Arbitration of Entertainment Industry
Contingent Compensation Claims

This article was originally published in the seminar syllabus "The Back End: A Look at Gross and Net Participations in the Wake of Buchwald v. Paramount," sponsored by the Los Angeles County Bar Association Intellectual Property and Entertainment Law Section in 1990.

Comments are generalizations and may not apply to every situation. It is advisable to consult with a competent professional before relying on any written commentary. Paul D. Supnik is a member of the State Bar of California and not of any other state or country. The material set forth herein is not for the purpose of soliciting any engagements where to do so would be to offend or violate the professional standards of any other state, country or bar. This web site Copyright 1990, 1996 by Paul D. Supnik

by Paul D. Supnik(1)
Arbitration is often viewed as a way of quickly effecting a conclusion of disputes. It is frequently used in the entertainment industry to resolve guild related conflicts. Arbitration may also be used to resolve disputes involving contingent compensation.

The American Arbitration Association has panels of arbitrators which include entertainment industry professionals. Since 1983, the American Film Marketing Association instituted an international arbitration tribunal designed to effectuate a resolution of disputes involving members of the association. The guilds provide arbitration of contingent compensation claims, generally where compensation is limited. The Screen Actors Guild Television Agreement provides for arbitration of certain disputes involving a player's individual employment contract.(2) as does the Producer Screen Actors Guild Codified Basic Agreement(3). The Writers Guild provides for arbitration of certain compensation claims(4) as does the Directors Guild.(5) At the outset, additional separate arbitration provisions may be useful depending upon the extent and type of contingent compensation.

The parties to an agreement generally must contemplate arbitration in advance as a method of resolution of future disputes. The ability to negotiate an arbitration clause may depend on the difference in bargaining power among the parties and the perception of the advantage or disadvantage of arbitration to the party having a significantly greater bargaining power. In rare circumstances after a dispute has arisen, the dispute may thereafter be referred to arbitration by agreement of the parties. This too, may not be accepted by a party which finds it to its advantage to put the other party through court proceedings.

The perceived advantages of arbitration are that it is less costly than other court procedures, that a quicker resolution is obtained, that the proceeding is less likely to be attacked in the court system and that the trier of fact is more likely to be knowledgeable in the subject area. These issues apply just as readily to contingent compensation cases as to other types of cases.

Resolution can be quicker because normally, discovery procedures generally available in United States courts are not available in arbitration absent special rules of the arbitration tribunal or special provisions for discovery in the arbitration clause itself. Speed may depend upon the commitment of the arbitral tribunal and the specific arbitrator to adhere to time limits to conclude the proceedings, for example two months or six months, and the leniency with which the arbitrator grants continuances for good cause. Timing of the hearing according to the convenience of the parties rather than a court system is more likely.

Costs are generally, though not necessarily, less because less attorney time is involved. Evidence may often be presented is ways less demanding than in Court proceedings in the United States, and thus, requiring shorter and simplified hearing procedures than court procedures. However, important disputed evidence may be best presented in a credible way by live testimony.

Significantly in the context of disputes regarding contingent compensation, privacy may be a factor. Generally, arbitration disputes are less likely to be conducted in the open and avoid the publicity that might otherwise come to a party being accused of underreporting.

Since arbitration has a purely contractual basis, the practicalities of being able to use arbitration depend on whether it will be perceived by the parties as resulting in an expeditious manner of settling disputes. One side may be sophisticated enough to realize that it is not always in one's interest to quickly settle a dispute. Nor may the cheapest in counsel fees be the most desirable method of settling a dispute. Some questions to answer in negotiating arbitration clauses may include the following. What is the ante required to initiate a proceeding? That cost may be an attorney's retainer, part of the arbitrator's fee, and the fee of the arbitration tribunal based on the amount set out in the demand for arbitration. Will that ante be an inhibiting factor in preventing the legal proceeding from arising? Will the ability of an arbitrator to award attorneys fees in an international arbitration have a significant effect on a party to initiate arbitration?


