19Th Annual Entertainment Law Issue

19th Annual Entertainment Law Issue

MAY 2003, VOL.26, NO.3 / $3.00

Son of Los Angeles lawyer Sam Laws Stanton L. Stein counsels his client Alan Alda on page 14 the issues raised by vertical integration Personal page 30 Jurisdiction and the Internet page 21 Unauthorized Vertically Film Editing page 46 Challenged

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The Magazine of the 14 Practice Tips The demise of California’s Los Angeles County Son of Sam law Bar Association By Stephen F. Rohde

May 2003 21 Practice Tips Vol. 26, No. 3 Determining personal jurisdiction in Internet-related litigation By Kent A. Halkett cover

54 Computer Counselor Finding entertainment law online, from scholarship to scandals By Carole Levitt and Mark Rosch

columns

10 Barristers Tips Practice tips from my grandmother features By Rebecca A. Delﬁno

60 Closing Argument 30 Vertically Challenged Internet radio and the future of music After settling with numerous profit participants for self- By Joseph E. Magri dealing, vertically integrated media conglomerates have responded with new contact language—which may initiate the 57 Classiﬁeds next round of legal wrangling Stanton L. Stein, a partner at 58 Index to Advertisers By Stanton L. Stein and Marcia J. Harris Alschuler Grossman Stein & 59 CLE Preview 37 Preemptive Strike Kahan LLP, specializes in Does the Central District’s interpretation of federal copyright entertainment litigation. Stein preemption standards endanger state claims for and Marcia J. Harris, also a misappropriation of ideas? partner at the ﬁrm, represented By Steven T. Lowe

Alan Alda, among others, in Plus: Earn MCLE credit. MCLE Test No. 115, sponsored by CourtCall LLC, begins on page 40. litigation challenging self- dealing by entertainment 46 Clean Cut conglomerates. Stein and Harris The directors’ challenge to unauthorized editing of their films will clarify important questions of copyright law and “moral discuss the issues raised by rights” in the digital age these suits in their article, ainment By Mark S. Lee ert nt “Vertically Challenged,” which e begins on page 30. e su page 46 special is Cover photo: Tom Keller EMPLOYMENT DISPUTE MEDIATION CENTER LosAngelesLawyer VISIT US ON THE INTERNET AT www.lacba.org/lalawyer Let experienced employment law litigator E-MAIL CAN BE SENT TO [email protected]

EDITORIAL BOARD ROBERT D. COVIELLO Chair ABILIO TAVARES JR. assist you in the resolution of your employment dispute. (In Memoriam) Chair Pro Tem STEVEN HECHT Articles Coordinator SERVICES PROVIDED: JERROLD ABELES DANIEL L. ALEXANDER FLAT FEE HONEY KESSLER AMADO • All day mediation ROBERT J. COMER CHAD C. COOMBS KEITH E. COOPER • No charge for additional time on same day ANGELA J. DAVIS HEATHER DAVIS KERRY A. DOLAN OUR CENTRAL ORANGE COUNTY GORDON ENG OFFICE OR YOURS JENNIFER E. FISHER JOSEPH S. FOGEL • Will travel within the state at no MICHAEL E. FOX STUART R. FRAENKEL additional fee JOHN M. GALLAGHER DEAN HANSELL KATHERINE M. HIKIDA LIBERAL CANCELLATION POLICY MAURICE SYLVAN KANE JR. JOHN P. LECRONE • No charge if cancelled within HYACINTH E. LEUS 72 hours of session PAUL MARKS PHILIP S. MILLER ELIZABETH MUNISOGLU EXPERIENCE RICHARD H. NAKAMURA JR. KAREN NOBUMOTO • Knowledgeable in all areas of employment DENNIS PEREZ GERALD F. PHILLIPS law; has litigated hundreds of employment EDWARD POLL GARY RASKIN matters representing both Plaintiffs JACQUELINE M. REAL-SALAS and Defendants SUE CAROL ROKAW KURT L. SCHMALZ JACOB STEIN • No need to expend time educating R. BRUCE TEPPER JR. the mediator PATRIC VERRONE MARIA D. VILLA JOEL B. WEINBERG OPINIONS BASED ON EXPERIENCE STAFF • The value, strengths, weaknesses and Publisher and Editor risks involved in a case SAMUEL LIPSMAN Senior Editor • Full analysis of law, facts and defenses LAUREN MILICOV JOMIE Associate Editor • Jury appeal/probability of a favorable ERIC HOWARD Art Director outcome LES SECHLER Director of Design and Production PATRICE HUGHES Advertising Director ROBERT D. COVIELLO LINDA LONERO Mr. Coviello has been actively practicing in Account Executive MARK NOCKELS Orange County for over 22 years. He has Advertising Coordinator personally tried over 50 jury trials and has been WILMA TRACY NADEAU Administrative Coordinator lead counsel in several hundred arbitrations and MATTY JALLOW BABY mediations in employment related matters. He LOS ANGELES LAWYER (ISSN 0162-2900) is published monthly, except for a combined issue in July/August, by the Los Angeles County Bar is an Arbitrator on the Employment Panel of Association, 261 S. Figueroa St., Suite 300, Los Angeles, CA 90012, (213) 896-6503. Periodicals postage paid at Los Angeles, CA and additional AAA and the most recent past Chair of the O.C. mailing offices. Annual subscription price of $14 included in the Association membership dues. Nonmember subscriptions: $28 annually; Bar’s Labor and Employment Law Section. single copy price: $3 plus handling. Address changes must be submitted six weeks in advance of next issue date. POSTMASTER: ADDRESS SERVICE REQUESTED. Send address changes to Los Angeles Lawyer, P.O. Box EMPLOYMENT DISPUTE 55020, Los Angeles CA 90055. Copyright ©2003 by the Los Angeles County Bar Association. All rights MEDIATION CENTER reserved. Reproduction in whole or in part without permission is prohibited. Printed by Banta Publications Group, Liberty, MO. Member Business Publications Audit of Circulation (BPA). (714) 557-7500 The opinions and positions stated in signed material are those of the authors and not by the fact of publication necessarily those of the www.coviello-law.com Association or its members. All manuscripts are carefully considered by the Editorial Board. Letters to the editor are subject to editing.

4 LOS ANGELES LAWYER / MAY 2003 Let’s Celebrate the Soul in Solo

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6 LOS ANGELES LAWYER / MAY 2003 Is A Malpractice Insurance Crisis Looming In Your Horizon? Are You Ready?

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Office furniture for discerning tastes at peerless prices. his is the 19th annual Entertainment agree to appear. That is when the trouble Law Issue of Los Angeles Lawyer. But really starts. Several years ago, for example, Tthen you know that because you saw a certain TV heartthrob was really interested the red banner on the cover. You also know in being on the cover, according to his pub- from our cover that we have a special guest licity agent. But when the time came for the to thank—Alan Alda. photo shoot, we had to reschedule because For anyone new to the planet, Alda is an the publicity agent hadn’t talked to the per- award-winning actor, writer, and sonal manager. Then we found The invisible price director who was the plaintiff in Patric M. Verrone, out that the TV heartthrob was is always right. a suit discussed in this month’s an Emmy-winning really really interested in being We’ve got it. issue. You can read all about writer/producer, is on the cover, according to the Alda’s case and others like it in coordinating editor personal manager. But the photo Nationwide. the article titled “Vertically of this issue. He is shoot had to be rescheduled Challenged”—but not before you secretary/treasurer once again because the personal The finest traditional furniture ﬁnish reading about how grate- of the Writers Guild manager hadn’t talked to the tal- at non-traditional prices! ful we are to Alda for the ease of America, west. ent agent. Several layers of han- with which he made his appear- dlers, entourage, and posse later, invisiblefurniture.com ance on our cover. We asked, he we gave up. Then we found out 818 757-1444 agreed, a photographer took his picture with that the TV hunk was really really really inter- Alda’s attorney Larry Stein, and the magazine ested in being on the cover. was printed without incident. We have been known to try more tradition- I’m sure you’re thinking, “Big deal. Getting al approaches to celebrity collaboration (no, celebrities to appear on the cover of Los not stalking—although don’t think it didn’t Angeles Lawyer is easy. ” You couldn’t be more occur to us). Unfortunately, even direct wrong. human-to-celebrity contact has been thwarted Normally we reserve our covers for the by the Cover Curse. Like the time we had the truly beautiful people of L.A.—its lawyers. celebrity in our hip pocket, only to learn that But once a year we go slumming in Holly- his lawyer was adamantly unwilling to allow wood to find someone who is famous for her client’s star status to be exploited in con- something other than just being a lawyer nection with the lawyer’s article. who wrote an article. And why not? We’re Then there was the year we actually took tight with the entertainment community. Our the picture of the celebrity, designed the Editorial Board meetings are a parade of cover, and sent it off to the printer—only to Tiffany glitter and Bulgari glitz (and that’s just get a call from the legal department of a large the men). The staff has Bob Evans on speed movie studio asking us not to proceed with dial and Botox on tap. Last I heard, the most the celebrity’s photo on our cover because the popular dish at Morton’s was whatever board case involving the celebrity was about to go chair Steven Hecht is having. And wasn’t that before a jury. publisher Sam Lipsman doing a hip hop But this year, we have Alan Alda. And we karaoke duet with Maggie Gyllenhaal at are delighted and thankful. And speaking of UponShop on E! News Live? thanks, let me spread a little show biz love Still, year after year, it gets harder and around to fellow Editorial Board members harder to sign, seal, and deliver a cover star. and articles editors Keith E. Cooper and Gary We understand if we are turned down because Raskin, associate editor Eric Howard, senior an entertainer does not want to be the cover editor Lauren Milicov Jomie, and publisher boy (or girl) for a legal case that the enter- Sam Lipsman. Hey, Sam, maybe next year tainer lost—but many of the entertainers who we can get Maggie Gyllenhaal on the cover have turned us down are those who have after she sues us for libel over that karaoke won. Then there are the ones that settled out remark. ■ of court but signed a nondisclosure agreement that keeps them from publicizing their case (it’s the “Los Angeles Lawyer clause”). Sometimes we get lucky and a star will

8 LOS ANGELES LAWYER / MAY 2003 REASONABLY RELENTLESS.

RELENTLESSLY REASONABLE.

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By Rebecca A. Delﬁno

Practice Tips from My Grandmother Career success will often depend not only on technical skills but also on manners

here is no doubt that all of us want legal careers that are satis- Grandmothers generally are sticklers for manners. One does not fying and successful and know that a rewarding career is built forget to say “please” and “thank you” in front of grandma. It is amaz- Tupon a command of the law and the ability to marshal facts and ing, therefore, to see the overwhelming lack of civility displayed in our communicate clearly. However, beyond mastery of effective legal profession. Nearly everyone has encountered a lawyer (sometimes writing, negotiating, and advocacy, career success and satisfaction rest even the managing partner of a law firm) who can charm a jury, a upon many simple practices that lawyers and nonlawyers are able to judge, and a court clerk and yet is shockingly rude to office col- employ every day. We would do well to remember, in our daily prac- leagues, support staff, and opposing counsel. Such behavior is both tice of law, a few lessons that we may have learned from our grand- arrogant and ignorant. People, whether they are other lawyers mothers. assigned to the case or the ones who make the photocopies, will For example, my grandmother counseled me to pay attention to work harder if they are treated with respect and dignity. Attorneys who the big picture and to take things in stride. While careers may seem often compare their achievements to those of others may find it too long, they are not. Your job is just one part of your life. Thus it is wise easy to forget that we are all human beings. Moreover, from a strate- to develop a thick skin early in your career and to take nothing about gic standpoint, kindness toward all, especially opposing counsel, work too personally. Some lawyers burden themselves by basing takes little effort and is completely disarming. Civility and manners their identity only on their careers. Admittedly, a career in the law can are contagious; they generate goodwill. be extremely demanding of a person’s time and mental and emotional energy. Moreover, becoming an attorney is the result of many years Avoid Gossip of hard work and often substantial personal sacrifice. As a result, attor- My grandmother also taught me that loose lips sink ships. Many neys may derive their entire self-worth from their jobs. Over- legal careers have been sunk by office gossip—especially the careers identification with their work invariably causes them to take that of those who gossip. It is more fun to engage in gossip about who is work far too personally. kissing whom in the office elevator than it is to draft responses to boil- Attorneys who belong to this category tend to overreact to victo- erplate interrogatories. However, gossiping should be avoided because ries and losses at work. However, you are more than a lawyer. How it is mean-spirited and impolitic. Gossips are viewed as untrustwor- well you perform your job and how much money you earn as an thy, immature, and injudicious—traits that can sound a death knell for attorney are not the only measures of your success. A well-adjusted any promising young legal career. Keep speculations about your and healthy family, meaningful friendships, and interesting and fulfilling coworkers and bosses to yourself—and barring that, share the titil- activities outside the office also bring success and happiness. In fact, lating news only with those with whom you do not work, for example achieving a balance between your work and personal life will most a significant other or friend. likely bring the greatest feeling of fulfillment. It is simply good career Not gossiping is one matter; not policy to find time for family, friends, and endeavors that are not becoming the subject of office gossip is related to the law. another. This goal, which any grandmother may be expected to endorse, can Do Not Bring It Home be achieved by keeping your private life As a corollary to keeping things in proper perspective and taking separate from the office. Do not date one’s job not personally but as just one part of one’s life, my grand- your officemates. No matter how attrac- mother taught me that there is more to learn from losses than wins. tive a colleague may appear while doing While it is certainly important to know what strategy and arguments document review at two o’clock in the are key to a particular victory, far more may be learned from failure. morning, do not mix business with plea- Losses should help to formulate the future. No one wants to make the sure. Work is work, and free time is free same mistake twice, so losses often receive closer scrutiny and a more time. If you have no choice but to view meticulous review than wins. In addition, beyond the obvious case- the office as a potential dating pool Rebecca A. Delfino is specific, strategic, and substantive lessons, losses teach humility and because even the concept of free time a member of the grace—qualities that are lacking in some lawyers. One should accept, does not exist in your legal career, then Barristers Executive rather than fear and loathe, failures and losses as excellent learning you may want to consider ways of finding Committee. opportunities. another job.

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12 LOS ANGELES LAWYER / MAY 2003 Uncovering the landlord’s hidden assets was as easy as reading the sports page.

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By Stephen F. Rohde

The Demise of California’s Son of Sam Law

California followed the motion picture rights for $1.5 thereto were subject to an invol- can Center. million to be divided among New untary trust for designated ben- On February 21, 2001, a unan- the lead of the U.S. Times, Gilstrap, Keenan, and the eficiaries if the materials “include imous California Supreme Court other kidnappers. or are based on the story” of the declared Section 2225 unconsti- Supreme Court in Alleging that he was again felony. A “story” meant “a depic- tutional.3 It held that the law being victimized, in July 1998, tion, portrayal, or reenactment imposed content-based financial finding the law Sinatra Jr. sued everyone of a felony” but “shall not be taken penalties on protected speech involved in the Columbia deal un- to mean a passing mention of the and consequently must satisfy overinclusive der California’s Son of Sam law. felony, as in a footnote or bibli- strict constitutional scrutiny. The His case eventually progressed ography.” “Materials” were court acknowledged that the law to the California Supreme Court, defined as “books, magazine or sought to serve compelling inter- n November 1963, 23-year-old which considered it against the newspaper articles, movies, films, ests in preventing criminals from Barry Keenan, the youngest background of a key 1991 U.S. videotapes, sound recordings, exploiting their crimes for profit Imember of the Los Angeles Supreme Court precedent strik- interviews or appearances on tele- and in compensating crime vic- Stock Exchange, had run out of ing down the first Son of Sam law vision and radio stations, and live tims from the profits of crime. money. Addicted to Percodan, he in the country, a law adopted in presentations of any kind.” But the law was fatally overin- devised a “business plan” to kid- the throes of one of the most In August 1998, Sinatra Jr. clusive, because it confiscated all nap Frank Sinatra Jr. From Room notorious crime sprees in Amer- obtained an injunction requiring income from all expressive mate- 417 at a motel adjoining Harrah’s ican history. Columbia Pictures to hold all pre- rials that included significant dis- Casino in Lake Tahoe, Keenan In the late 1970s, New York sent and future proceeds and cussions of their creators’ past and two others abducted the 19- was terrorized by serial killer profits due Keenan in trust for crimes, whatever their general year-old singer and held him David Berkowitz, popularly Sinatra Jr. during the pendency of themes or subjects.4 hostage until his father, the leg- known as the Son of Sam. By the the action. In November 1998, The California Supreme endary crooner, paid a $240,000 time he was apprehended, pub- Keenan responded by filing a Court adhered closely to U.S. Su- ransom. Keenan and his confed- licity about his case had demurrer and motion to dissolve preme Court precedent. In Simon erates were quickly arrested, enhanced the value of the rights the preliminary injunction on the & Schuster v. New York State tried, and convicted. During their to his story. The New York grounds that Section 2225 was Crime Victims Board,5 the U.S. trial, the kidnappers concocted Legislature sought to prevent facially invalid under the free Supreme Court confronted a mat- the story that Sinatra Jr. had con- Berkowitz and other notorious speech clauses of the federal and ter of first impression: Could the spired in his own kidnapping as criminals from exploiting the state Constitutions. The trial state constitutionally confiscate a publicity stunt. But the jury saw tales of their sensational crimes court disagreed, and Keenan ap- the profits from books and through the tale for personal profit pealed its decision. In May 1999, movies written by convicted and Keenan spent Stephen F. Rohde is a while their victims the California Court of Appeal felons in order to compensate four and one-half constitutional lawyer went uncompen- upheld the constitutionality of their victims? years in jail. with the firm of sated. The result- Section 2225. After New York’s Son of Sam Keenan ret- Rohde & Victoroff. ing statute was Given the important free law went into effect, Simon & urned to obscurity, He represented the dubbed the Son of speech issues involved, as the Schuster made a deal to publish but for the next 30 plaintiff in Barry Sam law. By 2000, case headed to the California a book by former-gangster- years hoped he Keenan v. Superior the federal govern- Supreme Court the attorney gen- turned-government-witness Hen- could some day set Court. ment and more eral of California filed an amicus ry Hill. The book would tell the the record straight. than 40 states, curiae brief on Sinatra Jr.’s side of story of Hill’s career in organized Opportunity finally including Califor- the case. Keenan was supported crime. After considerable invest- arrived in January 1998 when nia, had enacted similar statutes.1 by briefs from the ACLU ment of time and effort by Hill Peter Gilstrap, a reporter for New California’s Son of Sam law— Foundation of Southern Califor- and his coauthor, the book, Times Los Angeles, interviewed Civil Code Section 22252—pro- nia, the Association of American Wiseguy, was published in 1986. Keenan about the kidnapping. vided that all proceeds, past and Publishers, Inc., the American The colorful account of Hill’s The ensuing article, “Snatching future, that are paid or owed to a Booksellers Foundation for Free criminal exploits and life inside Sinatra,” attracted the attention of convicted felon from the sale of Expression, Magazine Publishers the Mafia met with commercial Columbia Pictures, which bought expressive materials or the rights of America, Inc. and PEN Ameri- and critical success and was later

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Los Angeles, CA 90005-3992 Tel: 213.738.6717 Email: [email protected] made into the movie Goodfellas. not show why it had a greater interest in com- no other income.” The state’s interest in com- When the New York State Crime Victims pensating crime victims from the profits of sto- pensating victims from the fruits of crime is Board learned about Wiseguy, it invoked the rytelling than from the criminal’s other assets. a compelling one, but the Court concluded Son of Sam law and ordered Simon & “In short, the State has a compelling interest that the Son of Sam law was not narrowly tai- Schuster to pay all future sums due to Hill into in compensating victims from the fruits of lored to advance that objective. As a result, the a trust. The publisher promptly filed a federal the crime, but little if any interest in limiting New York statute was inconsistent with the suit, seeking a declaration that the New York such compensation to the proceeds of the First Amendment.10 law was facially invalid under the First wrongdoer’s speech about the crime.”9 Amendment. Both the district court and a Accordingly, the Court reasoned, it must The California Ruling divided federal court of appeals upheld the examine whether New York’s statute was In Keenan, Sinatra Jr. had the imposing law. “narrowly tailored to advance the former, not burden of distinguishing Simon & Schuster. But in 1991, the U.S. Supreme Court unan- the latter, objective” and concluded it was In an effort to save California’s Son of Sam law imously reversed. Eight justices (Justice not. from the fate suffered by New York’s, Sinatra Clarence Thomas did not participate), in an In the Court’s view, two factors in partic- Jr. argued that the law was not a presump- opinion written by Justice Sandra Day ular illustrated the statute’s overbreadth. tively invalid content-based regulation of O’Connor, first noted that “a statute is pre- First, the statute applied to a work on any speech. But the California Supreme Court sumptively inconsistent with the First subject, provided that it expresses the author’s found that his “effort must fail.” Amendment if it imposes a financial burden thoughts or recollections about the crime, Civil Code Section 2225(b)(1), like the on speakers because of the content of their however tangentially or incidentally. Second, New York statute, placed a direct financial speech.” The government’s ability to impose the statute’s broad definition of “person con- disincentive on speech or expression about a content-based burdens on speech raises the victed of a crime” enabled the Board to particular subject. The California statute specter that the government may effectively escrow the income of any authors who admit- explicitly targeted and confiscated a convicted drive certain ideas or viewpoints from the ted in their works to having committed a felon’s proceeds from books, films, articles, marketplace. “The First Amendment pre- crime, whether or not they were actually ac- recordings, broadcasts, interviews, or per- sumptively places this sort of discrimination cused or convicted. formances that merely included the story of beyond the power of the government.”6 These two provisions combined to encom- the felon’s crime. While certain classes of pass a potentially very large number of works. speech—obscenity, fighting words, certain The Supreme Court Ruling Had the Son of Sam law been in effect at the defamation—may be subject to viewpoint- New York’s Son of Sam law was a pre- time and place of publication, it would have neutral regulation because of their directly sumptively invalid content-based burden on escrowed payment for such works as The injurious nature,11 discussions of crime have speech, said the Court, because “it singles out Autobiography of Malcolm X, which describes never been included among those limited income derived from expressive activity for a crimes committed by the civil rights leader exceptions. burden the State places on no other income,” before he became a public figure; Civil Sinatra Jr. also argued that laws impos- and “plainly imposes a financial disincentive Disobedience, in which Thoreau acknowl- ing financial penalties on speech do not nec- only on speech of a particular content.”7 edges his refusal to pay taxes and recalls his essarily violate the First Amendment. He Because the statute penalized speech on the experience while serving time in jail; and cited cases approving the principle that the basis of its content, the Court concluded, the even the Confessions of Saint Augustine, in government need not subsidize the exercise law must survive “strict” constitutional which the author laments “my past foulness of free speech or other constitutional rights.12 scrutiny; in other words, “the State must and the carnal corruptions of my soul,” one But the California Supreme Court pointed show that its regulation is necessary to serve instance of which involved the theft of pears out that Sinatra Jr. had failed to show how a compelling state interest and is narrowly from a neighboring orchard. Section 2225(b)(1), by confiscating income drawn to achieve that end.”8 Amicus Association of American from speech based on its content, departs The Court emphasized that the state had Publishers, Inc. submitted a bibliography list- from the presumptively unconstitutional type no compelling interest in shielding readers ing hundreds of works by American prison- of statute at issue in Simon & Schuster. By and victims from negative emotional ers and ex-prisoners, many of which contain denying compensation for an expressive responses to a criminal’s public retelling of his descriptions of the crimes for which the work, a law may chill not only the free speech misdeeds. Indeed, the protection of offen- authors were incarcerated, including works rights of the author or creator but also the rec- sive and disagreeable ideas is at the core of by Emma Goldman and Martin Luther King iprocal First Amendment right of the work’s the First Amendment. Jr. A list of prominent figures whose autobi- audience to receive protected communica- On the other hand, the Court conceded ographies would be subject to the statute tions.13 that states do have compelling interests in could include Sir Walter Raleigh, who was Though there is no compelling interest in ensuring that victims of crime are compen- convicted of treason after a dubiously con- targeting a criminal’s storytelling proceeds in sated by those who harm them, preventing ducted 1603 trial; Jesse Jackson, who was particular for the purpose of compensating wrongdoers from dissipating their assets arrested in 1963 for trespass and resisting crime victims, the state does have a com- before victims can recover, ensuring that arrest after attempting to be served at a lunch pelling interest in using the fruits of crime criminals do not profit from their crimes, and counter in North Carolina; and Bertrand generally for that purpose. The court transferring the fruits of crime from the crim- Russell, who was jailed for seven days at the assumed, in this regard, that the fruits of inals to their victims. age of 89 for participating in a sit-down protest crime include a criminal’s proceeds from New York also claimed a compelling inter- against nuclear weapons. exploiting the story of the crime. The ques- est in preventing criminals from retaining In sum, the U.S. Supreme Court held that tion thus arose whether Section 2225(b)(1), the profits of storytelling about their crimes New York’s Son of Sam law “has singled out within its sphere of operation, was narrowly before their victims were compensated. speech on a particular subject for a financial tailored to ensure that the fruits of crime are However, the Court noted that the state could burden that it places on no other speech and used to compensate the victims of crime.

