Entertainment Law Practice Exam

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An option contract gives the exclusive right to purchase IP rights to a literary work in the future. What must the party pay?

A small fee No payment is required Payment is optional depending on mood A large upfront license fee only

Correct Answer:

A small fee

Explanation:

In an option contract for IP, the key idea is that the holder buys an exclusive right to purchase the rights later, and such a right must be supported by consideration. That means the party seeking the option pays a nonrefundable option fee (a small premium) to keep the option open for a set period. This fee compensates the seller for giving up other potential deals during the option term and for tying up the rights. The option fee is not the price to obtain the IP itself; the actual purchase occurs only if the option is exercised, at the agreed-upon exercise price. It’s also not typically a large upfront license payment paid upfront to license the IP immediately. So the correct choice is that a small fee must be paid to create and maintain the option.

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