AFMA International Arbitration Tribunal

The American Film Marketing Association has had an international arbitration tribunal since 1983. The tribunal was designed for the benefit of its member companies. AFMA membership by a party or affiliate is usually a basis for submission to AFMA arbitration of a contract dispute. Typically, the agreements are between producers and distributors and distributors and foreign subdistributors which are the subject of arbitration. Where neither party to an agreement is a member of AFMA and AFMA arbitration is designated, the dispute is referred to the Center for International Commercial Arbitration in Los Angeles. [Note that since this article was originally written, AFMA arbitration has been broadened to include all entertainment industry disputes whether or not the parties are AFMA members, whether or not they involve motion picture distribution and whether or not they have an international character. Thus, it may be advantageous to include reference to AFMA arbitration in many entertainment industry contracts today.]

The AFMA International Arbitration Tribunal was established with the cooperation of the International Bar Association to provide lawyers that were both familiar with international legal issues and entertainment law, particularly as it dealt with the distribution of motion pictures.

AFMA arbitration provides the parties with an initial choice of three arbitrators who handle an arbitration. Arbitrations are generally conducted at the lawyer-arbitrator's office. Although AFMA is based in Los Angeles, arbitrators are available in other major cities in the world that have a significant motion picture connection, such as New York, London, Paris, Rome, Tokyo, Munich, Stockholm and Rio. Normally arbitration is held in Los Angeles, unless the arbitral agent determines that the arbitration should be held in a different location.

American Arbitration Association

The American Arbitration Association is an organization having offices in many cities through the United States. The Angeles Offices is located on Shatto Place in the Mid-Wilshire area, and is a multistory building housing the administrators and including offices for conducting arbitrations.(6)

Because of the size of the organization and its extensive experience, the organization and procedures are well developed and likely to be readily accepted and acknowledged by local and federal courts in the United States. American Arbitration Association arbitrations are not entertainment industry specific, but arbitrators are available on panels having entertainment industry and motion picture experience.

Center for International Commercial Arbitration

An international arbitration tribunal exists in Los Angeles, operated in conjunction with the World Trade Center Association. Information can be obtained by phoning (213) 495-7070 for a copy of their rules.

British Columbia International Commercial Arbitration Centre

Vancouver also has a international arbitration tribunal. The site of the Vancouver tribunal might be said to encourage settlements. In addition to the beautiful setting of Vancouver, an attractive and well appointed facility exists at the British Columbia International Commercial Arbitration Centre. An arbitration clause specifying the Centre might refer to the British Columbia International Commercial Arbitration Centre, specifying the place of arbitration as Vancouver, British Columbia, and that the arbitration be resolved under the rules of the British Columbia International Commercial Arbitration Centre.(7)

Advantages to arbitration in Vancouver may exist where there is a significant Canadian aspect to the agreement, or even to specify a mutually inconvenient forum to discourage arbitration altogether. British Columbia has enacted an International Commercial Arbitration Act in 1986, based on the UNCITRAL Model Arbitration Law adopted by the United Nations in 1985. (This is the same Model Act upon which recent California legislation is based). By regulation enacted under the Canadian law, persons who act as counsel or provide advise pertaining to international commercial arbitration are not required to be licensed to practice in Canada, and thus California lawyers are permitted to practice before the tribunal, though not before any court. Thus, local counsel should be retained at least in connection with ancillary court procedures.

International Chamber of Commerce

The International Chamber of Commerce, based in Paris, has a Court of Arbitration and arbitration may take place at various venues. Information may be obtained from the ICC Publishing Corp., Inc. in New York.(8)


California Arbitration Statute

California has had an arbitration statute which provides certain procedural approaches regarding the enforcement and jurisdiction pertaining to consensual arbitration.(9) The statute provides for certain minimum standards for arbitration in the absence of contractual provisions,(10) and provides for the conduct of arbitration proceedings.(11) The statute sets the times for contesting an award, and for enforcing the award.(12) Guarantees of arbitration standards are effective when the arbitration agreement does not otherwise provide for these issues.

