Axanar Myths

On March 16, 2016, the Axanar website published, “MYTHBUSTERS: Debunking Three Misconceptions About Axanar Productions,” asserting that “confusion has been intentionally created by a certain set of detractors.”1)

Here are the three Axanar Myths addressed in the post, alongside facts and questions belying the claims made on the blog.

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Myth 1: Axanar is Making a Profit

Axanar’s Claim Facts & Questions Source
Axanar Productions is operated as a non-profit corporation. 1. Axanar Productions is a for-profit corporation registered in the state of California.
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2. Axanar is using a very specific definition of profit, namely money left over after all other expenses (like employee salaries) have been paid. The lawsuit does not use the word profit to describe the commercial exploitation by Axanar of Star Trek copyrights. It uses the phrase “direct financial benefit.”2) CBS and Paramount do not allege Axanar has made a profit under Peters’ very specific definition of the term, only that its producer and others have gained a “direct financial benefit.” Fan Films: Breaking the Unwritten Rules and Defining Profit
3. Axanar doesn’t really explain what it means by “operated as a non-profit corporation.” For example, it does not have a governing board of directors, just a single owner, Alec Peters. The revenue-generating activities outlined in Axanar’s Annual Report can only be viewed in the context of its status as a for-profit corporation, especially since Axanar only began talking about transitioning to being a non-profit after the lawsuit was filed. In the meantime, without a clearer explanation, Axanar can pick and choose what best suits how it wants to publicly characterize itself while it’s the subject of high-profile copyright infringement lawsuit.
Axanar is currently working toward being recognized as a 501(c)(3) federally tax exempt non-profit entity. 1. APPLICATION PROCESS There’s a process for Axanar to follow to become a federal tax-exempt non-profit organization, starting with formal incorporation as a non-profit in California. That must be done before applying for the IRS 501 status.

Has Axanar drafted or filed articles of incorporation as a non-profit? Has it constituted a board of directors? Has it registered with California’s state agency governing charitable organizations?3) Has it prepared or submitted its 501(c)(3) application to the IRS? Has it drafted its bylaws? Has it prepared its systems for the specific reporting requirements to which non-profits are subject, like IRS Form 990?

At what point in the process does Axanar find itself? What does “we’re working on it” actually mean?
Grantspace Knowledge Base: Starting a Nonprofit
2. IRS SCRUTINY How much IRS scrutiny will Axanar be subject to as a non-profit organization? Potentially minimal. Larger non-profits have to submit each year a Form 990, giving the IRS an overview of the organization’s activities, governance and detailed financial information. Form 990 also includes a section for the organization to outline its accomplishments in the previous year to justify maintaining its tax-exempt status.

But note: Tax-exempt organizations with gross receipts less than $200,000 or assets worth less than $500,000 don’t have to file Form 990. Instead, they file the the Form 990-EZ — the “short form” of the 990 — or even the Form 990-N, filed by organizations with gross receipts of $50,000 or less. These forms require far less stringent reporting. The 990-N is so short it is done online and nicknamed the “e-postcard.”

Once Axanar Productions divests itself of Ares Studios, the value of its assets go down considerably, meaning that it may qualify for the relatively low level of scrutiny from the less detailed reports required by the IRS.
Intuit: What Is the IRS Form 990?
Donors know about these [salary] expenses and almost unanimously approve. The parties objecting to Axanar’s direct financial benefit are the ones whose copyrights were used to raise the money used to pay the producer’s salary — CBS and Paramount Pictures. And “direct financial benefit” encompasses more than just salaries. Summary of the Legal Complaint

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Myth 2: Axanar Built a For-Profit Studio

