution.[117]   During arbitration, the parties need not continue to operate under disputed licensing agreements while their case moves its way up a court docket, or is held up by procedural delays.[118]  An arbitrator can work within the timetable of the dispute, to construct an order in an amount of time that does not interfere with the distribution process.[119]  This is important for both producers and distributors alike, because a film that is locked up in dispute in court may miss its window in a valuable market.[120]  The film may fail to take advantage of advertising, a particular season, or a popular sentiment that can enhance its profitability.   This could translate into a major loss for an independent film producer.  A film that is taken out of the distribution process, pending a court decision, may not regain its ability to attract exhibitors, whether that is due to the producer’s economic insolvency, or loss of reliability in delivering the film.[121]

                An arbitral award that is final permits the film distribution process to proceed with certainty.  Arbitration proceedings and awards are less likely to be attacked on an appeal than litigation judgments, because the law severely limits appeal of arbitration awards.[122]  Knowing that an award is final, and relatively unappeallable, allows the parties to adjust, and then proceed with performance, confident that current decisions will not be halted by an adverse appellate decision. 

                Parties involved can place their trust in an arbitrator who has specific experience in the entertainment industry.  In most cases of entertainment industry arbitration, the arbitrator has experience in the specific genre of the dispute itself.[123]  There are several benefits to having an arbitrator who is knowledgeable of the business practices of the film industry.  Lending trust to the proceedings is favorable because it helps to create a less adversarial atmosphere, and a more compromising attitude.  An arbitrator with experience will detect, and correct, any failure by either party to meet industry norms.[124]  Producers trust arbitrators who have an understanding of the nuances of good faith performance.  Distribution companies trust arbitrators who have experiential knowledge, because such arbitrators know the cutthroat protocol of the distribution process.[125]  These companies would rather use a seasoned, less-easily-swayed arbitrator, because in litigation juries often harbor a “built-in-sympathy” for artists (independent producers) over faceless corporations.[126]

                A unique aspect of an arbitration that is conducted during the performance of a contract is the ability of the arbitrator to make interim orders.  An arbitrator who addresses a copyright infringement in mid-performance licensing dispute, provides a good example.[127]  It is likely that an arbitrator in such a situation will typically be asked to make an interim order, pending the outcome of arbitration.[128]  An interim order in this situation may stat that during arbitration, a licensee should not continue to use the copyright of the licensor or sell products (distribute, display, etc) manufactured under the license.  Also, the licensee should not hold itself, nor one of its subsidiaries, as an authorized licensee for the products.  Furthermore, the licensee is not allowed to grant sub-licenses, or take any other action that could possibly affect the validity and/or value of the intellectual property rights.[129]  In other cases, an interim order may be sought to preclude a party from making a statement concerning ownership, or disparaging the products to other distributors in the industry.[130]  This is significant where the parties attend trade fairs and industry meetings such as the various film festivals around the world.[131]  Essentially, an arbitrator can create an order that will address both the need to maintain the process of distribution and that of settling the dispute.

                In arbitration concerning the interpretation of a distribution contract, an arbitrator may have to fill in areas of the contract that remain undetermined or ambiguous.  This is indispensable in an industry where there is a tendency for parties to use incomplete contracts, or otherwise fail to specify important parts of an agreement.[132]  Moreover, this is important in an industry in which parties begin performance based on deal memos rather than long form contracts.[133]  Where neither distributor, nor the film producer, has expressly reserved use of certain rights (e.g. radio, publishing, or merchandising) the arbitrator can place the rights in control of the deserving party.  For example, an arbitrator may recognize that the film producer should retain ownership of radio and print publication rights, but that the distributor must be granted limited use of such rights in order to advertise the film.[134]

