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& Sports Symposium

Friday, April 6, 2018

Presented by The Entertainment & Sports Law Society

SYRACUSE UNIVERSITY COLLEGE OF LAW The Entertainment & Sports Law Society would like to thank the following College of Law faculty for their assistance in planning this event:

ESLS Faculty advisor, Professor Laura Lape

Dean Dagenais

Kristen Duggleby Deb O’Malley Kim Wolf Price Ian Brown

And our sponsors:

College of Law Society LexisNexus The Entertainment & Sports Law Symposium Presented by the Entertainment & Sports Law Society Syracuse University College of Law Friday, April 6, 2018

CLE Registration: 10:00-11:00 am Levy Atrium

Welcome and Opening Remarks: 11:00 am Gray Ceremonial Courtroom

Panel 1: 11:15 am- 12:30 pm Gray Ceremonial Courtroom Maximizing the attorney-agent’s ability to advertise and use social media while maintaining compliance with the Rules of Professional Conduct. Jodi Balsam: Law Professor, Brooklyn Law School Andrew Lustigman: Partner at Olshan, Frome, Wolosky Miles Welo: at Mansour Gavin, COO of GSM & NFLPA Certified Agent 1.5 credits, Ethics and Professionalism

Lunch: 12:30-1:15 pm Levy Atrium

Panel 2: 1:25- 2:40 pm Gray Ceremonial Courtroom Current issues intellectual issues facing the entertainment industry. Laura Lape: Law Professor, Syracuse University College of Law Matthew Ganas: Associate at DLA Piper Jaia Thomas: Founder of the Law Office of Jaia Thomas 1.5 credits, Areas of Professional Practice

Panel 3: 2:45-4:00 pm Gray Ceremonial Courtroom Assessing the fall out from the NCAA Basketball FBI Investigation: The future of the amateurism rule and the antitrust implications. Justin DiTolla: Assistant Athletics Director for Compliance Richard Katz: President & CEO, KMG Sports Management Justin Sievert: Founding Partner of Sievert Werly 1.5 credits, Areas of Professional Practice

Key note address: 4:10-5:00 pm Gray Ceremonial Courtroom Building and maintaining the relationship between in-house and outside counsel. Gregg Brandon (L’01): General Counsel at the Buffalo Bills Joseph Hanna: Partner at Goldberg Segalla 1 credit, Law Practice Management

Panels will be moderated by alumnus, Kevin Belbey (L’16).

*Panel times and speakers are subject to change.

Panel 1: Jodi S. Balsam Jodi S. Balsam is an Associate Professor of Clinical Law and Director of Externship Programs at the Brooklyn Law School. Among her teaching interests are Sports Law, Professional Responsibility, the Externship Seminar, and negotiation and other lawyering skills. She is the faculty advisor to the Brooklyn Entertainment and Sports Law Society, which voted her 2016 Professor of the Year, and she is chair of the Association of American Law Schools Section on Law and Sports. Professor Balsam has also taught courses in Sports Law and Sports at New York University, New York Law School, and Bucerius Law School in Hamburg, Germany. She is a co-author of the upcoming sixth edition of Weiler Robert's Sports and the Law, the leading law school casebook in the field. Before joining academia, Professor Balsam was the National Football League's Counsel for Operations and Litigation, where she managed litigation in all areas of law, oversaw a variety of policy and operational matters, negotiated and drafted contracts for League special events including the Super Bowl, and administered the League's internal process and compliance program. She began her practice career as a litigation attorney with Simpson Thacher & Bartlett LLP, representing primarily sports and entertainment clients in antitrust matters and complex commercial litigation. She has also served as a law clerk for Chief Dennis Jacobs of the U.S. of Appeals for the Second Circuit, Judge Charles Brieant of the U.S. District Court for the Southern District of New York, Counsel to the Clerk of the Second Circuit Court of Appeals, and now sits on the Court's Attorney Advisory Committee on Local Rules. Professor Balsam has presented at many sports law conferences and symposia, and frequently appears in the media on legal issues in sports being seen on ESPN, MSNBC, and quoted in the New York Times, USA Today, Bloomberg/Businessweek, and CBS Moneywatch.

Andrew B. Lustigman Andrew B. Lustigman is a partner at Olshan Law representing marketers, advertisers, agencies, and suppliers in connection with the legal aspects of their and promotional marketing businesses. He is a member of the Olshan Committee and is Chair of the firm's Advertising, Marketing, and Promotion's group. Leveraging his extensive experience in advertising, marketing and promotions, Andrew domestic and international clients regarding a broad range of matters, including the clearance of advertising and marketing materials, the structuring of sweepstakes, games or skill, and other contests, the development of social media programs and direct marketing campaigns from a compliance standpoint, and the resolution of regulatory, competitor, and matters. According to USA, clients report, "he's the one guy in the industry I'd go to. Every single issue in advertising, compliance, litigation, whatever – he does it all, and he does it well." Andy is also noted as "a renowned transactional who is also adept in dispute resolution," noting that he "gives excellent advice" and "helps me find creative solutions." A significant portion of Andy's practice involves a review of advertising and promotional campaigns to help ensure compliance with substantiation requirements and relevant legal standards. He provides advice or campaigns across all media channels – , , print, radio, direct mail, mobile, telemarketing, and other electronic media, as well as social media platforms. Andy regularly appears on television, radio, and in publications such as The Wall Street Journal, New York Post, National Law Journal, Inside Counsel, Bloomberg BNA, Law360, Mobile Marketer, Luxury Daily, and Response discussing important new cases and trends that advertisers and marketers need to know. He also contributes to the Brand Activation Association/Promotion Marketing Association's Promotion Marketing Law treatise and various American Association publications. He frequently speaks on advertising and promotional market law topics throughout the country.

Miles Welo Miles Welo is an attorney at Mansour Gavin LPA and a certified NFLPA Advisor at Game Sports Management and Media. As an attorney, Miles represents clients on a broad range of issues related to business, athletics, planning, litigation, IP, and . As a Contract Advisor, Miles focuses on representing NFL players in their contract negotiations, marketing negotiations, pre-draft training, and general business transactions. Miles also counsels football coaches in their professional and personal capacities. Miles completed the Great Lakes Sports and Entertainment Law Academy in 2011, and served as the Vice President of the Entertainment and Sports Law Association at Cleveland-Marshall College of Law. He received his undergraduate degree from The Ohio State University and received his law degree from Cleveland-Marshall College of Law, where he graduated cum laude. Miles has an extensive background in football, including time that he served as an assistant football coach at a Division II affiliated Notre Dame College. Miles maintains his connection to coaching as he now serves as an assistant football coach at Benedictine High School in Cleveland, Ohio.

Panel 2: Laura Lape Professor Laura Lape graduated law school with the highest honors from the University of North Carolina at Chapel Hill. She practiced as an associate in the department at a leading Boston law firm before beginning a teaching career. She taught at Temple University and at UNC at Chapel Hill before coming to Syracuse. Professor Lape focuses her writing on law and teaches courses in copyright, property, and intellectual property. Her research interests lie mainly in the area of copyright law.

Matthew Ganas Matthew Ganas has a wide range of intellectual property and complex commercial litigation experience the areas of patent, copyright, , trade secret, antitrust and right of law. Matthew regularly represents medical device manufacturers in offensive and defensive patent infringement matters involving a variety of technologies, including ultrasonic and advanced bipolar surgical instruments and cardiovascular interventional guidewires. He has also represented multinational corporations in the sports, media and entertainment, fashion and apparel, IT and software solutions and medical device industries in copyright infringement, trademark infringement, false advertising and trade secret misappropriation litigation. Matthew also provides counselling and clearance advice to multimedia and fashion industry clients concerning copyright, trademark, fair use, First Amendment, and right of publicity issues in connection with online print and video publications, as well as corporate- sponsored social media content. He has published a number of articles involving various sports issues, publicity claims, and copyright infringement. He was the recipient of NYU Law School’s Larry Fleisher Memorial Foundation Prize for extraordinary achievement in the are of Sports and Entertainment Law, primarily due to his scholarship focused on the 2011 NFL lockout and ensuing player-initiated antitrust litigation. His paper, "The Legal Effectiveness of the Union's Disclaimer of Representation: A Key Legal Issue Surrounding the NFL Lockout and Litigation," was distributed by the NYU Center for Labor and Employment Law at its 2011 symposium dedicated to the intersection of sports, labor and antitrust law. Matthew has also provided pro bono legal services to non-profit New York City youth sports organizations, such as Beat the Streets Wrestling and the National Double Dutch League, in connection with intellectual property management, licensing, and general contract matters.

Jaia Thomas Jaia Thomas is a Los-Angeles-based sports and entertainment attorney with over ten years of experience. She regularly assists professionals in the television, and digital industries with transactional and intellectual property matters. She has been quoted as a legal expert in such publications as The New York Times, USA Today, and ESPN and has served as a panelist for the Los Angeles County Bar Association and Beverly Hills Bar Association. Jaia is currently an adjunct progessor at UCLA, where she teaches a course titled “Copyright Law and the Entertainment Industry.” She also teaches a summer seminar series at Southwestern Law School titled “How to Start and Build a Law Practice,” where she equips law students with the tools necessary to launch and successfully sustain a law practice. Prior to her appointment at UCLA and Southwestern Law, she was an adjunct professor at American University in Washington, D.C. where she taught graduate students about the inner workings of production company formation. She has guest lectured at Vassar College and Georgetown Law School. A native of Cincinnati, Ohio, Jaia Thomas is a graduate of Colgate University and The George Washington University Law School. She also holds a Certificate in Television, Film, and New Media Production from University of California, Los Angeles. She is a member of the New York Bar Association and the American Bar Association.

Panel 3: Justin DiTolla Justin DiTolla was appointed the Assistant Athletics Director for Compliance at Syracuse University in August of 2017. He is currently the compliance liaison with the football and softball programs at SU. He is responsible for day-to-day compliance operations of both programs as to ensure compliance with NCAA, Atlantic Coast Conference and University rules and . In addition, he is responsible for the comprehensive rules education program that consists of educating coaches, student-athletes, boosters, athletic department staff and other University officials. He previously served as the Assistant Director of Compliance at the University of California, Los Angeles (UCLA) from September 2013 through July 2017, where he was the compliance liaison with the football, softball, men’s volleyball, women’s water polo and men’s/women’s golf programs. He implemented agents and amateurism program ensuring student-athletes maintained their eligibility while exploring a professional career in sports. He also oversaw the transfer process for all incoming and outgoing student-athletes. Justin began his career in college athletics as a Compliance Intern at the University of Oregon from October 2011 through September 2013. He earned his undergraduate degree in business with an emphasis on Finance from the University of San Diego in 2011. He was a member of the 2007 USD football team that earned a share of the Pioneer Football League title. He will be attending the Syracuse University Whitman School of Business for his Master’s in Business Administration this upcoming fall.

Richard L. Katz Richard Katz has over 30 years of experience in the Sports industry. He has negotiated, drafted and reviewed countless employment contracts for elite professional athletes in the US and around the world. He has negotiated Executive Compensation Agreements in the Sports industry for highly regarded Head Coaches in the NCAA, both football and basketball, as well as Division I Athletic Directors. He is well versed in Executive Compensation Agreements for members of the broadcast media, both radio and TV, has been credited for negotiating some of the top above market contracts for Coaches in the NCAA, and is an expert in not only assessing and obtaining value for his clients but in negotiating vital contract language. He is a Certified Contract Advisor with both the National Football Players Association (NFLPA) and the National Basketball Players Association (NBPA). Richard is a highly respected member of the National Sports Association. He has served on both the Board of Trustees for the United States Olympic Committee (USOC) and the National Football Foundation and College Hall of Fame. He has lectured at numerous law schools in the US as well as many sports related seminars and is currently an adjunct Professor of Sports Law at the Chase College of Law at Northern Kentucky University. Richard maintains a world class reputation as a result of his professionalism and fair minded dealings with teams in the NFL, NBA, schools in the NCAA and with professional Clubs around the world. His experience in Global negotiation has included dealings with most countries in Europe, Asia, South America, Australia and Canada.

Justin Sievert Justin Sievert is a founding Partner of Sievert Werly LLC. He represents colleges, universities, athletic conferences, and individuals on college athletics issues, including NCAA infractions investigations, compliance-related matters, Title IX, commercial transactions, and employment law. Justin is also a nationally recognized sports legal expert and has served as a contributing writing on sports law issues for Sporting News, and has been quoted by numerous national media outlets, including The New York Times, the Miami Herald, Forbes, Law 360, and Bloomberg BNA. In addition to his , Justin has served as a sports law professor at the University of Tennessee College of Law and has taught other graduate and undergraduate-level courses on NCAA and NAIA compliance, legal and ethical issues in athletics administration, labor and employment law and business law. He is also a frequent sports industry speaker and has presented at national conferences and legal symposiums, as well as seminars and workshops tailored to an organization’s specific needs. Justin received his Bachelor’s in political science from Union College in New York in 2003, where he was a four-year started on the varsity football team and a three-time All-American for the track and field program. He graduated with a M.Ed from St. Lawrence University in 2005 and received his law degree from the University of Miami School of Law in Florida in 2008.

Key Note Address: Gregg Brandon Gregg G. Brandon serves as the Executive Vice President & General Counsel for the Buffalo Bills and Pegula Sports & Entertainment (PSE). Mr. Brandon is responsible for overseeing all legal and human resource related matters for the Buffalo Bills, PSE and PSE’s Portfolio Companies. Those matters include transactions, compliance, risk management, government relations, and litigation. The PSE Portfolio Companies include the Buffalo Bills, Buffalo Sabres, Rochester Americans, Buffalo Bandit, Buffalo Beauts, HARBORCENTER IMPACT Sports Performance, (716) Food & Sport, The Healthy Scratch, Terra Mare and PicSix Creative. Among other projects, Mr. Brandon has worked on the public-private funded modernization project at Ralph Wilson Stadium, the sale of the Buffalo Bills franchise to Terry and Kim Pegula, the New Era Field naming rights deal, the MSG Networks Broadcast Rights Agreements and the 2018 World Junior Hockey Championships Agreement. Mr. Brandon was previously Vice President and General Counsel for XOS Technologies, Inc., the leading provider of digital asset management solutions and digital coaching technologies for collegiate and professional sports organizations, and its wholly owned subsidiary Collegiate Images, LLC, the centralized licensing and right clearance agency that manages the distribution of archived college athletics video and photographs. While there, Mr. Brandon was directly responsible for overseeing all legal matters affecting the company with a focus on negotiating and drafting sales, advertising, digital rights and technology agreements. He was responsible for counseling staff, clients and partners about intellectual property, technology and contractual rights. In addition, he served as Corporate Secretary advising the Board of Directors and senior management team on legal issues such as corporate governance, corporate securities, risk management, mergers and acquisitions. Mr. Brandon has also worked in private practice with the of Howrey LLP in Houston, Texas and Akerman Senterfitt, in West Palm Beach, Florida, he has served as primary contact for several large companies and counseled on complex commercial transactions and intellectual property enforcement. Mr. Brandon currently serves on the Board of Directors of the Buffalo Bills Foundation and is a member of the Sports Lawyers Association.

Joseph E. Hanna Joseph Hanna is a commercial litigator and legal adviser nationally recognized for his work in media and entertainment law, as well as for being a leading voice for diversity in the legal and business communities. Joe is the founder and chair of Goldberg Segalla’s Sports and Entertainment Practice Group, chair of its Retail and Hospitality Practice Group, editor of the Sports and Entertainment Law Insider blog, and chair of the firm’s Diversity Task Force. He is the founder and president of Bunkers in Baghdad, a nonprofit that collects and sends golf equipment to U.S. soldiers and veterans worldwide to aid in recreation and rehabilitation from injuries. Joe dedicates his practice to serving the sports and entertainment, retail, hospitality, and commercial development industries. He represents national-league sports franchises, professional athletes, movie studios, and others in the sports and entertainment world on a wide range of high value matters involving licensing, contracts, and day-to-day business management. Major retail and restaurant chains, global hotel and hospitality enterprises, shopping centers, property owners, and developers rely on Joe to find creative and cost-effective resolutions to dispute with other parties, to represent them in commercial litigation, and to handle a broad array of legal and business challenges. An accomplished mediator, he is also a member of the International Institute for Conflict Prevention and Resolution’s Panels of Distinguished Neutrals, a group of global leaders in providing and promoting alternative dispute resolution. Joe is nationally renowned for his work in media and entertainment law and for his authorship of leading articles on high-profile issues in these areas including the first truly comprehensive examination of the legal issues in the National Football League concussion litigation controversy. Joe has been recognized by Law360 as a Rising Star and the ABA as an “On the Rise – Top 40 Young Lawyer.”

