a distortion or complete ignorance of the facts; a lie
describes the freedoms artists (or writers, film makers, etc) take with the facts in the process of creating; disregarding facts for the sake of the art
When a book is made into a movie and parts are left out or changes are made -- the film makers are using artistic licence
The movie Titanic - the sinking of the Titanic is a real event in history but the characters in the movie are fictional. The writer took a real event and used artistic licence to create a story.
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