                An arbitrator who is experienced in the film industry financing is highly valued in accounting of revenues disputes because the film industry is notorious for having complicated methods of accounting.[135]  In distribution contracts, commonly used terms such as “net profit” and “gross profits” do not necessarily have a single interpretation.[136]  Major distributors have contractual definitions of these terms that are lengthy and cumbersome.[137]  Frequently, these terms only have meaning in connection with the specific definition in the contract.[138]  Interpreting these extensive definitions is hard and requires industry experience.  In litigation, explaining these terms to a judge and jury poses the threat of uncertainty for both sides.  Therefore, in a dispute involving the calculation of profits, or an audit, an arbitrator with a background in entertainment issues is better than a judge who may not have the same kind of inside information.[139]

                The process of arbitration preserves party relationships, and limits the significance of the proceedings and/or awards within the film industry community.  The less adversarial and more compromising attitude of arbitration, as compared to litigation, helps to maintain positive working relationships between parties.[140]  The film industry is comprised of a relatively close linked group of financiers, creative teams, and other talent.[141]  Therefore, parties have a social and business incentive to utilize and fully participate in the arbitration process, because it is likely that parties to a dispute will work together on a future project.[142]

                The confidentiality of arbitration proceedings and awards is welcomed in such a tight knot, publicity conscious community.  Parties confronting sensitive issues do not want to have the dispute proceedings proliferated throughout the media.  If the dispute is litigated, the press will access all public records available to report on the dispute.  Because arbitration records and awards are private, only the parties can divulge the substance of the proceedings.[143]  To assure confidentiality, the parties can address privacy rights in their arbitration agreement.[144]  Where the issue of privacy has not been addressed in the agreement, or one party refuses to agree to confidentiality regarding the proceedings and award, a party seeking privacy can ask the arbitrator to order confidentiality as a part of the arbitral award judgment.[145]

                Significantly, whereas parties to litigation must always be aware of what the possible precedential outcome of their case will be; parties who do not prevail in arbitration can enjoy the fact that the award does not set an adverse precedent.[146]  Independent producers, who are at the losing end of an award, do not need to feel as if they have provided more leverage for distribution companies.  Distribution companies who have an award leveled against them can be pleased that the award has not created precedent that previously tentative claimants can seize upon, as a catalyst for litigation.

                Arbitration is advantageous because the parties can create the procedural rules for the arbitration proceeding.[147]  Arbitration is based on contract, which allows the parties to determine the scope of the procedural rules.[148]  The parties can set the procedural rules either on an ad hoc basis, or under the auspices of an arbitral institution.[149]  Ad hoc arbitration is characterized by the rules of the arbitration procedure being solely created by the parties.[150]  The parties get together and tailor all of the rules, including but not limited to, the scope of the arbitrator’s powers, the scope of discovery of evidence, interim orders, and the design of the award.[151]  For example, the independent producer can design the procedural rules of arbitration to deny the larger distributor the procedural advantages of litigation tactics and delays; and the distributor can limit the amount of sensitive information allowed into the proceedings.

                A great deal of arbitration in the film distribution industry is conducted under pre-set rules of arbitral institutions.[152]  The primary advantage of using an arbitral institution is that such organizations provide pre-made arbitration rules, drafted and refined by experts.[153]  Whereas ad hoc arbitration can lead to frustration and uncertainty if a particular procedural point has not been addressed, institutional arbitration provides a measure of convenience and security.[154]  The use of these recognized arbitration rules helps the inexperienced to ensure that the arbitration process will be set in motion, that it will be reasonably fair and efficient, that there will be a final decision, and that the decision will be enforceable.[155]

VI.            ANALYSIS OF ARBITRAL INSTITUTIONS USED IN FILM

DISTRIBUTION DISPUTES

                A producer who is not experienced in ADR should use, or at least understand the benefits of using, the services of an arbitration institution.  By using an institution the producer is assured of having rules that help to create equal standing between the disputants.[156]  Two organizations are frequently used by the entertainment industry in domestic distribution disputes:  the American Arbitration Association (AAA) and the American Film Markets Association (AFMA).[157]  The AAA is an extremely large organization with offices in most of the major cities throughout the United States.[158]  Due to the size of the AAA and its extensive experience, the organization and its procedures are well developed and are readily accepted and acknowledged by entertainment lawyers.[159]  Though the AAA is not film distribution industry specific, the industry uses the AAA to resolve many different kinds of film related disputes.[160]  Examples of entertainment industry disputes that have been resolved through the AAA are varied; they range from damages to private homes during filming, disagreements regarding the location of where a major award event will be held, to unauthorized use of celebrity likenesses.[161]