Moderator: Kevin Belbey Kevin Belbey, ’13 & L ’16, works as a Talent Representative at The Montag Group, a talent agency representing over 200 news and sports broadcasters. As a student in the College of Law, Kevin was the Executive Director of the school’s Moot Court Honor Society, a Law Ambassador, Vice President of the Communications Law & Policy Society, a Student Attorney within the Children’s Rights & Clinic, competed on the 2015 Tournament of Champions & 2014 National Civil Competition mock trial teams, and played on the Syracuse Law basketball team. He also received his master’s degree from Newhouse in New Media Management. Due to his contributions to Syracuse University College of Law, Kevin was honored with the Paul Shipman Andrews Award, the Law Ambassador Award, the Office of Student Life Dean’s Award, the Ralph E. Kharas Leadership Award, and the Robert W. Miller Award. In 2015, Kevin founded Boeheim’s Army – a team of former Syracuse Men’s Basketball legends to compete for a $2 million winner-take-all prize in The Basketball Tournament (TBT) on ESPN. He has worked as the team’s General Manager the past three summers. Table of Contents

Panel 1: Maximizing the attorney agent’s ability to advertise and use social media while maintaining compliance with the Rules of Professional Conduct ...... 1 Relevant Model Rules of Professional Conduct ...... 1 10 Tips for Avoiding Ethical Lapses When Using Social Media ...... 4 Entertainment Law Ethics ...... 13 Ethical Aspects of Representing Professional Athletes ...... 36 Show Me the . . . Ethics? The Implications of the Model Rules of Ethics on Attorneys in the Sports Industry ...... 50 The Minefield of Social Media and Legal Ethics: How to Provide Competent Representation and Avoid the Pitfalls of Modern Technology ...... 65

Panel 2: Current intellectual property issues facing the entertainment industry. .... 93 Brief for the United States as Amicus Curiae in Support of Appellee, Spanski Enterprises, Inc. v. Telewizja Polsks, S.A...... 93 Digital Age Changes All the Rules on Intellectual Property ...... 133 Flo & Eddie, Inc. v. Sirius XM Radio, Inc.: Will Terrestrial Radio and Pre-1972 Sound Recordings Remain “Happy Together”? ...... 136 For the Love of the Name: Professional Athletes Seek Trademark Protection...... 165 Inspiration vs. Copying: Where’s the Line in Hollywood? ...... 181 Protecting IP Rights in the Sports and Entertainment Industries ...... 182 Hart v. Electronic Arts ...... 183 Keller v. Electronic Arts, Inc ...... 211 Act to Amend Civil Rights Law in Relation to Publicity, No. 8155 ...... 221

Panel 3: Assessing the fall-out from the NCAA Basketball FBI Investigation: The future of the amateurism rule and the antitrust implications ...... 228 A Short Treatise on Amateurism and Antitrust Law: Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act ...... 228 Student-Athletes vs. NCAA: Preserving Amateurism in College Sports Amidst the Fight for Player Compensation ...... 268 The Antitrust ...... 299 The Sherman Antitrust Act ...... 301 NCAA Bylaws Article 12 Amateurism and Athletics Eligibility ...... 302 The NCAA Bribery Scandal ...... 315

Keynote Address: Building and maintaining the relationship between in-house and outside counsel ...... 319 For Outside Counsel: Thoughts from an In-House Client ...... 319 Bridging the Gap Between Outside and Inside Counsel ...... 321 Are In-House Lawyers Happy with their Outside Counsel? ...... 324

Relevant Model Rules of Professional Conduct:

Rule 7.1: Communication Concerning a Lawyer's Services

A lawyer shall not make a false or misleading communication about the lawyer or the lawyer's services. A communication is false or misleading if it contains a material misrepresentation of fact or law, or omits a fact necessary to make the statement considered as a whole not materially misleading.

Rule 7.2: Advertising

(a) Subject to the requirements of Rules 7.1 and 7.3, a lawyer may advertise services through written, recorded or electronic communication, including public media. (b) A lawyer shall not give anything of value to a person for recommending the lawyer's services except that a lawyer may (1) pay the reasonable costs of advertisements or communications permitted by this Rule; (2) pay the usual charges of a legal service plan or a not-for-profit or qualified lawyer referral service. A qualified lawyer referral service is a lawyer referral service that has been approved by an appropriate regulatory authority; (3) pay for a law practice in accordance with Rule 1.17; and (4) refer clients to another lawyer or a nonlawyer professional pursuant to an agreement not otherwise prohibited under these Rules that provides for the other person to refer clients or customers to the lawyer, if (i) the reciprocal referral agreement is not exclusive, and (ii) the client is informed of the existence and nature of the agreement. (c) Any communication made pursuant to this rule shall include the name and office address of at least one lawyer or law firm responsible for its content.

1 Rule 7.3: Direct Contact with Prospective Clients

(a) A lawyer shall not by in-person, live telephone or real-time electronic contact solicit professional employment when a significant motive for the lawyer's doing so is the lawyer's pecuniary gain, unless the person contacted: (1) is a lawyer; or (2) has a family, close personal, or prior professional relationship with the lawyer. (b) A lawyer shall not solicit professional employment by written, recorded or electronic communication or by in-person, telephone or real-time electronic contact even when not otherwise prohibited by paragraph (a), if: (1) the target of the solicitation has made known to the lawyer a desire not to be solicited by the lawyer; or (2) the solicitation involves coercion, duress or harassment. (c) Every written, recorded or electronic communication from a lawyer soliciting professional employment from anyone known to be in need of legal services in a particular matter shall include the words "Advertising Material" on the outside envelope, if any, and at the beginning and ending of any recorded or electronic communication, unless the recipient of the communication is a person specified in paragraphs (a)(1) or (a)(2). (d) Notwithstanding the prohibitions in paragraph (a), a lawyer may participate with a prepaid or group legal service plan operated by an organization not owned or directed by the lawyer that uses in-person or telephone contact to solicit memberships or subscriptions for the plan from persons who are not known to need legal services in a particular matter covered by the plan.

2 Rule 7.4: Communication of Fields of Practice & Specialization (a) A lawyer may communicate the fact that the lawyer does or does not practice in particular fields of law. (b) A lawyer admitted to engage in patent practice before the United States Patent and Trademark Office may use the designation "Patent Attorney" or a substantially similar designation. (c) A lawyer engaged in Admiralty practice may use the designation "Admiralty," "Proctor in Admiralty" or a substantially similar designation. (d) A lawyer shall not state or imply that a lawyer is certified as a specialist in a particular field of law, unless: (1) the lawyer has been certified as a specialist by an organization that has been approved by an appropriate state authority or that has been accredited by the American Bar Association; and (2) the name of the certifying organization is clearly identified in the communication.

3 10 Tips for Avoiding Ethical Lapses When Using Social Media

Christina Vassiliou Harvey, Mac R. McCoy, Brook Sneath

You may be among the thousands of legal professionals flocking to social media sites like LinkedIn, Facebook, Twitter, or Google+ to expand your professional presence in the emerging digital frontier. If so, have you paused to consider how the ethics rules apply to your online activities? You should. Some of the ethical constraints that apply to your social

media usage as a legal professional may surprise you. Moreover, legal ethics regulators across the country are beginning to pay close attention to what legal professionals are doing with social media, how they are doing it, and why they are doing it. The result is a patchwork quilt of ethics opinions and rule changes intended to clarify how the rules of professional conduct apply to social media activities.

This article provides 10 tips for avoiding ethical lapses while using social media as a legal professional. The authors cite primarily to the ABA Model Rules of Professional Conduct (RPC) and select ethics opinions from various states. In addition to considering the general information in this article, you should carefully review the ethics rules and ethics opinions adopted by the specific

4 (s) in which you are licensed and in which your law firm maintains an office. 1. Social Media Profiles and Posts May Constitute Legal Advertising

Many lawyers – including and in-house counsel – may not think of their social media profiles and posts as constituting legal advertisements. After all, legal advertising is limited to glossy brochures, highway billboards, bus benches, late-night television commercials, and the back of the phonebook, right? Wrong. In many , lawyer and law firm websites are deemed to be advertisements. Because social media profiles (including blogs, Facebook pages, and LinkedIn profiles) are by their nature websites, they too may constitute advertisements.

For example, the Florida Supreme Court recently overhauled that state’s advertising rules to make clear that lawyer and law firm websites (including social networking and video sharing sites) are subject to many of the restrictions applicable to other traditional forms of lawyer advertising. Similarly, California Ethics Opinion 2012-186 concluded that the lawyer advertising rules in that state applied to social media posts, depending on the nature of the posted statement or content.

2. Avoid Making False or Misleading Statements

The ethical prohibition against making false or misleading statements pervades many of the ABA Model Rules, including RPC 4.1 (Truthfulness in Statements to Others), 4.3 (Dealing with Unrepresented Person), 4.4 (Respect for Rights of Third Persons), 7.1 (Communication Concerning a Lawyer's Services), 7.4 (Communication of Fields of Practice and Specialization), and 8.4 (Misconduct), as well as the analogous state ethics rules. ABA Formal Opinion 10-457 concluded that lawyer websites must comply with the ABA Model Rules that prohibit false or misleading statements. The same obligation extends to social media websites. South Carolina Ethics Opinion 12-03, for example, concluded that lawyers may not participate in websites designed to allow non- lawyer users to post legal questions where the website describes the attorneys answering those questions as “experts.” Similarly, New York State Ethics Opinion 972 concluded that a lawyer may not list his or her practice areas under the heading “specialties” on a social media site unless the lawyer is appropriately certified as a specialist – and law firms may not do so at all.

Although most legal professionals are already appropriately sensitive to these restrictions, some social media activities may

5 nevertheless give rise to unanticipated ethical lapses. A common example occurs when a lawyer creates a social media account and completes a profile without realizing that the social media platform will brand the lawyer to the public as an “expert” or a “specialist” or as having legal “expertise” or “specialties.” Under RPC 7.4 and equivalent state ethics rules, lawyers are generally prohibited from claiming to be a “specialist” in the law. The ethics rules in many states extend this restriction to use of terms like “expert” or “expertise.” Nevertheless, many professional social networking platforms (e.g., LinkedIn and Avvo) may invite lawyers to identify “specialties” or “expertise” in their profiles, or the sites may by default identify and actively promote a lawyer to other users as an “expert” or “specialist” in the law. This is problematic because the lawyer completing his or her profile cannot always remove or avoid these labels.

3. Avoid Making Prohibited Solicitations

Solicitations by a lawyer or a law firm offering to provide legal services and motivated by pecuniary gain are restricted under RPC 7.3 and equivalent state ethics rules. Some, but not all, state analogues recognize limited exceptions for communications to other lawyers, family members, close personal friends, persons with whom the lawyer has a prior professional relationship, and/or persons who have specifically requested information from the lawyer.

By its very design, social media allows users to communicate with each other or the public at-large through one or more means. The rules prohibiting solicitations force legal professionals to evaluate – before sending any public or private social media communication to any other user – whom the intended recipient is and why the lawyer or law firm is communicating with that particular person. For example, a Facebook “friend request” or LinkedIn “invitation” that offers to provide legal services to a non-lawyer with whom the sending lawyer does not have an existing relationship may very well rise to the level of a prohibited solicitation. Legal professionals may also unintentionally send prohibited solicitations merely by using certain automatic features of some social media sites that are designed to facilitate convenient connections between users. For instance, LinkedIn provides an option to import e-mail address books to LinkedIn for purposes of sending automatic or batch invitations. This may seem like an efficient option to minimize the time required to locate and connect with everyone you know on LinkedIn. However, sending automatic or batch invitations to everyone identified in your e-

6 mail address book could result in networking invitations being sent to persons who are not lawyers, family members, close personal friends, current or former clients, or others with whom a lawyer may ethically communicate. Moreover, if these recipients do not accept the initial networking invitation, LinkedIn will automatically send two follow up reminders unless the initial invitation is affirmatively withdrawn. Each such reminder would conceivably constitute a separate violation of the rules prohibiting solicitations.

4. Do Not Disclose Privileged or Confidential Information Social media also creates a potential risk of disclosing (inadvertently or otherwise) privileged or confidential information, including the identities of current or former clients. The duty to protect privileged and confidential client information extends to current clients (RPC 1.6), former clients (RPC 1.9), and prospective clients (RPC 1.18). Consistent with these rules, ABA Formal Opinion 10-457 provides that lawyers must obtain client consent before posting information about clients on websites. In a content-driven environment like social media where users are accustomed to casually commenting on day-to-day activities, including work-related activities, lawyers must be especially careful to avoid posting any information that could conceivably violate confidentiality obligations. This includes the casual use of geo-tagging in social media posts or photos that may inadvertently reveal your geographic location when traveling on confidential client business.

There are a few examples of lawyers who found themselves in ethical crosshairs after posting client information online. For example, in In re Skinner, 740 S.E.2d 171 (Ga. 2013), the Georgia Supreme Court rejected a petition for voluntary reprimand (the mildest form of public discipline permitted under that state’s rules) where a lawyer admitted to disclosing information online about a former client in response to negative reviews on consumer websites. In a more extreme example, the Supreme Court in In re Peshek, M.R. 23794 (Ill. May 18, 2010) suspended an assistant public defender from practice for 60 days for, among other things, blogging about clients and implying in at least one such post that a client may have committed perjury. The Wisconsin Supreme Court imposed reciprocal discipline on the same attorney for the same misconduct. In re Disciplinary Proceedings Against Peshek, 798 N.W.2d 879 (Wis. 2011).

Interestingly, the Virginia Supreme Court held in Hunter v. Virginia State Bar, 744 S.E.2d 611 (Va. 2013), that confidentiality

7 obligations have limits when weighed against a lawyer’s First Amendment protections. Specifically, the court held that although a lawyer’s blog posts were commercial speech, the Virginia State Bar could not prohibit the lawyer from posting non-privileged information about clients and former clients without the clients’ consent where (1) the information related to closed cases and (2) the information was publicly available from court records and, therefore, the lawyer was free, like any other citizen, to disclose what actually transpired in the courtroom.

5. Do Not Assume You Can “Friend” Judges

In the offline world, it is inevitable that lawyers and judges will meet, network, and sometimes even become personal friends. These real-world professional and personal relationships are, of course, subject to ethical constraints. So, too, are online interactions between lawyers and judges through social media (e.g., becoming Facebook “friends” or LinkedIn connections) subject to ethical constraints.

Different jurisdictions have adopted different standards for judges to follow. ABA Formal Opinion 462 recently concluded that a judge may participate in online social networking, but in doing so must comply with the Code of Judicial Conduct and consider his or her ethical obligations on a case-by-case (and connection-by- connection) basis. Several states have adopted similar views, including Connecticut (Op. 2013-06), Kentucky (Op. JE-119), Maryland (Op. 2012-07), New York (Op. 13-39, 08-176), Ohio (Op. 2010-7), South Carolina (Op. 17-2009), and Tennessee (Op. 12-01).

In contrast, states like California (Op. 66), Florida, Massachusetts (Op. 2011-6), and Oklahoma (Op. 2011-3) have adopted a more restrictive view. Florida Ethics Opinion 2009-20, for example, concluded that a judge cannot friend lawyers on Facebook who may appear before the judge because doing so suggests that the lawyer is in a special position to influence the judge. Florida Ethics Opinion 2012-12 subsequently extended the same rationale to judges using LinkedIn and the more recent Opinion 2013-14 further cautioned judges about the risks of using Twitter. Consistent with these ethics opinions, a Florida court held that a trial judge presiding over a criminal case was required to recuse himself because the judge was Facebook friends with the . See Domville v. State, 103 So. 3d 184 (Fla. 4th DCA 2012).

6. Avoid Communications with Represented Parties

Under RPC 4.2 and equivalent state ethics rules, a lawyer is

8 forbidden from communicating with a person whom the lawyer knows to be represented by counsel without first obtaining consent from the represented person’s lawyer. Under RPC 8.4(a) and similar state rules, this prohibition extends to any agents (secretaries, , private investigators, etc.) who may act on the lawyer’s behalf.

