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Lawyer’s Corner: What Is an Option and Purchase Agreement? When Do I Need One?

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Chances are, if you have been in the business of making content, you have already heard of an “option-purchase agreement” and as a writer or as a producer, you may even have negotiated one. Generally, you can buy the copyright to intellectual property or literary work (such as a play, book, article, song, video game, music, or a screenplay) from the copyright owner either outright or through what is referred to as an “option-purchase agreement”.  An “option to purchase agreement” is an agreement entered into by the purchaser and the owner, which gives the purchaser the exclusive, but temporary, right, i.e. the option, but not the obligation, to purchase some or all of the copyright in some sort of an intellectual property at a pre-negotiated price prior to the expiration of the option or any extensions thereof. The owner of the intellectual property must sell the property if the option is exercised.

As optioning the intellectual property is less expensive than buying the work outright, options are very popular for risky or speculative projects. Most often, they are a win-win for both parties. On the purchasers’ side, purchasers typically prefer to take an option on a property to reduce their up-front risk. Usually, purchasers do not want to purchase the rights until they know for certain that they have all of the required financing and the project will be produced.   Because an option holder has no obligation and is not required to exercise the option, such holder’s loss is limited to only the money they paid on the option, if any, if the project is never produced.  For the owners, although the owner of the optioned work must sell the literary work if the purchaser exercises the option, the owner usually receives a fee for the option. Thus, if the option is not exercised, the option period or extensions thereof has expired and the owner did not sell the literary work, the owner still receives a profit on the option.  Some copyright owners may have optioned the same property repeatedly and received multiple option fees from different people because prior options expired without being exercised.  Moreover, most owners prefer to have their work optioned rather than idly remain on a shelf.

A typical option to purchase agreement will have provisions that detail the exclusive all or some rights to be acquired, including the specified time period for the option, any extensions of the option period, and the purchase price.  Owners may want to reserve certain rights to the optioned intellectual property and not sell all of their copyrighted rights to their work.  Also, the purchase price of the property has to be set at the time the parties enter into the “option-purchase agreement” otherwise the time and money spent on developing the project may be wasted. Unless the purchase price is determined on the outset, an owner may later hold out, put the purchaser in a jam, and may demand any amount the owner wants for the rights that were optioned.

Option periods are usually exclusive for a negotiated period. A producer does not want to spend time or resources on a project only to have it be sold to someone else.  After the expiration date, the producer no longer has an exclusive right to buy the work, and the owner is free to option or sell it to a different purchaser or producer.  In the “option-purchase agreement”, the parties may also negotiate extensions to the initial option period.  Option period extensions, enable the producer to extend an option without exercising it and paying the purchase price but usually with the payment of additional fees which may or not be applicable towards the purchase price, if the option to purchase is ever exercised.  Purchasers will usually also require the right to revise and to make changes to the optioned material. Purchasers most often are not going to spend money and time to raise financing for material that they are unable to revise without the owner’s prior permission with the owner being in a position to withhold permission to make changes to such material.

While option purchase agreements are most often a win-win for both the purchaser and the owner of the intellectual property, there are a number of provisions that should be negotiated and present in such agreements.  Always engage the services of an experienced attorney who can consult and guide you through the drafting and negotiating of these agreements.


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Nadia Davari

About Nadia Davari

Nadia has over 14 years of experience as an entertainment and corporate attorney. She has served as the outside counsel and in legal and business affairs for several media companies and start ups, including MavTV, Channel Factory, Prescience, and Lightning Entertainment. She works with a wide range of clients including digital media companies, new business start-ups, production companies, movie studios, television networks, investors, and talent. She is well-known for her superior negotiating and drafting skills in development, production, distribution, licensing, and acquisition of entertainment content in animated, scripted and unscripted television, and motion picture content. Nadia graduated from UCLA with a B.S. in molecular, cell and developmental biology and attended USC Law School where she participated in the Hale Moot Court Honors program.