Axanar’s Claim Facts & Questions Source
Axanar Productions is not a for-profit studio. In this case, the word “studio” means a business venture focused on the development and production of TV, film and web content. As we explained above, that’s not the case. 1. Three sets of facts argue otherwise: Axanar’s crowdfunding campaigns, its Annual Report and its official podcasts. First, while it now declares its future intention to be a non-profit, Axanar pitched its plans to develop and produce TV, film and web content in its podcasts while it was a for-profit corporation: “We might have our own … internet satellite streaming channel that will come all over the world and it’ll all come back here to Ares Studios and we can custom design entertainment. … I could see us having ten channels in the future of not just Star Trek programming but all kinds of programming that we’re going to create. … And it would be going directly to Ares Studios subscribers or Axanar subscribers. We might have a fan base worldwide of 50 million people that are all donating, you know, five bucks or $9.95 a month to get what we’re producing. … We want to produce programming and entertainment whether it’s movies or shows or podcasts like this one that are specifically targeted to the fan.”4)
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Official Axanar Podcast #20, "Under Construction"
2. Axanar’s crowdfunding campaign pitches the creation of additional works beyond Star Trek, with no indication that this was to be a non-profit endeavor;5) The non-profit characterization started being emphasized after the lawsuit was filed. Axanar Kickstarter campaign page.
Axanar Productions is entirely focused on making Star Trek fan films. Not according to what was told to backers of the Axanar Kickstarter campaign: “This [studio] will be the permanent home of Axanar Productions and allow us to do more than just Axanar, from other adventures in the Star Trek universe and beyond. David Gerrold (author of ‘The Trouble with Tribbles’) is already lined up to shoot his sci-fi series, Running Dark, here.”6)
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If the Axanar team wants to make other films, those will be done through a separate production company, as is standard business practice in Hollywood. This is true. Many production companies develop films, preparing them for production, and then creating a separate Limited Liability Company in which investors put in money solely for the production of a specific film. The development company often becomes one of the equity partners in that new company. It retains a financial, income-generating interest in each film. So while the two companies are legally separate, they are not completely unrelated. Raindance: Development Finance for Films
The rented warehouse Axanar converted to a sound stage, which they called Ares Studios, is just like that used by Star Trek: New Voyages and Star Trek Continues. Not according to the Axanar Annual Report, 2015, Revised, which notes that other fan productions’ studios are single-purpose — with standing sets used only for making their own films. Axanar’s sets are not standing; according to their annual report, they’re expressly designed to be easily disassembled so Axanar can earn money from the studio: “At Axanar, we are building a fully-functioning sound stage that we will also be able to rent out to support the production and the studio. That means no standing sets.”7)
Click image to view full size (Axanar Annual Report, 2015, Revised, p. 11.)
ARES STUDIOS is the Valencia, Calif., soundstage being retrofitted by Alec Peters with funds raised by donors to Axanar.

Paying the Rent

See also: Investor Group Plans to Buy Axanar Studio Assets

Buried in this part of the FAQ, Axanar discloses “a small group of backers and fans have developed a plan to create a separate company to take over the management the sound stage, pay the rent and reimburse Axanar Productions for the cost of the build-out. That company will assume the $250,000 liability for the remainder of the lease. To do that, the new company will need to be a for-profit entity and raise investment dollars for capital.”8)

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Myth 3: The Lawsuit is About Money

Axanar Claim Facts & Questions Source
“The plaintiffs have told us this is not about money, it is about copyright infringement.”9) That’s not what the plaintiffs’ legal complaint says: “On information and belief, Defendants enjoy a direct financial benefit from the preparation, duplication, and distribution of the infringing Axanar Works.”10) The complaint also alleges financial harm resulting in the potential for actual damages, besides the $150,000 per infringement CBS and Paramount would be due just for proving copyright violations.11)
Click image to view full size (Amended Legal Complaint).
The facts that Axanar raised more than $1 million, or built out a warehouse to shoot in, or paid those who dedicated their lives to make Axanar, are not part of this suit. It’s true that none of these activities are specified in the legal complaint. The plaintiffs’ allegation of “direct financial benefit” does not specify the nature of the benefits. That’s what discovery is for — to obtain evidence to support the allegations made in a legal complaint. What is Discovery?
People are making assumptions about why Paramount and CBS is suing Axanar and no other fan production. “Since we are the ones who are dealing with this lawsuit on a daily basis and know things the public does not, we can tell you quite simply, it isn’t about money.”12) It’s true that, as a parties to a lawsuit, defendants will know things the general public does not. However, a legal complaint must outline all its causes of actions. Plaintiffs can’t add new reasons for suing later without amending the complaint, giving notice and allowing for sufficient discovery by both sides.

Axanar may be referring to extra-legal motivation behind the lawsuit, and while it may exist, why not disclose it? It won’t have any bearing on the lawsuit, unless it’s part of the defense Axanar’s attorneys are preparing, in which case, we’ll learn about them in the defendants’ reply to the complaint, due March 31, 2016. But as of this writing13), the only thing the court knows about the reasons behind the lawsuit is what is described in the complaint.
Summary of the Legal Complaint

Keywords

2) , 10)
Paramount et al., v. Axanar et al., amended complaint, p. 41 ¶62.
11)
Paramount et al., v. Axanar et al., amended complaint, p. 43 ¶3a.
13)
This article was drafted on March 17, 2016