16 LOS ANGELES LAWYER / MAY 2003 The California Supreme Court was con- constitutional muster.” law’s overinclusive effect simply by providing vinced that Section 2225(b)(1), like the New Instead, the court’s concern was with “the an exemption for tangential or incidental ref- York law, was overinclusive and therefore essential values of the First Amendment.” erences. Moreover, Simon & Schuster nei- invalid. As did the New York statute, Section The vice of the New York law was that in ther stated nor implied that the federal Con- 2225(b)(1) penalized the content of speech to order to serve a relatively narrow interest— stitution might allow confiscation, on behalf an extent far beyond that necessary to trans- compensating crime victims from the fruits of of crime victims, of all proceeds from any fer the fruits of crime from criminals to their crime—the statute targeted, segregated, and expressive work that includes a descriptive uncompensated victims. Even if the fruits of confiscated all income from a wide range of account, or even a “vivid” account, of a past crime may include royalties from exploiting expressive works containing protected speech crime committed by the author. the story of one’s crimes, Section 2225(b)(1) on themes and subjects of legitimate interest, Such “arbitrary demarcation lines,” did not confine itself to such income. Instead, simply because material of a certain con- according to the California court, do not com- it confiscated all of a convicted felon’s pro- tent—reference to one’s past crimes—was port with the basic rationale of Simon & ceeds from speech or expression on any included. Schuster. “A statute that confiscates all prof- theme or subject which includes the story of One motivated in part by compensation its from works which make more than a pass- the felony, except for a mere passing mention. might discuss his or her past crimes, including, nondescriptive reference to the creator’s By this “financial disincentive,” the court ing those that led to felony convictions, in past crimes still sweeps within its ambit a found that Section 2225(b)(1), like its New many contexts not directly connected to wide range of protected speech, discourages York counterpart, “discourages the creation exploitation of the crime. The court suggested the discussion of crime in nonexploitative and dissemination of a wide range of ideas and that “one might mention past felonies as rel- contexts, and does so by means not narrowly expressive works which have little or no rela- evant to personal redemption; warn from focused on recouping profits from the fruits tionship to the exploitation of one’s criminal experience of the consequences of crime; of crime.”19 misdeeds.”14 critically evaluate one’s encounter with the The court also pointed out that Keenan, Indeed, the court held that in at least one criminal justice system; document scandal joined by his amici curiae, urged that the respect the involuntary trust provision of and corruption in government and business; “passing mention” exemption is so imprecise Section 2225(b)(1) operated more harshly describe the conditions of prison life; or pro- and unclear that it constituted an impermis- against expressive materials that depict the vide an inside look at the criminal under- sibly vague basis for the censorship of pro- creator’s past crimes than did the escrow world.”16 tected speech. But, the court decided that it account in the New York law at issue in Simon The court ruled that mention of one’s past did not need to resolve the vagueness issue, & Schuster. Under the New York statute, pro- felonies in these contexts may have little or because it was persuaded that, by any rea- ceeds from a crime story contract were to be nothing to do with exploiting one’s crime for sonable interpretation, the statute remained turned over to the New York Board for place- profit, and thus with the state’s interest in overinclusive. ment in escrow, but if, at the end of five years, compensating crime victims from the fruits of Certainly the statutory definition of “story” no valid claims of the criminal’s victims or crime. Yet Section 2225(b)(1) permanently includes any substantial account of the facts creditors were pending, remaining funds in confiscated all income, whenever received, and circumstances of a past felony that led to the account were returned to the criminal.15 from all expressive materials, whatever their conviction, and the “passing mention” exemp- Under Section 2225(b)(1), by contrast, any subject, theme, or commercial appeal, that tion would not provide a safe harbor to mate- entrusted amounts not subject to legitimate include a substantial description of such rials containing a substantial account. But individual claims at the end of the five-year offenses, whatever their nature and however the court noted that there are multiple con- trust period were to be turned over to the long in the past they were committed. Thus, texts in which expressive materials, with state controller for allocation to the Restitution even as limited to felony convictions, Section diverse subjects and themes unrelated to the Fund, available for all crime victims. 2225(b)(1) was not narrowly tailored to exploitation of one’s crimes, might include Sinatra Jr. nonetheless argued that Section achieve the compelling interests it purported substantial accounts of those episodes.20 2225(b)(1) applied only to expressive mate- to serve.17 The court observed that Section rials that include the “story” of a felony for Sinatra Jr. also suggested the California 2225(b)(1) would have applied to numerous which one was convicted, and exempted mere statute applied only when an expressive work works by authors whose discussions of larger “passing mention of the felony, as in a footnote provides narrative detail about a felony for subjects make substantial, and often vividly or bibliography.” These restrictions, Sinatra which the work’s author or creator was con- descriptive, contextual reference to prior Jr. argued, negate Simon & Schuster’s concern victed, and did not discourage mere acknowl- felonies of which they were convicted. A that all profits from an expressive work would edgement of a prior felony conviction in the statute that operates in this fashion disturbs be confiscated even though the work men- context of another subject.18 As the California or discourages protected speech to a degree tioned a past offense only “tangentially or attorney general put it, a “story,” as defined substantially beyond that necessary to serve incidentally.” by Section 2225(a)(7), must be a “vivid” depic- the state’s compelling interest in compen- But the California Supreme Court was tion, portrayal, or reenactment. sating crime victims from the fruits of crime. not persuaded. In Simon & Schuster, the U. S. But these arguments failed to convince Accordingly, the court concluded, consistent Supreme Court had illustrated the overbroad the California Supreme Court that Section with Simon & Schuster, that Section sweep of the New York statute by showing 2225(b)(1) focused with sufficient precision 2225(b)(1) was facially invalid under the First that it encompassed even minor, unprose- on the fruits of crime, while leaving other Amendment to the U.S. Constitution. cuted offenses or mere tangential or inci- speech-related income undisturbed. Simon Significantly, the court held that it reached dental mention of past crimes in a larger con- & Schuster illustrated the overbreadth of the a similar result under the liberty of speech text. But the court said that it did not “read New York statute by observing that it reached clause of the California Constitution.21 The Simon & Schuster as suggesting that a statute even incidental and tangential mention of California provision provides similar, and which exhibited marginal narrowing in these past crimes, but nothing in Simon & Schuster sometimes greater, protection of speech than particular regards would necessarily pass suggested New York could have cured the the First Amendment,22 and neither party

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*One month’s base workstation charges credited during 12th month of a one-year agreement. Additional terms and conditions listed at http://hq.com/CM3.asp. had suggested any reason why it should provide lesser protection under the circumstances of this case. The court concluded its opinion by stress- ing the narrow nature of its holding under both the federal and California Constitutions. It held that Section 2225(b)(1) was an overinclusive infringement of protected speech because it targeted and conﬁscated all proceeds a convicted felon receives from expressive materials that include any substantial account of the felony, in whatever context. The court expressed no view on whether a statute targeting the income gained from expressive works that include accounts of the author’s crimes could be drafted narrowly and precisely enough to overcome this problem of constitutional overbreadth. Moreover, nothing the court said pre- cluded a crime victim, as a judgment creditor, from reaching a convicted felon’s assets, including those derived from expressive materials that describe the crime, by generally applicable remedies for the enforcement and satisfaction of judgments.23 Nor did the court intend, by its analysis in this case, to pre- clude further legislative steps, not directly related to the content of speech, to ensure that a convicted felon’s income and assets, including those derived from storytelling about the crimes, are and remain available to compensate persons injured or damaged by the felon’s crimes.24 Because the court concluded that the challenged provisions were invalid infringements on speech, it did not address Keenan’s separate argument that, as applied to him, Section 2225, which was enacted 20 years after the kidnapping of Sinatra Jr., violated federal and state constitutional prohibitions of ex post facto legislation.25 Reaction to Keenan was swift and pre- dictable. Supporters of Son of Sam laws decried the decision, complaining that it gave criminals a blank check to proﬁt from their crimes. The California Legislature threat- ened to rewrite the state’s Son of Sam law, but in the end merely extended the statute of limitation to 10 years for victims to claim restitution from any income earned by the THAT’S WHAT WE DO, EVERY DAY. When your workload wrongdoer, not merely proceeds derived from exceeds your workforce, Special Counsel has the answers. Leading law firms and corporate legal departments have come books and movies. (323) 658-6065 to rely on our full range of legal workforce solutions. From Supporters of the First Amendment, on (800) 737-3436 temporary staffing to direct hire, from litigation support to the other hand, applauded the fact that fol- (323) 658-6495 FAX document management and more, we handle it all. We do it lowing the unanimous lead of the U.S. Su- specialcounsel.com preme Court in 1991, the unanimous Califor- by containing costs so you can grow your bottom line. Call us nia Supreme Court in Keenan resisted the today and find out how we can do it for you. invitation to put aside fundamental constitutional principles in the name of compensating victims or punishing criminals. By carefully dissecting the flaws in California’s Son of Sam law, the court underscored the preemi- A Member of the MPS Group nent value the law places on freedom of ex-

LOS ANGELES LAWYER / MAY 2003 19 14 pression, even in the face of the popular notion Comment, Son of Sam Laws, 20 WHITTIER L. REV. 949, Barry Keenan v. Superior Court, 27 Cal. 4th 413, 953, & nn.48, 49 (1999). 431-32 (2002), cert. denied, U.S. LEXIS 5564 (Oct. 7, that “crime shouldn’t pay.” 2 The California law was first enacted in 1983 as Civil 2002). The value of the Keenan case rests in its Code §2224.1. In 1986, the law was recodified as §2225, 15 Simon & Schuster, 502 U.S. at 109; see N.Y. EXEC. LAW, appreciation of how society at large benefits and it has since been amended on several occasions. §632-a(4). from the widest array of voices addressing our 3 Barry Keenan v. Superior Court, 27 Cal. 4th 413 (2002), 16 Keenan, 27 Cal. 4th at 433. criminal justice system. Keenan is no more cert. denied, U.S. LEXIS 5564 (Oct. 7, 2002). 17 Id. at 434. 4 Id. at 423. 18 Id. about merely protecting convicted felons than 5 Simon & Schuster v. New York State Crime Victims 19 Id. at 435. decisions upholding the rights of protestors Board, 502 U.S. 105 (1991). 20 The examples given by the court (in addition to to burn the American flag or of Nazis to march 6 Id. at 115-16. those previously cited by the U.S. Supreme Court) in Skokie, Illinois, were only about those par- 7 Id. at 116. included such notable works as Eldridge Cleaver’s ticular individuals. Cases guaranteeing First 8 Id. at 118. Soul on Ice (1968), which discusses his rapes of white 9 Amendment rights have little to do with the Id. at 120-21. women, for which he was incarcerated, as since- 10 Id. at 123. repented acts of racial rage; memoirs published by particular message or messenger involved 11 See, e.g., R.A.V. v. St. Paul, 505 U.S. 377 (1992); Charles Colson (Born Again (1976)), G. Gordon Liddy and have everything to do with the principle Chaplinsky v. New Hampshire, 315 U.S. 568, 571-72 (Will! (1980)), and John Dean (Blind Ambition: The of insuring that the public’s right to know is (1942). White House Years (1976)) detailing their criminal roles protected. 12 E.g., Lyng v. Automobile Workers, 485 U.S. 360 in the Watergate coverup; and the memoirs of Patricia In the long run, given the decisions in (1988) (denial of food stamps to household with strik- Hearst, the scion of a publishing dynasty, who was ing worker); Regan v. Taxation with Representation of kidnapped by the Symbionese Liberation Army and Simon & Schuster and Keenan, anyone who Wash., 461 U.S. 540 (1983) (denial of tax exemption to later participated with her captors in an armed bank rob- values wide-open, robust debate and the res- organizations engaged in lobbying); Harris v. McRae, bery for which she was imprisoned (Every Secret Thing olution of important public policy issues 448 U.S. 297 (1980) (denial of federal funds to reimburse (1981)). through the open clash of ideas, instead of abortions). 21 CAL. CONST. art. I, §2, subd. (a). 13 22 repression imposed by governmental restric- Virginia Pharmacy Bd. v. Virginia Consumer Council, E.g., Los Angeles Alliance for Survival v. City of Los 425 U.S. 748, 756 (1976); see Pacific Gas. & Elec. Co. v. Angeles, 22 Cal. 4th 352, 366-67 & n.12 (2000). tions, will celebrate the elimination of all Son Public Util. Comm’m, 475 U.S. 1, 8 (1986) (plur. opn. 23 See generally CODE CIV. PROC. §§481.010 et seq., of Sam laws, thereby contributing to an open of Powell, J.). The chilling effect of financial disincen- 680.010 et seq. marketplace of ideas where books and movies tives was recognized again in United States v. Treasury 24 Because the court concluded that §2225(b)(1) was about crime and punishment will succeed or Employees, 513 U.S. 454, 468-70 (1995), in which the overbroad for its legitimate purpose, it did not address fail on their merits, free of direct or indirect Court struck down a congressional ban on the receipt Keenan’s contention, derived from Justice Kennedy’s by certain high level government employees of hono- Simon & Schuster censorship. ■ concurring opinion in , that a content- raria for speeches. See also Virginia Pharmacy Bd., based regulation of speech is unconstitutional per se and 425 U.S. at 756-57; Mine Workers v. Illinois Bar Ass’n., can never be justified by an interest of the state. Keenan, 1 See Kealy, A Proposal for a New Massachusetts Notoriety 389 U.S. 217, 222 (1967); Mazer v. Stein, 347 U.S. 201, 27 Cal. 4th at 436. for Profit Law, 22 W. NEW ENG. L. REV. 1, 22 (2000); 219 (1954). 25 Id.

20 LOS ANGELES LAWYER / MAY 2003 practice tips

By Kent A. Halkett

Determining Personal Jurisdiction in Internet-Related Litigation

Courts have in Pavlovich v. Superior Court,1 a template for determining personal jurisdiction in California. noting that “the so-called Internet whether personal jurisdiction Personal jurisdiction over non- developed revolution has spawned a host of exists, and California state and resident individuals and entities new legal issues as courts have federal courts have published may be either “general” or “spe- approaches to the struggled to apply traditional opinions containing guidance on cific” so long as the forum court’s legal frameworks to this new this issue in Internet-related liti- exercise of personal jurisdiction challenges posed communication medium. Today, gation. All actions seeking to “does not violate ‘traditional we join this struggle and consider impose a liability or obligation on notions of fair play and substantial by Internet usage the impact of the Internet on the a particular individual or entity justice.’”6 Courts may exercise determination of personal juris- must be brought in a forum that general jurisdiction over nonres- diction.”2 By doing so, the Calif- has the authority, or personal idents when their contacts with ver the past decade, the ornia Supreme Court became jurisdiction, to order the defen- the forum state are so “substan- Internet has become a one of the few state high courts dant into court. California’s per- tial…continuous and systematic” Omainstay of interstate and to render an opinion regarding sonal jurisdiction requirements that they should expect to be international commerce as well this issue.3 are codified in its long-arm within the jurisdiction of its as the noncommercial exchange The U.S. Supreme Court has statute, which provides that “[a] courts on any claim.7 Alter- of information. The rapid expan- yet to publish any decisions on court of this state may exercise natively, under a lower thresh- sion of Internet use by individu- personal jurisdiction and the jurisdiction on any basis not old, courts may exercise specific als and entities has spawned myr- Internet, but it may be looking inconsistent with the Constitution jurisdiction over nonresidents iad legal issues in the United for an occasion to express its of this state or of the United when they have “purposefully States and other countries, in- opinion in this new and vital area States.”5 Accordingly, a constitu- availed [themselves] of forum cluding a significant threshold of the law, particularly in light of tional due process analysis is nec- benefits” and the claim “arises concern for Internet users: the High Court of Australia’s essary to determine whether a out of” their contacts with the Where can they be sued based recent decision in Dow Jones & nonresident is properly subject to forum state.8 The “purposeful upon their use of the Internet? Company Inc. v. Gutnick4 holding In other words, what forum may that a U.S. corporation was sub- exercise personal jurisdiction ject to jurisdiction in Australia over defendant In- based upon the ternet users? Kent A. Halkett is a corporation’s post- The parameters partner in the law ings on the Inter- of personal juris- firm of Miller & net. (See “A Ruling diction based upon Holguin in Century from Australia,” a party’s use of the City. He practices page 22). Indeed, Internet are evolv- commercial litigation, the Pavlovich deci- ing in federal and with an emphasis on sion might provide state courts in the complex and inter- the U.S. Supreme United States as national business Court with just well as courts in disputes and such an opportu- other countries. alternative dispute nity. In fact, Justice Not surprisingly, resolution. Sandra Day O’Con- federal and state nor imposed, and courts in Califor- then quickly with- nia—the home of Silicon Valley drew, an emergency temporary and the entertainment industry— stay against the defendant in have taken a leading role in devel- Pavlovich in January, and the oping the law in this area. The plaintiff has indicated that it is California Supreme Court, how- considering an appeal to the U.S. ever, entered the fray for the first Supreme Court.