                The AFMA is film industry specific, with a focus on the interests of domestic and international distribution deals.[162]  The AFMA helps novice independent producers entering into distribution contracts, by providing standard form contracts with arbitration clauses for film distribution deals.[163]  The AFMA has extensive film industry experience, covering a wide range of disputes including; agreements associated with production, financing, multimedia licensing, sales agencies, international licensing, domestic distribution, and exhibition.[164]  This experience has enabled the AFMA to develop unique rules that address arbitration of contracts between film producers and distributors.

VII.  USING ARBITRATION IN MULTINATIONAL DISTRIBUTION DISPUTES

                The growing foreign market for American independent film has created a situation in which independent producers, as well as U.S. distributors, must be aware of the value of arbitration in a dispute concerning foreign distribution contracts.  Currently, the independent film industry is experiencing a boom in foreign licensing, because of deep-pocketed foreign buyers.[165]  The presence of privately owned television stations and the increase of cable and satellite television delivery, supplemented by the opening of markets due to political and economic change, suggest that the revenues from the international film market may soon be equivalent to the revenues generated in North America.[166]  The independent film industry has taken advantage of the new and largely untapped demands coming from foreign cable and satellite station exhibitors.[167]  In a survey conducted by KPMG, it was reported that U.S. members of the American Film Marketing Association generated $1.6 billion in foreign sales of American films in 1998.[168]

                Arbitration is indispensable in foreign distribution disputes whether they are between U.S. distributors and foreign sub-distributors, or American independent film producers and foreign distributors.[169]  Taking a foreign party to court in another country is extremely difficult, uncertain and expensive.[170]  Not only are travel expenses costly, but attorney fees are double.[171]  American parties have to pay both their own representative, as well as a local attorney who is able to understand the language of the foreign venue, and the foreign code of civil procedure.[172]  Moreover, the obstacles of a foreign language and a foreign code of procedure are made more formidable by the presence of a xenophobic judge.[173]

                Taking a foreign distributor to court in America is useless, unless treaties are in place for recognition of the judgment.[174]  Countries are under no obligation to recognize foreign judgments.[175]  A judgment is worthless without a court’s ability to provide enforcement power.[176]  Furthermore, trying to get American judgments enforced in foreign countries is highly uncertain.[177]  In most countries, the practice of the courts is to conduct a case-by-case examination of the dispute and jurisdictional issues, then recognize some foreign judgments while rejecting others.[178]  Some countries insist that the party seeking recognition show that comparable judgments are recognized where the judgment originated.[179]  Other countries require that the judgment be compatible with its own laws or public policy.[180]  Regardless, arbitration helps the parties avoid the superficial procedural and customary obstacles associated with litigation in foreign venues.

                The many problems associated with international litigation in foreign courts have prompted arbitration to become the preferred mode of dispute resolution for international transactions.[181]  Arbitration can achieve neutrality in an international dispute where parties are wary of possible bias in favor of a certain nationality.[182]  In the arbitral contract, parties can appoint arbitrators that do not reflect bias towards one nationality; or they can appoint a panel of three arbitrators, each party having an arbitrator that represents the nationality of a party, with the third being neutral.[183]  Furthermore, multinational parties can place themselves on equal footing by choosing a mutually beneficial place of arbitration.[184]  For example, a London based company and a Los Angeles based company involved in a dispute may choose New York as the site of the arbitration.  Importantly, the parties can designate a situs of arbitration where the national laws are “arbitration friendly.”[185]  Because the parties have consented to the arbitral forum, problems of personal jurisdiction and service of process, often obstacles in international litigation, are then avoided.  Furthermore, the parties choose the language that will be used in the arbitration proceedings.[186]  They can designate the rules of law to be applied, thus reducing the uncertainty of foreign court systems.[187]

