This article has been written by Komal Mittal, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho.

Introduction

Have you ever watched a movie, documentary or series on Amazon Prime, Netflix or Hotstar? Do you know how they are able to broadcast these movies?

In this Internet era, with the advancement of technology, the use of the internet is increasing manifold. Netflix is one of the world’s leading entertainment services with 204 million paid memberships in over 190 countries enjoying documentaries, films and  TV series across a wide variety of genres and languages.

What is meant by a digital exploitation agreement?

With the increase in the use of the internet, the scope of copyrighted work also increased as now the copyrighted work can be distributed, broadcasted and published through digital platforms generally known as OTT (Over the top) platforms like – Amazon Prime, Hotstar, Netflix.

Creative content like videos, movies, sound recordings can be licensed to digital platforms. The content creators provide the license to the digital platforms to exploit the digital rights in respect of the content in exchange for the compensation and the agreement covering this transaction is generally known as the digital rights exploitation agreement. 

The parties in this agreement are: 

1. The content creator – generally known as the licensor; and 
2. The digital platform, to which the rights are transferred – generally known as the licensee. 

Why is there a need for a digital exploitation agreement?

Contents like documentaries, series, movies, sound recordings are the copyright of its creator or some other person as per the Copyright Act, 1957 and can’t be used without any authority. Copyright is an intellectual property right that is defined under Section14 of the Copyright Act, 1957. Copyright is generally related to works e.g.; movie, music, poem, book etc. So, it becomes necessary to get the rights transferred from the content creator to the content distributor and with this, in this global era, it becomes even more lucrative to get the content published or distributed through digital platforms.

It becomes a source of revenue for both the parties as the content creator gets the compensation from the digital platform for giving it the rights and with the help of the content the digital platform grows its business. So, in order to give effect to such a transaction and make it binding on both the parties, the parties need to enter into a digital rights exploitation agreement.

Some important clauses of the digital rights exploitation agreement

Definitions

The digital rights exploitation agreement contains a lot of technical terms. In the definitions clause, all the technical terms should be defined as they are used in the agreement. Defining technical terms in the definitions clause makes the scope of the terms clear and implementation of the agreement becomes easy for the parties and in case of any dispute and the definitions clause also helps the adjudicating authority to interpret the agreement between the parties. 

Terms like OTT (over the top) platforms, AVOD (advertising video on demand), TVOD (transactional video on demand), PPV (pay per view), SVOD (subscription video on demand), and FVOD (free video on demand) are some of the common terms which need to be defined in the digital rights exploitation agreement.

License

This clause is very important as it states:

Nature of license

The license can be of many types. Some of them are – limited, unlimited, exclusive, non-exclusive, transferable, non-transferable. It becomes important to define in this clause which type of license will be granted to the licensee by this agreement. In the case of digital rights, it becomes important to clearly state whether it is an exclusive or non-exclusive license. Exclusive license means during the term of the license only the licensee will have the right to exploit the rights granted as per the agreement. A non-exclusive license means the licensee will not have the exclusive license over the rights granted in the agreement.

For example–

1. If an exclusive license of a movie has been granted to Amazon Prime then only Amazon Prime can exploit the rights of the movie.
2. If Amazon Prime has been granted the non-exclusive license of the movie then along with Amazon Prime, the creators of the movie can grant license to other digital platforms as well. 

Scope of the license

This clause generally states all the rights which the licensee will have and the extent to which these rights can be exercised by the licensee.

For example – 

1. The scope of the license is limited to publication/distribution of the content and the licensee can’t make any changes in the content. 
2. The licensee can promote, advertise and distribute the content as per the terms of the agreement. 

Territory

This clause mentions the territorial limit within which the rights can be exercised by the licensee. Territory can be a particular region, a country, a group of countries or it can be worldwide. Digital content can also be licensed to different platforms in different countries.

For example- 

• A license can be granted to Netflix India to distribute and broadcast the content only in the territory of India. (See here)

• The content creator can license the same content to different licensees in different territories e.g.; A license can be granted to the Netflix India to distribute and broadcast the content only in the territory of Republic of India and a similar license for the same content can be granted to a digital platform of the China to be used in the territory of People’s Republic of China. 

Model of viewership

It states the mode by which such content can be displayed, broadcasted to the public. The agreement must clearly state the model of viewership for which the content has been licensed. There are several models of viewership e.g.; FVOD (free video on demand)- this model is used by Hotstar(see here), PPV (pay per view) – this model is used by YouTube (see here), SVOD (subscription video on demand) – this model is used by most of the OTT platforms like – Netflix (see here), Amazon Prime (see here).

Term and Termination

The term and termination clauses are inter-related clauses. These can be written separately or collectively, it depends on the person who drafts the agreement.  

The term of the license

The term of the license refers to the duration for which the license will be granted. License is generally for a fixed period of time.