These bright-line restrictions effectively prohibit lawyers and their agents from engaging in social media communications with persons whom the lawyer knows to be represented by counsel. This means that a lawyer may not send Facebook friend requests or LinkedIn invitations to opposing parties known to be represented by counsel in order to gain access to those parties’ private social media content. In the corporate context, San Diego County Bar Association Opinion 2011-2 concluded that high- ranking employees of a corporation should be treated as represented parties and, therefore, a lawyer could not send a Facebook friend request to those employees to gain access to their Facebook content.

On the other hand, viewing publicly accessible social media content that does not precipitate communication with a represented party (e.g., viewing public blog posts or Tweets) is generally considered fair game. That was the conclusion reached by Oregon Ethics Opinions 2013-189 and 2005-164, which analogized viewing public social media content to reading a magazine article or a published book. 7. Be Cautious When Communicating with Unrepresented Third Parties

Underlying RPC 3.4 (Fairness to Opposing Party and Counsel), 4.1 (Truthfulness in Statements to Others), 4.3 (Dealing with Unrepresented Person), 4.4 (Respect for Rights of Third Persons), and 8.4 (Misconduct), and similar state ethics rules is concern for protecting third parties against abusive lawyer conduct. In a social media context, these rules require lawyers to be cautious in online interactions with unrepresented third parties. Issues commonly arise when lawyers use social media to obtain information from third-party witnesses that may be useful in a litigation matter. As with represented parties, publicly viewable social media content is generally fair game. If, however, the information sought is safely nestled behind the third party’s privacy settings, ethical constraints may limit the lawyer’s options for obtaining it. Of the jurisdictions that have addressed this issue, the consensus appears to be that a lawyer may not attempt to gain access to non-public social media content by using subterfuge, trickery, dishonesty, deception, pretext, false pretenses, or an alias. For

9 example, ethics opinions in Oregon (Op. 2013-189), Kentucky (Op. KBA E-434), New York State (Op. 843), and New York City (Op. 2010-2) concluded that lawyers are not permitted (either themselves or through agents) to engage in false or deceptive tactics to circumvent social media users’ privacy settings to reach non-public information. Ethics opinions by other bar associations, including the Philadelphia Bar Association (Op. 2009-02) and the San Diego County Bar Association (Op. 2011-2), have gone one step further and concluded that lawyers must affirmatively disclose their reasons for communicating with the third party. 8. Beware of Inadvertently Creating Attorney-Client Relationships

An attorney-client relationship may be formed through electronic communications, including social media communications. ABA Formal Opinion 10-457 recognized that by enabling communications between prospective clients and lawyers, websites may give rise to inadvertent lawyer-client relationships and trigger ethical obligations to prospective clients under RPC 1.18. The interactive nature of social media (e.g., inviting and responding to comments to a blog post, engaging in Twitter conversations, or responding to legal questions posted by users on a message board or a law firm’s Facebook page) creates a real risk of inadvertently forming attorney-client relationships with non- lawyers, especially when the objective purpose of the communication from the consumer’s perspective is to consult with the lawyer about the possibility of forming a lawyer-client relationship regarding a specific matter or legal need. Of course, if an attorney-client relationship attaches, so, too, do the attendant obligations to maintain the confidentiality of client information and to avoid conflicts of interest.

Depending upon the ethics rules in the jurisdiction(s) where the communication takes place, use of appropriate disclaimers in a lawyer’s or a law firm’s social media profile or in connection with specific posts may help avoid inadvertently creating attorney- client relationships, so long as the lawyer’s or law firm’s online conduct is consistent with the disclaimer. In that respect, South Carolina Ethics Opinion 12-03 concluded that “[a]ttempting to disclaim (through buried language) an attorney-client relationship in advance of providing specific legal advice in a specific matter, and using similarly buried language to advise against reliance on the advice is patently unfair and misleading to laypersons.”

9. Beware of Potential Unauthorized Practice Violations

A public social media post (like a public Tweet) knows no geographic boundaries. Public social media content is accessible

10 to everyone on the planet who has an Internet connection. If legal professionals elect to interact with non-lawyer social media users, then they must be mindful that their activities may be subject not only to the ethics rules of the jurisdictions in which they are licensed, but also potentially the ethics rules in any jurisdiction where the recipient(s) of any communication is(are) located. Under RPC 5.5 and similar state ethics rules, lawyers are not permitted to practice law in jurisdictions where they are not admitted to practice. Moreover, under RPC 8.5 and analogous state rules, a lawyer may be disciplined in any jurisdiction where he or she is admitted to practice (irrespective of where the conduct at issue takes place) or in any jurisdiction where he or she provides or offers to provide legal services. It is prudent, therefore, for lawyers to avoid online activities that could be construed as the unauthorized practice of law in any jurisdiction(s) where the lawyer is not admitted to practice. 10. Tread Cautiously with Testimonials, Endorsements, and Ratings

Many social media platforms like LinkedIn and Avvo heavily promote the use of testimonials, endorsements, and ratings (either by peers or consumers). These features are typically designed by social media companies with one-size-fits-all functionality and little or no attention given to variations in state ethics rules. Some jurisdictions prohibit or severely restrict lawyers’ use of testimonials and endorsements. They may also require testimonials and endorsements to be accompanied by specific disclaimers. South Carolina Ethics Opinion 09-10, for example, provides that (1) lawyers cannot solicit or allow publication of testimonials on websites and (2) lawyers cannot solicit or allow publication of endorsements unless presented in a way that would not be misleading or likely to create unjustified expectations. The opinion also concluded that lawyers who claim their profiles on social media sites like LinkedIn and Avvo (which include functions for endorsements, testimonials, and ratings) are responsible for conforming all of the information on their profiles to the ethics rules.

Lawyers must, therefore, pay careful attention to whether their use of any endorsement, testimonial, or rating features of a social networking site is capable of complying with the ethics rules that apply in the state(s) where they are licensed. If not, then the lawyer may have no choice but to remove that content from his or her profile.

Conclusion

Despite the risks associated with using social media as a legal

11 professional, the unprecedented opportunities this revolutionary technology brings to the to, among other things, promote greater competency, foster community, and educate the public about the law and the availability of legal services justify the effort necessary to learn how to use the technology in an ethical manner. E-mail technology likely had its early detractors and, yet, virtually all lawyers are now highly dependent on e-mail in their daily law practice. Ten years from now, we may similarly view social media as an essential tool for the practice of law.

12 ENTERTAINMENT LAW ETHICS

Kenneth J. Abdo, Esq.1 Jack P. Sahl2

A. INTRODUCTION

Entertainment law is a highly competitive practice in which lawyers often assume non- traditional roles and responsibilities. Marketing, advertising, selling (shopping), packaging, networking and deal-making are common business activities for agents, managers and lawyers. As a result, lawyers sometime resemble agents and managers. However, lawyers are distinguished from others because lawyers are governed by codes of professional behavior.

Unlike agents and managers, lawyers must be highly educated and trained. They must pass a bar examination before being licensed to practice law. Their qualifications and character are scrutinized prior to entering law school and before taking the bar exam. After becoming licensed, most states require lawyers to continue and training to maintain licensure.

Lawyers’ achievements are often overshadowed by criticism of self-interest, greed and incompetency. As a result, grievances and malpractice claims are filed against entertainment lawyers.3 A violation of the code threatens his or her reputation, , and livelihood.

1. Kenneth J. Abdo is partner at the national law firm Fox Rothschild LLP, Minneapolis, Minnesota where he practices entertainment law full time. He is a past Chair of the American Bar Association's Forum on the Entertainment & Sports Industries. He was an Adjunct Professor of Entertainment Law at William Mitchell College of Law, St. Paul, Minnesota, for eleven years. Mr. Abdo is a voting member, former Governor ( Chapter) and member of the Board of Trustees of The Recording Academy. He is also the past Chair and current Program Chair of the Entertainment Law Initiative (ELI) with the GRAMMY Foundation. For many years, Ken has been the Program Co-Chair of the SXSW continuing legal education program. He is a published author and national lecturer. He is a co- of the standard law school textbook “The Law and Business of the Entertainment Industries” (Don Biederman, et al./Praeger). Research assistance for this article was provided by Timothy C. Matson, Esq. and Melissa Biederman, Esq.

2. Jack P. Sahl is a professor at the University of Akron School of Law, Akron, Ohio where he teaches Professional Responsibility and Entertainment Law. He also often consults on entertainment and professional responsibility matters. Before becoming a law professor, he worked full time in the . Professor Sahl regularly lectures on professional responsibility in the United States and abroad. He is a member of the publications Board of the American Bar Association’s Center for Professional Responsibility and the Ohio State Bar Association’s Legal Ethics and Professional Conduct Committee. Professor Sahl is also the Deputy Director of the Miller Institute of Professional Responsibility, a research center studying lawyer and judicial conduct.

3. See e.g., John P. Sahl, The Public Hazard of Lawyer Self-: The Struggle to Reform Ohio’s Disciplinary System, 68 U. Cinc. L. Rev. 65 (1999) (noting examples of criticism of lawyers and recommending disciplinary reforms).

©2016. Kenneth J. Abdo & Jack P. Sahl. All rights reserved. 13 Lawyers’ reputations depend on their ability to build and maintain professional relationships. However, along with public and professional scrutiny, references to entertainment (and all) lawyers such as “counselor,” “advocate,” “champion” and even “mouthpiece” reflect the critical valued and powerful roles that lawyers perform. Despite the jokes and jabs, the standard of living that many lawyers enjoy reflects the significant value that society attaches to quality legal services.

Entertainment attorneys who aggressively represent clients often test the limits of permissible professional conduct. Given the highly competitive and entrepreneurial nature of the entertainment business, it is not surprising that entertainment lawyers are the subject of complaints before disciplinary authorities and the . This article addresses the realities and concomitant ethics issues often encountered by entertainment lawyers.

B. PROFESSIONAL CONDUCT

Given increased complexity of the law, advanced technology, sophisticated and litigious clients, practicing law today involves significant risks.4 One source predicts that recent law school graduates “will be the subject of three or more claims of legal malpractice before finishing a career.”5 Thus, lawyers should have professional liability insurance and understand how their insurance policies define the practice of law to insure that the policies cover their activities.6

Professional responsibility is one of the most rapidly changing fields in law. There have been changes to the ABA Model Rules of Professional Conduct (1983) (MRPC), a code of ethical conduct that has been adopted in some version by more than 45 states.7 States that follow a version of the older ABA Model Code of Professional Responsibility (1974) have

4. See Sahl, supra note 3, at 66 (noting that a decline in the high rate of grievances against lawyers is unlikely given these factors and an increase in public dissatisfaction with lawyers).

5. RON E. MALLEN & JEFFREY M. SMITH, LEGAL MALPRACTICE x (1989) (hereinafter Mallen).

6. A lawyer’s professional liability policy “is not written for ‘,’ but for certain ‘acts, omissions or errors’ in rendering professional services.” Id. at vol 4, 299. Courts have liberally defined the phrase, professional legal services, for purposes of covering lawyers’ activities. If the client’s principal purpose for retaining the lawyer is the rendition of legal services, “then the rendition of non-legal services that are incidental to the task are included” in the insurance policy. Id. at 302-03. A lawyer retained for non-legal purposes, such as, investing a client’s funds or selling limited partnership interests for commissions, is not entitled to coverage. Id. at 304-05. Thus, depending on the context, a lawyer’s advice to a client about selecting a home in the “Hamptons” or selling a client’s songs to publishers or advertising companies, may not constitute the rendition of legal services.

7. JAMES E. MOLITERNO, CASES AND MATERIALS ON THE LAW GOVERNING LAWYERS 26 (2000). A significant amount of entertainment business occurs in California and New York, the locations of many entertainment companies and creative talent. Although California does not follow the MRPC format, it has promulgated rules and many of which are similar to the MRPC. New York follows the format of the older ABA ethical code, the MCPR. Since the MRPC are widely adopted, this article focuses on the MRPC with references to the California Business and Professions Code ("CBPC") and Rules of Professional Conduct of the State Bar of California ("RPCC").

©2016. Kenneth J. Abdo & Jack P. Sahl. All rights reserved. 14 revised portions of their codes that often track the MRPC. Courts adjudicating malpractice actions, and disciplinary authorities considering grievances, often use these codes to evaluate the propriety of lawyer conduct. Another change concerns the American Law Institute, which recently completed its new Restatement of the Law Governing Lawyers. The Restatement has identified important issues beyond the ABA’s ethical codes.8 In addition, in 1998 the ABA created the Ethics 2000 Commission to consider changes to the MRPC. The Commission held numerous hearings throughout the nation and released its report at the end of 2000. The report recommended numerous changes to the MRPC.9

In 2002, the American Bar Association adopted substantial revisions to the MRPC. The name and format of the amended Rules are the same as in 1983. Very few states follow the MRPC as amended in 2002, but many have established committees to review the changes. This article refers to the amended Model Rules, unless stated otherwise.

Lawyers should conduct “professional responsibility audits” of their practices to insure that they are complying with state ethical codes concerning the practice of law.10 For example, some states have particular rules concerning direct mail solicitation and advertising, which lawyers will want to review for compliance purposes.11 Records of a lawyer’s audit of his or her practice may become useful of the lawyer’s efforts to comply with ethical standards if the lawyer becomes the subject of a grievance or a malpractice complaint.

A. Establishing an Attorney-Client Relationship

Courts and disciplinary authorities have found that the attorney-client relationship exists as soon as the client reasonably relies on the attorney’s advice. As a result, attorneys should be careful about casually offering advice on legal matters. An attorney should formally establish a professional relationship with a client and memorialize it in writing.12 At the initial meeting with the client, the attorney should not give advice unless the attorney is prepared to accept responsibility for the

8. MORGAN & ROTUNDA, PROBLEMS AND MATERIAL ON PROFESSIONAL RESPONSIBILITY 13 (7th ed. 2000)(hereinafter MORGAN)( identifying malpractice and liens to secure payment for legal services as some of the subjects not covered in MRPC); ABA/BNA LAWYERS’ MANUAL ON PROFESSIONAL CONDUCT, 301:111 (1998) (reporting that some commentators believe the ALI’s Restatement (Third) of the Law of Lawyering might create yet another standard of care for judging lawyers’ conduct in malpractice actions).

9. See MORGAN, supra note 8, at 12 n.9.

10. There are legal consultants and companies, such as, the PLI, that will provide professional responsibility seminars to law firms and lawyers to promote compliance with states’ ethical rules for practicing law.

11. Some states require that solicitation letters be in envelopes with the phrase, “Advertisement Only,” in red ink and ten point type or more. See OCPR DR 2-101(F)(e). A few states require internet advertising to be pre- screened by bar committees. See Part 7 of the Texas Disciplinary Rules.

12. See MRPC, Rule 1.5 (b) (suggesting that with new clients that lawyers communicate in writing the basis of the fee); see also Id. at (c) (requiring written contingent fee agreements that are signed by the client).

©2016. Kenneth J. Abdo & Jack P. Sahl. All rights reserved. 15 consequences of the "client's" reliance thereon.13 Lawyers should be especially careful not to give advice at "beauty contest" interviews by parties seeking to hire lawyers, because they may be liable for incorrect advice and may also be precluded from representing the clients’ opponents for conflict of interest reasons.14 Ideally, the attorney should inform a prospective client at the initial meeting that he or she is not providing legal advice, and should reiterate this point in a follow-up letter thanking the person for his or her interest. This follow-up letter may also include the terms of a retention agreement that should have been discussed at the initial meeting. The retention agreement should clearly outline the scope and conditions of the lawyer’s representation as well as the basis for the fee if the client decides to employ the attorney.15 A comprehensive and precise retention agreement defines the expectations of the attorney and the client, facilitates good client relations, and protects the attorney against claims of wrongdoing based on the client’s unreasonable expectations.

B. MRPC 1.1 - A Lawyer’s Duty of Competence

Once an attorney agrees to represent a client, MRPC 1.1 requires the lawyer to provide competent representation.16 Competence requires the legal knowledge, skill, thoroughness, and preparation reasonably necessary for the representation. The Comment to MRPC 1.1 states that in determining the competency of a lawyer to handle a matter, “relevant factors include the relative complexity and specialized nature of the matter, the lawyer’s general experience, the lawyer’s training and experience in the field in question, and the preparation and study . . .” the lawyer can give to the matter.17 The comment also recognizes that it may be necessary to associate or consult with a more experienced lawyer or even refer the matter to another lawyer. As a result, consultations even among more experienced entertainment lawyers are common and highly advisable. Lawyers should be careful in making referrals or associating counsel because they might be liable for incompetent referrals or associations.