                Arbitral awards enjoy far greater international recognition than judgments of national courts.[188]  Many countries are signatories to treaties such as the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.[189]  The Convention provides for enforcement of awards in all contracting countries.[190]  However, the fact that the New York Convention allows judicial review of arbitral awards in the courts of the country where the award was rendered, and in the country where the award is to be enforced, may pose a problem.[191]  A foreign court may refuse enforcement if the dispute is not arbitrable under local laws, or if enforcement would be contrary to public policy.[192]  This latter point demonstrates the second reason why arbitration awards are more easily enforceable.  Arbitrators, who have knowledge of local arbitration laws and public policy considerations, can create an award that can be enforced under the strictest standard of review in the country where it is to be enforced.[193]

VIII.          NECESSITY OF USING AN ARBITRAL INSTITUTION IN A FOREIGN DISTRIBUTION DISPUTE

                It is advantageous to use an arbitral institution in the context of international arbitration of a film distribution dispute.  Arbitration institutions provide neutral arbitration rules that re created for disputes in an international context.[194]  The rules are provided in many different languages.[195]  Importantly, the prestige of the institution strengthens the credibility of awards in the eyes of the local courts.[196]  This leads to a situation in which the parties, aware that the award is likely to be enforced by local courts, are more amenable to honoring the award.  Accordingly, many international business entities prefer the aid of an arbitral institution in international disputes, rather than entering into an ad hoc arbitration.[197]

                The International Chamber of Commerce International Court of Arbitration (“ICC Court”) and the previously mentioned AFMA are institutions that provide particular advantages in the arbitration of a multinational dispute.  Though the ICC Court is neither film nor entertainment industry specific, it is considered the world’s foremost institution in the resolution of international business disputes.[198]  With members in 60 countries and on every continent, the ICC Court is the world’s most widely represented dispute resolution service.[199]  The ICC Court is the committee that ensure the application of the rules of arbitration under the International Chamber of Commerce.[200]  The ICC Court does not act as an arbitrator, it merely oversees the arbitration process in order to provide the support and maintain progress in the arbitral proceedings.[201]  Contrary to many other institutions, the ICC Court supervises the entire arbitral process, from the initial request of its services, to the final award.[202]  This process is extremely beneficial because the Court repeatedly reviews the progress of all pending cases and considers whether there are any measures needed to make the process more agreeable for all parties.[203] 

                An exceptional benefit of using the ICC arbitral institution is that it actively seeks to ensure that the awards will be enforceable in the countries represented in the dispute.  The ICC Rules mandate that the Court scrutinize and approve all awards as to form and substance.[204]  The ICC Court reviews each arbitration award for possible errors that will preclude its enforcement.[205]  Awards raising particular problems are scrutinized at Plenary Sessions.  In the Plenary Session, the Court makes sure that awards can be enforced in a situation in which one party does not voluntarily honor the award.  If anything presents an obstacle to the enforcement of the award, the ICC Court has authority to modify the award.[206]  It assures that each award meets the standards necessary for certification in a national court of any country represented in the arbitration.[207]

                The aforementioned AFMA is also advantageous for conducting a multinational arbitration concerning a film distribution deal.[208]  Although the AFMA is based in Los Angeles, the AFMA has arbitrators around the world who are experienced in film distribution disputes.[209]  The AFMA has offices in major cities around the world, and provides its rules in a number of foreign languages.[210]  Although the AFMA does not offer the advantage of having a supervising body monitor the arbitration proceedings, it does have extensive experience in dealing with international film distribution deals.  This experience enables it to create practical rules and remedies for use in multinational arbitrations.  Under the AMFA rules, if a distributor does not comply with the terms of the award, the film producer can have the distributor barred from participation in future American Film Market Festivals.[211]  This is especially useful in the distributors assets are abroad and hard to reach under the authority of U.S. law.[212]  The possibility of being barred from an AFMA film festival and all its possible business opportunities may convince an errant distribution company to obey an arbitration award.[213]