RICHARD EWING time in late 2002 with its decision Traditional principles provide

LOS ANGELES LAWYER / MAY 2003 21 availment” requirement for specific jurisdic- is directly proportionate to the nature ment, which closely parallels the sliding scale tion may be satisfied in intentional tort cases, and quality of commercial activity that in Zippo. under the so-called effects test, which is used an entity conducts over the Internet. In Panavision, the holder of the regis- to determine whether the defendant’s conduct This sliding scale is consistent with tered trademarks Panavision and Panaflex, is aimed at, or has a significant effect in, the well developed personal jurisdiction which are used in connection with motion forum state.9 principles. At one end of the spectrum picture camera equipment, accused Toeppen, These fundamental principles apply to are situations where a defendant an Illinois resident, of being a “cyber pirate” U.S. residents and foreigners, although the clearly does business over the Internet. who was in the business of stealing valuable U.S. Supreme Court has cautioned that If the defendant enters into contracts trademarks by establishing domain names “[g]reat care and reserve should be exer- with residents of a foreign jurisdiction on the Internet using the trademarks and cised when extending our notions of per- that involve the knowing and repeated then selling those domain names to the right- sonal jurisdiction into the international transmission of computer files over ful trademark owners. Panavision brought field.”10 Apparently, the High Court of the Internet, personal jurisdiction is an action in federal court in Los Angeles Australia is not so reserved. proper. At the opposite end are situa- against Toeppen for dilution of trademark tions where a defendant has simply based upon Toeppen’s attempt to extract Sliding Scale and Something posted information on an Internet web $13,000 from Panavision in exchange for the More site which is accessible to users in for- domain name Panavision.com, which Toeppen In the 1990s, during the Internet’s infancy, eign jurisdictions. A passive Web site had previously registered for himself. federal and state courts began addressing that does little more than make infor- The Ninth Circuit held that Toeppen was the threshold issue of the limits of their exer- mation available to those who are inter- subject to specific personal jurisdiction in cise of personal jurisdiction over domestic ested in it is not grounds for the exer- California even though “simply registering and foreign nonresidents who used the cise [of] personal jurisdiction. The someone else’s trademark as a domain name Internet for their personal and commercial middle ground is occupied by interac- and posting a web site on the Internet is not suf- activities. In 1997, a federal trial court in tive Web sites where a user can ficient to subject a party domiciled in one state Pennsylvania rendered a landmark decision exchange information with the host to jurisdiction in another.”15 It explained, how- on the issue in Zippo Manufacturing Company computer. In these cases, the exercise ever, that “something more” was required by v. Zippo Dot Com, Inc.11 The Zippo court of jurisdiction is determined by exam- the federal courts in California. In Panavision, observed that: ining the level of interactivity and com- that requirement was satisfied because the The Internet makes it possible to con- mercial nature of information that nonresident defendant’s scheme to extort duct business throughout the world occurs on the Web site.12 money from Panavision knowingly injured it “in entirely from a desktop. With this The vast majority of courts addressing California where Panavision has its principal global revolution looming on the hori- the issue after Zippo expressly or impliedly place of business and where the movie and tele- zon, the development of the law con- adopted its “sliding scale” approach and its vision industry is centered.”16 cerning the permissible scope of per- emphasis on the factual distinction between Two recent federal district courts in sonal jurisdiction based on Internet active and passive uses of the Internet. California have applied the “something more” use is in its infant stages. The cases are Federal and state courts in California have test in Internet-related cases. In 1999, in scant. Nevertheless, our review of the applied such an approach, although the Ninth Quokka Sports, Inc. v. Cup International Ltd.,17 available cases and materials reveals Circuit in Cybersell, Inc. v. Cybersell, Inc.13 and the California operator of a Web site named that the likelihood that personal juris- Panavision International, L.P. v. Toeppen14 Americascup.com—which claimed to have diction can be constitutionally exercised adopted its own “something more” require- the exclusive rights to operate “the official website” for the America’s Cup yachting event—brought an action in federal court in A Ruling from Australia San Francisco for trademark infringement In Dow Jones & Company Inc. v. Gutnick,1 an Australian resident brought an action for defama- and unfair competition against a New Zealand tion in his local Australian court against a U.S. corporation, Dow Jones & Company, Inc. The law- company and its two individual sharehold- suit was based on an article that contained allegedly derogatory references to the plaintiff and ers arising out of the New Zealanders’ oper- appeared in an edition of Barron’s Online, which Dow Jones (headquartered in New York) ation of several Web sites (including posted on its WSJ.com Web site. Dow Jones challenged the Australian court’s personal jurisdiction Americascup2000.org.nz) related to the 2000 over it, but the plaintiff countered that he had been defamed in Victoria, Australia (where he America’s Cup competition. The trial court lived) and limited his claim to the damages caused to his reputation there. held that it had personal jurisdiction over the Applying Australian law, which ordinarily finds that the tort of defamation is deemed to arise company and its shareholders. The court rea- in the jurisdiction in which the damage to the plaintiff’s reputation occurs, the High Court of soned that the New Zealand defendants’ activ- Australia held that personal jurisdiction over Dow Jones existed in Australia. It reasoned that “[i]n ities in operating their Web sites satisfied the the case of material on the World Wide Web, it is not available in comprehensible form until down- “something more” test because they had loaded on the computer of a person who has a web browser to pull the material from the web “aimed a significant portion of their com- server. It is where that person downloads the material that the damage to reputation may be mercial effort at the United States” and they done.” Moreover, one justice noted his concern that if the argument by Dow Jones opposing “apparently targeted the U.S. market because jurisdiction in Australia were to be accepted by the Australian high court, the practical effect would there is substantial interest in the America’s be to impose “an American legal hegemony in relation to Internet publications” and, further, Cup in the U.S.,” particularly in California, “to place commercial publishers in [Australia] at a disadvantage to commercial publishers in the which was home to 3 of the 11 teams vying for United States.”—K.A.H. the yachting trophy that was held, at the time of the dispute, by a team from New Zealand.18 1 Dow Jones & Co. Inc. v. Gutnick (2002) HCA 56, 194 A.L.R. 433 (2002). The Quokka court noted that the defen-

22 LOS ANGELES LAWYER / MAY 2003 dants, by using their Web sites to sell books by maintaining a website accessible to ous allegedly defamatory statements con- on sailing and sightseeing cruises along the California users and including information cerning Rambam, including that he was a race course off the coast of New Zealand, [such as press releases related to the manu- “dangerous psychopath” and “an anti-Semite were “essentially operating as a storefront, facturer’s products] on the site.”22 Such activ- who has been known to entrap Jews with no selling services and products, and entering ity was too passive for personal jurisdiction prior criminal record into committing into contracts with U.S. advertisers.” The under the “something more” test followed crimes.”25 Levy and the JDO moved to quash court held that this was the “type of interac- by the federal courts in California. Moreover, service, but the trial court denied their motion. tive commercial activity, aimed at U.S. con- general jurisdiction did not exist over the The court of appeal, however, found that sumers, to be evidence of purposeful avail- Canadian association because its contacts with the “defendants’ conduct in registering [the ment” by the defendants.19 The court also California were not “continuous, systematic, or plaintiff’s] name as a domain name and post- held that it had personal jurisdiction over substantial,” even though California’s resi- ing passive Web sites on the Internet is not both of the company’s individual sharehold- dents could access its Web site anytime.23 sufficient to subject them to jurisdiction in ers based upon their “apparent control over The California Court of Appeal explicitly California.”26 Moreover, it held that the all of the corporate defendants’ contacts with referenced the sliding scale approach, and California courts could not exercise personal California and the United States.”20 specifically did not find personal availment, in jurisdiction over these defendants based upon In Callaway Golf Corporation v. Royal Jewish Defense Organization, Inc. v. Superior their “contracting, via computer, with Internet Canadian Golf Association,21 a golf club man- Court.24 In that case, an individual plaintiff service providers, which may be California ufacturer headquartered in California brought brought a defamation action in state court in corporations which may maintain offices or an action in federal court in Southern Los Angeles against an organization head- databases in California” because such conduct California for trade libel and unfair competi- quartered in New York and its founder aris- was insufficient to constitute purposeful avail- tion against the nonprofit Royal Canadian ing out of allegedly defamatory statements ment for specific jurisdiction purposes.27 Golf Association arising out of the associa- about the plaintiff posted on the organization’s posting of press releases concerning the tion’s Web site. The plaintiff, Steven Rambam, The Pavlovich Decision manufacturer on the association’s Web site. the president of a private investigative agency When the California Supreme Court The trial court declined to exercise personal located in Brooklyn, New York, employed a weighed in last year in Pavlovich, it held, by jurisdiction over the association. The court California private investigator to assist in an a 4 to 3 majority, that California courts could reasoned that the test for specific jurisdic- action against Mordechai Levy, the founder not exercise personal jurisdiction over a Texas tion was not satisfied, particularly because the of the Jewish Defense Organization. The JDO resident based upon postings that he had Canadian association had not purposefully registered several domain names, including made on a Web site he operated while attend- availed itself of the California forum “[s]imply RAMBAM-STEVE.COM, and posted numer- ing Purdue University in Indiana. Although

24 LOS ANGELES LAWYER / MAY 2003 THE LAW FIRM OF BIRCH, STEWART, KOLASCH & BIRCH, LLP IS PLEASED TO ANNOUNCE THE OPENING OF ITS LOS ANGELES, CALIFORNIA OFFICE AT 10940 WILSHIRE BOULEVARD 18TH FLOOR LOS ANGELES, CALIFORNIA 90024-3945 PHONE (310) 209-4400 FAX (310) 209-4450

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SPECIALIZING IN PATENTS, TRADEMARKS, COPYRIGHTS, TRADE SECRETS, UNFAIR COMPETITION, LICENSING AND RELATED LITIGATION www.bskb.com the majority expressly “emphasize[d] the disagreed. The California Supreme Court Pavlovich should have reasonably anticipated narrowness of [its] decision” given the par- granted review to determine “whether the being brought into California’s courts because ticular facts of the case,28 it clarified and trial court properly exercised personal juris- “the intended injurious effects of posting advanced California law regarding the con- diction over Pavlovich’s person based solely DeCSS were aimed directly at the computer stitutional requirements for personal juris- on the posting of the DeCSS source code on hardware industry involved in producing diction in Internet-related litigation. the LiVid Web site.”29 It held that personal CSS-encrypted DVD players—an industry The defendant, Matthew Pavlovich, is a jurisdiction did not exist over Pavlovich in Pavlovich knew was heavily concentrated in resident of Texas and president of a technol- California, but that DVD CCA could pursue California” and “by publishing material he ogy ﬁrm there. While he was attending col- its claims against him in other forums such understood [to be] an infringement of the lege, Pavlovich founded and headed a video as Indiana or Texas.30 CSS trade secret, [Pavlovich] took an action project called LiVid that, among other things, The majority reviewed and clarified calculated to harm the movie industry, which sought to enable the decryption of DVDs California law on personal jurisdiction, includ- [he] knew was centered in California.”34 containing motion pictures. LiVid operated a ing the requirements for determining pur- With respect to the Internet, the supreme passive Web site on which it posted the source poseful availment under the effects test. It court acknowledged that “[a]lthough we have code of a program it called DeCSS. This pro- determined that the knowledge that harm never considered the scope of personal juris- gram allowed its users to circumvent the Con- will likely be suffered in the forum state is, by diction based solely on Internet use, other tent Scrambling System (CSS) used to itself, insufficient to satisfy the effects test courts have considered this issue, and most encrypt and protect copyrighted motion pic- for determining personal jurisdiction, and have adopted a sliding scale analysis.”35 It tures on DVDs. DVD Copy Control Asso- that California law required “additional evi- quoted Zippo and effectively endorsed the ciation, Inc. (DVD CCA), a nonproﬁt trade dence of express aiming or intentional tar- sliding scale approach (as the court of appeal association created by the DVD industry to geting.”31 The dissent agreed that “one can- had done in the Jewish Defense Organization control and administer licensing of the CSS not be sued in another forum simply because decision). technology, brought an action for misappro- his or her conduct has foreseeable effects In addition, the majority observed that: priation of trade secrets against Pavlovich there.”32 Pavlovich’s alleged conduct in posting and others in state court in San Jose, Applying that general principle to a passive Web site on the Internet is California. The DVD CCA was seeking injunc- Pavlovich, the majority held that “the evi- not, by itself, sufficient to subject him tive relief. dence in the record fails to show that [he] to jurisdiction in California. Creating a Pavlovich asserted that California state expressly aimed his tortious conduct at or site, like placing a product into the courts could not exercise personal jurisdiction intentionally targeted California.”33 The dis- stream of commerce, may be felt over him. The trial court and appellate court senting justices, however, opined that nationwide—or even worldwide—but,

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26 LOS ANGELES LAWYER / MAY 2003 without more, it is not an act purpose- Asset Protection Planning Now fully directed toward the forum state. Otherwise, personal jurisdiction in Can Insulate Your Clients’ Assets Internet-related cases would almost always be found in any forum in the From Future Judgments country. Such a result would vitiate long-held and inviolate principles of 36 Yes, it’s true. By properly restructuring your clients’ estate plan, their assets and the personal jurisdiction. assets they leave to their family will be protected from judgment creditors. Here are The dissent agreed: some of the situations in which our plan can help protect your clients' assets: [The] mere operation of an Internet Web site cannot expose the operator to ■ Judgments exceeding policy limits or exclusions from suit in any jurisdiction where the site’s policy coverage. contents might be read, or where ■ Judgments not covered by insurance. resulting injury might occur. ■ Children suing each other over your client's estate. Communications by a universally ■ A current spouse and children from a prior marriage accessible Internet Web site cannot suing each other over your client's estate. be equated with “express aiming” at ■ A child’s inheritance or the income from that 37 the entire world. inheritance being awarded to the child’s former spouse. The dissent diverged from the majority, however, by criticizing the characterization of Web sites as “passive” when they include STEVENSTEVEN L.L. GLEITMAN,GLEITMAN, E ESQ.SQ. “content intended and expected to harm par- 310-553-5080 ticular individuals, entities, or interests in Biography available at lawyers.com or by request. specific places.”38 Significantly, the California Supreme Mr. Gleitman has practiced sophisticated estate planning for 24 years, specializing for more than 12 Court did not foreclose the possibility of exer- years in offshore asset protection planning. He has had and continues to receive many referrals from cising personal jurisdiction in California over major law firms and the Big Four. He has submitted 36 estate planning issues to the IRS for private let- a nonresident Internet user based upon a ter ruling requests; the IRS has granted him favorable rulings on all 36 requests. Twenty-three of those passive Web site. Rather, as the dissenting rulings were on sophisticated asset protection planning strategies. opinion explained: [D]efendants who aim conduct at particular jurisdictions, expecting and intending that injurious effects will be felt in those specific places, cannot Pamela E. Dunn shield themselves from suit there sim- and ply by using the Internet, or some other generalized medium of commu- Daniel J. Koes nication, as the means of inflicting harm.…In such circumstances, the (formerly of Robie & Matthai) defendant is not exposed to universal are proud to announce the formation of and unpredictable jurisdiction. He faces suit only in a particular forum California’s newest appellate law Firm where he directed his injurious conduct, and where he must reasonably Dunn Koes LLP anticipate being called to account.39 253 So. Marengo Avenue In essence, the California Supreme Court split almost evenly on that factual distinction Pasadena, California 91101 with respect to Pavlovich—the four-member ■ majority (lead by Justice Brown) concluded Telephone: (626) 685-9500 that he had not crossed that line, whereas the Facsimile: (626) 685-2010 three-member dissent (lead by Justice Baxter) ■ found that he had done so based upon the extensive evidentiary record. [email protected] Pavlovich avoided personal jurisdiction in [email protected] California, but other Internet users poten- www.dunnkoes.com tially causing harm to California residents ■ and interests should not take much comfort from this result. The California Supreme The Firm’s practice consists of appeals, Court noted that its decision was narrow and writs, law and motion indicated that, with a slightly different set of and related matters. facts, it might have come to a different conclusion. Domestic and foreign nonresidents Certified Appellate Law Specialists ■ The State Bar of California Board of Legal Specialization who use the Internet should be aware that

LOS ANGELES LAWYER / MAY 2003 27 they may be haled into court in California COMPETENT REAL ESTATE BROKERAGE by local individuals and entities under California’s long-arm statute and the expand- ■ Specializing in helping attorneys and their clients buy and sell ing body of case law, including Pavlovich. ■ real estate in bankruptcy, probate, family, and real estate law 1 ■ Experienced negotiator with legal background Pavlovich v. Superior Court, 29 Cal. 4th 262 (2002). 2 Id. at 266. ■ Licensed broker, California Department of Real Estate 3 See, e.g., Metcalf v. Lawson, 802 A. 2d 1221 (N.H. ■ Call for LACBA member discount 2002) (New Hampshire Supreme Court noting that “most courts hold that the constitutionality of a State’s exercise of jurisdiction is proportionate to the nature and OFFICE: (818) 905-7111 EXT. 251 quality of the commercial activity the defendant conducts over the Internet” and that the analytical framework com- OFFICE: (310) 820-2229 TODD RUBINSTEIN, J.D., BROKER ASSOCIATE monly applied in such cases is the sliding scale approach FACSIMILE: (818) 905-7299 EMAIL: [email protected] in Zippo); Klun v. American Suzuki Motor Corp., 56 P. 3d 829 (Kan. 2002) (Kansas Supreme Court observing that “[p]ersonal jurisdiction is not appropriate when Internet use involves a passive web site”). 4 Dow Jones & Co. Inc. v. Gutnick (2002) HCA 56, 194 Steven Richard Sauer, Esq. A.L.R. 433 (2002). 5 Counselor at Law CODE CIV. PROC. §410.10; Pavlovich, 29 Cal. 4th at 268. 6 Vons Cos., Inc. v. Seabest Foods, Inc., 14 Cal. 4th 434, Professional arbitrator and mediator since 1974. 444-45 (1996) (quoting International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)); Pavlovich, 29 Cal. 4th at 268-69 (following Vons). 7 Vons, 14 Cal. 4th at 445-46 (citing, e.g., Helicopteros Settlement Impasse? Nacionales de Columbia v. Hall, 466 U.S. 408 (1984)). 8 Id. at 446-48 (citations omitted); Pavlovich, 29 Cal. 4th Masterful guidance when the stakes are high. at 269 (following Vons). 9 Calder v. Jones, 465 U.S. 783 (1984) (establishing 4929 Wilshire Boulevard, Suite 740 · Los Angeles, California 90010-3821 the effects test); Pavlovich, 29 Cal. 4th at 269-70 (explain- ing Calder and the application of the effects test in Telephone: (323) 933-6833 · Fax: (323) 933-3184 · E-mail: [email protected] cases involving intentional torts, including business torts). 10 Asahi Metal Indus. Co. v. Superior Court, 480 U.S. 102, 115 (1987) (citation omitted). 11 Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119 (W.D. Pa. 1997). 12 Id. at 1123-24 (citations omitted, emphasis added). 13 Cybersell, Inc. v. Cybersell, Inc., 130 F. 3d 414, 418 (9th Cir. 1997). 14 Panavision Int’l, L.P. v. Toeppen, 143 F. 3d 1316, 1322 (9th Cir. 1998). 15 Id. at 1322 (citation omitted). 16 Id. (footnote omitted). 17 Quokka Sports, Inc. v. Cup Int’l Ltd., 99 F. Supp. 2d 1105 (N.D. Cal. 1999). 18 Id. at 1111-12. 19 Id. at 1112. 20 Id. at 1114. 21 Callaway Golf Corp. v. Royal Canadian Golf Ass’n, 125 F. Supp. 2d 1194 (C.D. Cal. 2000). 22 Id. at 1204. 23 Id. at 1208. 24 Jewish Def. Org., Inc. v. Superior Court, 72 Cal. App. 4th 1045 (1999). 25 Id. at 1050. 26 Id. at 1060 (footnote and citation omitted). 27 Id. at 1062. 28 Pavlovich v. Superior Court, 29 Cal. 4th 262, 278 (2002). 29 Id. at 268. 30 Id. at 279. 31 Id. at 273. 32 Id. at 293 (footnote omitted, emphasis in original). 33 Id. at 273. 34 Id. at 288. 35 Id. at 274. 36 Id. at 274-75 (citations and internal punctuation omitted). 37 Id. at 289 (citations omitted, emphasis in original). 38 Id. at 290 n.4. 39 Id. at 289-90 (citations and footnote omitted).

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14455 Ventura Boulevard Suite 300, Sherman Oaks, California 91423 Phone (818) 981-4226 or (310) 276-7831 Fax (818) 981-4278 333 City Boulevard West 17th Floor, Orange, CA 92868 Phone (714) 939-1781 Fax (714) 938-3874   .    .  Repeal of the Fin-Syn Rules and vertical integration led to a barrage of lawsuits by profit participants in television projects

VERTICALLY

  media conglomer- dictate the financial terms of distribution and ates have provided fertile ground for litigation syndication because it controls both the licen- in the entertainment industry due to self- sor and the licensee of the rights in the prop- dealing and at least the appearance of impro- erty. In this way, the parent corporation of priety that inevitably arises when affiliated both the affiliated licensor and licensee can entities sit across from each other at the bar- manipulate their negotiations to best serve the gaining table. Vertical integration in the enter- corporation’s interest. tainment industry is a corporate strategy that Vertical integration often has led to de- involves the retention of control over all creased license fees. A corporate conglom- aspects of a motion picture, television pro- erate that produces a program through one of gram, or musical recording—from its cre- its production entities can ensure that its affil- ation through production and distribution. iated cable and television networks and tele- For example, with a television program, one vision stations pay below-market license fees vertically integrated conglomerate creates for the right to distribute the program. The and produces the program, broadcasts the strategy pursued by a conglomerate is simple. program on its affiliated network, and then A smaller license fee results in less gross licenses the syndication of the program to revenues from the distribution of the pro- its own cable network and/or local television gram. Distribution proceeds are often shared stations. To date, litigation alleging vertical with the program’s profit participants, such as ainment integration claims primarily has focused on actors, directors, writers, and producers, for ert nt television programming rather than motion whom participation in distribution profits is an e pictures or musical recordings. integral component of their compensation. Vertical integration accomplishes two e u s iss goals for a conglomerate. First, the con- Stanton L. Stein and Marcia J. Harris are pecial glomerate achieves the complete control of an partners in the firm of Alschuler Grossman entertainment property, including the ancil- Stein & Kahan LLP, where they specialize in lary rights. Vertical integration allows the entertainment litigation. Stein and Harris rep- conglomerate to “brand” a property and keep resented Alan Alda, the Wind Dancer parties, it out of the hands of competitors. Second, ver- David Duchovny, and Langley Productions, tical integration allows the conglomerate to Inc. in the lawsuits mentioned in this article.