13. Togstad, et al. v. Vesely, Otto, Miller & Keefe, 291 N.W.2d 686 (Minn. 1980); see Croce v. Kurnit infra note 32.

14. Bridge Products, Inc. v. Quantum Chemical Corporation, 1990 WL103200 (N.D. Ill.); DCA Food Industries, Inc. v. Tasty Foods, Inc., 626 F.Supp. 54 (W.D. Wis. 1985).

15. MRPC, Rule 1.2 “Scope of Representation.” For example, a lawyer may agree to negotiate the terms of a management contract for a client but not to handle his divorce. Id.; at 1.2(c) (permitting a lawyer to “limit the scope of representation if the limitation is reasonable under the circumstances and the client gives informed consent.”).

16. As a matter of law, the attorney owes the client a fiduciary duty of care, diligence and loyalty. See Daniel J. Pope & Suzanne Lee, Breach of Fiduciary Duties and Punitive Damages, 66 Def. Couns. J. 257 (1999).

17. See MRPC, Rule 1.1, Comment 1. Otherwise, no attorney would be competent to accept a first case. See CBPC §6092, RPCC, Rule 3-110.

©2016. Kenneth J. Abdo & Jack P. Sahl. All rights reserved. 16 Some states provide for the involuntary deactivation of a practitioner's license in the event of mental incompetency or habitual use of drugs.18 Many bar associations have substance abuse committees that confidentially assist lawyers with substance abuse and mental health issues.

C. Conflicts of Interest - What's going on?19

1. Conflicts of interest in the entertainment industry have increasingly attracted significant attention. The public and the profession seem to have insatiable appetites for following filed by famous artists against their famous lawyers.20

The unconventional culture of the entertainment business is conducive to conflicts of interest and other lawyer misconduct. The business is fast- paced, highly competitive, and intense. It is commonly described as “incestuous” with a premium attached to “who you know” as much as “what you know.” The entertainment business also tends to be dominated (at least at the corporate top) by a small number of resilient power-brokers.21 It is not unusual for these individuals to be fired or to resign from their positions only to resurface in a similarly powerful position at another company. Informed entertainment lawyers follow the trade journals and other media to track the frequent movement of business people within the industry as such changes often create conflicts of interest and other potential ethical problems.

Some observers feel that conflicts of interest may be beneficial to parties. For example, a prominent entertainment attorney who represents a successful producer and a famous actor may unite them (as some agents do) in a “package” deal to secure box-office success. Although the package deal brings together clients with possibly differing interests, the combination ultimately makes the producer, actor, lawyer, and studio more successful. Everyone wins. For a less famous talent, the package is very valuable because it could launch their career. There is always the risk however, that attorneys may protect their special relationships with the studio and others in package

18. See CBPC §6190.

19. The late, great Marvin Gaye, 1971, Tamala Records.

20. One observer has stated the following about the recent interest in conflicts cases: “[s]ue the lawyers when not paying them does not work.” The increase in conflict of interest cases and related lawsuits have been, in part, on non-entertainment lawyers who do not understand the business culture. McPherson, Conflicts in the Entertainment Industry? . . . Not!, 10, NO.4 ENT. & SPORTS L. J. 5. (Winter 1993) (hereinafter McPherson).

21. In a TIME magazine article, super-agent Michael Ovitz was quoted, "[l]ook this industry created conflicts of interest." TIME, The Ultimate Mogul, p. 54, April 19, 1993.

©2016. Kenneth J. Abdo & Jack P. Sahl. All rights reserved. 17 deals by promoting more prominent clients at the expense of less famous clients.22

2. MRPC 1.7 sets forth the general rule governing conflicts of interest:

a. Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if:

(1) the representation of one client will be directly adverse to another client; or

(2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.

b. Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:

(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;

(2) the representation is not prohibited by law;

(3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a ; and

(4) each affected client gives informed consent, confirmed in writing.

D. Simultaneous Representation. Under MRPC 1.7(a), an attorney’s simultaneous representation of a music manager who is a prior client and an artist in negotiating their artist-management contract raises serious conflicts of interest issues. Some commentators contend that attorneys should decline joint representation in this context because of the inherent conflict in the positions of the parties.23 The parties’ interests with

22 McPherson, supra note 20. 23. E.g. Jack P. Sahl, Ethics for Entertainment Lawyers: Avoiding Conflicts of Interest, 12TH ANNUAL INTERNATIONAL FOLK ALLIANCE CONFERENCE. (Cleveland Rock & Roll Hall of Fame, 2/11/2000) (suggesting that lawyers should generally avoid dual representation of managers and artists in negotiating the terms of a personal management contract).

©2016. Kenneth J. Abdo & Jack P. Sahl. All rights reserved. 18 respect to certain contract provisions, such as the duration of the contract, may be directly adverse. Even if the parties’ interests are not directly adverse, a concurrent conflict of interest may exist if there is a significant risk that the attorney’s responsibilities to the earlier client, the manager, may materially limit the attorney’s representation of the artist and violate 1.7(a). The manager’s attorney should ask the artist to retain independent counsel to facilitate the negotiation of the contract, to help ensure the enforcement of an eventual agreement, and to avoid personal liability for violating the conflict of interest rules. Another, perhaps less prudent, option is for the manager’s attorney to obtain written informed consent from both clients of any conflicts of interest.24 It is important to note that some conflicts are nonconsentable.25 Comment 14 to MRPC 1.7 describes a nonconsentable conflict as one in which, “the lawyer involved cannot properly ask for such agreement or provide representation on the basis of the client’s consent.”26

1. The Comments to MRPC 1.7 - A Better Understanding of Conflicts of

24. Author John Grisham sued his attorney for breach of fiduciary duty and malpractice, in part, for not advising him of the conflicts of interest in the attorney’s simultaneous representation of both Grisham and his agent. Grisham claimed he retained the lawyer on the advice of his agent and that the attorney failed to inform Grisham that he did not have to renew his original agreement with the agent. See Richard E. Flamm & Joseph B. Anderson, Conflict of Interest in Entertainment Law Practice, Revisited, 14 ENT. & SPORTS L. J. 3 (1996) (discussing Grisham v. Garon-Brooke Assocs., Inc., Action No. 3:96 CV045-B (N.D. Miss. 1996) (hereinafter Flamm).

25. MRPC, Rule 1.7, Comment 14. Billy Joel sued his former New York lawyers claiming $90 million in damages. Joel charged attorney Grubman with conflict of interest, alleging that Mr. Grubman represented the singer while also representing his manager, top executives of his recording label, CBS Records (now ), and the merchandising company which holds the franchise for t-shirts and other items. Grubman's firm alleged that any conflicts were fully disclosed. Joel's conflict of interest claims also include an allegation that Grubman paid kick-backs to Billy Joel's manager in order to retain Joel as a client. Joel also claimed breach of contract, , breach of fiduciary duty, and legal malpractice against his former attorney. Grubman was hired by Billy Joel's manager (and former brother-in-law) to represent Joel in negotiations with CBS Records. In a separate action, Joel also sued his former manager. The matters were settled for an undisclosed amount. Joel v. Grubman, 1992, Case No. 261-55-92 N.Y. Sup. Ct.

26. A sued his former law firm alleging that the firm secretly represented other clients whose interests conflicted with his. Producer Phillip DeGuere, Jr. claimed that CBS contracted with him as writer and on "The Twilight Zone" series. CBS canceled the series after taping only nine of the 22 episodes it had ordered. DeGuere claimed that, under the contract, the network owed him $900,000 but that upon counseling with his law firm, he agreed to accept $250,000 in cash and a commitment for a different 13-week series in a subsequent season. DeGuere claimed he did not know that at the same time the law firm was representing him against CBS, the firm was also representing Columbia Pictures against CBS in a deal for the purchase of the daytime drama, "The Young and The Restless". DeGuere's suit claimed that, because CBS paid a premium price for the soap opera, it was forced to cut development of new shows, including a new television project produced by DeGuere, hence limiting CBS' ability to perform under the terms of his settlement agreement with him. DeGuere's attorney stated that the law firm should not be representing studios when they are also representing talent who must negotiate deals with those studios. Persistence of Vision, Inc. v. Ziffren, Brittenham & Branca, 1992, L.S. Sup. Ct. Case No. BC021603. Jimi Hendrix' father sued his long-time attorney and the foreign investment companies that purportedly granted rights to the late guitarist's favorable masters and . Hendrix alleged that Leo Branton, Jr. concealed the true nature of various agreements regarding Jimi Hendrix' recordings and copyrights and often acted in direct conflict of interest. Hendrix v. Branton, April 16, 1993, U.S. Dis. Ct. Wash.

©2016. Kenneth J. Abdo & Jack P. Sahl. All rights reserved. 19 Interest:

The conflict of interest rules are designed to protect and advance two important values - confidentiality and undivided loyalty - in the attorney-client relationship.27 These two values overlap and are at the core of the lawyer’s fiduciary duty to clients. Both values are disregarded by a lawyer who harms a client by sharing the client’s confidences with the client’s adversary - reflecting obvious disloyalty. The Comments to MRPC 1.7 provide additional insight concerning the lawyer’s ethical to the client.

The Comment to MRPC 1.7(a) indicates that an attorney is generally prohibited from representing a client when that representation involves a concurrent conflict of interest. “Thus, absent consent, a lawyer may not act as an advocate in one matter against a person the lawyer represents in some other matter, even when the matters are wholly unrelated.”28 Another less obvious example involves several parties forming a partnership. The safest practice is for each partner to secure separate counsel in negotiating or reviewing the partnership agreement. Alternatively, MRPC 1.7 expressly provides that after full disclosure of the potential conflicts of interest, the parties can waive such conflicts of interest by giving their informed consent, confirmed in writing, to multiple representation. Of course, if a direct conflict of interest does arise between the parties during the negotiation of the partnership agreement, or litigation erupts among the parties, the Comment to MRPC 1.7 suggests that unless the lawyer has obtained the informed consent of the client under the conditions of 1.7(b), the attorney ordinarily must withdraw in order to safeguard the confidentiality of the parities pursuant to MRPC 1.6. It is important to note that the representation of multiple parties is not uncommon and not always impermissible in the entertainment business. For example,

27. See MRPC, Rule 1.6 (requiring lawyers to protect client confidences and listing exceptions to the general rule).

28. Id. At Rule 1.7, Comment [6]; see Cinema 5, Limited v. Cinerama, Inc., 528 F.2d 1384 (2d. Cir. 1976) (establishes the general standard in federal courts that a lawyer cannot sue an actively represented client of another firm in which the attorney is a partner). But see Universal City Studios v. Reimerdes, 98 F. Supp. 2d 449 (S.D.N.Y. 2000). In Reimerdes, Time Warner sought the disqualification of a lawyer who represented a defendant in a suit by the movie studios against the defendant who posted a computer program over the Internet that defeats the encryption system for DVD’s. Id. 450-51. The same lawyer represented Time Warner and other defendants in an unrelated suit involving the rights to the term, “Muggles,” from the Harry Potter books. Id. The federal judge in the Southern District of New York denied Time Warner Entertainment’s disqualification motion because Time Warner had improperly delayed the filing of its motion to unfairly prejudice the defendant. Id. at 455. In addition, there was no evidence that the defendant’s lawyer was privy to any of Time Warner’s secrets because of the lawyer’s work for Time Warner involving the “Muggles” case. Id. See also Stan Soocher, Bit Parts 16 Enter. Law & Fin. 8 (May 2000) (briefly discussing Reimerdes).

©2016. Kenneth J. Abdo & Jack P. Sahl. All rights reserved. 20 it may be permissible for a lawyer to negotiate a for a manager and the members of a group with a third party .

The Comment to MRPC 1.7(a) explains that loyalty to the client is also compromised “when there is significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer . . . .”29 In such a case, the lawyer is unable to recommend or carry out an appropriate course of action for the client. For example, a lawyer representing a personal manager in an artist management contract cannot ethically acquiesce to a shorter duration of the contract because the artist’s father, a builder, has promised to give the lawyer a good rate on remodeling his home.

Subdivision (b) of MRPC 1.7 permits a lawyer to represent a client notwithstanding the existence of a concurrent conflict of interest if (1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client; (2) the representation is not prohibited by law; (3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and (4) each affected client gives informed consent, confirmed in writing. It is often very difficult to anticipate, and thus to inform the individuals in the group about, all of the possible future conflicts of interest that may arise among them.30 When a lawyer is in doubt about undertaking or continuing representation because of a conflict of interest concern, he or she should consult with other lawyers, preferably experts in professional responsibility. If the lawyer is still concerned about the representation, he or she should decline representation until the new client responsible for the conflict of interest obtains independent counsel.

The Comments to MRPC 1.7 acknowledge that conflicts of interest in contexts other than litigation may be difficult to assess. “Relevant factors in determining whether there is significant potential for material limitation include the duration and intimacy of the lawyer's relationship with the client or clients involved, the functions being performed by the lawyer, the likelihood that disagreements will arise,

29. MRPC, Rule 1.7(a)(2).

30. See Flamm supra note 24 at n.16 citing , Adler v. Manatt, Phelps, Phillips & Kantor, L.A. Supr. Ct. BC O5307 (Apr. 1992) and noting that the former drummer of Guns’n Roses sued a law firm for malpractice and other causes for damages resulting from his signing an agreement with other members of the band)

©2016. Kenneth J. Abdo & Jack P. Sahl. All rights reserved. 21 and the likely prejudice to the client from the conflict. The question is often one of proximity and degree.”31 Thus, the evaluation of lawyer conduct in the entertainment industry will involve to some degree the custom and nuances involved in the business as well as the MRPC and its Comments. For example, if the lawyer represents a corporation which may "loan-out" the services of the artist or manager shareholder, the Comments warn of the potential for conflict if the lawyer also serves on the corporation's board of directors.

2. Reviewing Other Noteworthy Conflicts of Interest Issues:

a. Business transactions. On its face, MRPC 1.8 appears to state clearly that a lawyer shall not enter a business transaction with a client unless (1) the transaction is fair and reasonable to the client, (2) the client is advised in writing of the desirability of seeking and is given a reasonable opportunity to seek the advice of independent legal counsel on the transaction, and (3) the client gives informed consent, in a writing signed by the client, to the essential terms of the transaction and the lawyer’s role in the transaction, including whether the lawyer is representing the client in the transaction.32 Does entering into a shopping agreement for a contingent fee from income derived from a record contract, the sale of a book, or some similar deal constitute entering a business transaction? The attorney should disclaim in the shopping agreement that the parties are entering into a joint business venture, to help ensure that the lawyer does not violate the ethical rules concerning a business transaction with a client.33

b. Payment for attorney fees by another. MRPC 1.8(f) permits someone other than the client to pay the lawyer for his services if the client gives informed consent and there is no interference with the

31. MRPC, Rule 1.7, Comment [26].

32. The widow of the late popular and singer, Jim Croce, sued in New York Federal Court claiming unconscionability and breach of fiduciary duty against Croce's publishers, managers and an attorney on managerial and personal services contracts. At the initial meeting, an attorney was introduced to the Croces as "the lawyer" and reviewed the contract terms. The Croces were aware that the attorney had a business relationship with the publishers and managers on the transaction. Although the attorney was clearly not the Croces' lawyer and the Court upheld the contracts, the Court found the attorney liable for all of Croce's legal fees in challenging the contracts. The Court held that the attorney had breached a fiduciary duty to the Croces by failing to advise them to seek independent counsel. The lesson of the Croce case is that a lawyer who stands to profit from a business enterprise may find himself in a fiduciary relationship with a non-client by failing to advise independent counsel at the outset. The case has also inspired the inclusion of an acknowledgment in management contracts that the artist has been advised of the opportunity to seek independent counsel. Croce v. Kurnit, 565 F.Supp. 884 (S.D.N.Y. 1982), aff'd., 737 F.2d 229 (2nd Cir. 1984).