Notice of arbitration proceedings is a key area particularly of concern where a party is out of state or out of the country or does not have a significant established base of operations. Notice of the hearing must be according to the California statute, which requires personal service or by registered or certified mail not less than seven days before the hearing, unless waived by appearance.(13)

In matters in which more than $50,000 in the aggregate is in controversy, the parties to the arbitration can elect prior to the date when a hearing is set, certain additional rights. These include requiring witness lists and documents production for inspection and copying, the failure to disclose can bar their use at the arbitration.(14) Rules of evidence and rules of judicial procedure need not be observed under the California Statute.(15)

Enforcement of an arbitration award locally is obtained by filing a court petition to confirm the award with the court, reducing the award to a judgment, within four years after service of the award on the petitioner.(16) However, a petition to vacate or correct an award must be served and filed not later than 100 days after service of a signed copy of the award on the petitioning party. Only 10 days is allowed in which to respond to the petition by the responding party unless service is made by mail.(17)

California International Arbitration Statute

The International Arbitration Statute(18) provides certain minimum procedural benefits when the parties have not agreed to them, when the matter is subject to international arbitration. The statute defines an "international arbitration agreement" as one having any of a variety of international characteristics. Thus, it is international if the parties have at the time of conclusion of the agreement their place of businesses in different "states" [essentially meaning different foreign countries]. The subject matter of the agreement, or performance is in different "states", and other factors may result in the arbitration being "international". The parties may even agree according to the statute, that the subject matter of the arbitration or conciliation agreement relates to commercial interests in more than one "state".(19)

Agreements are defined as "commercial" if they arise out of certain types of relationships. Specifically included in a laundry list of such relationships likely to be pertinent to contingent compensation claims in the entertainment industry are "a distribution agreement", "a commercial representation or agency", "an exploitation agreement or concession", "a joint venture", "licensing" and "intellectual or industrial properties" including trademarks and copyrights.(20) An arbitration agreement by definition may be in the form of an arbitration clause in a contract or in the form of a separate agreement.(21) In some foreign jurisdiction, arbitration agreements are separate from the main agreement which would be the subject of the arbitration.

A key aspect of the California International Arbitration Statute is the ability to obtain attorneys fees for the arbitration. Thus, even if a contract does not call for attorneys fees, the arbitrator has the power to award attorneys fees and costs, including costs of arbitration and costs of experts. This may include the fees of the arbitrator as well as that of the arbitration tribunal. If the parties were to desire that attorneys fees not be awarded, they should make specific provision in their agreement in advance.

Other states have begun the introduction of various international arbitration acts including Florida, Hawaii, Texas, and Connecticut.

United States Arbitration Act

Title 9 of the United States Code provides a scheme for enforcement of arbitration involving "commerce". Thus, when a performance of a contract is in several states or the parties are in several states, this statute may be applicable.(22) The act provides that contracts involving commerce and arbitration are valid,(23) provides for stays pending arbitration(24), provides for orders to compel arbitration,(25), provides for appointments of arbitrators(26) and provides for compelling attendance of witnesses.(27) Section 201 provides enabling legislation for the Convention on Recognition and Enforcement of Foreign Arbitral Awards. That convention may be found in USCA following Section 201 and also in the last volume of Martindale-Hubbell.


Arbitration clauses set the scope of what is determined by the arbitration tribunal long after signing the agreement. The typical recommended arbitration clause for the AAA Commercial Arbitration Tribunal reads:

"Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof."

A suggested arbitration agreement for existing disputes where arbitration was not originally contemplated may be accomplished by the following recommended agreement:

"We, the undersigned parties, hereby agree to submit to arbitration under the Commercial Arbitration Rules of the American Arbitration Association the following controversy: (cite briefly). We further agree that the above controversy be submitted to (one)(three) arbitrator(s) selected from the panels of arbitrators of the American Arbitration Association. We further agree that we will faithfully observe this agreement and the rules, and that we will abide by and perform any award rendered by the arbitrator(s) and that a judgment of the court having jurisdiction may be entered upon the award.

A proposed arbitration clause from the American Film Marketing Association for its International Arbitration tribunal is:

"Any controversy or claim arising out of or relating to this contract or the validity, construction or performance of this contract, or the breach thereof, shall be resolved by arbitration in accordance with the rules and procedures of the American Film Marketing Association as said rules may be amended from time to time. The international arbitration rules and procedures of the American Film Marketing Association are incorporated herein and made a part of this contract by reference. The parties hereto agree that they will abide by and perform any award rendered in any arbitration conducted under said rules and that any court having jurisdiction thereof may issue a judgment based upon such award."