30 LOS ANGELES LAWYER / MAY 2003 With this vertical integration strategy, profits that would have flowed to the profit participants instead remain within the corporate conglomerate because the affiliated licensees, such as cable networks, do not share their revenue with third parties. In 1998, Alan Alda sued Twentieth Century Fox Film Corporation for this practice and sought in excess of $10 million in lost profit participation revenue.1 The corporate strategy of vertical integration has been made possible by the merger mania in the late 1990s that resulted from the repeal of the “Fin-Syn Rules.”2 With the demise of the rules in 1995, the networks were no longer limited in their ability to produce or own an equity stake in the programs they broadcast. In anticipation of the repeal of the rules, the Walt Disney Company and Capital Cities/ABC announced a $19 billion merger on July 31, 1995, and Westinghouse announced its acquisition of CBS for $5.4 billion on August 1, 1995.3 Subsequently, CBS merged with Viacom, creating a $91 billion conglomerate. These mergers and acquisi- tions were dwarfed by the merger of Time Warner with AOL, which was approved by the Federal Trade Commission on December 14, 2000, and, at $111 billion, is the largest merger in U.S. history.4 Today, all but one network, NBC, is owned by a media and motion picture studio conglomerate. ABC is owned by the Walt Disney Company, CBS and UPN are owned by Viacom (which also owns Paramount Pictures Corporation), the WB is owned by AOL/Time Warner, and the Fox network is owned by News Corp., which also owns Twentieth Century Fox Film Corporation. The potential for self-dealing is enormous. While profit participants view these mergers as opportunities for self-dealing by the conglomerates, the conglomerates instead apply the term “synergy” to the mergers. Comments by Michael Eisner, chairman and chief executive officer of the Walt Disney Company, regarding the merger of Disney and ABC, are revealing and perhaps reflect an unfortunate choice of words: “The synergies are under every rock we turn over. I am totally optimistic that one and one will add up to four here.”5 Not everyone agrees that the synergy resulting from vertical integration is a good thing. Many critics, for example, have raised concerns about the dissemination of news as a result of the concentration of news organizations in a handful of media giants. In addition, questions have been raised about the commercial propriety of vertical integration. But the two issues that have attracted the most concern are 1) the networks’ attempts to acquire ownership interests in programs

KEN CORRAL they broadcast, and 2) the potential for self- dealing among affiliated entities of the media conglomerates. SUING OVER SELF-DEALING Concerns and questions about the self-dealing of media conglomerates to the detriment of profit participants have spawned a virtual cottage industry of lawsuits against the studios and networks. Among the lawsuits involving television programs that were filed starting in 1997 are: • Wind Dancer Production Group v. The Walt Disney Company, which was filed in March 1997 with regard to Home Improvement.6 • Mozark Productions v. MTM Enterprises, which was filed in May 1997 and concerned Evening Shade.7 • Frank Lupo, Albert Ruddy, and Leslie Grief against CBS, a lawsuit that was also filed in May 1997 and was about Walker, Texas Ranger.8 • The Alda suit against Twentieth Century Fox Film Corporation, which was filed in February 1998 with regard to M*A*S*H.9 • David Duchovny’s suit against Twentieth Century Fox Film Corporation, which was filed in August 1999 and involved the X Files.10 • Steven Bochco’s action against Twentieth Century Fox Film Corporation, which was filed in September 1999 with regard to NYPD Blue.11 • Barry Levinson and Tom Fontana against NBC Studios, Inc., which was filed in March 2000 and concerned Homicide: Life on the Street.12 • Langley Productions, Inc. v. Fox En- tertainment Group, which was filed in June 2000 and involved Cops.13 All of the cases were settled before trial— and for some, the settlement emerged on the very eve of trial. The gravamen of these lawsuits is that the vertically integrated conglomerates engaged in self-dealing by artificially decreas- ing license fees and thereby injuring the program’s profit participants. There is no incentive for a vertically integrated company to make any effort to shop its product among a variety of broadcast networks, cable networks, or other distribution channels in order to obtain the highest license fees for its programming. Rather, the incentive is for the affiliated entity owning the program to license it to another affiliated entity for a below-market price. That way, the affiliated licensee increases its profits (and the conglomerate’s bottom line) while the revenues from the license fees that must be shared with the profit participant are reduced. Although vertically integrated companies may argue that justifiable business reasons exist for vertical transactions, the practical effect cannot be disputed: reduced revenues available to profit participants and increased claims into tort claims. In addition, the con- with approval and recognized that when a profits to the corporate parent’s bottom line. glomerates argued that no fiduciary duty direct contractual relationship exists, “the While some of the contracts between the exists between a program’s producer and its distributor owed a fiduciary duty…to pro- profit participants and the owners of the tele- profit participant. In some instances, trial vide an accounting of proceeds received from vision programs contain language designed courts dismissed these claims on demurrer;19 subdistributors.”29 to protect against disadvantageous self-deal- in other instances the claims survived demur- A federal district court in New York also ing, many of the contracts that preceded the rer and motions for summary adjudication.20 found a fiduciary relationship between con- repeal of the Fin-Syn Rules do not. Two of the In defending against demurrers by the tracting parties. In Rosary-Take One earlier lawsuits involving vertical integration studios, the profit participants relied on a Production Company v. New Line Distribution, are illustrative. number of cases upholding a fiduciary duty Inc.,30 the court held that “it is possible, as a In the lawsuit initiated by Wind Dancer to account to profit participants. For example, matter of law, for a fiduciary relationship to Production Group, creators of the television in Braden v. Lewis,21 the court held, “[W]here develop between contracting parties.”31 series Home Improvement, against the Walt property is transferred to another and an Predictably, the conglomerates have Disney Company, the contract at issue had no interest is reserved in profits which may be rejected any notion that a fiduciary relation- protective language.14 In fact, the contract realized from the sale or operation of the ship exists with respect to profit participants. provided only a right of consultation with property, a fiduciary relationship is created On demurrer, the conglomerates have regard to the distribution of the series. Thus, and the transferee is bound to account to the attacked the breach of fiduciary claims by there was no contractual provision on which party from whom the property was received relying on Zumbrun v. University of Southern to hang a self-dealing claim. for the amount of the profits.”22 California32 and Peterson Development In contrast, in the lawsuit filed by Alan Profit participants also relied on Vai v. Company v. Torrey Pines Bank33 for the propo- Alda against Twentieth Century Fox Film Bank of America,23 which held that “[t]he key sition that courts have cautioned against find- Corporation, the self-dealing breach of con- factor in the existence of a fiduciary rela- ing “loose characterizations” of financial rela- tract claim was based on language contained tionship lies in control by a person over the tionships as fiduciary in nature. in a 1991 Settlement Agreement15 regarding property of another.”24 In addition, the conglomerates, such as Alda’s audit of the M*A*S*H series profit Indeed, two California cases specifically Fox in the Duchovny, Bochco, and Langley participation statements.16 A farsighted trans- recognize a fiduciary duty owed to profit par- Production lawsuits, relied primarily on an actional attorney for Alda had inserted the fol- ticipants in the context of film distribution unpublished federal district court order, Crest lowing language into the agreement: agreements. First, in Waverly Productions, Enterprises, N.V. v. Columbia Pictures Indus- If and to the extent Fox makes agree- Inc. v. RKO General, Inc.,25 the plaintiff, a pro- tries Inc.,34 for the proposition that a profit par- ments in respect of exploitation of ducer of two films, entered into a distribution ticipant’s audit rights somehow defeat a con- [M*A*S*H] with any affiliated entity agreement with the defendant in which the glomerate’s fiduciary duty to account for which is a so-called “end user” such as, plaintiff retained profit participations in rev- those profits. In the Duchovny and Langley by way of example only, [Fox Broad- enues from the distribution of the films. The actions, Fox’s demurrers were defeated. casting Company] or the Fox television court of appeal held that the plaintiff had not This year, in Wolf v. Superior Court,35 the stations, the income of such end user established a general fiduciary relationship court denied a writ of mandate sought by the shall not be deemed gross receipts between itself and the defendant, but the plaintiff, Gary K. Wolf, the author of the novel hereunder, but Fox shall establish fair, court noted that a limited fiduciary relation- Who Censored Roger Rabbit?, which was turned just and equitable market rates, arms- ship existed with regard to the defendant’s into a movie by Walt Disney Pictures and length prices in such dealings, which obligation “to account for rentals received” to Television. Wolf sought the writ of mandate to shall be created on a reasonable and the plaintiff.26 compel the trial court to vacate its order sus- empirically justifiable basis.17 More recently, in Recorded Picture Co. taining, without leave to amend, the demurrer When the contracts between the profit (Productions) Ltd. v. Nelson Entertainment, of the real party in interest, Disney, to Wolf’s participants and television program owners Inc.,27 the appellate court again reaffirmed cause of action for breach of fiduciary duty. contained protective language, the lawsuits the existence of the fiduciary duty recog- The court held that a contingent entitlement alleged claims for breach of contract and nized in Waverly. In Recorded Picture, the to future compensation within the exclusive inducing breach of contract (on the part of the plaintiff, a film producer, entered into a dis- control of one party does not make that party parent company) as well as breach of fidu- tribution agreement with Hemdale, a dis- a fiduciary in the absence of other indicia of ciary duty, unfair competition, interference tributor of motion pictures. Hemdale, in turn, a confidential relationship. The court stated with contract, and interference with prospec- entered into a separate subdistribution agree- that without an allegation of an agency relative economic advantage.18 Without the pro- ment with the defendant concerning home tionship or a joint venture or a relationship tective language, the lawsuits have relied on video rights. The court, relying on Waverly, “akin” to a joint enterprise, the right to a con- claims for breach of fiduciary duty, unfair noted that there was no fiduciary relation- tingent entitlement would not support a claim competition, interference with prospective ship between the plaintiff and the defendant for breach of fiduciary duty.36 Since the deci- business advantage, and breach of the implied because the defendant had no accounting or sion was based on a writ of mandate during the covenant of good faith and fair dealing. All of other obligations to the plaintiff. There was no pleading stage, it is likely that the decision will the lawsuits have sought an accounting. privity of contract between the plaintiff and the be appealed by Wolf or challenged by other defendant giving rise to an obligation to participants in other cases. BREACH OF FIDUCIARY DUTY account for profits. Nevertheless, the court To date, none of the cases alleging self- The claims for breach of fiduciary duty in stated that “[a] fiduciary duty to the producer dealing claims have proceeded to trial. the vertical integration cases have been hotly to provide an accounting of proceeds received Instead, the conglomerates have paid sub- contested. Essentially, the conglomerates did govern the relationship between [the stantial money to profit participants to resolve argued that the profit participants have plaintiff] and Hemdale” because there was the claims before trial. In each of the cases, attempted to transform breach of contract contractual privity.28 The court cited Waverly the studios have insisted on confidentiality

LOS ANGELES LAWYER / MAY 2003 33 CORPORATE RESCUES AND TAKEOVERS provisions that prevent the disclosure of the PUBLISHED BY LOS ANGELES LAWYER $45 DECEMB ER 2002 settlement amounts.

● expert Corporate Security Services witnesses ● legal PROPHYLACTIC PROVISIONS consultants Adverse Terminations ● litigation services ● lawyer Workplace Violence As a prophylactic measure, some of the stu- to lawyer ● dispute resolution Threat Assessments dios now have amended their contractual professionals Risk Mitigation provisions concerning profit participation. los angeles county bar associationER 2 southern california directory of Employee Stings First, the words “net profits” and “gross Executive Protection experts & receipts” have virtually disappeared from Computer-I.T. Security their contractual definitions of profit partici- consultants Asset Protection pation. Instead, the terms “defined proceeds,” Private Functions Meetings “contingent proceeds,” “defined receipts,” 2003 and “contingent bonus” now populate the def- Corporate Investigative Services initions. Internal Investigations Moreover, the provisions now mandate Theft, Fraud, Embezzlement ALL MEMBERS of the Los Angeles binding arbitration to resolve any disputes Employee Backgrounds County Bar Association receive a concerning the definitions, whether sounding FREE COPY of the Southern California K9 Drug Detection Intellectual Property in contract or tort. Thus, discovery may be Directory of Experts & Consultants, limited or nonexistent, depending upon the most comprehensive registry of Forensic Accounting whether an arbitration provision incorporates legal expertise in the region. Specialized Investigations Code of Civil Procedure Section 1283.05.37 The 2003 directory has been mailed ✭ LAW ENFORCEMENT OWNED ✭ More important, the profit participant has and contains more than 2,000 listings. Call for a confidential consultation no right to a jury—a right that may be Don’t forget to use it when you are look- extremely valuable when a lone plaintiff takes ing for medical, technical, scientific FRANK ELLMAN SECURITY & on a behemoth media conglomerate. and forensic expert witnesses, litigation INVESTIGATIONS, INC. In addition to arbitration provisions, many consultants, trial support services, alternative dispute resolution service F.E.S.I of the new back-end provisions contain pre- providers, and the Lawyer-to-Lawyer sumptions in favor of the studio. For example, Consultants Network. (323) 997-7240 the profit participant must acknowledge that PPO 14717 PI 23276 any dealing between the conglomerate’s affiliated entities is “conclusively presumed to be fair, reasonable, and unobjectionable” unless the participant can establish that the JOIN THE “agreement or other arrangement is on financial terms which, taken as a whole, are mate- Intellectual Property & rially less favorable economically” than a transaction between unaffiliated entities. For Entertainment Law Section example, Disney’s Exhibit “CB” (contingent OF THE LOS ANGELES COUNTY BAR ASSOCIATION bonus) provides: In addition, Lender acknowledges and agrees that any agreement or other arrangement by [Walt Disney Pictures] with an Affiliate or Related Party regarding the Exploitation Rights shall be conclusively presumed to be fair, reasonable and unobjectionable unless Lender shall establish that such agreement or other arrangement is on Section membership offers significant discounts on Section-sponsored CLE financial terms which, taken as a programs, an opportunity to network with practitioners in the field, and more. whole, are materially less favorable economically to [Walt Disney Pictures] In addition, section members are eligible to participate in IPELS subcommittees, than the terms of Similar Transactions which sponsor events targeted to our members specialized practice areas. Current subcommittees are: generally entered into by [Walt Disney Pictures] with unaffiliated or unrelated TV & MOTION PICTURES • MEDIA • SPORTS third parties…. MUSIC • LITIGATION • INTERNET/MULTIMEDIA Even if the participant can meet this test, PATENTS • PRODUCT MERCHANDISING & LICENSING the participant’s damages are limited only to COPYRIGHT, TRADEMARK, & RIGHTS OF PUBLICITY what the participant would have received but for the unfair affiliated transaction—that is, no Cost of Section membership is $35. LACBA Membership is required to join the punitive damages or other remedies.38 Section. For more information about joining the Section and its subcommittees, According to agents and transactional please contact the member services department at (213) 896-6560. entertainment lawyers, the studios are unwilling to negotiate many, if any, modifications to

34 LOS ANGELES LAWYER / MAY 2003 the arbitration provisions or any new provisions benefiting participants, regardless of the stature of their clients. Thus, as these provisions proliferate in contracts between participants and the conglomerates, the number of vertical integration cases may decline. Indeed, challenging the enforceability of these provisions may constitute the next wave of entertainment litigation. In a recent case, Pardee Construction Com- pany v. Superior Court,39 the court held that a provision that required a judicial reference instead of a right to a jury trial and prohibited punitive damages was unconscionable and contrary to statutory law and public policy. In its holding, the court cautioned: “Our analysis is narrowly tailored to this record, in particular to the parties’ agreements. We do not decide any issue as a matter of law. Instead, on this record we simply conclude the parties’ agreements were adhesive contracts fatally infected with procedural and substantive JudgmentsEnforcedJudgmentsEnforced unconscionability.”40 Whether such a conclusion would be applied to the new back-end provisions Law Office of Donald P. Brigham imposed by media conglomerates is unclear. Certainly, agreements to arbitrate are looked 23232 Peralta Dr., Suite 204, Laguna Hills, CA 92653 on with favor in California. Many entertain- P: 949.206.1661 ment contracts contain arbitration provisions, F: 949.206.9718 and it is unlikely that courts will hold that a [email protected] AV Rated contract with high-level talent is unconscionable based on the perception that high- level talent has sufficient bargaining power. With respect to provisions that deny the right to punitive damages and shift the burden of proof, the outcome also is not certain. There is no definitive authority on whether contractual provisions that prospectively waive punitive damages or shift the burden of proof are enforceable. Although Pardee Construction Company found a similar provision to be unconscionable,41 the opinion should be read with caution because the court expressly limited its holding to the facts of that case, and the plaintiffs were homeowners with far less power to bargain the terms of a contract. Thus, the enforceability of these new provisions remains in doubt, but one thing is certain: The media conglomerates will continue to self-deal. As Warren Buffett once said: “Negotiating with one’s self seldom produces a barroom brawl.”42 Therefore, the disputes with profit participants will continue. Stay tuned. ■

1 Alda v. Twentieth Century Fox Film Corp., L.A. Super. Ct. Case No. BC185779 (Feb. 1998). 2 The Network Financial Interest and Syndication Rules, 47 C.F.R. §73.658(j) (1970). The Fin-Syn Rules were adopted in an effort to limit the power of the ABC, NBC, and CBS networks by prohibiting them from syndicating programs they had produced and from obtaining ﬁnancial interests in programs produced by

LOS ANGELES LAWYER / MAY 2003 35 outside producers that were broadcast by the net- Inc. contained protective language similar to Alda’s included cash. works. The Fin-Syn Rules were modified and amended contract. Steven Bochco’s contract with Fox had a 25 Waverly Prods., Inc. v. RKO Gen., Inc., 217 Cal. App. in 1993 and repealed in 1995. 60 Fed. Reg. 48,907 right of consultation, but not the broader language— 2d 721 (1963). (1995). although, like Langley with Cops, Bochco retained the 26 Id. at 733. 3 Martin Peers and J. Max Robins, CapCities Moves to copyright in NYPD Blue, subject to Fox’s distribution 27 Recorded Picture Co. (Prods.) Ltd. v. Nelson Entm’t, Mouse House, DAILY VARIETY, Aug. 1, 1995, at 1. rights. See Duchovny v. Fox Entm’t Group, L.A. Super. Inc., 53 Cal. App. 4th 350 (1997). 4 See FTC Memorandum and Opinion (Dec. 14, 2000). Ct. Case No. SC058329 (Aug. 1999); Langley, L.A. 28 Id. at 371 n.10. 5 LOS ANGELES TIMES, Aug. 6, 1995. Super. Ct. Case No. BC233041; Alda, L.A. Super. Ct. 29 Id. 6 Wind Dancer Prod. Group v. The Walt Disney Co., L.A. Case No. BC185779; Bochco v. Twentieth Century Fox 30 Rosary-Take One Prod. Co. v. New Line Distribution, Super. Ct. Case No. BC 166377 (Mar. 1997). Film Corp., L.A. Super. Ct. Case No. BC216801 (Sept. Inc., 1996 U.S. Dist. LEXIS 1951 (S.D. N.Y. Feb. 22, 7 Mozark Prods., Inc. v. MTM Enters., Inc., L.A. Super. 1999). 1996). Ct. Case No. BC166980 (May 1997). 19 See, e.g., Wind Dancer, L.A. Super. Ct. Case No. 31 Id. at *1 (citing Michelson v. Hamada, 29 Cal. App. 8 Lupo v. CBS, L.A. Super. Ct. Case No. BC169347 BC166377. 4th 1566, 1567 (1994)). (May 1997). 20 See, e.g., Langley, L.A. Super. Ct. Case No. BC233041. 32 Zumbrun v. University of S. Cal., 25 Cal. App. 3d 1, 9 Alda, L.A. Super. Ct. Case No. BC185779. 21 Braden v. Lewis, 119 Cal. App. 2d 84 (1953). 13 (1972). 10 Duchovny v. Fox Entm’t Group, L.A. Super. Ct. Case 22 Id. at 87. See also Schaake v. Eagle Automatic Can Co., 33 Peterson Dev. Co. v. Torrey Pines Bank, 233 Cal. App. No. SC058329 (Aug. 1999). 135 Cal. 472, 485 (1902) (The plaintiff assigned patents 3d 103 (1991). 11 Bochco v. Twentieth Century Fox Film Corp., L.A. to a corporation “but reserv[ed] an interest in certain 34 Crest Enters., N.V. v. Columbia Pictures Indus. Inc., Super. Ct. Case No. BC216801 (Sept. 1999). profits which might be realized by the corporation” CV 80-4777-MML (1981) (unpublished). 12 Levinson v. NBC Studios, Inc., L.A. Super. Ct. Case on those patents: “[T]he relation thus created was fidu- 35 Wolf v. Superior Court, 2003 Cal. App. LEXIS 270 (2d No. BC226456 (Mar. 2000). ciary and, as to plaintiff’s share or part of the profits real- Dist., Mar. 20, 2003). 13 Langley Prods., Inc. v. Fox Entm’t Group, L.A. Super. ized, the corporation was a trustee.”); Stevens v. Marco, 36 Id. at 277. Ct. Case No. BC233041 (June 2000). 147 Cal. App. 2d 357, 372-73 (1956) (“Where an inven- 37 Subject to certain limitations, CODE CIV. PROC. 14 The agreement between Wind Dancer and Disney tor entrusts his secret idea or device to another under §1283.05 provides for depositions and discovery to be was entered into in 1989, well before the repeal of the an arrangement whereby the other party agrees to obtained in an arbitration as if the subject matter of the Fin-Syn Rules and prior to the acquisition of ABC by develop, patent and commercially exploit the idea in arbitration were before a superior court in a civil action. Disney. Wind Dancer Prod. Group v. The Walt Disney return for royalties to be paid to the inventor, there 38 Profit participation definitions have never permitted Co., L.A. Super. Ct. Case No. BC166377 (Mar. 1997). arises a confidential or fiduciary relationship between an award of attorney’s fees to the prevailing party in any 15 Alda v. Twentieth Century Fox Film Corp, L.A. Super. the parties.”). dispute relating to profit participations. Ct. Case No BC185779 (Feb. 1998). 23 Vai v. Bank of Am., 56 Cal. 2d 329 (1961). 39 Pardee Constr. Co. v. Superior Court, 100 Cal. App. 16 The original M*A*S*H agreement for Alda’s acting 24 Id. at 338. In Vai, the property settlement agreement 4th 1081 (2002). services was entered into in 1971. Id. between a husband and wife was rescinded by the 40 Id. at 1086. 17 Alda, L.A. Super. Ct. Case No. BC185779 (emphasis court because the husband, who made fraudulent mis- 41 Id. added). representations concerning the value of the community 42 WARREN BUFFETT ET AL., THE ESSAYS OF WARREN 18 Both David Duchovny’s contract and Langley property, was a fiduciary to his wife on account of his BUFFET: LESSONS FOR CORPORATE AMERICA (1st rev. ed., Productions’ contracts with Fox Entertainment Group, knowledge and control over the property, which Apr. 2001)

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36 LOS ANGELES LAWYER / MAY 2003 MCLE ARTICLE AND SELF-ASSESSMENT TEST Sponsored by By reading this article and answering the accompanying test questions, you can earn one MCLE credit. To apply for credit, please follow the instructions on the test answer sheet on page 41.