33. See RPCC, Rule 3-300.

©2016. Kenneth J. Abdo & Jack P. Sahl. All rights reserved. 22 lawyer’s independent professional and relationship with client, including the need to protect client confidences. For example, a manager could pay a lawyer to represent an artist in divorce proceedings. It is even possible, although not especially advisable, that a manager could pay a lawyer to represent an artist and negotiate a personal management agreement with the manager’s lawyer. If the fee creates a conflict of interest for the lawyer, then the lawyer must comply with MRPC 1.7.34 (1.8 comment 12 says this).

c. Attorney interest in literary rights. MRPC 1.8(d) precludes a lawyer from making or negotiating an agreement with the client prior to the conclusion of the representation which gives the lawyer literary or media rights to a portrayal or account based in substantial part on information relating to the representation. In the context of on-going litigation, the conclusion of representation occurs when there is a non- appealable final judgment. It is important to note that the rule does not prohibit a lawyer representing a client in a transaction concerning literary property from accepting as his fee an ownership interest in the property.35

d. Conflicts in representing former clients. Like practicing in small communities, the "incestuous" entertainment industry gives rise to potential conflicts of interest with respect to representing a party against a former client. MRPC Rule 1.9 and its Comments state that a conflict of interest arises with a former client when the lawyer’s representation of a new client bears a “substantial relationship” to the matter of the representation that the attorney provided to a former client.36 Disqualification of a lawyer from the subsequent representation is for the protection of the former client. The lawyer should either withdraw from representation or seek the former client’s informed consent regarding the conflict of interest, realizing that in some cases a waiver will be difficult because of the risk that the lawyer will harm the former client by using the former client’s confidences. The former client’s informed consent must be confirmed in writing.37

34. MRPC, Rule 1.8, Comment 12.

35. MRPC, Rule 1.8, Comment [9].

36. The “substantial relationship” test was developed in T.C. Theater Corp. v. Warner Brothers Pictures, 113 F.Supp.265 (S.D.N.Y.1953) (holding that if the matters or cause of action of the new representation are substantially related to the former representation, “the Court will assume that during the course of the former representation confidences were disclosed to the attorney bearing on the subject matter of the [new] representation” Id. at 268-69). See MRPC, Rule 1.9, Comment [3].

37. MRPC, Rule 1.9(a) & (b)(2). An action was filed by Steve Fargnoli, a former manager for the musician, Prince, alleging a conflict of interest stemming from the Ziffren firm's formerly representing Fargnoli from 1981 to

©2016. Kenneth J. Abdo & Jack P. Sahl. All rights reserved. 23 In this type of conflict of interest situation, the lawyer is advised to have as full and frank a discussion as possible with parties, keeping in mind the need to preserve each client’s secrets and confidences.

C. AGENTS, MANAGERS AND LAWYERS

The practice of entertainment law is quite broad. It includes litigators, estate planners, tax professionals, in-house counsel, and deal makers - entrepreneurial attorneys who facilitate business deals. The functions of agents, managers, and entrepreneurial entertainment lawyers often overlap. These functions are not easily distinguishable. Personal managers are given powers-of-attorney and function much like a lawyer. They counsel their artists on business and career matters and enter into contracts on their behalf. Agents, who must be licensed in most states, endeavor to procure employment for the artist. The licensing requirement and the narrow definition of their job induces some agents to broaden their involvement and income by becoming agent or managers. Lawyers are often positioned to assume all these roles, as representative, counselor and attorney-in-fact.38

A. Textbook Definitions of Roles39

Agents procure employment for artists in the entertainment fields. At , "agents" are persons authorized by a principal to act on behalf of that principal under the principal's control.40 A music agent's work, unlike an agent in the film or book publishing industries, is generally limited to soliciting and procuring engagements for live performances, personal appearances and, perhaps, endorsements. Agents for musical talent are also subject to the strictures of the American Federation of Musicians ("AF of M"), an international trade union. The AF

1986, then later representing Prince during a time when Fargnoli sued the musician and his corporations. The suit alleged that the Ziffren firm disclosed to Prince some of Fargnoli's confidential communications protected under the attorney/client privilege. The Ziffren firm had helped Prince and Fargnoli settle a dispute during their representation of Prince and at the invitation of Fargnoli. In granting the law firm summary judgment, the Court noted that the parties had entered into a release including conflict of interest claims after the parties settled their dispute. Fargnoli v. Ziffren, Brittenham & Branca, 1992, Case No. BC068280 L.A. Sup. Ct.

38. Lawyers may have to obtain if they procure employment. There are a number of articles providing guidance for the attorney who wishes to become an agent, manager, or both. See, e.g., RAYMOND L. WISE, LEGAL ETHICS 185 (2d ed. 1970); James O'Brien III, Regulation of Attorneys Under California's Talent Agencies Act: A Tautological Approach to Protecting Artists, 80 CALIF. L. REV. 471 (1992); Bruce S. Stuart, Swifties, Shifties, and That E-Biz Jazz: The Ethical Roles of Attorney/Literary Agents, HASTINGS COMM/ENT.L.J. 245 (Winter, 1996).

39. DONALD E. BIEDERMAN, ET AL., LAW AND BUSINESS OF THE ENTERTAINMENT INDUSTRIES (3d ed. 1996).

40. W. EDWARD SELL, AGENCY, (1975). THE RESTATEMENT (SECOND) OF AGENCY §424, subd. 1 (1958) defines agency in any enterprise as a fiduciary relationship created from the client (principle)'s consent that the agent may act on the client's behalf and subject to the client's control. This means that, besides being liable for breaches of statutorily-imposed duties, an agent is liable for the common law breach of the fiduciary duties of good faith, fair dealing, and loyalty.

©2016. Kenneth J. Abdo & Jack P. Sahl. All rights reserved. 24 of M requires that agents confine their efforts to procuring employment, and require that they be licensed by the AF of M. Unlicensed agents are forbidden from doing business with the AF of M, and severe penalties are incurred for musicians doing business with unlicensed agents. Almost as important to this discussion is the AF of M's limits on the fees agents or personal managers can receive. Agents are allowed a maximum of fifteen percent of an artist's gross receipts. A personal manager, defined by the AF of M as having only to do with the development of the artist's career in giving advice and guidance, can only receive five percent over the agent's percentage of the artist's gross receipts. Related exploitations by agents may include merchandising deals at performances or arranging for films of live performances.

Personal Managers are the artist's principal career advisors in all business affairs, including daily management to strategic career development planning. Personal managers often oversee the hiring of other managers to deal with other aspects of the artist's career. Personal managers often hire the business manager. Business managers, usually accountants, manage business and personal finances. While the business manager manages the money, the personal manager focuses his/her efforts on how the money is earned. This focus often leads a personal manager to delve into the agent's realm of procuring employment. A personal manager involved in procuring employment may be subject to sanctions as an unlicensed agent.41

Lawyers are engaged to protect the legal interests of their clients. The rules of professional conduct may be the attorney's chief impediment stumbling to becoming establishing him or herself as an agent or manager. The MRPC govern conflicts of interest and the duty of loyalty. Both may be compromised when an attorney assumes the roles of counselor and agent/manager.42

B. Practical Roles43

Practically speaking, the roles of agent, manager and lawyer are not easily distinguishable. Conflicts arise when the parties switch or merge roles. For example, the lawyer who also acts as a personal manager must proceed carefully given the potential for conflicts of interest and the possibility that the lawyer-client relationship will be adversely affected by the artist’s frustrations with unrealized career

41. See, e.g., Chinn v. Tobin, California Labor Comm'r Case No. 17-96 (1997); Waisbren v. Peppercorn Productions, Inc., 48 Cal. Rprtr. 2d 437 (1996); Mandel v. Liebman, 303 N.Y. 88 (1951); Raden v. Laurie, 262 P. 2d 61 (Cal. 1953). See also Don Biederman, Agent or Manager? There is a Difference . . . Isn't There?, 15 No.9 ENT L. REP. 3 (Feb., 1994); Fred Jelin, The Personal Manager Controversy: Carving the Turf, 7 No.1 ENT. L. REP. 3 (June, 1985) (hereinafter Jelin).

42. See also Joseph B. Anderson and Darrell D. Miller, Professional Responsibility 101, 11 ENT. & SPORTS LAW 8 (Summer 1993) (discussing an earlier article on legal ethics as applied to agent/managers, see McPherson, supra note 20).

43. Harold Orenstein & David Guinn, ENTERTAINMENT LAW & BUSINESS: A GUIDE TO THE LAW AND BUSINESS PRACTICES OF THE ENTERTAINMENT INDUSTRY (1996).

©2016. Kenneth J. Abdo & Jack P. Sahl. All rights reserved. 25 expectations.44

Much like a lawyer or a personal manager, agents create or reject employment opportunities and influence an artist's career and image. Agents negotiate deals, or "package" deals, by using business and personal relationships to bring artists together with other creative talent for tours, sponsorships, recordings and other business. Agents are responsible for the collection, accounting, and distribution of money, just like a business manager. Agents are paid by commissioning the artist's gross income from employment procured by the agent usually at 10% to 15% rate.

Personal managers may procure employment like an agent. The music industry is a particularly appropriate setting for considering lawyers who also act like personal managers or agents because the role of a personal manager developed out of a need for business assistance by artists in the music industry.45 In addition, musicians need contracts and information which are often provided by the personal manager. Managers negotiate recording contracts while agents book the artist’s performances or services.46 Finally, managers nurture the artist's career and often become a producer of the artist’s talents. Managers have usually represented a coterie of talent and may use one or more of his clients to produce an event or to assist him in developing a particular artist’s career.

Unlike agents, personal managers are not required to register with state administrative agencies. Unlike lawyers, there is no legally enforced code of professional conduct or licensing process for managers. Yet, managers do not operate wholly without restraints. In California, a manager who procures employment must be licensed as a "talent agency." The Labor Commission of California has jurisdiction over manager-artist contracts, subject to California Supreme Court review.47 Finding work for artists in New Jersey requires a manager to be licensed as a "booking agency."48 Unlike agents, managers may have powers of attorney to bind their artist to deals managers negotiate on their artist's behalf.

44. Who must and who need not be licensed often turns on whether the person in question is providing the services of an agent or of a manager, or both. For example, booking agents in New York are required to be licensed as employment agencies under N.Y.S. §171 (1997). However, personal managers need not have a license. See also Friedkin v. Harry Walker, Inc., 395 N.Y.S. 2d 611 (1977) (holding that agents who did not manage their clients' careers but only secured employment for them were required to be licensed as employment agencies under §171, as procuring employment for their client was not merely incidental to their job); Gervis v. Knapp, 43 N.Y.S. 2d 849 (1943) (finding that infant singer's guardian could not disaffirm a contract as unenforceable which was entered into on infant's behalf by a personal manager who was not licensed because licensing was not required of a manager who was "primarily a manager").

45. See Jelin, supra note 41.

46. Id.

47. Id. at 4.

48. N.J.S. §34:8-43 (1997). This also governs agents.

©2016. Kenneth J. Abdo & Jack P. Sahl. All rights reserved. 26 Managers, therefore, commission a large percentage of the gross income of the artist earned in the entertainment fields, usually 15% to 25%.49

Lawyers may package deals through relationships, shop talent and creative material, advise on money matters, recommend individuals or businesses for assistance, protect the client's financial interests, and intentionally or inadvertently exercise a greater degree of control over the client than is customary in other law practices. Lawyers may bill hourly or a contingency fee if work is done on a speculative basis (such as shopping and negotiating a record deal), or a combination of both. (Refer to section IV of this outline). Certain entertainment lawyers fit the textbook and practical definition of both agents and managers. This is not weird or wrong. It is a fact. Lawyers who wish to perform these services must do so within the applicable guidelines and restrictions governing all lawyers.

C. Licensing Regulations and Rules

Many states require agents - persons providing employment opportunities - to be licensed. California and New York have the most comprehensive laws regarding the licensing and regulation of entertainment agencies.50 In order to be licensed, agents must demonstrate, in part, their good character and competency in the business of providing work. Among other requirements, agents may also have to show of the nature and location of the agent’s business. The statutes also address agency agreement forms, fees, disposition of grievances and penalties. Penalties for violating the statutes are court-enforced with criminal and/or civil penalties, which include voiding contracts and ordering the return of commissions. Cases establish that persons operating in violation of the statutes in New York and California51 are nevertheless exposed to statutory penalties whether they are licensed by the state or not. These cases demonstrate how talent can assert non-compliance with the applicable licensing statute and void management contracts ab initio. Remedies available to the talent include recovering all commissions paid to managers proven to have in effect operated as unlicensed agents. State labor commissions (established for the protection of employees) issue licenses and enforce the statutes.

Managers who do not assume agency functions do not require licensing in

49. This commission is subject to the guidelines established by the American Federation of Musicians ("AF of M"), an international trade union. The AF of M sets a ceiling of fifteen percent (of an artist's gross receipts) for agents working with members of the union. Personal managers are limited to five percent of the gross, over and above the agent's percentage. BY-LAWS OF THE AMERICAN FEDERATION OF MUSICIANS OF THE UNITED STATES AND CANADA, ART. 23, §2 (revised Sept. 15, 1987).

50. California Labor Code §§1700 et seq; New York General Business Law §§170 et seq.

5151. Waisbren v. Peppercorn Productions, Inc., et al., 48 Cal. Rptr.2d 437 (1996); Pine V. Laine, 321 N.Y.S. 2d 303 (1st Dept. 1971); Buchwald v. Superior Court of San Francisco, 62 Cal. Rptr. 364 (Ct.App. 1st Dist. 1967); Anita Baker v. BNB Associates, Ltd., Case No. TAC 12-96, California Labor Commission, determination date 12- 27-96.

©2016. Kenneth J. Abdo & Jack P. Sahl. All rights reserved. 27 California or New York.52 However, managers must be careful to structure their employment procuring activities so that they will comply with these and other requirements that such activities are permissible if they are "merely incidental" to their actions as manager. It is advisable to include language in a management contract to the effect that the artist acknowledges that the personal manager is not an employment agency or theatrical agent and that the personal management duties do not include securing or soliciting employment for the artist. Formally recognizing the cross-over function of agents and managers, the California statute exempts from its definition of "talent agency" (and, therefore, exempts from licensing) managers who procure, offer or promise to procure recording contracts for music artist. California further allows an unlicensed person to act in conjunction with and at the request of a licensed talent agency in the negotiation of an employment (recording) contract (emphasis supplied). The New York statute specifically exempts from its definition of "theatrical employment agency" (and, therefore, exempts from licensing) the business of managing where such business only "incidentally" involves seeking employment. The California statute also specifically empowers talent agencies to "counsel or direct artists in the development of their professional careers." Therefore, California agents may manage while managers (with narrow exceptions) cannot function as agents without complying with the licensing requirements. By not enacting statutes specifically addressing the entertainment agencies, some states have left the regulation of agents and managers to general employment statutes and common law. Common law imposes fiduciary duties of loyalty, good faith, and fair and honest dealing on all agents and managers and lawyers.53

Lawyers are licensed by the state , which is also responsible for and enforcement of the applicable rules of professional conduct and for deciding legal malpractice cases. As previously noted, most state rules emulate the provisions contained in the American Bar Association Model Rules of Professional Conduct (Model Rules) which are the reference standard in this discussion.

D. Music Lawyer as Manager or Agent

Lawyers can serve as agents or managers while simultaneously practicing law. In the music industry, lawyers procure recording contracts for their clients and help manage their career by participating in career strategy and deal making. Unlike agents, lawyers usually do not regularly book personal appearances for their clients. Thus, lawyers often tend to act more like managers than agents. Personal management requires daily and detailed attention to the personal affairs and logistics of an artist. Because an experienced music lawyer may know the business better than

52. Mandel v. Liebman, 303 N.Y. 88 (1951); Raden v. Laurie, 262 P.2d 61 (Cal. 1953).

53. Detroit Lions, Inc. v. Argovitz, 580 F.Supp. 542 (E.D. Mich. 1984). A non-lawyer sports agent violated conflicts of interest standards when negotiating on behalf of a player with a team in which the agent was also part owner; Croce v. Kurnit, 565 F.Supp. 884 (S.D.N.Y. 1982), aff'd 737 F.2d 229 (2d Cir. 1984).