For example-

1. The term of the license shall commence from the effective date and the duration of the license is for 3 financial years.
2. The term of the license is from 1st April, 2021 to 31st March, 2024.

Termination 

The termination clause states when the agreement will come to an end. This clause must clearly state all the conditions which terminates the agreement between the licensor and the licensee.

Some of the conditions to terminate the contract can be:

• When the term of the agreement has been completed. 

For example –

If the digital rights exploitation agreement has been granted for a period of 3 years, it will automatically end after the expiry of these 3 years.

• When the breach of any representation or warranty takes place, the aggrieved party shall give the notice of the said breach to the defaulting party and in case, the default has not been rectified by the defaulting party, the agreement shall stand terminated. This clause shall also state the way by which the term of the agreement can be renewed or extended. Renewal or extension of the term of the agreement is generally done by the parties who want to continue with the agreement even after the completion of the time period of the agreement.

For example – This agreement can be renewed by both parties by mutual consent.

Consideration 

The consideration or the payment clause must contain all the details regarding the payment to be made by the licensee to the licensor for the granting the digital rights in respect of the content to the licensee.

This clause contains the details regarding:

• The date of payment.
• Mode of payment- Payment can be made by various modes e.g.; cheque, cash, bank transfer etc. 
• Tax details- This clause shall make it clear that whether there is any tax which is applicable and if yes then whether the payment mentioned is inclusive or exclusive of the tax. 
• Number of installments, the amount of each installment and date of each installment – if the payment is to be made in installments.
• Interest or penalty can also be mentioned to deal with default in payment.

Content protection and security

The content protection of the content is a major issue for the parties. It is generally the duty of the digital platforms to ensure the protection of the content and to follow measures to keep the content secured. In case of the failure to fulfill this duty, a notice can be sent by the licensor to the licensee and it may even lead to the termination of the agreement.

For example –

Netflix uses ‘multi –DRM’ technology and ‘forensic watermarking’ technology to keep the content published on Netflix protected and secured.

Cutting, editing and Interruption

Sometimes the licensee needs to make some changes in the content. In that case the licensor needs to grant the rights to make the changes or modifications to the content. This clause should be drafted very carefully as a balance needs to be created in this clause among the rights of both parties. 

For example-

The licensee shall have the right to make changes, addition, deletion in the content only after the prior written approval of the licensor and these changes should be as per the industry standards. Any change made without the prior approval of the licensor shall amount to a breach of this agreement. 

Withdrawal of programs

Sometimes the license needs to be suspended or withdrawn for a limited period of time (temporarily) or permanently. Generally, the suspension of the license takes place due to statutory regulations or judicial proceeding. So, this agreement must clearly lay down all the conditions upon which the agreement will be suspended or withdrawn. This clause should also mention the payment to be made in case of suspension or withdrawal of the content.

Promotion

This clause states the rights of the licensee to promote the content. Promotional activities are very important for the licensee as it directly impacts the revenue of the licensee (digital platform). This clause can grant the licensee the right to use promotional material related to the content e.g.; posters, trailers. 

Rating and anti-piracy warnings 

This clause generally states that the Licensor shall provide the ratings of the content to the licensee and ensure that the licensee displays the rating of the content as well as anti-piracy warnings regarding the content on the digital platform. 

Press release

A press statement refers to a statement given to the press to publish it. This type of agreement is generally kept confidential in the initial stage. The parties shall mutually decide the date on which press release regarding the agreement between Licensor and licensee can be held. The clause shall also contain the details regarding how the parties will decide the form and contents of the press release. 

Points to keep in mind while drafting digital exploitation agreement

• The definition clause should only contain the terms used in the agreement.
• The scope of the license shall be decided after proper care and caution as if the creative rights or rights to interfere with the future creations have been licensed to the licensee then it can become a problem for the licensor in future if the licensor wants to create a sequel of that content.
• The rights which remain operative even after the termination of the agreement should be mentioned clearly.
• All the representations and warranties of both parties must be mentioned clearly.
• All the boilerplate clauses e.g.; severability, notices, governing law and jurisdiction, force majeure and confidentiality clauses must be drafted and reviewed carefully. 

Conclusion

This is a technical agreement and with the growth of digital platforms, the needs of these agreements have been growing. While drafting or entering into a digital rights exploitation agreement all the above-mentioned points must be kept in mind and the agreement shall cater to the needs of both parties and it should be worded in such a way that makes it easy for both the parties to understand it and act in accordance with this agreement.

References

• https://ir.netflix.net/ir-overview/profile/default.aspx 
• https://www.indiacode.nic.in/handle/123456789/1367?locale=en
• https://www.indiacode.nic.in/show-data?actid=AC_CEN_9_30_00006_195714_1517807321712&sectionId=14516&sectionno=14&orderno=14
• https://medium.com/pallycon/how-netflix-protects-contents-part-2-33c1b60002a3
• https://dictionary.cambridge.org/dictionary/english/press-release

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