The International Chamber of Commerce (ICC) has the following suggested arbitration clause:

"All disputes arising in connection with the present contract shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules."

In some situations, the choice of law applicable to arbitration might be placed directly in the arbitration clause. Some countries require specific language regarding arbitration.

Arbitration is based on contract. Its scope can be limited or broadened by contract. Its rules can be modified providing that those variations are acceptable to the tribunal which conducts the arbitration procedures. One significant factor bearing on that ability to contract is the strong public policy favoring arbitration. Thus, there is a likelihood of construing an arbitration clause more broadly rather than narrowly. For example, copyright claims as well as claims for contingent compensation may find their way into an arbitration proceeding where the contract has no specific reference.

Some of the variations on arbitration clauses may include reference to discovery proceedings, the nature of the arbitrators, the scope of the arbitration tribunal, and the particular arbitration tribunal. Choice of law and forum are common. Specific reference to enforcement, means of service and notice are often included.

Jurisdiction and Choice of Law Issues

One of the few bases on which an arbitration award may be attacked in a court is whether the arbitration tribunal had appropriate jurisdiction. Personal jurisdiction in the form of notice requirements may be found in the arbitration rules of the arbitration tribunal. Other minimum jurisdictional guarantees may be found in statutory law. Thus, in California, the notice of an arbitration hearing shall be served personally or by registered or certified mail not less than 7 days before the hearing, although appearance at the hearing waives the notice.(28)

The fact that a choice of law and choice of forum is stated in an agreement may be helpful but may not necessarily conclusively result in the stated choice of law and forum jurisdiction. To provide more certainty in commercial disputes, in a transaction involving more than $250,000, the parties can agree that California law may govern their rights and duties in whole or in part, irrespective of whether the agreement bears a reasonable relationship to the State of California.(29)

California has liberalized the ability to conduct litigation outside the residence or domicile of a party in California, specifically authorizing the staying or dismissing actions in California.(30) However, that provision is expressly limited where an "contract, agreement, or undertaking, contingent or otherwise" relates to a transaction involving at least $1,000,000. In that situation, the parties may agree to be bound by California law where the foreign corporation or nonresident agrees to submit to the jurisdiction of the courts of California.

In at least some civil law jurisdictions such as Germany, the arbitration agreement is considered an agreement separate and apart from the main contract. This suggests that foreign counsel be consulted when a arbitration agreement has a significant relationship with a foreign person or entity.

Discovery and the Arbitration Clause

Discovery is important in contingent compensation disputes. The ability to determine gross receipts and deductions may not be available directly from third parties. The subpoena duces tecum is generally available in arbitration proceedings, but subpoenaing financial documents to an arbitration hearing as a sole basis of determining receipts is likely to be risky. Often the first try at obtaining documents will not result in what is requested. Specific types of discovery include document production, admissions, interrogatories and depositions.

Documents are often the most important type of discovery. In seeking contingent compensation, it is important to determine the total amount of money which has changed hands and the royalty base upon which various amounts are calculated. Who was paid what sum? Was the amount cross-collateralized? Are there any comparable pictures to tend to suggest that the film did better than it would have otherwise?

Documents containing summaries are useful, but the underlying documents and the manner in which the calculations are made can be important to test the validity of the summaries. Adequate information may not readily be obtained from documents alone, but aided through the deposition process. Depositions may not be routinely permitted in arbitration proceedings absent permission of the arbitrator, and in anticipation, might be best provided for in an arbitration clause. The deposition process can be used to test the accuracy of the underlying documents and how the underlying figures were generated.

A third party to the arbitration may not be able to be deposed, simply because of the existence of a contractual clause giving rise to the arbitration process since a third party did not consent to the underlying contractual arbitration clause. This is where the advantage of the civil subpoena becomes important. Under California law, it is possible to have a subpoena issued by the arbitrator to command one to appear before an arbitration proceeding.(31)

California Code of Civil Procedure 1283 provides for depositions on application to the arbitrator for use as evidence and not for discovery if the witness cannot be compelled to attend the hearing or if exceptional circumstances exist.