©2016. Kenneth J. Abdo & Jack P. Sahl. All rights reserved. 28 an inexperienced manager, the attorney who has a proactive relationship with the artist and manager may find himself or herself making recommendations, facilitating relationships, creating opportunities, and advising the manager as well as the artist. By doing so, the lawyer becomes, in effect, part of the management team. In some cases, the attorney may be invited by both artist and management to take on duties which are generally the prerogative of artist management. This usually means representation on a contingent fee basis and greater involvement with the artist's daily affairs in addition to providing general legal counsel. By limiting the work a lawyer can dedicate to other legal clients, the attorney may become more like a company general counsel or "in-house" lawyer.

Lawyers are agents and it is axiomatic that an attorney's authority to represent clients creates an agency and fiduciary relationship. Attorneys who regularly (and not "incidentally") make deals on a speculative basis in return for a contingent payment may still be required to be separately licensed as an agent under the applicable statute of the state in which the attorney's principal place of business is located. This should obviate the need for the attorney/agent to register as an agent elsewhere. However, should an attorney/agent establish an office or agency in a state in which he or she is not licensed to practice law, licensing under that state's rules as an agent (and certainly as an attorney, if the intention is to practice law) will be required.

In Chinn v. Tobin,54 the California Labor Commissioner ruled that an attorney who owned a production company was not procuring employment as an agent for an artist/client when he hired the artist to be in one of his productions. The Commissioner held that an attorney having an ownership interest in the employment is functioning as an employer, not as an agent "with third parties" within the meaning of the Act. However, conflict of interest issues were raised but not resolved by the Commissioner.

E. Special Considerations Regarding Lawyer Conduct

1. Merging the Roles of Various Entertainment Representatives:

Lawyers’ ethical obligations are extensive and often long-lasting.55 These obligations also create challenges for entertainment lawyers who perform services often rendered by other personnel, such as agents. The general rule is that entertainment attorneys who also act as agents or managers are still subject to their states’ codes of professional conduct to the extent that any of their activities involve the delivery of legal services.56 Lawyers cannot merely switch titles to avoid their

54. Chinn v. Tobin, California Labor Comm'r Case No. 17-96 (1997).

55. See Swidler & Berlin and Hamilton v. United States, 524 U.S. 399 (1998) (holding that the attorney-client evidentiary privilege continues after the client’s death).

56. It is also worth noting that Rule 5.4 of the MRPC prohibits lawyers from forming a partnership with a non- lawyer if any of the activities of the partnership or the professional corporation involves the practice of law.

©2016. Kenneth J. Abdo & Jack P. Sahl. All rights reserved. 29 ethical responsibilities. As a result, lawyers have taken different approaches to dealing with what is perceived as a competitive disadvantage in the entertainment business when acting in these other roles.57 Some attorneys argue that when they act as an agent or a manager they are not providing legal services and, therefore, are not subject to the codes of professional conduct. This approach has some risk as lawyers’ professional liability policies may not cover all of their services. Other attorneys formally establish separate businesses that render financial advice, career advice, or solicit employment opportunities. The attorneys may incorporate the businesses and employ full-time personnel but they expressly do not provide legal services.

As long as attorneys are licensed to practice law, they are subject to their states’ codes of professional conduct for even their non-professional activities. Lawyers must be very careful when creating separate business enterprises to make sure that these are not used to circumvent the lawyer’s ethical obligations. For example, a lawyer could create a separate talent agency and then solicit in-person talent for the agency. The lawyer could not use such solicitation however to develop clientele for his law practice.

2. Advertising and solicitations.

MRPC 7.2 and 7.3 governs lawyer advertisement and solicitation.58 In general, lawyers can mail written advertisements and solicitations directly to prospective clients providing they are truthful and non-deceptive.59 Lawyers may also advertise through recorded or electronic communication, including public media.60 Lawyers “shall not by in-person, live telephone, or real-time electronic contact solicit professional employment from a prospective client when a significant motive for the lawyer's . . .“ contact is pecuniary gain, unless the person contacted is a lawyer or has a family, close personal, or

Similarly, a lawyer cannot permit non-lawyers to own shares of a professional corporation that he is involved in that delivers legal services. Id.; see also RPCC Rule 1-310.

57. Some contend that the applicability of the law profession’s ethical codes to lawyers performing non-law services is not a settled area. See Robert E. Fraley & F. Russell Harwell, Sports Law and the "Evils" of Solicitation, 9 Loy. L.A. Ent. L.J. 21 (1989).

58. See RPCC, Rule 1-400. See generally, Jack P. Sahl, The Cost of Humanitarian Assistance: Ethical Rules and the First Amendment, 34 St. Mary’s L. J. 795 (2003) (noting the increased emphasis on marketing by the legal profession and examining the history of lawyer advertising ).

59. MRPC, Rule 7.1; see Shapero v. Kentucky Bar Association, 486 U.S. 466 (1988); see also Florida Bar v. Went For It, Inc., 515 U.S. 618 (1995) (upholding a limited 30-day ban on written solicitation by lawyers to accident victims and their families to protect privacy of state’s citizens and the “flagging reputation of state’s lawyers”). See generally Bates v. State Bar of Arizona, 433 U.S. 351 (1977).

60. MRPC, Rule 7.2(a).

©2016. Kenneth J. Abdo & Jack P. Sahl. All rights reserved. 30 prior professional relationship with the lawyer.61 Lawyers also cannot state or imply that they are specialists in a field of law, such as entertainment law, unless the lawyer has been certified as a specialist by an organization that has been approved by an appropriate state authority or that has been accredited by the American Bar Association and the name of the certifying organization is clearly identified in the communication.62

Entertainment lawyers can communicate or promote their legal services in several ways in hope of developing their practice. The most effective way is to establish a strong reputation for providing competent and efficient legal work with the general public as well as the profession. Satisfied clients will return with more work and they will refer new clients. Lawyers should create a profile in the arts and entertainment community by attending performances and other related events, for example, awards ceremonies and benefits. Lawyers should volunteer their service for arts organizations, for example, by serving on the board of directors. Authoring entertainment law articles, attending continuing legal education programs, speaking to groups, and traditional advertising - notices in trade magazines or firm brochures - are all ways to network and to develop an entertainment practice.

3. Referrals and fee splitting.

Many entertainment lawyers rely on referrals for their services from a variety of sources, including previous clients, lawyers, agents, managers, and personnel with entertainment companies. Referrals with conditions attached, for example, a desire to be retained as the client’s manager or agent, raise serious conflict of interest issues. In addition, lawyers are prohibited from paying persons to refer clients.63 MRPC 1.5(e) does permit lawyers to refer cases to other lawyers or to associate lawyers in their cases and share the fee. The clients must agree to the arrangement, including the share each lawyer will receive, and the agreement must be confirmed in writing.64 The lawyers’ share must reflect their work or their assumption of joint responsibility in the case.65 MRPC 1.5(e)(3) requires that the total fee be reasonable.

D. COMPENSATION FOR ATTORNEY SERVICES AND AGREEMENTS

61. See MRPC, Rule 7.3(a); see RPCC, Rule 1-400.

62. MRPC, Rule 7.4 (d).

63. MRPC, Rule 7.2(b); see RPCC, Rule, 1-320.

64. MRPC, Rule 1.5(e)(2).

65. MRPC, Rule 1.5(e) (1)-(3).

©2016. Kenneth J. Abdo & Jack P. Sahl. All rights reserved. 31 Entertainment lawyers deal in the development of creative material. Their relationships with talent and entertainment companies are important to developing a successful practice. Lawyers market or “shop” talent and their creative to companies for purchase, license and ultimately for commercial exploitation. Shopping talent and their properties is highly speculative work - only a very small percentage of talent or their properties ever achieve commercial success. Since many entertainment clients cannot afford to retain lawyers on an hourly basis for their services, including shopping their creative work, clients and lawyers instead often agree to a contingency fee arrangement. A comprehensive retention agreement for legal services should unambiguously address scope of representation and the basis of payment. A separate shopping agreement may also be considered if this is the primary or only service provided by the attorney.

Unlike employment contracts with managers and agents, clients can terminate employment contracts with lawyers at any time.66 If a client terminates his or her lawyer, the lawyer is generally entitled to only quantum meruit recovery. Lawyers offer a broad range of professional services and it may be useful to have a specific contractual provision regarding the lawyer’s shopping services and compensation. To help ensure that a lawyer’s work is covered by his or her professional liability insurance, the retention agreement should specify that the client is retaining the lawyer primarily for law-related services.67 If the retention agreement provides for compensation based on an hourly rate, the rate for the lawyer’s services will vary depending on a several factors, including the complexity of the representation, the lawyer’s unique skills and experience, and the value for such services in a particular geographical area. Representation of a more national or international nature may generate higher hourly rates than for more local work. Lawyers’ hourly rates for entertainment work can range from $200 to 400 per hour - with lawyers on the east and west coasts earning more within the range.

A customary contingent fee ranges from 5% to 10% of the defined gross compensation of the client and rarely exceeds 10%. The exact percentage depends, in part, on the client’s record for commercial or critical success and the likelihood that the lawyer’s efforts will be successful. For example, it is reasonable with a superstar to take a lower percentage of the gross compensation and with a new or “baby act” to insist on 10%. Successfully shopping a new artist to a recording contract with a small, local, independent record company is a situation in which a lawyer might charge 10% of the artist’s gross compensation. A lower contingency fee is expected if coupled with a reduced hourly fee. In both the hourly rate and the contingency fee , the client usually pays the out-of- pocket costs.

In the contingency fee circumstance, the definition of gross compensation is important and a source of great controversy. In many entertainment contracts, gross compensation is

66. MRPC, Rule 1.16, Comment [4] (stating that clients have the right to discharge, with or without cause, their attorneys).

67. See supra note 6.

©2016. Kenneth J. Abdo & Jack P. Sahl. All rights reserved. 32 defined broadly. It may exclude, however, income that is not derived from or enhanced by the lawyer’s professional services. For example, when representing a book author, it may be appropriate for the lawyer to include in gross compensation income from book publishing and also proceeds from television, a motion picture, or personal appearances. The lawyer wants to apply the contingency rate or commission to as much of the client gross compensation that is reasonable in the industry and under the MRPC. This may be justified because first, the book deal created all the other commercial opportunities for the client-author and second, the lawyer’s legal services are being used in these other areas. It is worth noting, that it may be in the client-author’s best interests to exclude some streams of income, such as proceeds from music, theatrical, or other "unrelated" sources. Like managers, agents and entertainment companies, lawyers are reluctant to limit the possible sources or streams of income. They usually insist on a percentage of the gross compensation from any source, whether known or yet to be discovered, especially given the trend in multimedia and the crossover nature of entertainment products in new technology. Lawyer contingency agreements, like personal management contracts, may also contain a "sunset" provision. It requires the client to pay the contingency fee for the lawyer’s past services even after the representation is terminated, usually for a period of six to twelve months. In addition and distinct from the sunset provision, the lawyer may negotiate and receive an ongoing commission on the client’s proceeds derived from deals that the lawyer helped to procure for the client. The commission may be for a limited period or extend for so long as the artist receives royalties from that source.

Model Rule 1.5 requires hourly and contingent fees to be reasonable.68 Attorneys can consider the following criteria in determining a reasonable fee: “the time and labor required, the novelty and difficulty of the questions involved, the skill requisite to perform the legal service properly; . . . the fee customarily charged in the locality for similar legal services; the amount involved and the results obtained; . . . the experience, reputation, and the ability of the lawyer or lawyers performing the services required; and whether the fee is fixed or contingent.”69 These criteria offer attorneys great flexibility and protection in charging fees. Thus, it is not unusual to find entertainment lawyers in different parts of the country charging similar fees for national or international projects because of the unique skill and experience they share in the field.

Contingent fee agreements must be in writing, signed by the client, and “state the method by which fees are to be determined, the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial or appeal, litigation and other expenses to be deducted from the recovery, and whether such expenses are deducted before or after the contingent fee is calculated. The agreement must clearly notify the client of any expenses for which the client will be liable, whether or not the client is the prevailing party.”70 Contingent

68. See RPCC, Rule 4-200.

69. MRPC, Rule 1.5(a)(1)-(8).

70. Id. at (c).

©2016. Kenneth J. Abdo & Jack P. Sahl. All rights reserved. 33 fees tend to produce more income for attorneys than hourly fees. This is permissible, in part, because there is often a risk with contingent fees that the attorney will not be paid because the representation is unsuccessful. For many entertainment attorneys, the potential value of a deal or successful representation dictates the amount or reasonableness of a contingency fee.71

Entertainment attorneys often assist in the personal management of a client. Managers frequently bill between 15% and 25% of a talent’s gross income for their services. Attorneys assuming managerial responsibilities may wish to consider the customary amounts that managers are paid in setting a reasonable contingency fee.

In some entertainment fields, it is customary for the talent’s services to be provided by a "loan-out" corporation, a "personal services" corporation, or some other entity, owned and controlled by the talent. Such entities include production, music touring and merchandise companies. The lawyer’s Engagement Letter of Agreement should either acknowledge or anticipate the representation of these entities by including them as parties or having a contractual provision that designates the lawyer as the counsel for the entities upon their formation.

E. SANCTIONS

State supreme courts regulate the right to practice law even for lawyers who never appear in court.72 These courts establish codes of professional conduct and disciplinary systems to protect the public and the bar. Federal courts usually defer to state admission standards in admitting lawyers and admission is only necessary for those lawyers who practice in a particular federal court.73 Both state supreme and federal courts can discipline lawyers.

There are two principle methods by which the public can hold lawyers and judges accountable for their misconduct.74 The first method is filing a against an attorney for civil liability.75 Most lawsuits filed against attorneys are for negligence, a fiduciary breach, breach of contract or fraud.76 Successful plaintiffs in lawyer liability cases are entitled to

71. Some types of practices, such as or debt collection, have contingency fees that the range from 33% to possibly 50%.

72. Morgan, supra note 8, at 41.

73. Id.

74. Judicial immunity largely insulates judges from civil liability for their official conduct.

75. See Mallen, supra note 5, at 554-55. Lawsuits against lawyers for professional liability are generally referred to as malpractice actions. Although there is little consensus or discussion about the meaning of legal malpractice, it commonly describes a kind of tortious conduct. Id. at 2. Liability for professional negligence is certainly included within the meaning of malpractice. Id. at 3-5.

76. The most common action brought against attorneys is for negligence. The essential elements of a negligence claim are: “(1) the employment of the attorney or other basis for imposing a duty; (2) the failure of the attorney to exercise ordinary skill and knowledge; and (3) that such negligence was the proximate cause of damage to the

©2016. Kenneth J. Abdo & Jack P. Sahl. All rights reserved. 34 attorneys' fees and to punitive damages when the attorney’s conduct involves gross negligence or malice.77

The second method of holding lawyers accountable involves the states’ disciplinary systems. Clients and others can file a grievance against an attorney with the state authority responsible for reviewing lawyer conduct, for example, the statewide disciplinary counsel. These authorities often rely on assistance from state and local bar associations to receive, review, investigate, prosecute, and hear grievances. Grievances and sanctions against lawyers have increased in recent years. The range of sanctions for lawyer discipline include: disbarment, suspension, formal reprimand, informal reprimand and a fine. One or more of these sanctions may be applied to an attorney for one significant violation or an accumulation of lesser violations of a state’s professional conduct code.

Case Sera Sera

In May 1956, Jerome B. Rosenthal entered into a retainer Agreement with Doris Day Melcher and continued to present her as an attorney, business manager, business adviser and agent until his services were terminated in July 1968. Later that year, Doris Day Melcher and her son, Terrence Melcher, filed a complaint with the state bar against Rosenthal. Disciplinary proceedings resulted in the State Bar Court unanimously recommended that he be disbarred. The case presents facts instructive of what lawyers also functioning as an agent and manager should not do and what can happen when they do.

The Supreme Court of California, in affirming the disbarment, held that Rosenthal engaged in transactions involving undisclosed conflicts of interest, took positions adverse to his former clients, overstated expenses, doubled billed for legal fees, failed to return client files, failed to provide access to records, failed to give adequate legal advice, failed to provide clients with an opportunity to obtain independent counsel, filed fraudulent claims, gave false testimony, engaged in conduct designed to harass his clients, delayed court proceedings, obstructed and abused legal process.78

plaintiff;” and (4) actual damages. Id. at 607-08. As part of a lawyer malpractice action, courts have traditionally required the plaintiff to show that but for the attorney’s conduct the client would succeeded in the underlying claim. See, Kituskie v. Corbman, 714 A.2d 1027 (Pa. 1998) (holding that the uncollectability of a judgment in the underlying action is an affirmative to a malpractice claim against an attorney); see also Morgan, supra note 8, at 89 (discussing lawyer malpractice claims and the so-called “suit-within-a-suit” requirement).