   .  STRIKE To avoid federal copyright law ainment ert nt e preemption, state causes of action must e su special is survive a demanding two-part test

  protects a “bundle of rights” Prior to 1976, federal copyright law coex- empted; other state law claims—even if the given to those engaged in creative expression. isted with state copyright law.2 The techni- subject matter of the claim is an artistic work Owners of a copyrighted work can prevent the calities of federal copyright law—for example, eligible for copyright protection—survive.6 reproduction, distribution, performance, pub- rigorous notice and registration require- State and federal courts have addressed lication, and display of their work without ments—would often drive expressive works the issue of copyright preemption in various their consent. For a work to be protected by into the public domain but for state copyright ways. For example, California state courts copyright, the only requirements are that the law.3 Congress recognized the need for uni- and federal courts have held that interfer- work 1) is one of authorship as contemplated form national copyright laws, and in 1976 it ence claims are preempted, while fraud claims by 17 USC Section 102(a), 2) has a minimal accomplished this by adopting the 1976 Copy- are never preempted. Central District courts amount of originality, and 3) is “fixed” in a tan- right Act and creating a single federal system.4 have further found unfair competition, con- gible medium of expression.1 The 1976 act expressly preempts all state version, and unjust enrichment causes of The Copyright Act controls the field of copyright law, including common law causes action preempted. Breach of contract claims copyright claims; thus, there are no state law of action. The scope of this preemption, how- usually are not preempted in state and federal claims for copyright infringement. There are, ever, is limited because it does not require the however, numerous state law claims that may dismissal of all claims that involve the subject Steven T. Lowe is a principal in the Los Angeles relate to a work of authorship. These claims matter of copyright.5 Instead, only state law firm Lowe Law, P.C., which specializes in enter- raise significant preemption issues. Copyright claims that assert rights equivalent to those tainment and business litigation. Lowe repre- preemption forces the immediate dismissal of rights protected by Section 106 of the 1976 act, sented the defendant in Kabehie v. Zoland. He defective state law claims, whether they are (including reproduction, distribution, per- thanks Abhay Khosla for his assistance in writ- brought in state or federal court. formance, publication, and display) are pre- ing this article.

LOS ANGELES LAWYER / MAY 2003 37 courts, although two different theories have as defined in Section 106 of the 1976 act. This pendent” of copyright rights.24 In Kabehie, led to that result. However, the implied con- requires essentially an element-by-element for example, two causes of action for breach tract cause of action, a particularly important comparison. of contract survived preemption attacks claim for artists, creates significant dissent If the state law claim has an extra ele- because the plaintiff alleged the existence of between state courts—where implied con- ment—for example, the wrongful act upon an independent covenant and its breach: the detract claims will usually survive—and the which the claim is based consists of some- fendant failed to deliver master recordings.25 Central District, which has begun a ques- thing other than the reproduction, distribu- The minority viewpoint states that breach tionable trend towards preemption. tion, performance, publication, or display of of contract causes of action are never pre- a copyrightable work—then the claim is not empted.26 The rationale is that every contract TWO-PART PREEMPTION TEST preempted.13 A technical extra element, how- inherently has a promise to perform that con- State and federal courts have developed a ever, is insufficient. To survive copyright pre- tract. Thus, under the minority view, the con- two-part test to determine whether a state emption, a state law claim must not only have tractual promise is always an extra element.27 law claim is preempted by the 1976 act. The an extra element; that extra element must The Central District has adopted the first part queries whether the plaintiff’s claim transform the state law claim so that it is majority view.28 In Kabehie, the California concerns copyrightable subject matter.7 If qualitatively different from a copyright Court of Appeal did so as well, explicitly the answer to that is yes, the second part infringement claim.14 This extra element test15 rejecting the minority viewpoint.29 then asks whether the right asserted in the was adopted recently in California by the state law claim is equivalent to any of the California Court of Appeal in Kabehie v. BREACH OF IMPLIED CONTRACT exclusive rights given to the owner of a copy- Zoland16 and has been the test for the Ninth California has long recognized that an implied right as enumerated in Section 106 of the Circuit for some time.17 contract may be created when one party sub- 1976 act. The difficulty that has plagued the courts mits his or her creative ideas to another Determining what is copyrightable subject is not, however, whether the extra element party.30 Disclosure of a valuable idea is con- matter—the first part of the test—requires an test is applicable but whether an extra element sidered a conferred benefit that is sufficient analysis of applicable copyright law. The 1976 is contained within a particular state cause of to constitute consideration for an implied in act protects “original works of authorship action. Indeed, courts have reached signifi- fact contract.31 fixed in any tangible medium of expression, cantly varied results in their application of This is an important right for artists, now known or later developed, from which the test. Contract claims especially have because copyright law does not protect they can be perceived, reproduced, or oth- resulted in divergent and inconsistent deci- ideas.32 Especially in California, where people erwise communicated, either directly or with sions. Some causes of action, however, are commonly pitch their concepts for films and the aid of a machine or device,” including lit- never preempted. television programs to others in the enter- erature, musical compositions and sound Claims for breach of contract usually sur- tainment industry, protection against misap- recordings, drama, pantomime and chore- vive preemption defenses.18 Copyright owners propriation of ideas is necessary—and it ography, pictures, graphics, sculpture, film, frequently license their artistic works to third appears to be available under California com- architecture, and computer programs.8 When parties in exchange for the payment of roy- mon law.33 the subject matter of the state law claim falls alties. Preemption is not a defense to a claim In recent cases from the Central District, outside these parameters, copyright pre- for breach of contract based upon the failure however, courts have held that implied con- emption will not apply. to pay royalties required by a written agree- tract claims based upon idea submissions Ideas are not protected by copyright9—as ment.19 Two very different theories, however, that are embodied in written form are pre- opposed to the expression of the idea10—but lead to this result. empted.34 This is troubling because ideas are ideas may be protected under certain state The majority of federal and state courts frequently submitted in the form of a writing, law causes of action.11 For example, in a 1986 that have addressed preemption defenses to and without a writing there is an absence of California case, a claim for breach of implied breach of contract claims have required a important evidence. The most common exam- contract based upon the defendant’s utiliza- fact-specific analysis that inquires whether ple in the entertainment industry occurs tion of the idea for a television “movie of the the promise underlying the contract is essen- when an idea is communicated in the form of week” survived a preemption defense.12 tially nothing more than a promise not to vio- a “treatment.”35 However, a series of recent cases in the U.S. late federal copyright law.20 If so, the breach Since ideas are not protected by copy- District Court for the Central District of of the promise is copyright infringement, and right law, although they are protected by California appear to signal a trend in favor of the breach of contract claim is preempted.21 California common law,36 it would seem that preemption of claims based on implied con- For example, in Kabehie, the court of appeal the first part of the two-part preemption test tract if the ideas are embodied in a copy- affirmed the dismissal of 10 out of 14 state law is not met. Several Central District courts, rightable work; that is, preemption will be claims based upon copyright preemption.22 however, have held that while the ideas found if the ultimate product is copyrightable, The plaintiff had alleged that music copy- embodied in written form may not be pro- even though the ideas embodied in the copyrights were assigned to him by contract and tected by copyright law, they nonetheless fall righted work are not. that the contract was breached by the defen- under the subject matter of copyright law for The second part of the test for preemption dants’ continued exploitation of the music. preemption purposes.37 of state law claims requires an analysis to The Kabehie court adopted the majority view The Ninth Circuit has not resolved determine whether the claim contains an and held that five of the plaintiff’s breach of whether ideas communicated in writing are “extra element.” If the subject of the state contract causes of action were preempted within the subject matter of copyright law law claim comes within the scope of copy- because they were in essence disguised and thus satisfy part one of the two-part pre- right protection, then the rights asserted via claims for copyright infringement.23 emption test. The Central District decisions the state law claim must be examined to eval- Under the majority view, the breach of that have resolved that issue in the affirmative uate whether they are equivalent to the exclu- contract cause of action should be examined have relied upon United States ex rel. Berge v. sive rights given to the owner of a copyright, for an extra element, such as a covenant “inde- Board of Trustees of University of Alabama, a

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Courts added regularly. Not all Judges allow CourtCall Appearances. Please call for details. *Start date TBA Fourth Circuit decision, in holding that ideas with idea cases fail to distinguish submitted in writing are within the subject between a contract implied in law and This Los Angeles Lawyer MCLE matter of copyright.38 a contract implied in fact. An action in self-study test is sponsored by Section 102 of the Copyright Act defines quasi contract is not a true contract CourtCall LLC. the subject matter of copyright and excludes since “‘quasi contracts, unlike true con- ideas from the purview of its protection. tracts, are not based upon the apparent Copyright law protects the expression of intention of the parties to undertake ideas, not the ideas themselves. Based on the performances in question, nor are the reference to ideas in Section 102, the they promises. They are obligations Berge court concluded that ideas expressed created by law for reasons of jus- in a writing are within the subject matter of tice’”….An implied in fact contract on copyright, even though not within its pro- the other hand is a consensual agree- tection. Thus the Berge court held that federal ment presenting the same elements preemption may apply to ideas embodied in as are found in an express contract written form.39 except that in an implied in fact con- As a practical matter in the entertainment tract the promise is not expressed in industry, the disclosure of an idea can be words but is rather implied from the 48 MCLE Test valuable consideration, even if the idea itself promisor’s conduct. cannot be independently protected by copy- Selby involved the same Hollywood sce- right. A breach of an implied contract is about nario as Wor th—a claim that a film studio a breach of an agreement between parties, not misappropriated a screenplay. The Selby court No. 115 the wrongful plagiarism of ideas. held that the alleged extra element was only In applying the second part of the pre- a promise not to use the material, and there- The Los Angeles County Bar Association emption test, most courts have found an extra fore the claim was simply a copyright infringe- certifies that this activity has been element in implied contract cases involving ment claim.49 However, Selby relied in part on approved for Minimum Continuing Legal written submission of an idea. Indeed, most a Michigan district court decision, later over- Education credit by the State Bar of courts have held that claims for breach of turned by a Sixth Circuit decision that explic- California in the amount of 1 hour. implied in fact contract actions are not pre- itly recognized the error in Wor th’s misiden- empted.40 The rationale for these holdings tification of implied contract as quasi contract is obvious: implied in fact contracts neces- and held instead that the promise to pay in fact 1. Prior to 1976, federal copyright law coex- isted with state copyright law. sarily contain a promise to pay, which con- constitutes the extra element.50 True. stitutes an extra element, not unlike the These Central District decisions would False. promise to pay royalties.41 Kabehie v. Zoland, appear to be erroneous: A contract implied in in dicta, appears to affirm this conclusion,42 as fact clearly requires the extra element of the 2. Copyright preemption is only an issue in Firoozye Earthlink Network does v. , a case implied promise to pay for use (and provide state court. from the U.S. District Court of the Northern appropriate credit, if applicable), which is a True. 43 51 District of California. promise implied from conduct. An implied False. Beginning in 1997, however, with Wor th v. promise to use only if the defendant pays the Universal Pictures, Inc., the Central District plaintiff and/or credits the plaintiff confers the 3. Copyright preemption is only an issue in fed- took a different path that may have the effect extra element,52 not unlike cases concerning eral court. of depriving creative persons of this important the failure to pay royalties—and those cases True. state law cause of action.44 Wor th concerned are never preempted. False. a typical Hollywood scenario: the plaintiff Artists and others with ideas, after all, do submitted a screenplay to a film studio, and not usually wish to prevent the use of their 4. A state law cause of action that concerns the screenplay was rejected. The plaintiff ideas. Quite the contrary, they desire the copyrightable subject matter is always pre- claimed that a later-produced film incorpo- realization and expression of their ideas in the empted. rated ideas from his screenplay. The court in marketplace. They simply want to be com- True. Wor th held that implied contracts were a pensated and credited for the use of their False. species of quasi contract and, based on a pas- ideas pursuant to an implied understanding sage in Nimmer on Copyright, held that commensurate with what is customary in the 5. Claims for breach of contract generally sur- because quasi contracts are always pre- entertainment industry. vive copyright preemption defenses. True. empted, so too was the plaintiff’s cause of A breach of a promise in the context of False. action for implied contract.45 Wor th has been implied contract would appear to be virtually followed in two recent Central District cases: identical to breach of written contract cases 6. A claim for the breach of a promise to pay Endemol Entertainment B.V. v. Twentieth in which the defendant has failed to pay con- royalties is: Television, Inc 46 Selby New Line Cinema 53 . and v. tractual royalties. Granting a license in A. Always preempted because there is 47 Corporation. return for royalties and credit replaces the no extra element. These decisions, however, misunderstand right of the grantor to sue the licensee for B. Never preempted because there is 54 the crucial distinction between quasi con- copyright infringement. An implied contract always an extra element. tracts and contracts implied in fact, a difficult is exactly such a license, only one whose C. Reviewed according to a fact-specific distinction which Nimmer, in fact, discusses terms are implied by conduct. Parties are analysis. in a later passage: not seeking copyright remedies, such as D. No court has ruled on the preemption Unfortunately, many courts in dealing injunctions, but contract remedies, such as the of this claim.

40 LOS ANGELES LAWYER / MAY 2003 MCLE Answer Sheet #115 PREEMPTIVE STRIKE Sponsored by CourtCall LLC 7. The California Court of Appeal has ruled that 16. Declaratory relief causes of action are never a breach of contract cause of action is: preempted by copyright law. Name A. Always preempted because there is no True. Law Firm/Organization extra element. False. B. Never preempted because there is always an extra element. 17. An artist sues a moving company that has Address C. Reviewed according to a fact-specific stolen one of his paintings for conversion and City analysis. fraud. State/Zip D. The California Court of Appeal has not A. Both the fraud and conversion claims E-mail ruled on the copyright preemption of will be preempted. claims for breach of contract. B. The fraud claim will be preempted, but Phone not the conversion claim. State Bar # 8. Ideas are protected by Section 102(b) of the C. The fraud claim will not be preempted, Copyright Act of 1976. but the conversion claim will be. Instructions for Obtaining MCLE Credits True. D. Both the fraud and conversion claims 1. Study the MCLE article in this issue. False. will not be preempted. 2. Answer the test questions opposite by marking the appropriate boxes below. Each 9. Implied contract claims may be preempted 18. An artist sues a moving company that is sell- question has only one answer. Photocopies of in the U.S. District Court for the Central District ing photocopies of the artist’s paintings for this answer sheet may be submitted; however, of California. conversion and fraud. this form should not be enlarged or reduced. True. A. Both the fraud and conversion claims 3. Mail the answer sheet and the $15 testing fee False. will be preempted. ($20 for non-LACBA members) to: B. The fraud claim will be preempted, but Los Angeles Lawyer 10. The Ninth Circuit has ruled that a breach of not the conversion claim. MCLE Test implied contract cause of action is C. The fraud claim will not be preempted, P.O. Box 55020 A. Always preempted because there is no but the conversion claim will be. Los Angeles, CA 90055 extra element. D. Both the fraud and conversion claims Make checks payable to Los Angeles Lawyer. B. Never preempted because there is will not be preempted. always an extra element. 4. Within six weeks, Los Angeles Lawyer will C. Reviewed according to a fact-specific 19. A recent case involving the issue of copy- return your test with the correct answers, a analysis. right preemption, Kabehie v. Zoland, was de- rationale for the correct answers, and a D. The Ninth Circuit has not ruled on cided by: certificate verifying the MCLE credit you earned copyright preemption of claims for breach A. The California Court of Appeal. through this self-assessment activity. of implied contract. B. The U.S. District Court for the Central 5. For future reference, please retain the MCLE District of California. test materials returned to you. 11. Claims for fraud are never preempted by C. The Ninth Circuit. Answers copyright law. D. The Fourth Circuit. True. Mark your answers to the test by checking the appropriate boxes below. Each question has False 20. United States ex. rel. Berge v. Board of only one answer. Trustees of University of Alabama, a preemption 12. When the interference alleged in an inter- decision relied on by the Central District, was 1. ■ True ■ False ference claim only involves the reproduction or decided by: ■ ■ distribution of a copyrighted work, the inter- A. The California Court of Appeal. 2. True False ference claim will be preempted. B. The Ninth Circuit. 3. ■ True ■ False True. C. The Fourth Circuit. 4. ■ True ■ False False. 5. ■ True ■ False 6. ■ A ■ B ■ C ■ D 13. Interference claims are always preempted by copyright law. 7. ■ A ■ B ■ C ■ D True. 8. ■ True ■ False False. 9. ■ True ■ False 10. ■ A ■ B ■ C ■ D 14. Unjust enrichment claims regarding the copying of copyrighted material usually are 11. ■ True ■ False preempted. 12. ■ True ■ False True. 13. ■ True ■ False False. 14. ■ True ■ False ■ ■ 15. An unfair competition cause of action 15. True False under the Lanham Act is susceptible to a copy- 16. ■ True ■ False right preemption defense. 17. ■ A ■ B ■ C ■ D True. 18. ■ A ■ B ■ C ■ D False. 19. ■ A ■ B ■ C ■ D 20. ■ A ■ B ■ C

LOS ANGELES LAWYER / MAY 2003 41 benefit of the bargain. Central District courts that look for explicit promises to pay will of course be disappointed. While the Central District decisions claim to limit If such a promise were explicit, the contract would not be implied from conduct but simply an oral agreement. As Nimmer states: Occasionally…some courts will find their holdings to the facts, one author has that because the precise compensation to be paid…was not agreed upon, no implied contract will lie. There appears to be no reason why courts concluded that virtually every reported decision should not apply a standard of rea- sonableness.…Indeed, were the courts to consistently require an agreed upon compensation…very few implied con- in California dealing with the protection of ideas tract actions could succeed.55 The reasoning of the Central District thus seems questionable. While the Central District decisions claim to limit their holdings to the facts, one author on an implied contract theory would be has concluded that virtually every reported decision in California dealing with the protection of ideas on an implied contract theory would be preempted if the cases were decided preempted if the cases were decided today. today.56 With the Ninth Circuit still silent on this issue, practitioners seeking to raise a claim of breach of implied contract might ject matter are often found to be preempted an unfair competition claim based on a song prefer to file their actions in state court or the by federal copyright law.62 When the claimed parody because the “essence” of the plaintiff’s Northern District of California. However, interference involves the reproduction or dis- complaint was the unauthorized reproduc- state court may prove insufficient if defen- tribution of a copyrighted work, the interfer- tion of a copyrighted work.71 dants successfully remove the case to a ence claim is preempted.63 However, in one However, unfair competition claims based Central District federal court.57 case in which a defendant’s alleged interfer- on a “passing off” theory—the practice of Because the Central District sits in the ence caused the plaintiff to lose a pending selling goods or services using a mark that is heart of the entertainment industry, these deal, the interference claim survived.64 likely to cause confusion as to source, spon- cases pose a danger for future plaintiffs and Thus the exact identification of the inter- sorship, or approval of those goods or ser- possibly provide an unfair advantage to more ference becomes essential to determining vices—generally are found to be qualitatively powerful studios and production companies. whether the claim is preempted. As with different and thus not preempted by federal Moreover, they appear to bring state law— breach of contract causes of action, the court copyright law.72 Thus, litigants retain their which has recognized implied contract claims looks at the wrongful act or the act of breach federal unfair competition causes of action for almost 50 years58—into direct conflict with to determine whether the claim is pre- under the Lanham Act free of the preemption federal law. empted.65 If the wrongful act constitutes a defense.73 violation of one of the rights given to the Most courts, including the Ninth Circuit, OTHER CAUSES OF ACTION owner of a copyright, such as reproduction or have concluded that the claim of unjust Courts have applied the two-part preemption performance, the claim will be preempted. In enrichment protects rights that are essen- test in the context of other claims, and pre- Kabehie, for example, the court dismissed all tially equivalent to rights protected by the emption is frequently the result. This is not so three of the plaintiff’s interference claims Copyright Act.74 Accordingly, unjust enrich- in fraud claims, which are never preempted because the interfering conduct was merely ment claims involving the copying of copy- by federal copyright law since fraud inherently the reproduction of the music.66 Courts in righted material usually are preempted.75 involves the extra element of misrepresenta- the Central District have reached the same Conversion claims deal with tangible prop- tion.59 Consequently, the second part of the conclusion.67 erty. To the extent that a conversion claim test for copyright preemption is not met. This Unfair competition causes of action are alleges the misappropriation of only tangible is the law in the Ninth Circuit and California.60 often found to be preempted.68 This is, in property and not the underlying copyrighted In Kabehie, for example, the court found that part, based on considerations of policy. The work, it is not preempted.76 Conversion of a the fraud cause of action included “allega- Ninth Circuit has specifically stated that states copyrighted work clearly is copyright infringe- tions that [the defendant] misrepresented its might encroach on copyright rights through ment and is therefore preempted.77 ownership of the rights to the music compo- the guise of unfair competition.69 Thus, sev- Since the determination of the ownership sitions and falsely promised to deliver master eral courts have emphasized that not only of copyrights typically requires the application recordings.”61 must the elements of an unfair competition of state contract law, and a declaratory relief However, claims of intentional interfer- claim be different from a copyright infringe- claim is not equivalent to the assertion of any ence with obligation of contract, intentional ment cause of action—as they are likely to be exclusive right provided by the Copyright interference with economic relations, and in an unfair competition cause of action—but Act, declaratory relief causes of action are negligent interference with prospective eco- they must be qualitatively different.70 A never preempted.78 nomic advantage involving copyrightable sub- Central District court, for example, preempted Copyright preemption requires the dis-