Requests for admission may be helpful in simplifying the arbitration process particularly with respect to documents. Interrogatories and requests for admissions are not standard for arbitration so that the ability to conduct this type of discovery must appear clearly in the arbitration clause. The party seeking to use these forms of discovery may find difficulties particularly if it conflicts with the goal of completing the arbitration process within a short period of time. One way of opening the door for requests for admissions and interrogatories is providing in the arbitration clause that all discovery available under the California Code of Civil Procedure or the Federal Rules of Civil Procedure be available in the arbitration proceeding and that such law and rules be made applicable to the arbitration proceeding.

Experts are generally considered not as important in arbitration proceedings, since the arbitrators are expected to have familiarity with the subject matter of the arbitration. Thus, experts tend to be discouraged in some proceedings, though there may be situations where they could be helpful to the understanding of factual issues.

Initiating the Arbitration Process

The demand generally initiates an arbitration process. The demand simply sets out the nature of the claim and may be a simple statement or may be detailed as a state or federal pleading, though pleading formalities are not required. A response to the demand may be filed by the responding party and if no demand is filed, the matter is usually treated as if it were all in issue. The demand may seek a dollar sum, and relief such as an accounting. The demand is generally sent to the opposition and to the arbitration tribunal. In the AAA arbitration, the demand is sent to the tribunal which sends it out to the opposing party. In AFMA arbitration, the claimant and AFMA sends out the demand to the responding party.

Fees for the Arbitrator and Tribunal

Fees for the arbitrator and the tribunal vary, but are typically related in some manner to the amount demanded in commercial arbitration. Fees typically are a percentage of the amount of the award requested in the demand, based on a bracketed sliding scale. This may have a tendency to limit demands to realistic amounts. In addition to the fee for the arbitration tribunal, there is then a fee for the arbitrator. Arbitrators may be professional arbitrators which practice a significance portion of their profession in that manner. Others are likely to be lawyers. In AAA, professionals other than lawyers are often arbitrators. Arbitration fees may be a per diem, in the neighborhood of less than $1000 per day. Some arbitrators will charge their full ordinary hourly attorney rates. That may be a factor in some situations in determining which arbitrator to select. Arbitrators often demand the cost for the first day's hearing in advance, collecting half from each party. Arbitrators fees and the fee for the tribunal are generally awarded as part of costs which would be awarded in a court proceeding.

The Hearing

The arbitration hearing is either conducted at the arbitration tribunal or at an attorneys office conducting the arbitration. The hearing is informal, and the witnesses are generally sworn. The rules of the arbitration tribunal generally provide how evidence is admitted at the hearing. Documents may be admissible without independent authentication. Declarations may be admissible in some proceedings. Hearsay may come in. Despite the shortcuts, the arbitrator may only give limited weight to evidence which he or she determines not to be trustworthy or convincing. It is generally thought advisable to keep objections to a minimum, and focus more on the approach in teaching and persuading the arbitrator with one's position.

The Award

The arbitration award is often short and simple, identifying the parties and the amount awarded, without any explanation. An award without explanation is less likely to be subject to attack in a court. However, the award may be more detailed, and there is probably a greater tendency in industry oriented arbitrations to specify the reasons for the award. There are very few bases for attacking the substance of an award, other than lack of jurisdiction and exceeding the jurisdiction. AFMA encourages some form of written opinion which is more likely to promote enforcement in foreign jurisdictions.

Enforcing Awards

Once an award is granted by the arbitration tribunal, it can be enforced by filing a petition in a California court. The award must be filed within a limited period of time. Enforcement of awards can be aided by the convention on Uniform Reciprocal Enforcement of Arbitral Awards. A copy of the treaty may be found in the last volume of Martindale-Hubbell. It essentially provides that an award can be enforced in a foreign jurisdiction without further reduction to a judgment. The reduction of an award to a judgment may prevent the award from becoming enforceable under the convention. Thus, an appropriate enforcement mechanism may be by taking an arbitration award obtained locally and then directly enforcing it in the country where the responding party is located.


Arbitration can be an effective alternative for resolving disputes regarding contingent compensation in the entertainment industry. However, use of arbitration requires some planning, careful wording of arbitration clauses, and reasonable bargaining parity at least as to the issue of arbitration so that an arbitration clause can be agreed upon by the parties.