77. Patrick v. Ronald Williams, P.A., 402 S.E.2d 452 (N.C.App. 1991); see Togestad v. Vesely, Otto, Miller & Keefe, 291 N.W.2d 686 (Minn. 1980); 4 DUNNELL MINN. DIGEST Attorneys §11.00 (4th ed. 1989).

78. Jerome B. Rosenthal v. State Bar of California, 43 Cal.3d 612, 238 Cal.Rptr. 377 (1987). Que Sera, Sera (Whatever Will Be, Will Be), Doris (Kappelhoff) Day, from the film "The Man Who Knew Too Much" (1955) (song also recorded for Columbia Records).

©2016. Kenneth J. Abdo & Jack P. Sahl. All rights reserved. 35 Marquette Sports Law Review Volume 3 Article 10 Issue 1 Fall

Ethical Aspects of Representing Professional Athletes Paul T. Dee

Follow this and additional works at: http://scholarship.law.marquette.edu/sportslaw Part of the Entertainment and Sports Law Commons

Repository Citation Paul T. Dee, Ethical Aspects of Representing Professional Athletes, 3 Marq. Sports L. J. 111 (1992) Available at: http://scholarship.law.marquette.edu/sportslaw/vol3/iss1/10

This Symposium is brought to you for free and open access by the Journals at Marquette Law Scholarly Commons. For more information, please contact [email protected].

36 ETHICAL ASPECTS OF REPRESENTING PROFESSIONAL ATHLETES

PAUL T. DEE*

I. ETHICAL CONDUCT AND THE SPORT AGENT

The regulation of conduct of persons practicing a profession is now rela- tively well defined and accepted. This can generally be said for physicians, lawyers, engineers, and other defined professions. The evaluation of the regulation of conduct in the professions has followed various paths. For example, in American law the concept of lawyer discipline was originally regulated by the courts. As the concept of the profession grew, attempts were made to define and regulate lawyer conduct. Professors Geoffrey Haz- ard and Deborah Rhode in The Legal Profession: Responsibility and Regu- lation,' point to several seminal works and efforts in the evolution of lawyer regulation. In 1836, David Hoffman, a law professor, published "Fifty Res- olutions in Regard to Professional Deportment."2 In 1854, George Shar- swood, a judge, published an "Essay on Professional Ethics." 3 Hazard and Rhode indicate that this essay "heavily influenced the first state bar associa- tion's "Canon of Ethics" (1908).' Thereafter, two major revisions by the American Bar Association (ABA) have occurred. In 1970, the ABA pro- posed the "Model Code of Professional Responsibility."5 In 1983, the ABA again revised its ethical code in the "Model Rules of Professional Conduct."' 6 The profession of sports agency is not as old, nor is its code of conduct as well defined. At first, one might suggest that at present there is no ethi- cal code or system which governs agent conduct. However, it is submitted that agent conduct is regulated, even though there is not an organized pro- fession or specialized code of conduct.

* Vice President and General Counsel, University of Miami, Coral Gables, Florida. 1. GEOFFREY C. HAZARD, JR. & DEBORAH RHODE, THE LEGAL PROFESSION: RESPONSI- BILITY AND REGULATION 92 (1988). 2. Id. 3. Id. at 93. 4. Id. 5. Id. at 100. 6. Id.

37 MARQUETTE SPORTS LAW JOURNAL [Vol. 3:111

II. THE REGULATION OF PROFESSIONAL CONDUCT In undertaking the responsibility to provide service for clients, profes- sionals assume certain responsibilities and duties for their acts. These re- sponsibilities, duties, and obligations are expressed in differing forms. Some sports agents may be subject to more than one source of regulation, but the conduct of all sports agents is subject to some regulation under state and federal law. The regulation of ethical conduct takes several forms. First, agents may be regulated by their membership in a profession, the ethical code of which would apply to the representation of athletes. Second, agents are governed by codes of conduct of the players associations to which their clients belong. Third, agent conduct is regulated by law. This legal regulation may be stat- utory, regulatory, or arise under various causes of action recognized by the courts. The fourth form of regulation is the agent's own moral code and sense of duty generally owed to others, particularly clients. An examina- tion of each of the foregoing follows.

A. A Code of ProfessionalConduct Many sports agents are professionals licensed to practice in their partic- ular jurisdiction. While the profession that most immediately comes to mind is the legal profession, many agents are certified public accountants, certified financial planners, or members of other licensed professions. The professional conduct of members of these professions is generally regulated. The question here is whether the ethical code of that profession applies when the regulated person is practicing another profession. With respect to the legal profession, this query has been answered in the affirmative. In a discipline case in Arizona, an attorney had acted as a fi- nancial advisor in a transaction for a client. Subsequently, the client alleged that the financial planner had acted improperly in the matter and sought redress by filing a complaint with the Arizona Bar. The attorney defended the action in part on the basis that he was not practicing law when he was acting in his capacity as a financial advisor, arguing that the ABA "Model Code of Professional Responsibility" did not apply. The Supreme Court of Arizona expressed its disagreement with this position: As long as a lawyer is engaged in the practice of law, he is bound by ethical requirements of that profession, and he may not defend his actions by contending that he was engaged in some other kind of

38 1992] ETHICAL ASPECTS OF REPRESENTATION

professional activity. For only in this way can full protection be af- forded to the public.7 This ruling is both good law and good policy. The fact that a person is believed to be a member of a profession is certainly a reason for the selec- tion of the agent by the client. The client's interests are thus best protected by continuing the obligation of the profession beyond the scope of the prac- tice. It may also be argued that the activities of a sports agent or an attor- ney may be indistinguishable, for which reason it is appropriate to adopt a policy which supports the application of the ethical code regardless of form. From the foregoing, it appears the better rule is that the ethical codes of any regulated profession should apply to the activities of that professional while acting in the capacity of a sports agent.

B. Sports Industry Regulation The players in all major professional sports have organized themselves and have formed players associations. One of the areas of concern of the professional athlete is the quality and competence of representation. This concern is so universal that the players associations have developed codes of conduct which attempt to protect the athletes from inappropriate conduct by agents. These codes of conduct provide, in part, provisions regulating the activities of agents with respect to issues of ethics. A review of the National Football League Players Association's "Code of Conduct for NFLPA Member Contract Advisors"8 demonstrates the concerns of the players about the activities of agents and describes the con- duct that is regulated. Section 3 of the Code is specifically the Code of Conduct.9 Section 3(A) directs its attention to the basic contract of representation between the player and agent and to management conflicts of interest.1" Section 3(B) is specifically directed to improper contract advisor conduct."' This section addresses three principal concerns. First, the players require their agents to be competent and to act with integrity. Second, the agent must avoid improper conduct in his/her representation of the player. Third, the players regulate the activities of agents in the solicitation of members for representation.12 The elements of each of these three catego-

7. In re Dwight, 117 Ariz. 407, 410, 573 P.2d 481, 484 (1978). 8. CODE OF CONDUCT FOR NFLPA MEMBER CoNTRAcr ADVISORS (National Football League Player Ass'n 1990). 9. Id. § 3. 10. Id. § 3(A). 11. Id. §3(B). 12. Id.

39 MARQUETTE SPORTS LAW JOURNAL [Vol. 3:111 ries further define the conduct either expected or prohibited. A review of this section demonstrates the application of an ethical code to sports agents otherwise not covered.

C. State Law Regulating Conduct Over the past decade, nineteen states have enacted which reg- ulates the conduct of athlete contract advisors. 13 The particular class pro- tected by these laws is the professional athlete and the student-athlete possessing professional potential. These statutes for the most part only agree on the basic policy of protecting athletes. They are otherwise incon- sistent in coverage and enforcement. All of the states provide for civil en- forcement remedies, while some states additionally provide criminal penalties. The conduct addressed in these statutes is the protection of stu- dent-athletes from improper solicitation by agents. On a broader base, the conduct of agents is regulated by the general law of the states. Conduct which violates a code of conduct is often conduct which gives rise to recognized causes of action such as fraud, breach of contract, and professional negligence. Using law as a base, it is clear that a code of conduct based on the principles of ethics exists and applies to sports agents.

D. PersonalMoral Code Everyone has a conscience. Every person has developed some set of principles and values by which they act. While these principles and values vary widely from person to person, they do exist. Over time, the course of a person's conduct can be observed. The reporting system is called "reputa- tion." This form of ethical conduct is the most critical. Codes of conduct are meaningless to persons lacking values and courage to do right. There- fore, personal integrity would be one of the most important attributes sought by the player in obtaining representation.

13. ALA. CODE § 8-26-1 to -41 (1987); ARK. CODE ANN. § 17-48-101 to -203 (1992); CAL. LAB. CODE § 1500 (West 1993); FLA. STAT. ANN. § 468.451-.457 (West 1992); GA. CODE ANN. § 43-4A-1 to -19 (1992); IND. CODE ANN. § 35-46-4-1 to -4 (Bums 1992); IOWA CODE ANN. § 9A.1-.12 (West 1992); Ky. REV. STAT. ANN. § 518.080 (Mfichie/Bobbs-Merrill 1992); LA. REV. STAT. ANN. § 4:421-426 (West 1992); MD. CODE ANN., Bus. REG. § 4-401 to -426 (1992); MICH. STAT. ANN. § 750.411e (1993) (Callaghan 1993); MINN. STAT. ANN. § 325E.33 (West 1993); Miss. CODE ANN. § 73-41-1 to -23 (1992); NEV. REV. STAT. §§ 398.065, 398.085, 398.095, 598.065 (1992); OHIO REV. CODE ANN. § 4771.01-.99 (Page 1992); OKLA. STAT. ANN. tit. 70, § 821.61-.71 (West 1993); PA. STAT. ANN. tit. 18, § 7107 (1992); TENN. CODE ANN. § 49- 7-2101 to -09 (1992); TEx. REv. Civ. STAT. ANN. art. 8871 (West 1993).

40 1992] ETHICAL ASPECTS OF REPRESENTATION

III. BAsic ELEMENTS OF REGULATED CONDUCT Using the ABA "Model Rules of Professional Conduct" for lawyers as an example of a professional code; the NFLPA's "Code of Conduct for NFLPA Member Contract Advisors" as an example of sports industry reg- ulation of conduct; and, the laws of the State of Florida as an example of legal regulation of conduct, a basic code of ethical conduct can be said to exist for all sports agents. A review and comparison of the issues addressed in each "code" discloses three consistent areas of behavior which govern the actions of sports agents. These areas address: (1) minimal standards of competence, integrity, and diligence; (2) improper conduct; and, (3) the pa- rameters of solicitation. The following is an analysis of the provisions of each of the codes with respect to the common areas of behavior.

A. Competence/Integrity/Diligence 1. ABA "Model Rules of Professional Conduct" (a) Competence The first rule set forth in the ABA "Model Rules of Professional Con- duct" is related to lawyer competence. Rule 1.1 states: "A lawyer shall provide competent representation to a client. Competent representation re- quires the legal knowledge, skill, thoroughness, and preparation reasonably necessary for the representation." 14 The rule sets forth the affirmative obligations of a lawyer to possess the appropriate knowledge and skill to undertake the representation of a client. In the case of an attorney acting as a sports agent, it would be assumed that the attorney is familiar with the negotiation process, the rules of any agree- ments between the league and its players, be capable of carefully and thor- oughly negotiating the agreement, and be prepared to meet the needs and goals of the client and the client's career in the negotiation process. To the extent the representation includes other areas of responsibility, such as fi- nancial management, the lawyer should possess the requisite competencies to undertake the representation.

(b) Integrity The hallmark of integrity is truthfulness. The responsibilities of an at- torney in dealing with the client, third parties, and the public are contained in Section 4 of the Rules."5 Each of these four rules address the responsibil- ity of the attorney to be honest and to avoid interference with the rights of

14. MODEL RULES OF PROFESSIONAL CONDUCr Rule 1.1 (1983). 15. Id. Rules 4.1-4.4.

41 MARQUETTE SPORTS LAW JOURNAL [Vol. 3:111 third parties and unrepresented persons. The principal theme of this sec- tion is basic integrity.

(c) Diligence Rule 1.3 on diligence provides: "A lawyer shall act with reasonable dili- gence and promptness in representing a client.""6 By this rule, the lawyer is required to pursue the interest of the client with commitment and dedication.17 As well, the lawyer must act in a timely fashion. Procrastination is unacceptable."8

2. NFLPA Code of Conduct (a) Competence and Integrity

The NFLPA Code of Conduct addresses the conduct of contract advi- sors in the process of negotiation. The code does not apply or seek compli- ance by the advisors in representation beyond negotiation. However, despite this shortcoming, the code does focus on the protection of the rights of the client. Section 3(B)(1)(b) requires that advisors "maintain the high- est degree of integrity and competence in individual negotiations with NFL clubs."1 9 Subsection 3(B)(1)(c) requires the advisor to be competent with respect to the structure and economics of the league, and to know and un- derstand the NFL and Bylaws, negotiating techniques, and de- velopments in sports law.20 While the list is specific, its breadth indicates the general scope of conduct expected by contract advisors. The code is clear on these points. The NFLPA membership seeks pro- tection from conduct which does not meet these standards.

(b) Diligence The NFLPA Code of Conduct addresses the issue of diligence in several respects. Section 3(B)(1)(c) requires that advisors learn and keep current with all topics related to their representation of members.21 Section 3(B)(2)(d) requires the prompt notification of the association as to the pro-

16. Id. Rule 1.3. 17. Id. Rule 1.3 cmt. 18. Id. 19. CODE OF CONDUCT FOR NFLPA MEMBER CONTRACT ADVISORS, supra note 8, § 3(B)(l)(b). 20. Id. § 3(B)(1)(c). 21. Id.

42 19921 ETHICAL ASPECTS OF REPRESENTATION gress of negotiations.2 2 Section 3(B)(2)(f) requires the advisor to avoid con- 23 duct which adversely reflects on his or her fitness to act as an advisor. From these three sections, the NFLPA seeks the prompt handling of matters on behalf of the members. While the reporting requirements might appear to be for the benefit of members other than the represented player, the intent is apparently otherwise. The rule provides the Association with the ability to monitor the manner in which the members' interests are being met. It provides the Association with the ability to monitor progress and to inquire as to delays. Stated differently, it is a test of advisor diligence.

3. Other Law-Competence, Integrity, Diligence

The third area in which agents might find rules regulating their conduct in their representation of clients is in state or federal law. Focusing on the issues of competence, integrity, and diligence, there are two principal sources of jurisdiction. The first is in an action in contract. The second is in an action on negligence. The imposes duties on the agent to act for and on behalf of the principal in a manner in which the principal would act.24 Among the expectations of the principal would be the competent, prudent, and diligent representation of the principal's interest.25 The failure of the agent to meet these obligations gives rise to a cause of action for breach of contract.26 In , the negligent representation of the client causing harm would give rise to a cause of action. While the mechanisms for enforcing the client's rights become more burdensome with the application of the princi- ples of contract and tort, they, nonetheless, provide a standard of conduct for the agent which has the effect of providing for ethical considerations.

B. Improper Conduct

The second common element which gives rise to ethical concerns for agents is improper conduct. Improper conduct includes acts of dishonesty, fraud and misrepresentation, and conflicts of interest. These ethical issues subject the agent's conduct to close scrutiny.

22. Id. § 3(B)(2)(d). 23. Id. § 3(B)(2)(f). 24. RESTATEMENT (SECOND) OF AGENCY §§ 1(1), 377, 383 (1957). 25. Id. § 379. 26. Id. §400. 27. Id. §401.