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Plus, find out what hundreds of law firms and thousands of lawyers know that you don't with with the Searchable Superior Court Civil Register. Find out more about judges, commissioners, mediators, parties, attorneys, and law firms than you thought possible. A new exclusive service of the County Bar. For more information visit www.lacba.org. 10 missal of improper state law claims, whether by the Ninth Circuit, copyright preemption When an idea crosses the line into protected idea expression has generated a significant amount of case they are brought in state or federal court. poses a continuing and serious challenge to law. See, e.g., 1-1 NIMMER ON COPYRIGHT §1.10 [B][2] ■ Thus, preemption trends have serious con- these claims. (2002); 1-6 NIMMER ON COPYRIGHT §6.07 (2002)(“[I]f sequences in intellectual property litigation. authors A and B work in collaboration, but A’s contri- The disconcerting line of cases in the Central 1 17 U.S.C. §102(a). bution is limited to plot ideas that standing alone would District finding preemption of implied contract 2 1-1 NIMMER ON COPYRIGHT §1.01[B] (2002). not be copyrightable, and B weaves the ideas into a com- 3 pleted literary expression, it would seem that A and B claims may have a drastic effect on the enter- Kabehie v. Zoland, 102 Cal. App. 4th 513, 522 (2002). 4 H.R. REP. NO. 94-1476, 94th Cong., 2d Sess., at 129. are joint authors of the resulting work.”). tainment industry. Whether an implied con- 11 5 17 U.S.C. §301. Desny v. Wilder, 46 Cal. 2d 715, 729 (1956); 1 WITKIN, tract cause of action still exists for any prac- 6 H.R. REP. NO. 94-1476, 94th Cong., 2d Sess., at 132. SUMMARY OF CALIFORNIA LAW, Contracts §12. See also tical purpose remains uncertain under the 7 Del Madera Props. v. Rhodes & Gardner, Inc., 820 F. Pierce O’Donnell and William Lockard, You Have No current climate of copyright preemption.79 2d 973, 976 (9th Cir. 1987); Fleet v. CBS, Inc., 50 Cal. Idea, LOS ANGELES LAWYER, Apr. 2000, at 32. 12 Indeed, preemption in implied contract cases App. 4th 1911, 1918-19 (1996); KNG Enters. v. See, e.g., Rokos v. Peck, 182 Cal. App. 3d 604, 614-17 Matthews, 78 Cal. App. 4th 362, 369 (2000). (1986). may leave plaintiffs without a remedy for mis- 13 8 17 U.S.C. §102(a). 1-1 NIMMER ON COPYRIGHT §1.01[B][1] (2002). appropriation. Until further guidance is given 9 17 U.S.C. §102(b). 14 Id. 15 Balboa Ins. Co v. Trans Global Equities, 218 Cal. App. 3d 1327, 1340 (1990). 16 Kabehie v. Zoland, 102 Cal. App. 4th 513 (2002). 17 Del Madera Props. v. Rhodes & Gardner, Inc., 820 F. 2d 973, 976 (9th Cir. 1987). 18 1-1 NIMMER ON COPYRIGHT §1.01[B][1][a] (2002). 19 See, e.g., Graham v. James, 144 F. 3d 229, 235-37 (2d Cir. 1998); Effects Assocs., Inc. v. Cohen, 908 F. 2d 555, 559 (9th Cir. 1990); U.S. Naval Inst. v. Charter Communications, 936 F. 2d 692, 695 (2d Cir. 1991). 20 See, e.g., National Car Rental v. Computer Assocs., 991 F. 2d 426, 429-30 (8th Cir. 1993) (breach of promise not to use computer program to process third party’s data); Lennon v. Seaman, 63 F. Supp. 2d 428, 438 (S.D. N.Y. 1999) (right under employee confidentiality agreement to prevent disclosure of information); Ches- ler/Perlmutter Prods. v. Fireworks Entm’t, 177 F. Supp. 2d 1050, 1058 (C.D. Cal. 2001) (promises to pay specific amounts and hire particular employees); Brignoli v. Balch Hardy and Scheinman, Inc., 645 F. Supp. 1201, 1205 (S.D. N.Y. 1986) (promise to pay). 21 Kabehie, 102 Cal. App. 4th 513, 528 (citing American Movie Classics v. Turner Entm’t Co., 922 F. Supp. 926, 931-32 (S.D. N.Y. 1996) (exclusive exhibition rights violated)); Berkla v. Corel Corp., 66 F. Supp. 2d 1129, 1150 (E.D. Cal. 1999) (release of protected images to the public); Smith v. Weinstein, 578 F. Supp. 1297, 1307 (E.D. Cal. 1999) (copying of plaintiff’s script); Wolff v. Institute of Elec. & Elecs. Eng’rs, Inc., 768 F. Supp. 66, 69 (S.D. N.Y. 1991)(violation of one-time use of photo on magazine cover). 22 Kabehie, 102 Cal. App. 4th at 528. 23 Id. at 529. 24 For example, the failure to pay royalties yields only a breach of contract action. See, e.g., Graham, 144 F. 3d at 235-37; Effects Assocs., Inc., 908 F. 2d at 559; U.S. Naval Inst., 936 F. 2d at 695. 25 Kabehie, 102 Cal. App. 4th at 529. 26 Taquino v. Teledyne Monarch Rubber, 893 F. 2d 1488, 1501 (5th Cir. 1990); Architechtronics, Inc. v. Control Sys., Inc., 935 F. Supp. 425, 438-39 (S.D. N.Y. 1996). 27 Id. 28 Chesler/Perlmutter Prods. v. Fireworks Entm’t, 177 F. Supp. 2d 1050, 1058 (C.D. Cal. 2001). 29 Kabehie, 102 Cal. App. 4th at 528. 30 Desny v. Wilder, 46 Cal. 2d 715, 729 (1956); 1 WITKIN, SUMMARY OF CALIFORNIA LAW, Contracts §12. 31 Id. 32 17 U.S.C. §102(b). 33 Rokos v. Peck, 182 Cal. App. 3d 604, 614-17 (1986). 34 See Worth v. Universal Pictures, Inc., 5 F. Supp. 2d 816 (C.D. Cal. 1997); Endemol Entm’t B.V. v. Twentieth Television, Inc., 48 U.S.P.Q. 2d (BNA) 1524 (C.D. Cal. 1998); Selby v. New Line Cinema Corp., 96 F. Supp. 2d 1053 (C.D. Cal. 2000). 35 See, e.g., Metrano v. Fox Broad. Co., Inc., 2000 U.S. Dist. LEXIS 7662 (C.D. Cal. 2000) (preemption of

44 LOS ANGELES LAWYER / MAY 2003 implied contract claim for ideas that were embodied in 49 Selby, 96 F. Supp. 2d at 1061-62. 66 Kabehie, 102 Cal. App. 4th at 530. a treatment given to defendants). 50 Id. at 1059 n.4 (citing Wrench LLC v. Taco Bell Corp., 67 Chesler/Perlmutter Prods., Inc., 177 F. Supp. 2d at 36 Desny, 46 Cal. 2d at 729; 1 WITKIN, SUMMARY OF 51 F. Supp. 2d 840 (W.D. Mich. 1999), subsequently 1050. CALIFORNIA LAW, Contracts §12. reversed by Wrench LLC v. Taco Bell Corp., 256 F. 3d 68 Del Madera Props. v. Rhodes & Gardner, Inc., 820 F. 37 United States ex rel. Berge v. Board of Trs. of Univ. 446 (6th Cir. 2001)). 2d 973, 977 (9th Cir. 1987); Fisher v. Dees, 794 F. 2d 432 of Ala., 104 F. 3d 1453, 1463 (4th Cir. 1997) (explained 51 Wrench LLC, 256 F. 3d at 458. (9th Cir. 1986); Motown Record Corp., 657 F. Supp. at by Selby, 96 F. Supp. 2d at 1058); see also Endemol 52 Id. at 459. 1240. Entm’t B.V., 48 U.S.P.Q. 2d (BNA) at 1526; Entous v. 53 Graham v. James, 144 F. 3d 229, 235-37 (2d Cir. 69 Fisher, 794 F. 2d at 440. Viacom Int’l. Inc., 151 F. Supp. 2d 1150, 1159 (C.D. 1998); Effects Assocs., Inc. v. Cohen, 908 F. 2d 555, 559 70 Motown Record Corp., 657 F. Supp. at 1240 (citing Cal. 2001); Firoozye v. Earthlink Network, 153 F. Supp. (9th Cir. 1990); U.S. Naval Inst. v. Charter Communica- Mayer v. Josiah Wedgewood & Sons Ltd., 601 F. Supp. 2d 1115, 1125 (N.D. Cal. 2001); Idema v. Dreamworks, tions, 936 F. 2d 692, 695 (2d Cir. 1991). 1523 (S.D. N.Y. 1985)). Inc., 162 F. Supp. 2d 1129, 1189 (C.D. Cal. 2001); 54 Id. 71 Id. Chesler/Perlmutter Prods. v. Fireworks Entm’t, 177 F. 55 4-16 NIMMER ON COPYRIGHT §16.05[E] (2002). 72 Video Pipeline, Inc. v. Buena Vista Home Entm’t, Inc., Supp. 2d 1050, 1058 (C.D. Cal. 2001). 56 Glen L. Kulik, Copyright Preemption: Is This the End 210 F. Supp. 2d 552, 565 (D. N.J. 2002) (citing Wilson v. 38 Berge, 104 F. 3d 1453, 1463. of Desny v. Wilder, 21 LOY. L.A. ENT. L. REV. 1 (2000). Mr. Tee’s, 855 F. Supp. 679, 684 (D. N.J. 1994)) (passing 39 Id. 57 See, e.g., Chesler/Perlmutter Prods. v. Fireworks off claim not preempted by federal copyright law); 40 Wrench LLC v. Taco Bell Corp., 256 F. 3d 446, 456 Entm’t, 177 F. Supp. 2d 1050 (C.D. Cal. 2001). Other Warner Bros., Inc. v. American Broad. Cos., Inc., 720 (6th Cir. 2001)(“The extra element is the promise to Central District courts may not follow this trend, how- F. 2d 231, 247 (2d Cir. 1983); Orth-O-Vision v. Home Box pay.”); Firoozye, 153 F. Supp. 2d at 1127; Acorn ever. Office, 474 F. Supp. 672, 684 n.12 (S.D. N.Y. 1979) Structures, Inc. v. Swantz, 846 F. 2d 923 (4th Cir. 1988); 58 Desny v. Wilder, 46 Cal. 2d 715, 729 (1956). (“Because the element of deception inherent in ‘palm- Rokos v. Peck, 182 Cal. App. 3d 604, 614 (1986). 59 Valente-Kritzer Video v. Pinckney, 881 F. 2d 772, ing off’ is not an element of copyright infringement 41 Id. 776 (9th Cir. 1989); Gladstone v. Hillel, 203 Cal. App. claim, the ‘passing off’ cause of action is not preempted 42 Kabehie v. Zoland, 102 Cal. App. 4th 513, 528 n.9 3d 977, 987 (1988). by federal law.”). (2002). 60 Id. 73 See Motown Record Corp., 657 F. Supp. at 1241. 43 Firoozye, 153 F. Supp. 2d at 1127. 61 Kabehie v. Zoland, 102 Cal. App. 4th 513, 530 (2002). 74 Del Madera Props . v. Rhodes & Gardner, Inc., 820 44 Worth v. Universal Pictures, Inc., 5 F. Supp. 2d 816, 62 See, e.g., Motown Record Corp. v. George A. Hormel F. 2d 973, 977 (9th Cir. 1987). 820 (C.D. Cal. 1997). & Co., 657 F. Supp. 1236, 1240 (C.D. Cal. 1987); Harper 75 Id. 45 Id. at 822 (citing 1-1 NIMMER ON COPYRIGHT & Row Publishers, Inc. v. Nation Enters., 723 F. 2d 195 76 Video Pipeline, Inc., 210 F. Supp. 2d at 568-69 (citing §1.01[B][1][g] (1997). (2d Cir. 1983), rev’d on other grounds, 471 U.S. 539 1 NIMMER ON COPYRIGHT §1.01[B][1][i] (2001)); Lennon 46 Endemol Entm’t B.V. v. Twentieth Television, Inc., 48 (1985); Chesler/Perlmutter Prods., Inc., 177 F. Supp. v. Seaman, 63 F. Supp. 2d 428, 436 (S.D. N.Y. 1999); U.S.P.Q. 2d (BNA) 1524 (C.D. Cal. 1998). 2d at 1050. Ronald Litoff, Ltd. v. American Express Co., 621 F. 47 Selby v. New Line Cinema Corp., 96 F. Supp. 2d 1053 63 Id. Supp. 981, 986 (S.D. N.Y. 1985). (C.D. Cal. 2000). 64 PMC, Inc. v. Saban Entm’t, Inc., 45 Cal. App. 4th 77 United States ex rel. Berge v. Board of Trs. of Univ. 48 4-16 NIMMER ON COPYRIGHT §16.03 (2002) (quoting 579, 594 n.8 (1996) (dismissed on other grounds). of Ala., 104 F. 3d 1453, 1465 (4th Cir. 1997). Weitzenkorn v. Lesser, 40 Cal. 2d 778, 794 (1953) (quot- 65 See, e.g., Chesler/Perlmutter Prods., Inc., 177 F. 78 T. B. Harms v. Eliscu, 339 F. 2d 823, 827 (1964). ing RESTATEMENT OF CONTRACTS §5, cmt. a)). Supp. 2d at 1050. 79 See Kulik, supra note 56. 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LOS ANGELES LAWYER / MAY 2003 45 ainment ert nt e

e su special is A recently filed federal court case will decide whether consumers have the right to edit motion pictures against the wishes of directors and studios  CUT   . 

A RECENTLY FILED federal court case— fied, as rulings in the case could have both ity to audiences, and concerns quickly devel- Huntsman v. Soderbergh—may soon decide dramatic and unexpected consequences for oped over how movie audiences could be who controls our video screens. According to the participants. Understanding the implica- influenced by what they saw on screen. Ethnic the pleadings, the owner of seven Clean Flicks tions of this lawsuit requires a review of its groups, animal activists, foreign interests, video stores filed suit against 16 famous movie background, its legal issues and arguments, occupational associations, religious groups, directors in August 2002, seeking court per- and its possible effects on the parties and and others all lobbied for better or more mission to continue selling versions of motion the movie-viewing public. guarded depictions of their members or val- pictures that the directors directed but from There have been struggles over control of ues in motion pictures.3 which the profanity, nudity, and violence had the content of motion pictures for decades. State and local governments responded to been removed.1 The directors filed a coun- Sometimes these disputes have pitted film- these concerns with licensing laws and cen- terclaim that added the major motion picture makers against their studio bosses, and some- sorship boards. The U.S. Supreme Court con- studios and about a dozen other companies to times the filmmakers and the studios have ral- firmed the legality of a censorship system in the suit. Claims and counterclaims contin- lied against what from their perspective was 1915 but reversed that ruling in the 1940s, ued flying, and months later the case is still arbitrary outside control. In fact, motion pic- only in its early stages. tures have been controversial since Thomas Mark S. Lee is a partner at Manatt, Phelps & The suit has attracted media attention Edison commercially introduced the kineto- Phillips, LLP, where he specializes in intellec- because of the celebrity participants and the scope in 1894.2 Movies displayed an unprece- tual property litigation for clients in the enter-

subject matter. The attention may be justi- dented vividness, intensity, and apparent real- tainment and high-technology industries. GORDON MORRIS

46 LOS ANGELES LAWYER / MAY 2003 acknowledging the expressive nature of offensive broadcast programming. The ment. Studios spend millions to sell motion motion pictures.4 By that time, however, the Supreme Court has at least partially approved pictures, with considerable success. motion picture industry was regulating itself. these restrictions.12 Filmmakers may include offensive elements In 1924, in response to a series of scandals, the The relatively restrictive nature of televi- in movies that people would very much want studios founded what eventually was called sion programming created problems for the to see if the offensive elements were removed. the Motion Picture Association of America motion picture industry, which could not Such elements—amounting to a few words or (MPAA) and hired attorney and former afford to ignore the important television mar- a few seconds from a few scenes—often con- Postmaster General Will H. Hays to write a ket. Network Standards and Practices stitute a small portion of what are perceived code that would govern motion pictures and Department guidelines made it impossible as otherwise excellent films. Suspicion that allay public concerns. What came to be known for many motion pictures made after the era such elements are gratuitously inserted for as the Hays Code was announced in 1930.5 of the Hays Code to be broadcast on television marketing rather than artistic reasons adds The overriding principle of the Hays Code in their original form. Motion picture copy- to the perception of many consumers that was that “no picture shall be produced that right owners edited films for broadcast tele- their concerns are being ignored.16 will lower the moral standards of those who vision, deleting footage and substituting lan- This frustration has created a demand for see it,” and it contained specific regulations guage to bring the films into compliance. edited films among people who wish to par- to effectuate that principle.6 Similar edits were made to versions aired on ticipate in the mainstream of American cul- The Hays Code had a dramatic effect on commercial air flights. These changes were tural experience but do not wish to hear words American motion pictures. It doubtless frus- unpopular with directors and other filmmak- or see things that are objectionable to them. trated the creative community, but Hollywood ers, but there was little they could do about Accordingly, entrepreneurs took action to learned to create great motion pictures within it, because studios, which generally are the meet that demand when a few video stores in its guidelines. Four of the top 5, 7 of the top copyright owner of films, have the legal right the intermontane West began offering altered 10, and 59 of the top 100 films on the to edit them.13 versions of major motion pictures in the late American Film Institute’s list of the 100 great- New technologies created additional ancil- 1990s. est films were produced during the 34-year- lary markets for motion pictures and televi- The methods used to edit the films vary reign of the Hays Code, as opposed to 33 in sion broadcasts and gave consumers greater from company to company (and some are the 34 years since its abandonment.7 control over how they experienced them. factually disputed in the federal lawsuit). The Hays Code was abandoned, however, Video cassette recorders allowed consumers Edited video retailers offer copies of films in 1968, after a struggle between motion pic- to use fast forward to speed through parts of from which sex, violence, and profanity are ture studios and directors. Motion picture a program and skip commercials.14 DVD play- removed by cuts to VHS tape. Most retailers attendance plummeted in the 1950s,8 and stu- ers and digital video recorders like TiVo per- either rent edited videos, require customers dios began looking for ways to increase their mit even more skips, pauses, and accelera- to buy unedited copies before providing them box office receipts. Filmmakers in general, tions than are available in analog video with edited versions, or form “clubs” in which and especially directors, were influenced by recorders. These new media have given peo- members gain the opportunity to view a given the frankness of many European films that ple significant control over how they experi- number of edited videos in return for a were riding the crest of the French New ence motion pictures, and motion picture stu- monthly fee. Another group, known as soft- Wave. The filmmakers pressured the studios dios happily profit from the increased ware providers, offer computer software with for more freedom to address adult issues, revenues derived from selling their old prod- which consumers can edit individual copies including sexual themes.9 The MPAA began ucts in these new ways. of DVDs according to taste.17 Demand for making concessions, and the Hays Code was Seemingly in keeping with technological such products is apparently greater than soon effectively broken. advances, public dissatisfaction with the con- many realize; the largest edited video retailer, The MPAA quickly replaced the Hays tent of films has also increased. Saturation Clean Flicks, expanded from 1 to over 70 Code with a rating system.10 The system, marketing, heavy media coverage of motion franchise stores in 17 states in two years, and which is still in effect, allows producers to pictures, and the successive distribution of about a dozen companies have begun offer- depict virtually anything in a motion picture motion pictures through various ancillary ing similar services.18 that does not constitute obscenity, and that is outlets have caused unprecedented levels of The extent to which the edited versions very much indeed. A wide array of motion pic- sustained attention to motion pictures. The vir- differ from the original varies from film to tures are now produced, from highbrow to tual ubiquity of film in American society film. Some edits are significant; one company lowbrow, uplifting to depressing, violent to cir- makes it obvious that motion pictures are a reportedly cut about 4 minutes from Saving cumspect, and innocent to explicit, with the powerful social force, whether the studios Private Ryan to eliminate graphic violence, predominant concern generally being that that create them want them to be or not. and another announced that it can put a corset the film appeal to some group large enough Motion picture studios have long been on Kate Winslet in her nude scene in Titanic to make its release profitable. accused of stubbornly resisting the moral or replace the swords used in The Princess values of much of the nation and aggressively Bride with light sabers.19 However, edits on REBROADCASTING MOVIES ON TV promoting entertainment that uses graphic other films are relatively minor, amounting to On the other hand, the regulation of content violence; racial, ethnic, and gender stereo- muting a few words or deleting a few sec- on television—including movies rebroadcast types; smoking; drug use; sexual irresponsi- onds from a few scenes. These alterations, on on television—has followed a different path. bility; marital infidelity; and many other titil- the other hand, are crude in comparison to Television programming has been the subject lations to sell movies, even though the public the original editing. of FCC regulation since its commercial incep- prefers less graphic fare.15 These editing efforts were known to the tion. Although FCC regulations theoretically Offended consumers can, of course, sim- motion picture studios, but, apparently sen- proscribe censorship,11 requirements that ply refuse to see the motion pictures that sitive to public reaction, they made no effort television and radio operate for the public offend them, but it is often not easy to avoid to stop the unauthorized editing.20 Directors good have resulted in restrictions on morally certain content while looking for entertain- reacted differently. Many were outraged by