Select the tribunal, the scope of the arbitration, whether discovery will be permitted and location of the arbitration. Consider choice of law, arbitrators and costs and whether an arbitration clause will encourage or inhibit litigation.

Other issues to consider in the contract in contemplating arbitration are the practical issues. Who are the parties to the agreement? Production deals with independents may be more likely candidates for arbitration clauses. Where is the film or other property to be distributed? If the film is distributed primarily outside of the United States, will it be difficult to establish the United States as a venue for the arbitration?

Where should the venue of the hearing be? Should it be close to one party, or equally inconvenient for all? Can evidence be obtained at the venue? Can parties and nonparties be compelled to supply evidence? What is the choice of law? What enforcement mechanisms are available?

1. Past chair of the County Bar Intellectual Property and Unfair Competition Section.

2. Section 50 as amended.

3. Section 9.

4. 1985 Television and Theatrical Basic Agreement, Article 10(A)(3) limits jurisdiction to claims not exceeding $200,000 for theatrical employment or purchase and $100,000 for television employment or purchase, unless excess jurisdictional amounts are waived by the writer.

5. Directors Guild of America, Inc. Basic Agreement of 1984, Section 2-101 limits the arbitrability to money claims for unpaid compensation seeking $400,000 or less. The employee (e.g. director) has the right prior to commencing an arbitration to commence a court action for unpaid compensation in any amount. Section 2-602(a). There is a specific exclusion in Section 2-101 for "compensation measured by net or gross proceeds".

6. AAA in Los Angeles is located at 443 Shatto Place. Information may be obtained by calling 213-383-6516.

7. Information regarding the International Commercial Arbitration Center may be obtained by calling (604) 684-2821, fax: (604)-641-1250.

8. 801 2nd Avenue, Suite 1204, New York, New York 10017, (212) 687-9896.

9. Cal. Civ. Code. Sec. 1280 et seq.

10. Cal. Code Civ. Proc. 1282 et seq.

11. Cal. Code Civ. Proc. 1282.2.

12. Cal. Code of Civ. Proc. 1288 et seq.

13. Cal. Code Civ. Proc. 1282.2.

14. Cal. Code Civ. Proc. 1282.8(a)(2).

15. Cal. Code Civ. Proc. 1282.2(d).

16. Cal. Code Civ. Proc. 1288.

17. Cal. Code Civ. Proc. 1290.4, 1290.6.

18. Entitled "Arbitration and Conciliation of International Disputes", Cal. Code Civ. Proc. 1297.11 et seq.; see A. Golbert and D. Kolkey, "California's New International Arbitration and Conciliation Code", 11 Los Angeles Lawyer 46 (1988); K. Wright, "California's International Commercial Arbitration Act New Procedures for the Arbitration and Conciliation of International Commercial Disputes", International Business Lawyer (January 1989).

19. Cal. Code Civ. Proc. 1297.13(c).

20. Cal. Code Civ. Proc. 1297.16.

21. Cal. Code Civ. Proc. 197.71.

22. 9 U.S.C. 1 defines "commerce".

23. 9 U.S.C. 2.

24. 9 U.S.C. 3.

25. 9 U.S.C. 4.

26. 9 U.S.C. 5.

27. 9 U.S.C. 7.

28. Cal. Code Civ. Proc. 1282.2 (a) (1).

29. Cal. Code of Civ. Proc. 1646.5 (subject to a sunset provision, expiring January 1, 1992).

30. Cal. Code Civ. Proc. 410.30.

31. Cal. Code Civ. Proc. 1282.6. In order that the arbitrator have the ability to order discovery as in the Superior Court, Section 1283.1(b) requires that the arbitration agreement so provide, to take advantage of discovery in an arbitration not involving personal injury. Empowering procedures of the arbitrator in connection with deposition and document production are set forth in 1283.05.



Paul D. Supnik
Attorney at Law

Domestic and International Copyright and Trademark Law;
Motion Picture, Television, Publishing, Media and General Entertainment Law;
Multimedia and Internet Law; Licensing;
Related Litigation