                The AFMA has identified, and made efforts to stop, the increasingly frequent use of fraudulent companies termed “shell corporations.”[214]  In the distribution context, a shell corporation is a foreign distributor who sets up a company, illegally exploits rights, and when legally challenged, abandons the company, and then forms another company that exploits a new, unsuspecting film producer.[215]  The AFMA has created a contractual personal binder that can be enforced against the distribution executives themselves, making it harder for the same person to hide behind new enterprises.[216]  An executive signs a binding clause (binder) along with the arbitration agreement contained in the distribution contract.  The binder makes the executive personally liable for his or her company’s failure to honor an arbitration award.  If the executive’s company fails to comply with an arbitration award, he can or she can personally barred from future AFMA festivals.[217]  Thus, a businessperson who wishes to maintain a presence in the industry will have incentive to comply with arbitration awards. 

                The AFMA is also trying to remedy the problem of identifying ownership rights for various films marketed throughout numerous medias and territories.  In order to make it easier to determine the rights involved in a particular film, the AFMA participates in the preparation and management of a database of film ownership receipts.[218]  This database assists distributors to organize the distribution process and track licensing fees.[219]  The database helps independent film producers monitor their recoupment of monies, because licensing revenues are easier to ascertain, and therefore recover.[220]

IX.            CONCLUSION

                The independent film industry is growing.  Contribution to this growth are a group of novice producers, who are taking advantage of digital cameras and home computer editing equipment to create new films.  Distribution executives are realizing that independent films are becoming a more lucrative genre providing possibilities of low production cost with high returns.  The movie, The Blair Witch Project,[221] provides the perfect example.  Knowing that their product is popular, independent film producers are hungry to get a film distribution contract.  Distributors, aware that they can fulfill the dreams of these producers, are in a position to take advantage of the producer’s eager ambition.  Easter, inexperienced producers readily sign away their rights only to find that the distributor’s performance of the contract has done nothing to benefit them.  Whether the distributor is dealing in bad faith or simply performs inadequately, producers can find they fail to realize optimum popularity and profits.  The only way to effectively remedy the situation of faulty performance by a distributor is to resort to legal action.  The problem that independent producers encounter with litigation is that, even if they have legitimate claims for breach, taking the distributors to court is an expensive and daunting task.  A distributor will likely have access to a significant litigation budget with which the independent producer cannot compete.  The independent producer is overpowered and forced to stand aside as their intellectual property rights are illegally exploited. 

                The ADR tools of mediation and arbitration are the processes that can equalize the legal power between an independent producer and the distributor.  Arbitration can work to the benefit of all parties involved in the distribution process.  It allows for ongoing profitability while the dispute is resolved on industry time, based on industry practices, and incorporating industry values.  Meanwhile, independent producers can use the arbitration agreement to save the expense of litigation and limit the distributor’s leverage in the power dynamic of the dispute.  Also, distributors can narrow the scope of discovery with regard to their business records, and enjoy the corresponding privacy of arbitration. 

                In a multinational distribution dispute, arbitration not only equalizes parties on a procedural level, but on a jurisdictional level as well.  When conducting arbitrations under arbitral institutions, whether it is a domestic or multinational dispute, professionals with experience facilitate the entire process.  Positive reports about the use of arbitration in film distribution disputes foreshadow an increase n the use of arbitration within the industry.  However, the main obstacle to a more widespread use of arbitration in the film distribution context is that many of the entities involved are aware of the presence of arbitration, but not the advantages of using the process.  Thus, an immediate goal is to provide more information about the use of arbitration in the film distribution context.  The materials discussed in this guide are intended to encourage both independent producers and distribution executives to learn more about the process of arbitration and its utility in avoiding the pitfalls of litigation.