48 LOS ANGELES LAWYER / MAY 2003 what they perceived as amateurish, crude “minor” (and thus not actionable under For example, in Chamberlain v. Columbia cuts to their work by video store operators. Gilliam) the changes that were made to sev- Pictures Corporation, the Ninth Circuit held American movie directors have long chafed eral reproductions of Playboy magazine illus- that there was no secondary meaning in the at the lack in the United States of significant trations that covered a woman’s exposed name Mark Twain when it appeared on a lit- moral rights, which, from their perspective, breast.26 erary work because it “merely identified the allows studios to bowdlerize their work for General trademark law involving the sale author of those works.”29 More recently, in television and airline use. Most foreign coun- of altered goods is similarly limited. A party Lord Simon Caerns v. Franklin Mint Company, tries recognize moral rights, which include typically cannot sell altered trademarked a federal district court in California held that the author’s right to limit the alterations to a goods as if they were the genuine, original there were no trademark rights in the name work without the author’s permission even if product, but a party can sell those goods if the Diana, Princess of Wales, because the term the copyright in the work is owned by others. However, Congress has provided minimal support for such rights in the United States.21 Channeling the indignation of many of its high-profile members, in 2002 the Directors Guild of America developed plans to file a lawsuit to stop unauthorized editing. A Clean Flicks franchisee learned of these efforts and filed a preemptive suit in federal court in Colorado, seeking declaratory relief that the company’s edited films violated no rights. Parties are still appearing in the Clean Flicks litigation, and no discovery or briefing has taken place at the time of this writing, but certain legal theories have emerged from the pleadings that have been filed so far. THE SUIT DEVELOPS Virtually all the claims rely on trademark, unfair competition, and copyright law. The directors and studios allege unfair competition and trademark dilution based on the sale of altered versions of motion pictures that con- labeling adequately describes the modifica- merely described the princess.30 Further, tinue to display the directors’ names or stu- tions and if the alterations are not so severe some courts have held that only “inherently dios’ marks. The studios also generally allege as to create a “new product.”27 distinctive” marks qualify for dilution pro- copyright infringement, without specifying It is anyone’s guess whether the Clean tection.31 Names are generally viewed as which rights are violated.22 Flicks court will find any of the edited films descriptive marks that by definition cannot be The case has engendered strong feelings “unintelligible” under the Gilliam standard or inherently distinctive.32 about which side is doing the right thing, but constituting a “new product” under trade- Dilution claims generally involve a third the legal issues are more complicated than mark law. But every consumer who buys the party who uses a mark to identify unrelated one might expect. For example, relevant case altered versions or enabling software should goods or services the third party produces. law is limited and ambiguous. Gilliam v. know that the altered versions have, in fact, The third-party editors use marks on altered American Broadcasting Company23 held that been altered by a third party rather than a motion pictures that actually originated with broadcast of “mutilated” versions of episodes filmmaker or studio. Packaging and adver- the studios. No reported decision has applied of Monty Python’s Flying Circus constituted tising materials accompanying the altered trademark dilution law in such a factual sce- unfair competition by misleading the public versions should make that abundantly clear, nario. into believing that the edited versions of the if for no other reason than because that is Additionally, the harm required in a dilu- programs were, in fact, Monty Python’s work. their biggest appeal. Consumers who pur- tion claim makes the result in the Clean Flicks However, the Gilliam plaintiffs owned com- chase altered versions do so precisely because case uncertain. The Supreme Court recently mon law copyrights in the underlying scripts, they are dissatisfied with the studio versions clarified that actual dilution, as opposed to a the changes deleted up to 27 percent of the and want a different version edited by some- likelihood of dilution, must be shown to estab- original episodes (often rendering them vir- one outside the studio system. Therefore, lish a federal trademark dilution claim.33 tually unintelligible), and there was no way the any risk of confusion due to inadequate label- Whether the studios will be able to produce public could have known that the broadcast ing appears low. such evidence is difficult to predict. Monty Python programs had been signifi- Another possible claim is trademark dilu- Unfair competition claims against the soft- cantly altered. A concurring judge opined tion. Such claims do not require proof of ware providers present other difficulties. The that providing notice of the alteration would likely confusion, but they present other prob- software providers claim they neither sell have eliminated the unfair competition claim.24 lems. Dilution requires ownership of a famous motion pictures nor use any director’s or stu- Subsequent case law has limited Gilliam to mark28 and, thus, the directors will have to dio’s mark to sell their software products. situations in which the edited version prove that their names function and have Confusing or diluting use of a mark in com- “departed so substantially from the original achieved fame as marks. The directors might merce is a necessary predicate to an unfair work that the ‘edited version’ simply made no be able to make that showing, but some case competition claim, and it would appear diffi- sense,”25 and one court characterized as law has been unsympathetic to the argument. cult to establish trademark dilution or unfair

LOS ANGELES LAWYER / MAY 2003 49 competition against entities that neither use also produce evidence that they sold or rented COMPUTER FORENSICS the marks nor sell the trademarked goods.34 edited films to people who never would have Certified Data Discovery rented or purchased the motion pictures in COPYRIGHT CLAIMS their original versions. This factor may favor ¥ Hidden/deleted file recovery The motion picture studios’ copyright claims the retailers until motion picture producers ¥ Docs, Graphics, E-mail are in some respects more straightforward, rent or sell edited versions themselves. ¥ Internet use & Date Codes significantly because they are the actual copy- The retailers of edited videos are only one ¥ Expert Witness Testimony right holders in the altered films, but there are of the challenges facing the studios, how- ¥ Litigation Support still complications. For example, the studios ever. The application of copyright reproduc- ¥ Full Forensic Computer Lab might assert violation of their exclusive repro- tion claims against the providers of editing duction right under federal copyright law. software is a more daunting legal task. The Unless retailers manually edit individual software providers do not provide copies of 909-780-7892 copies that are then legitimately purchased by motion pictures to consumers, and the DATACHASERSINC.COM consumers (and some alteration schemes providers may or may not make interim include this method), infringing copying will copies of the DVDs to create their masking be found to have occurred, and retailers software. If they do not, there is no copying would be exposed to liability. However, the and no liability under this theory. Even if they retailers will inevitably defend their conduct do make interim copies, liability is not by employing the fair use defense, which is assured. Software providers could argue that available under copyright law.35 any interim copying is a fair use under copy- The fair use defense involves four factors. right law because it is necessary to a subse- Judicial application of these factors is notori- quent noninfringing use. This argument is ously unpredictable, but the studios may suc- backed by some supporting case law.38 cessfully challenge some with relative ease. However, the software providers might have Under the first factor, “purpose and character to circumvent the copy protection systems of use,” commercial uses tend to weigh within the DVDs to make those interim copies against fair use unless they are “transforma- and, if they do, they may violate provisions of tive” (e.g., if they are used in a new work to the Digital Millennium Copyright Act. This act give a significantly different purpose, char- is controversial in that it arguably prohibits a acter, meaning, or message.)36 The retailers’ practice that traditionally has been consid- use is certainly commercial. The “transfor- ered fair use: the creation of copies of works mative” nature of an edited film with only for a consumer’s own use.39 Thus, how the LITIGATION SUPPORT SPECIALISTS slight deletions is debatable. No new pur- Clean Flicks court will interpret it is unpre- pose, meaning, or message is intended in the dictable. edited films, which seek to remain as close to Besides infringement of the copyright the original as possible, but, arguably, removal law’s reproductive rights, the studios also Water & of graphic language, sex, and violence gives could assert that the edited video retailers and these films a different character. Accordingly, software providers are infringing based on the Land Offices this factor should favor the studios, but there creation of unauthorized derivative works. is room for debate. The studios will obviously have to establish Water, Environmental The second factor, the nature of the copy- that the edited versions qualify as derivative and Brownfield righted motion pictures, would likely weigh works, but that standard is not hard to meet. Redevelopment Expertise against fair use, since the more creative a A work is derivative if it is a “distinguishable work is, the less likely unauthorized copy- variation” with changes that are more than ing will be permitted. Motion pictures obvi- “merely trivial.”40 The edited video retailers Richard Vogl, R.G., CHG, CEG ously are very creative works. However, some add no obvious copyrightable elements to GeoHydrologic Consultants, Inc. courts have given this factor less weight in the films but instead delete scenes or mute 714.966.5333 certain cases.37 words in the original version, with the extent Joe Odencrantz, Ph.D., P.E. The third factor involves “the amount or of the alteration varying from picture to pic- Tri-S Environmental substantiality of the portion used.” This would ture. Although one court held that one edit 714.966.8490 certainly appear to work against a fair use added enough to create a derivative work,41 Anthony Silva, R.G. defense, since retail editors quantitatively it is unclear whether muting a few words or The Brownfield use almost all of each motion picture, and deleting portions of a few scenes will be suf- Redevelopment Group Co. thus qualitatively are likely to be viewed as ficient in many of the edited films. 714.966.9020 copying the heart of virtually all the films A theory that an edited film is a derivative they alter. work might be more difficult against the soft- Water & Land Offices The final factor, the effect of the retail- ware providers, whose products allegedly 3151 Airway Avenue ers’ use on the potential market for the motion make no change to the original work at all but Building H1 pictures, is actually the least clear-cut. The instead merely allow the end user to alter Costa Mesa, California 92626 retailers claim the studios lose no sales of how he or she experiences an unaltered copy Fax 714.966.5222 their original versions, since purchasers of the work. Proving that transitory changes www.waterandland.com obtain an original version before they may in the user experience are sufficient to create acquire an edited one. They doubtless will derivative works is the key to a studio claim

50 LOS ANGELES LAWYER / MAY 2003 under this theory, but precedents are few NEUTRAL REAL ESTATE ARBITRATOR and far between. In fact, arguably analogous • More than 30 years experience as a real estate lawyer dealing with case law involving video games indicates that industrial, commercial, office and shopping centers including purchas- they may not be. Louis Galoob Toys v. Nintendo es, sales, leasing, ground leasing, financing, development, joint ven- of America42 held that the manufacturer of a tures, construction, real estate brokerage, title insurance, easements and “game genie” video game device that allowed protective covenants. players to alter how they experienced a video • 18 years as counsel to the forms committee of the American Industrial game so they could win more easily did not Real Estate Association, publishers of the AIR lease and purchase forms. violate the underlying video game owner’s • Real estate law and ADR lecturer on programs sponsored by the copyright, because the user experience made California State Bar, the extension divisions of UCLA, UCI, USCB and possible by the game genie did not constitute Arthur Mazirow various educational and realty organizations. a derivative work. The Galoob court further PENTHOUSE SUITE 1200, 3415 SEPULVEDA BOULEVARD, LOS ANGELES CA 90034-6060 held that, even if the game genie were deriv- PHONE: 310-255-6114 • FAX: 310-391-4042 • E-MAIL: [email protected] • www.ffslaw.com ative, Galoob’s use was a fair use under copyright law, arguing that “Sony [v. Universal] rec- ognizes that a party who distributes a copyrighted work cannot dictate how that work is to be enjoyed.”43 One final argument that the studios may employ is that the distribution of altered videos constitutes unauthorized public performances of their motion pictures. This File. Serve. Research. would seem to be a difficult argument, and the studios appear to avoid it.44 A public performance claim might be especially difficult Fax & File is Now against the software providers, since their No wonder we had to software product is intended to be used by a change our name. single purchaser of a single copy in his or her 1-415-491-0606 home. POSSIBLE RESULTS Regardless of the outcome of Huntsman v. Soderbergh, consequences—anticipated and otherwise—will flow to all concerned. Most obviously, a victory for the edited video retailers and/or software providers would allow them to continue selling, and the public to continue viewing, edited films. This result would effectively destroy the control that JACK TRIMARCO & ASSOCIATES directors have over their films after comple- tion and weaken the hold of studios on their POLYGRAPH/INVESTIGATIONS, INC. copyrighted works. A victory for the software providers could determine who controls the content of tele- 9454 Wilshire Blvd. vision and video screens at home—the peo- Sixth Floor ple who create motion pictures or the viewers Beverly Hills, CA 90212 who purchase and view them. The software providers use technology to give individuals (310) 247-2637 greater control over how they experience the movies they watch without altering the original content. One can imagine software that 1361 Avenida De Aprisa would allow users to dramatically alter the Camarillo, CA 93010 motion picture viewing experience by, for example, personalizing stories by changing Jack Trimarco - President (805) 383-8004 names or superimposing images of family Former Polygraph Unit Chief members on characters depicted in the Los Angeles F.B.I. (1990-1998) email: [email protected] motion picture or interacting with the motion CA. P.I. #20970 picture in other ways. An entirely new industry could arise to service these consumer Former Polygraph Inspection Team Leader desires that legally would owe nothing to the Member Society of Former Special Agents Office of Counter Intelligence directors or motion picture studios. Whether Federal Bureau of Investigation U.S. Department of Energy that would be good or bad for motion pictures or the public is an important question

LOS ANGELES LAWYER / MAY 2003 51 LAWSUIT & ASSET PROTECTION that the Clean Flicks litigation may not be atrical version and/or a director’s cut of the well equipped to consider, let alone answer. film. Such alternative cuts would not detract A victory for the directors could estab- from the market for the original motion pic- lish their right to control the content of their ture, since it would be packaged with it as a motion pictures after they complete them value-added feature. This method would sat- and could also generally strengthen moral isfy most of those frustrated by the unavail- rights in the United States. This could have ability of that product in edited form. Indeed, ✔ Calif/Nevada Corporations, Family LPs & LLC’s consequences that the directors do not antic- combining a television cut with a director’s cut ✔ Offshore Companies, Trusts, Private Banking ipate or intend. Motion pictures are, after all, would create an additional creative outlet for ✔ Estate Planning, Real Estate, IRS, Tax Matters a collaborative art form, with artistic contri- directors who lack final cut authority. ✔ Financial Strategies, Investment Planning butions from the screenwriters, costume Whether the studios will take advantage STEVEN SEARS CPA, ATTORNEY AT LAW designers, actors, and numerous others. All of this opportunity is uncertain. In the mean- arguably could have some claim of authorship time, control of entertainment content faces Professional 949-262-1100 Confidential www.searsatty.com in the motion picture, and all could have an unpredictable fate with effects that will moral rights that they could assert. be coming soon to your local video stores. ■ Further, success for the directors might negatively affect the studios in particular and 1 Huntsman v. Soderbergh, No. 02-CV-1662 (D. Colo. TRUST DEED FORECLOSURES copyright owners generally. Directors (and 2002). “Industry Specialists For Over 15 Years” perhaps others) would have judicially estab- 2 RUTH A. INGLIS, FREEDOM OF THE MOVIES 25 (1947); RICHARD S. RANDALL, CENSORSHIP OF THE MOVIES 10 t Witkin & Eisinger we specialize in the Non-Judicial lished rights that continue after they have Foreclosure of obligations secured by real property (1968). A completed a film. Such rights could be exer- 3 or real and personal property (mixed collateral). RANDALL, supra note 2, at 11, 14, 67. When your client needs a foreclosure done profession- cised against the studios as well as the pub- 4 Mutual Film Corp. v. Industrial Comm’n of Ohio, 236 ally and at the lowest possible cost, please call us at: lic and might give directors and others more U.S. 230, 244-45 (1915); United States v. Paramount 1-800-950-6522 power over how studios edit their films. Such Pictures, Inc., 34 U.S. 131, 166 (1948); Burstyn v. We have always offered free advice to all attorneys. issues would at least have to be factored into Wilson, 343 U.S. 495, 502 (1952). 5 See, e.g., An Uncensored Look at How Censorship Came contract negotiations and might make obtain- to the American Film, at http://www.eonline.com WITKIN ing permission to alter films for television, air- /Features/Specials/Ratings/Two/index.html; Chia line, or other use more expensive. Evers, Self-Censorship in the History of Hollywood, avail- EISINGER, LLC able at http://www.artsandthelaw.com/html/. ✦ Success by the motion picture studios RICHARD& G. WITKIN, ESQ. CAROLE EISINGER 6 would vindicate their copyrights and give See The Motion Picture Production Code of 1930, available at http://www.artsreformation.com/a001/hays them effective control over any new motion -code.html. picture art form. However, it could exacerbate 7 See http://www.afi.com/tv/movies.asp. their ongoing public relations problems. 8 PETER BISKIND, EASY RIDERS, RAGING BULLS 20-22 Administering legal thrashings to small com- (1998). 9 panies that are only trying to produce the See An Uncensored Look at How Censorship Came to the American Film, supra note 5. family-friendly entertainment that the stu- 10 See id.; see also http://www.mpaa.org/movieratings. dios already provide to broadcast television 11 See 47 U.S.C. §326. might be perceived as hypocritical and would 12 See Red Lion Broad. Co. v. FCC, 395 U.S. 367 (1969) likely make the studios a target for political (approving federal regulation of broadcast program- attack. ming); FCC v. Pacifica Found., 438 U.S. 726, 728 (1978) (Intrusiveness of broadcasting justified ban on offensive Given the policy implications, is there a speech.). political solution? A compulsory licensing 13 17 U.S.C. §106. To maintain some semblance of artis- system has been suggested but would be tic integrity, the Directors Guild Basic Agreement calls cumbersome and require creation of new for the studios to permit directors to make those cuts bureaucracies by content owners. It would where possible, at no charge to the studios. See also require a blanket mandatory license that Directors Guild of America, Basic Agreement of 1999, §7-509, available at http://www.dga.org. would dramatically undercut the rights of 14 The Supreme Court has affirmed the legality of video copyright owners and seems disproportion- recorder copying as a fair use under copyright law. ate to the problem it is intended to solve. Sony v. Universal, 464 U.S. 417 (1984). Is there a business solution? Licensing 15 See, e.g., MICHAEL MEDVED, HOLLYWOOD V. AMERICA: agreements would solve the problem, but POPULAR CULTURE AND THE WAR ON TRADITIONAL VALUES (1992). In fact, 23 of the 25 most financially successful neither the directors nor studios appear likely films of all time (The Exorcist and The Godfather being to provide them. The studios could make the exceptions), and the great majority of the top 100, more money and blunt public criticism by are rated G, PG, or PG-13. See Top Grossing Films Ever, simply marketing the television versions of at http://www.the-movie-times.com/thrsdir/alltime the motion pictures. They could, for example, .mv?domestic+ByDG. 16 For example, Martin Scorsese recently stated that license their television cuts for use on a spe- when he directed films for Roger Corman, he was cialized cable or satellite channel or sell VHS required to include actual or apparent nudity every 15 versions of the television cuts through spe- minutes in the final cut. Inside the Actors Studio: Martin cialized marketing channels without signifi- Scorsese (Arts & Entertainment Network broadcast, cantly affecting the market for their original Dec. 15, 2002). 17 versions. They could provide their television See DGA to Battle Two Types of Third-Party Editors, HOLLYWOOD REPORTER, Oct. 30, 2002; Second Amended cuts on DVDs, either alone or with the the- Complaint (Oct. 31, 2002) and Clearplay, Inc.’s Reply

52 LOS ANGELES LAWYER / MAY 2003 and Counterclaim (Dec. 13, 2002), Huntsman v. Soderbergh, No. 02-CV-1662 (D. Colo. 2002). 18 Louis Aguilar, Legal Battles Divide Film “Sanitizers,” DENVER POST, Nov. 20, 2002. 19 Joal Ryan, Dirty Little War over “Clean” Movies, E! ONLINE NEWS, at http://www.eonline.com/News /Items/0,1,10578,00.html; DGA to Battle Two Types of Third-Party Editors, THE HOLLYWOOD REPORTER, Oct. 30, 2002; Gary Gentile, Content Cleaning Software Angers Some, available at http://www.siliconvalley.com/mld /siliconvalley/news/editorial/5094390.htm. 20 Vince Horiuchi, Clean Flicks Boss Wants No Part of Suit, SALT LAKE TRIBUNE, Aug. 31, 2002; Brian McTavish, Movie Cleansing Takes Off in Utah, KANSAS CITY STAR, Sept. 30, 2002. 21 See 17 U.S.C. §106A. 22 See Second Amended Complaint (Oct. 31, 2002) and Clearplay, Inc.’s Reply and Counterclaim (Dec. 13, 2002), Huntsman v. Soderbergh, No. 02-CV-1662 (D. Colo. 2002). 23 Gilliam v. American Broad. Co., 538 F. 2d 14 (2d Cir. 1976). 24 Id. at 26. Anita Rae Shapiro 25 Choe v. Fordham U. Sch. of L., 920 F. Supp. 44, 48 SUPERIOR COURT COMMISSIONER, RET. (S.D. N.Y. 1995). 26 Playboy Enters., Inc. v. Dumas, 831 F. Supp. 295, 316 PRIVATE DISPUTE RESOLUTION (S.D. N.Y. 1993), modiﬁed on other grounds on rehear- ROBATE IVIL AMILY AW ing, 840 F. Supp. 256 (S.D. N.Y. 1993), remanded, 53 F. P , C , F L 3d 549 (2d Cir. 1995), cert. denied, 116 Sup. Ct. 567 PROBATE EXPERT WITNESS (1995). 27 Cf. Prestonettes, Inc. v. Coty, 264 U.S. 359 (1924); TEL/FAX: (714) 529-0415 CELL/PAGER: (714) 606-2649 Champion Spark Plug Co. v. Sanders, 331 U.S. 125 E-MAIL: [email protected] (1947); Rolex Watch U.S.A., Inc. v. Michel Co., 179 F. http://adr-shapiro.com 3d 704 (9th Cir. 1999). 28 15 U.S.C. §1125(c). FEES: $300/hr 29 Chamberlain v. Columbia Pictures Corp., 186 F. 2d 923, 925 (9th Cir. 1951). 30 Lord Simon Caerns v. Franklin Mint Co., 24 F. Supp. 2d 1013 (C.D. Cal. 1998). 31 Nabisco, Inc. v. P.F. Brands, Inc., 191 F. 3d 208 (2d Cir. 1999); New York Stock Exch., Inc. v. New York, N.Y. Hotel, LLC, 62 U.S.P.Q. 2d 1260 (2d Cir. 2002). Are you a law school professor? 32 See J. THOMAS MCCARTHY, MCCARTHY ON TRADEMARKS AND UNFAIR COMPETITION §§13:2, 3, 6 et seq. Are you a 33 Mosely v. V. Secret Catalogue, Inc., Slip Op., 2003 U.S. retired Judge? LEXIS 1945 (Mar. 4, 2003). 34 See 15 U.S.C. §1125(a), (c). Are you a member of the American 35 See 17 U.S.C. §107. 36 Campbell v. Acuff-Rose, 510 U.S. 569 (1994). Arbitration Association? 37 Sony v. Universal, 464 U.S. 417 (1984). 38 See Sony v. Connectix, 203 F. 3d 596 (9th Cir. 2000) (interim copying of video game software that was nec- If you answered yes to any of the above, the City of Los Angeles invites essary to obtain unprotectable elements of fair use under copyright law); Sega v. Accolade, 977 F. 2d 1510 you to apply to become a member of the Special Committee on (9th Cir. 1992) (same). Investigative Oversight. This Committee is convened whenever a 39 17 U.S.C. §1201(a); Universal v. Corley, 273 F. 3d 429 discrimination complaint against an elected official is received. The (2d Cir. 2001). 40 Alfred Bell & Co. v. Catalda Fine Arts, 191 F. 2d 99 responsibility of the Committee is to determine if an investigation is (2d Cir. 1951). necessary and if so, authorize an independent investigator to conduct 41 Maljack Prods. v. UAV Corp., 964 F. Supp 1416, 1426- the investigation and review the results to ensure the investigation is 28 (C.D. Cal. 1997). 42 Louis Galoob Toys v. Nintendo of Am., 964 F. 2d 965 thorough and complete for submission to the City Council. A stipend is (9th Cir. 1992). paid per meeting. 43 Id. at 970. 44 See Columbia Pictures Indus., Inc. v. Professional Real Interested individuals should submit their resume to the following address: Estate Investors, Inc., 866 F. 2d 278 (9th Cir. 1989) (hotel’s rental of video discs not a public performance City of Los Angeles • Personnel Department • EEO & Employee Development Division because hotel not a public place); see also Columbia 700 East Temple Street, Room 380 • Los Angeles, CA 90012 • Attention: Charlene Klein Pictures Indus., Inc. v. Redd Horne, 749 F. 2d 154 (3d Cir. 1984) (The plaintiffs conceded that in-home use of video cassettes is not a public performance, but the court held that a video cassette shop that rented tapes For additional information,please visit our website at and provided private screening rooms that permitted http://www.lacity.org/per or call (213)847-9862. no more than four related people violated the “public performance” rights of the motion picture studios.).

LOS ANGELES LAWYER / MAY 2003 53 computer counselor

By Carole Levitt and Mark Rosch

Finding Entertainment Law Online, from Scholarship to Scandals

Entertainment text, its free searchable index of Access to Variety’s site is free Broadcasting & Cable’s site articles (from 1978 to 1994) offers to print subscribers. The cost of offers nonsubscribers abstracts of lawyers can go citations and abstracts. an online-only subscription is the print publication’s news and If an attorney is seeking back- $259 per year, or $24.95 per feature stories. Full online access online to free and ground information about enter- month, or $3.95 per day. A free 60- is free only to subscribers of tainment in general, especially day trial subscription is also avail- either the print edition (at $179 pay sites for what its people, the best places to start able. Variety.com has resources per year) or the online version may be consumer entertainment similar to those of the Hollywood (at $14.95 per month). A free trial they need to know sites. It can sometimes be difficult Reporter, but its archive goes is available. The site also offers a to distinguish E! Online’s news back much further—to 1914. free daily e-mail newsletter of top from its gossip, but this site offers Variety.com subscribers can reg- headlines. ype “entertainment” into full-text searching of its exten- ister for various free e-newslet- Law librarians at entertain- the Google search engine, sive Hollywood coverage. It also ters, with topics ranging from ment law firms are often asked to Tand 32,800,000 results boasts a useful hyperlink feature. film news to box office numbers. obtain contact and background appear, led by E! Online. Type Users reading an article can click Also found at Variety.com are information about companies or “entertainment law” into the on a celebrity’s name to retrieve credits, classified ads, obituaries, people in the entertainment Google search engine, and 63,500 a biography or a career chronol- and photos. On the legal pages, industry. The firms may be con- results are listed, with the ogy, a credit list, links to related users may browse for free for ducting background research on Hastings Communications and E! Online stories, and links to jobs related to entertainment law. a potential client or an opposing Entertainment Law Journal multimedia clips and fan clubs. At both sites, nonsubscribers can party, or they may simply need an (COMM/ENT) listed first. From Reading entertainment trade read the headlines and abstracts address to serve a complaint. For the lowbrow to the highbrow, publications in print is a morn- of articles for free. contact information and bio- these searches offer an excellent ing ritual for most entertainment graphical data, entertainment summary of the range of online attorneys. The online versions, Other Journals librarians favor two subscription sources that entertainment attor- however, are useful for their Attorneys with clients in the sites: Baseline.Hollywood.com neys use to stay informed. More archives of past stories and their television or radio industry may and the Internet Movie Database specific questions can be ad- currency. The Hollywood Reporter also subscribe to Television Week (IMDB, www.imdb.com), which dressed by refining one’s search and Variety update their sites con- (formerly Electronic Media) offers a professional subscription techniques. tinually, and they may also post and/or Broadcasting & Cable. that gives subscribers access to To begin researching an stories that are longer than those Both cover broadcast and cable 24,000 contact and agent listings entertainment law question, a found in the print versions. The television, but Broadcasting & and box office statistics for 18 good approach is to locate and Hollywood Reporter’s subscriber Cable also covers the radio indus- countries (including weekly and peruse law review site includes cur- try, while Television Week also daily tallies for the United States). articles, because Carole Levitt and rent news, archives covers the interactive media Subscriptions for individuals they provide an Mark Rosch, (going back to industry. Like the Hollywood range from $12.95 per month to overview of the principals of Internet early 1991), the Reporter and Variety, both host $99.95 per year. Businesses con- area of law and cite For Lawyers, provide Blu-Book Produc- sites (www.tvweek.com and www sidering subscriptions need to to leading cases Internet research tion Directory, a .broadcastingcable.com, respec- contact the site. Nonsubscribers and laws. The seminars for MCLE news scroll, box tively). Every Monday, top sto- can access some information for Hastings COMM/ credit. office charts, pro- ries from Television Week’s free, assuming they are able to ENT site lists arti- duction listings, weekly print edition are added to wade through the continual pop- cles ranging from and script sales. TVWeek.com. The site is also up advertising. Free information communications, entertainment, The first 10 full-text displays of updated every day with breaking at IMDB includes searchable and intellectual property to news stories, archived items, and news. Subscribers to the print archives back to 1997, celebrity Internet, telecommunications, production listings are free, with version can search the Web news, box office information, biotechnology, multimedia, displays that exceed this limit archives back to 1999. Subscrip- reviews, a picture gallery, and a broadcasting, and constitutional costing 10 to 25 cents piecemeal. tions run $119 per year. Non- film glossary. Nonsubscribers law. While the journal does not Full access sells for $14.95 subscribers can read the full-text can view more detailed informa- offer its articles online with full monthly. stories of the last five days. tion (but not as much as sub-

54 LOS ANGELES LAWYER / MAY 2003 scribers) if they register, which costs nothing. be consulted. The Directors Guild, the Screen Baseline’s databases contain 1.5 million Actors Guild, and the Writers Guild offer records, including 7,000 biographies; credits their agreements and signatory agency lists of 900,000 actors, producers, directors, and online. The DGA and WGA also make their crews; and contact information for compa- minimum pay scale available. The WGA and nies, executives, and talent. Baseline also SAG offer searchable databases to determine includes archives of Kagan movie data, the whether a production was produced under a Hollywood Reporter, and Variety. Updates contract from the respective guild (although about films and television programs in devel- the results do not include the name of the opment and production, as well as current guild signatory that produced the work). The entertainment news, can be viewed in a daily DGA also offers a variety of forms, such as e-mail message. Other information and sta- deal memos, signatory compliance forms, tistics, including the Star Salary Report, are and residual reporting forms. Additionally, also available. The cost of Baseline is $99 per the site offers a searchable database of guild year for companies and $69 for individuals and members. nonprofits, plus a per-document fee that can Intellectual property law, especially in range from $1.25 for current Weekly Variety copyrights and trademarks, is a large com- stories to $79 for the Star Salary Report. ponent of entertainment law. For a basic trademark search, Kaiser searches the U.S. Patent What Two Attorneys Use and Trademark Office site (www.uspto.gov). When I asked Susan Kaiser (http://www Although she would not file a trademark appli- .skmedialaw.com/), an attorney who has rep- cation after searching only this site, a starting resented network-owned radio and television search at the trademark office gives her a stations and negotiates and drafts agreements sense of whether it is a good idea to conduct and contracts, which resources she uses in a full search at a pay site such as Thompson her entertainment law practice, she & Thompson (www.t-tlaw.com/allsearches responded: “Probably the resource I use most .shtml). Those delving into copyright issues, is Google—to search opposing counsel, talent such as registrations and ownership docu- names, potential clients, and law firms.” ments, have a Web-based alternative to the Searching Google makes sense when an attor- dreaded dial-up LOCIS search system. The ney is trolling for any and all information, Web-based system, found at www.loc because Google, which indexes more of the .gov/copyright/search, comprises three data- Web than any other engine, casts a wide net. bases: 1) a catch-all of books, film, maps, It is not surprising that her first line of music, etc., 2) serials, and 3) documents (for research is a general search engine instead assignor or assignee searches). The data- of an entertainment-related site. bases go back to 1978, but it may take recent Similarly, the vice president of legal and registrations several months to appear. The business affairs and general counsel at a book and serials databases are searchable major cable television network informed me by author, title, and claimant, among other cat- that a nonentertainment site is his first line of egories. For further inquiries, users can send research: findlaw.com and its search engine, e-mail or chat with the library’s virtual librar- lawcrawler.findlaw.com. Digging into Findlaw, ian at www.loc.gov/rr/askalib. one can discover that it has a rather large Attorneys in the music industry can book- entertainment law and news component at its mark the following sites to link to countless Entertainment and Sports page (found at music publishing, U.S. copyright and licens- www.findlaw.com/01topics/12entertainsport ing, and songwriting and music rights /index.html). Attorneys can also subscribe to resources: the National Music Publisher’s free weekly entertainment and sports law Association’s links page (www.nmpa.org newsletters, which are delivered via e-mail by /links.html), Kohn on Music Licensing signing up at http://newsletters.findlaw.com (http://kohnmusic.com), and Worldwide /sample/elegal.html and http://newsletters Internet Music Resources at the Indiana .findlaw.com/sample/sports.html). University School of Music (at www.music Transactional entertainment lawyers .indiana.edu/music_resources). spend a lot of time drafting agreements and The sites of performing rights organiza- forms. Finding a good source of sample forms tions such as ASCAP and BMI have data- can speed the process. For general business bases of licensed song titles that can be forms, the ‘Lectric Law Library (found at searched for free. The ASCAP site (www http://lectlaw.com/form.html), a site with .ascap.com) can be searched by title, per- forms that can be accessed for free and formers, or writers, and it will display the according to a fee structure, is favored by contact data of the appropriate publishers. the network vice president. For entertain- BMI’s site offers a similar online tool ment-specific forms and agreements, the sites (www.bmi.com) that may be found on the of the major Hollywood creative guilds should page’s top left side (use the drop-down menu

LOS ANGELES LAWYER / MAY 2003 55 www.expert4law.org under the Repertoire tab). Government Web sites and trade association sites are useful sources for uncovering laws and regulations. For example, Kaiser expert4law— recommends the FCC Web site for links to basic broadcast regulations (www.fcc The Legal Marketplace .gov/oet/info/rules). A search of the agency’s site (rather than the entire Code of Federal Regulations) is a more targeted and efficient need? manner of searching for regulations. Most of the legal documents on the site of the Expert Witnesses, Investigators, Legal Consultants, Arbitrators, National Association of Broadcasters are for Mediators, Private Judges, Special Masters, and other legal members only, but the NAB does provide support service providers access to its filings in recent FCC dockets. The NAB also has an extensive links page for broadcast and telecommunications industry find them here! Web sites. This page is available to non- members (at www.nab.org/irc/virtual expert4law–The Legal Marketplace, now in /broadcast_industry_sites.asp). its sixth year, is the best on-line directory for Litigators who need to keep abreast of finding expert witnesses, legal consultants, rulings, motions, new filings, and appellate litigation support, lawyer-to-lawyer networking, decisions affecting the entertainment indus- dispute resolution service providers, law office try can subscribe to the Entertainment Law technology, and research and publishing. Digest site (www.entlawdigest.com) for $495 annually (discount trial subscriptions are available at http://www.entlawdigest.com This comprehensive directory is the one-stop site for your legal support /subscribe.cfm). This site is based in Los needs. Available 24 hours a day! Angeles. Entertainment attorneys who regularly make phone calls to people outside the United States should bookmark timeanddate .com/worldclock. The cable network vice president calls offices worldwide, and he touts Los Angeles County Bar Association Dispute Resolution Services, Inc. this site because it saves him the embarrassment of calling in the middle of the night. Mere embarrassment is not the worst that can 30 Hour Basic Mediation Training happen; people have been fired for calling a June and August 2003 celebrity in the middle of the night. Finally, for some entertainment rather IDEAL FOR ATTORNEYS AND COMMUNITY MEMBERS! than news of the entertainment industry, Lecture, small group exercises, and role-playing designed for persons who want to users can visit Findlaw’s FBI celebrity files acquire a strong foundation in mediator skills and wish to satisfy the classroom (http://news.findlaw.com/), Mugshots.org training requirements of the California Dispute Resolution Programs Act. Training for postings of celebrity mug shots (http:/ includes: the negotiation process, mediation law, and legal requirements/provisions, /mugshots.org), and the famous Smoking settlement techniques, communication and active listening skills, identifying the Gun site (www.thesmokinggun.com), which proper parties for the mediation, confidentiality of the process, breaking impasse, “brings you exclusive documents—cool, con- and drafting the settlement agreement. fidential, quirky—that can’t be found else- where on the Web.” For example, read the 26.75 hours CLE Credit including 2.75 hours in legal ethics contract riders of various performers: Kansas 30 hours of CE credit through the Board of Behavior Sciences demands prune juice; Janet Jackson must have an arrangement of tulips, roses, garde- Register JUNE 16-20 AUGUST 5, 6, 7, 12, AUGUST 25, 26, nias, and lilies. Long Beach 13, 14, 16, 19, 20 27, 28, 29 Finally, entertainment lawyers who are Today! Code 330TF16 Santa Monica Los Angeles Code 330TH05 Code 330TH25 seeking employment should visit two entertainment gossip sites reporting on employ- FACULTY Lynne Bassis, Esq., Gail Nugent, Frank Riela, Esq., John Rodriguez, & ment opportunities. The first site is a blog (a Therese White personal web journal) known as Dishings .com, and it focuses on the television business. COST (includes meal and training manual) DRS Associates $485, LACBA members $515, Ifcome.com is more diverse, covering job all others $560. Call (213) 896-6441 for group discounts and Early Bird rates. openings and job changes in business and REGISTER online at http://www.lacba.org/calendar/clereg.html or call (213) 896-6560 legal affairs in television, entertainment, (telephone registration closes at noon on the day before the program begins.). motion picture, Internet, new media and dot- com companies. ■

56 LOS ANGELES LAWYER / MAY 2003 Classifieds

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58 LOS ANGELES LAWYER / MAY 2003 CLE Preview

Court of Appeal Walk-through Labor ON MONDAY, MAY 12, the Los Angeles County Bar Association will sponsor a program Certification designed for general practitioners and new attorneys who either infrequently appear Applications or have not yet had the opportunity to appear before the California Court of Appeal. ON SATURDAY, MAY 31, Introductory remarks will be made by Administrative Presiding Justice Charles Vogel, the Immigration Law Robin Meadow, and Joseph Lane. Their remarks will cover the unique nature of Section will present a appellate practice. David Ettinger will present an overview of appellate rules of court. training session on Gina Calvelli will present practical tips from the perspective of an appellate judicial preparing a labor attorney. Additionally, one panel will present a mock writs conference with Justices certification application. Margaret Grignon, Patti Kitching, Paul Boland, and Pablo Drobny. This panel will This beginner’s course will illustrate, with hypotheticals, the process by which the court of appeal decides which teach attorneys how to writs to hear. A second panel will present a mock appellate argument. The judicial choose between traditional representatives will consist of Justices Margaret Grignon, Patti Kitching, and Paul and RIR filing; prepare Boland. The program will be moderated by Richard H. Nakamura Jr. Space is limited. forms and supporting Please register early to ensure admission to this important program. The program will documents for each type of take place at the California Court of Appeal, 300 South Spring Street, Downtown, in case; deal with the critical the third floor courtroom. On-site registration will begin at 4 P.M. in the employee boxes 13, 14, and 15; break room, with the program continuing until 8. The registration code number is handle RIR recruitment; 6991E12. assess 245(i) issues; and $25—CLE+PLUS members make Schedule B $35—all others considerations. This event $45—all at-the-door registrants will be held at the 3.25 CLE hours LACBA/LEXIS Publishing Conference Center, 281 Persuasive Legal Writing South Figueroa Street, ON THURSDAY, MAY 22, the Los Angeles County Bar Association will present a program Downtown. Parking at the by Daniel U. Smith on how to write in a style that captures the court’s attention. The Figueroa Courtyard Garage program (rescheduled from May 14) will show what lawyers can learn from the style of will be available for $7 America’s greatest lawyers and writers, including Thomas Jefferson, Abraham Lincoln, with LACBA validation. Ernest Hemingway, and E. B. White. Those who attend will learn over 60 tips on how to On-site registration (with write clear, compelling prose; lead the court to a result; and write shorter briefs more meal and reception) will easily. The course also shows how to structure a persuasive argument and reviews key begin at 8:30 A.M., with the steps for drafting and editing. This event will be held at the LACBA/LEXIS Publishing program continuing from Conference Center, 281 South Figueroa Street, Downtown. Parking at the Figueroa 9 A.M. to 12:30 P.M. Courtyard Garage will be available for $7 with LACBA validation. On-site registration $100—CLE+PLUS members (and meal and reception) will begin at 5:30 P.M., with the program continuing from 6 to $125—Immigration Law 9:15. The registration code number is 7094E14. Section members $90—CLE+Plus members $150—LACBA members $160—LACBA members $175—all others $195—all others 3.5 CLE hours 3.25 CLE hours

The Los Angeles County Bar Association is a State Bar of California MCLE approved provider. To register for the programs listed on this page, please call the Member Service Department at (213) 896-6560 or visit the Association Web site at http://forums.lacba.org/calendar.cfm. For a full listing of this month’s Association programs, please consult the May County Bar Update.

LOS ANGELES LAWYER / MAY 2003 59 closing argument

By Joseph E. Magri

Internet Radio and the Future of Music The streaming of digital music is creating a host of new challenges for attorneys

n recent years, the music industry has faced a series of chal- mitted over satellite systems and cable networks. Similarly, music pub- lenges posed by the development of digital audio technology.1 The lishers and songwriters earn royalties when their copyrighted works Ilatest challenge, which has emerged from the growing popular- are played by digital means. Therefore, the widespread adoption of ity of the Internet as a means to experience music, is the process of Internet radio will result in a significant new source of income for streaming music over the Internet—commonly known as Webcasting record labels, artists, music publishers, and songwriters. or Internet radio. In order to appreciate the potential impact of Internet radio engages music consumers in ways that no current Internet radio, it is helpful to understand that this medium has the abil- media can begin to simulate. Internet radio combines audio, visual, ity to venture far beyond the at-home personal computer. With and text-based content to enhance the individual listening experi- advances in wireless technologies (such as wireless fidelity or Wi-Fi, ence. For example, Internet radio Web sites display the title of the song, which offer wireless broadband) and mobile entertainment options the name of the album, and the featured recording artist while each (which offer Internet content on mobile devices), Internet radio will song is played. Many sites also provide a picture of the album cover become widely available on mobile phones, PDAs, special digital artwork and include a Click-to-Buy button from which a listener can audio receivers, and other portable devices. Consequently, Internet sample and purchase the album being played. These features make radio is positioned to play a significant role in the future of music and it easy for consumers to instantly pursue an informed purchase, is already creating new challenges for lawyers. which can lead to greater consumer satisfaction and increased pur- Internet radio will affect the music industry in a variety of ways. chases. Internet radio also offers greater overall variety and pro- To begin with, Internet radio has the ability to fundamentally change vides an alternative to the tightly programmed broadcast radio station the way music is promoted and exposed to consumers. Traditional wis- playlist. These examples only begin to unearth the new and creative dom holds that conventional broadcast radio airplay translates into ways that Internet radio can enhance consumers’ listening experience music sales. In order to obtain airplay, however, record labels par- and counter slumping music sales. ticipate in a pay-for-play system in which they pay so-called indepen- Whenever law and technology lurch forward at an unequal pace, dent promoters to influence radio airplay, thereby skirting federal anti- lawyers face new challenges—and the emergence of Internet radio payola laws. Record labels annually pay such promoters approximately is no exception. Some of the challenges that Internet radio has cre- $150 million, which is typically recouped from artists’ royalty earnings. ated include navigating the uncertainty in the laws governing the Assuming a pay-for-play system is not adopted by Internet radio, streaming of copyrighted sound record- several positive changes can result. The most obvious is that all ings over the Internet, relying on domes- record labels will have access to Internet radio, not only those with tic and foreign laws that do not address large promotional budgets. In addition, programmers will regain the digital rights management and piracy power to decide whether to play a particular song based on merit, not issues adequately, contending with tech- financial influence. A merit-based system has the added benefit of nological advances that outpace legisla- exposing a broader range of new music to a greater number of peo- tive efforts, and complying with legal ple, which in turn can foster the development of new talent. Moreover, mandates that are technically challeng- record labels will be able to realize a savings on promotional costs and, ing, financially prohibitive, or otherwise hence, artists should be able to retain more of their earnings. onerous. In order to effectively address Internet radio will also provide an important new revenue stream client concerns in light of such chal- for record labels and artists as well as for songwriters and music pub- lenges, lawyers need to keep abreast of lishers. Currently, record labels and artists do not earn royalties new technology, closely monitor legisla- Joseph E. Magri is when conventional AM/FM broadcast radio stations play copyrighted tive developments, and, in a number of director of business sound recordings. Under the Digital Performance Right in Sound cases, manage risk without the benefit of and legal affairs at Recordings Act of 1995 and the Digital Millennium Copyright Act of legal precedent. ■ Flavored Entertain- 1998, however, sound recording copyright owners have the exclusive ment, LLC, a Los right to publicly perform their copyrighted sound recordings when 1 See Joseph E. Magri, New Media—New Rules: Angeles-based multi- performed by means of a digital audio transmission. This means that The Digital Performance Right and Streaming Mu- media entertainment record labels and artists now earn royalties whenever their copyrighted sic under the New Order, 5 VAND. J. ENT. L. & company. PRAC. (forthcoming Winter 2003). sound recordings are streamed over the Internet or digitally trans-

60 LOS ANGELES LAWYER / MAY 2003

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