43 MARQUETTE SPORTS LAW JOURNAL [Vol. 3:111

1. ABA "Model Rules of Professional Conduct" on Improper Conduct As stated above, the key elements of improper conduct are dishonest and illegal conduct and conflicts of interest. The ABA "Model Rules of Professional Conduct" address these issues at Rule 8.4, which states that it is professional misconduct for a lawyer to: (a) violate or attempt to violate the Rules of Professional Con- duct, knowingly assist or induce another to do so, or do so through the acts of another; (b) commit a criminal act that reflects adversely on the lawyer's honesty, trustworthiness, or fitness as a lawyer in other respects; (c) engage in conduct involving dishonesty, fraud, deceit, or misrepresentation; (d) engage in conduct that is prejudicial to the administration of justice; (e) state or imply an ability to influence improperly a govern- ment agency or official; or (f) knowingly assist a judge or judicial officer in conduct that is a violation of applicable rules of judicial conduct or other law.2 8 These rules apply to the general conduct of the lawyer both within and outside the practice of law. Of particular importance is the fact that the remedies for acts which are violations of this Rule are multiple. Clearly, if the rules apply to all acts of the attorney, their breach in the representation of a client, albeit outside the practice of law, would be covered by the rule. On the issue of conflict of interest, the ABA "Model Rules of Profes- sional Conduct" are again specific. Rule 1.7 generally defines the principle of conflict of interest. Rule 1.8 prohibits certain transactions with clients or adverse to clients. Rule 1.9 prohibits conduct giving rise to a conflict with a former client. With respect to agents, special attention should be paid to the provisions of Rule 1.8, particularly subsection (a), on business transactions with a cli- ent or acquiring an interest in a transaction adverse to the client.2 9

2. NFLPA Rules of Conduct-Improper Conduct Rule 3(B)(2) of the "NFLPA Rules of Conduct for Member Contract Advisors" proscribes conduct of the agent with regard to six issues.3 0 The agent (a) cannot have a financial interest in a team; (b) cannot undertake

28. MODEL RULES OF PROFESSIONAL CONDUCT Rule 8.4 (1983). 29. Id. Rule 1.8. 30. CODE OF CONDUCT FOR NFLPA MEMBER CONTRACT ADVISORS, supra note 8, § 3(B)(2).

44 19921 ETHICAL ASPECTS OF REPRESENTATION representation of a player unless he/she has disclosed to the player the names of management personnel the agent has previously represented; (c) cannot engage inactivities which create a conflict of interest; (d) cannot fail to disclose the of negotiations on behalf of his/her client; (e) cannot agree to allow a client to sign a contract with a team which prohibits disclo- sure of contract terms to the NFLPA; and (f) cannot engage in unlawful or dishonest activities including fraud and deceit.31 Rules 3(B)(2)(a-e), like Rule 3(B)(1), are limited to the negotiation pro- cess. However, Rule 3(B)(2)(f) does not contain such a limitation and must be construed to apply to all conduct of the agent.32 This is a particularly far reaching, yet prudent, policy. It regulates the overall behavior of the agent, and protects the players from persons who act dishonestly. Rule 3(B)(2)(c) is a general statement in the representation of the client. The agent is required to avoid any actual or potential conflicts of interest. This general rule leaves open to broad interpretation the circumstances which could be viewed as a conflict of interest. For example, can an agent represent two players on the same team? What if there is a team salary cap? Can an agent represent two players on the same team at the same position? There are more. The important point is to recognize the problem and to seek relief through disclosure or through an opinion from the players association.

3. Other Law-Improper Conduct As a general statement, the law abhors improper conduct. Any dishon- est behavior in fraud, deceit, misrepresentation or otherwise is actionable. In some cases the activity will also be criminal. No professional code of ethics is needed to mandate appropriate conduct. Any player-client would have several causes of action against an agent for engaging in dishonest conduct. These causes of action arise in contract, tort, fraud and in crimi- nal prosecutions. It should be clear to any agent this is not an area of de- bate when it comes to this conduct.

C. Solicitation 1. ABA "Model Rules of Professional Conduct" The rules regulating advertising and the solicitation of prospective cli- ents are found in Rule 7 of the ABA "Model Rules of Professional Con-

31. Id. § 3(B)(2)(a-f). 32. Id. § 3(B)(2)(f).

45 MARQUETTE SPORTS LAW JOURNAL [Vol. 3:111 duct."33 Since the Supreme Court's decision in Bates v. State Bar of Arizona, 4 lawyer advertising has been regulated consistent with the con- cepts of commercial speech. Thus, when the bar sought to control this as- pect of lawyer conduct it accepted the Court's invitation to engage in rules of restraint. One year after Bates, the Supreme Court addressed another solicitation issue. There, the question was whether the bar could restrict direct per- sonal contact with prospective clients for the purpose of solicitation. In Chralick v. Ohio State Bar Association,35 the Court found that in controlling lawyer conduct, the state's interest in regulating professional conduct out- weighed the attorney's interest in commercial speech. Given these two cases, the ABA drafting committee elected to continue restrictions on this type of conduct. Rule 7.1 acknowledges the attorney's commercial speech rights, but prohibits a "false and misleading communication about the lawyer or the lawyer's services."3 6 Rule 7.2 regulates lawyer "advertising. 3a7 Rule 7.3 addresses "direct contact with prospective clients."'38 Rule 7.3(a) states: "A lawyer shall not by in-person or live telephone contact solicit professional employment from a prospective client with whom the lawyer has no family or prior professional relationship when a significant motive for the lawyer's doing so is the lawyer's pecuniary gain."3 9 Rule 7.3 is clear. Direct personal solicitation of a prospective client who is neither a family member nor a person with whom the lawyer has had a prior professional relationship is prohibited. The rule does not prohibit the lawyer from answering inquiries from persons who would be prospective clients even though there is personal contact."°

2. NFLPA Rules of Conduct The NFLPA Rules of Conduct applicable to Contract Advisors is found at Section 3(B)(3)(a-e).41 The Association, in protecting the players and the integrity of the system, has prohibited the following conduct: (a) the provi-

33. MODEL RULES OF PROFESSIONAL CONDUcr Rules 7.1-7.3 (1983). 34. 433 U.S. 350 (1977). 35. 436 U.S. 447 (1978). 36. MODEL RULES OF PROFESSIONAL CONDUCT Rule 7.1 (1983). 37. Id. Rule 7.2. 38. Id. Rule 7.3. 39. Id. Rule 7.3(a). 40. Id. Rule 7.3 cmt. 41. CODE OF CONDUCT FOR NFLPA MEMBER CONTRACT ADVIsoRs, supra note 8, at § 3(B)(3)(a-e).

46 1992] ETHICAL ASPECTS OF REPRESENTATION sion or offer to provide anything of value to a player in order to become a contract advisor; (b) the provision or offer to provide anything of value to a third party for a recommendation of the agent to serve a player as an advi- sor; (c) the provision of false or misleading information to any person re- lated to solicitation; (d) the use of titles which imply the existence of credentials not held; and (e) the provision or acceptance of anything of value from a club or NFL personnel for his or her personal use and benefit.42 While the direct solicitation of clients is an accepted practice, induce- ments to players or others is absolutely forbidden.43 Provisions (a) through (d) appear limited to the solicitation of players for purposes of representa- tion.' However, subsection (e) is broader and general when applying to overall relations with management.45 Special attention should be paid to the interpretations of this rule.

3. Other Law While one might consider the solicitation of business to be the heart of sales and marketing, there are some constraints on this behavior found in state law. Two statutes come to mind on this issue. One relates to lawyers and is, therefore, limited in scope. The other relates to the process of sign- ing collegiate athletes to agent contracts. In Florida, a violation of the Rule of Professional Conduct provision on direct solicitation by a lawyer is a first degree misdemeanor.46 The attorney would be well advised to check the laws of the states in which he/she practices to determine whether such con- duct is statutorily proscribed. The second area relating to state laws regulating agent conduct ad- dresses the solicitation and signing of student-athletes to representation contracts. The law in this area is far from uniform. There are nineteen states which attempt to regulate this conduct by statute.47 In Florida, there are two statutes.4a Under these statutes, it is illegal for an agent to sign a contract with a student-athlete who has eligibility remaining without dis- closing that contract to the college or university before competition or within seventy-two hours of signing. 9 The penalties for a violation are

42. Id. 43. Id. 44. Id. § 3(B)(3)(a-d). 45. Id. § 3(B)(3)(e). 46. FLA. STAT. § 877.02 (1992). 47. See supra note 13. 48. FLA. STAT. § 468.451 -. 457 (1992); FLA. STAT. § 240.5337 -. 5339 (1992). 49. Id.

47 MARQUETTE SPORTS LAW JOURNAL [Vol. 3:111 both civil and criminal.5" A violation by an agent gives rise to a cause of action by the institution for treble damages for the value of the scholarship furnished by the institution during the period of the athlete's eligibility.51 A scholarship at a private university is currently valued at approximately $25,000. If a student was in his fourth year of eligibility the treble damages would approach $300,000. Moreover, a violation of this statute by the agent carries a criminal pen- alty upon conviction of imprisonment of up to five years and a fine not exceeding $5,000.52 In many states, there is a growing recognition of a cause of action for tortious interference with a contract which can be brought by the institu- tion against the agent.5 3

IV. CONCLUSION Agent conduct is regulated. The purpose of this overview is to direct attention to the volume of law and regulation that affects the conduct of sports agents in the performance of their professional activities. Although not centrally codified and distributed as a professional code of ethics, there can be little doubt that much is expected of persons acting for and on behalf of athletes.

50. Id. 51. Id. 52. Id. 53. See Charles Ehrhardt & Mark Rodgers, Tightening the Defense Against Offensive Sports Agents, 16 FLA. ST. U. L. REV. 633 (1988); Richard Woods & Michael Mills, Tortious Interfer- ence with an Athletic Scholarship:A University's Remedy for the Unscrupulous Sports Agent, 40 ALA. L. REv. 141 (1989).

48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 THE MINEFIELD OF SOCIAL MEDIA AND LEGAL ETHICS: HOW TO PROVIDE

COMPETENT REPRESENTATION AND AVOID THE PITFALLS OF MODERN

TECHNOLOGY

American Bar Association

Section of Labor and Employment Law

Ethics & Professional Responsibility Committee Midwinter Meeting

March 24, 2017

By: Jessica Weltge and Myra McKenzie-Harris, Esq.

64 I. Introduction

In the midst of the digital age, it is hard to image a business operating without an Internet

presence. With 239.58 million Internet users in the United States,1 more businesses are adapting

to the demands of our internet-driven society with the fear that any resistance to modern

technologies may result in the disruption, if not the complete elimination of certain business

models.2 One type of disrupting technology is social media.

Social media has been defined as “forms of electronic communication (as websites for

social networking and microblogging) through which users create online communities to share

information, ideas, personal messages, and other content (as videos).”3 Through online messaging and cell phone apps, Internet blogs, and social networking websites like LinkedIn,

Facebook, Twitter, Google+, YouTube, Pinterest, and Instagram, social media users are publishing electronic biographies and sharing information to connect and communicate with other online users.4 As employees increasingly use social media for work and for personal use,5

social media activity has become a “major player in almost every successful business model” and

requires an active presence.6 The legal profession is no exception.

1 See Central Intelligence Agency, The World Fact Book: United States (Jan. 31, 2017), https://www.cia.gov/library/publications/the-world-factbook/geos/us.html (listing the number of Internet users within the United States, including the percentage of the population). 2 Adam Hayes, 20 Industries Threatened by Tech Disruption, INVESTOPEDIA (Feb. 6, 2015, 6:01PM), http://www.investopedia.com/articles/investing/020615/20-industries-threatened-tech-disruption.asp. 3 Social Media, MERRIAM WEBSTER (11th ed. 2003). 4 Jennifer Ellis, Social Media for Law Firms: An Overview, A.B.A. (Sept. 2014), http://www.americanbar.org/content/dam/aba/events/professional_responsibility/2015/May/Conference/Materials/se ssion11_print_all.authcheckdam.pdf (stating that “[c]urrently, the most popular social media sites and applications in the United States include Facebook, Twitter, LinkedIn, Google+, Pinterest, YouTube, and Instagram”). 5 Dorothy M. Bollinger, Social Media and Employment Law: A Practitioner’s Primer, 20 TEMP. POL. & CIV. RTS. L. REV. 323 (2011). 6 Cortney Roark, Five Ways to Improve Your Business’ Social Media Presence, USA TODAY (Feb. 7, 2017), http://www.usatoday.com/story/money/nation-now/2017/02/07/improve-business-social-media-presence/97586500/.

65 To generate business and compete with other firms in a professional industry with over

1.3 million licensed attorneys across the United States,7 law firms are changing from the

traditional law firm model and abandoning the antiquated notion that social media is an

“Internet-based fad for kids.”8 The social media disruption of the legal industry is quite simple

to explain: the way we communicate has changed and potential clients are no longer flipping

through the Yellow Pages, cold calling, or going door-to-door to look for legal services. With

76% of law firms now maintaining an online presence,9 it can come as no surprise that potential

clients are looking online to find legal representation. Widely recognized as an efficient

marketing and client development tool, social media unquestionably has its benefits when it

comes to the practice of law, but it also serves as a virtual minefield for potential ethical

violations.

With some attorneys focusing on whether they have an effective online presence rather

than considering the ethical issues that lurk beneath the social media platforms, growing

concerns about the uncertainty for potential violations exist. Making matters worse, the

American Bar Association (“ABA”) Model Rules of Professional Conduct are silent on the

ethical implications of social media use and published decisions are few and far between.10 As

the use of social media rises within the legal profession, it is likely that the ethics rules will

7 Lawyer Demographics: Year 2016, A.B.A SEC. LEGAL EDUCATION & ADMISSIONS TO THE BAR (Jan. 31, 2017), http://www.americanbar.org/content/dam/aba/administrative/market_research/lawyer-demographics-tables- 2016.authcheckdam.pdf. 8 Nicole Black, A Lawyer’s Guide to Social Media Marketing: What You Need to Know About Social Media for Business Development, ATTORNEY AT WORK (Jan. 18, 2015), https://www.attorneyatwork.com/connected-lawyers- guide-social-media-marketing/. 9 The Social Network: How Top U.S. Intellectual Property Firms Are Utilizing Social Media, THE FASHION L. BLOG (Jan. 10, 2017), http://www.thefashionlaw.com/home/the-social-network-how-the-top-intellectual-property-firms- are-utilizing-social-media. 10 Ethan J. Wall, Navigating the Uncharted Waters of Social Media Marketing and Ethics, A.B.A. LAW PRACTICE TODAY (June 2012), http://www.americanbar.org/publications/law_practice_today_home/law_practice_today_archive/june12/navigating- the-uncharted-waters-of-social-media-marketing-and-ethics.html.

66 evolve and adapt to this popular marketing and client development tool. Until then, lawyers

must find a balance between using common sense and acknowledging the warnings from state

ethical guidelines and advisory opinions seeking to bridge the gap between the existing rules of

professional conduct and the ethical use of social media in the legal profession.

II. Ethical Duties Implicated by Social Media Use in the Legal Profession

Law is a service-oriented profession. To achieve superior client service, law firms and

individual legal practitioners must maintain high ethical standards when fulfilling professional

responsibilities. The American Bar Association (“ABA”) Model Rules of Professional Conduct

provide advisory rules setting minimum guidelines for attorneys to engage in ethical conduct

across all jurisdictions and since these rules were established in 1983, nearly every state has

adopted the Model Rules.

Even though the ABA has articulated these minimum code of conduct recommendations,

uncertainty exists as to how these rules may be implicated by the use of social media in the legal

profession. With the proliferation of social media use in law offices and corporate legal

departments nationwide, legal ethics committees are beginning to pay close attention to what

legal professionals are doing on social media and how they are doing it to clarify how the rules

of professional conduct apply to social media activities.11 Regardless of how state legal ethics

regulators establish the ethical boundaries for social media use in the legal profession, a lawyer’s

misuse or failure to use social media may result in ethical violations.

A. Competence

When it comes to the client-lawyer relationship, every lawyer has an ethical duty to be

competent in the practice of law. According to Rule 1.1 of the ABA Model Rules of

11 Christina Vassiliou Harvey et al., 10 Tips for Avoiding Ethical Lapses When Using Social Media, BUS. L. TODAY: A.B.A. (Jan. 2014), http://www.americanbar.org/publications/blt/2014/01/03_harvey.html.

67 Professional Conduct, competent representation requires the legal knowledge, skill,

thoroughness, and preparation reasonably necessary for the representation.12 In addition to

acquiring this competence, every lawyer must also maintain it. Comment 8 to Rule 1.1 requires

lawyers to “keep abreast of changes in the law and its practice, including the benefits and risks

associated with relevant technology.”13 Therefore, the duty of competence requires lawyers to not only stay informed about the changes in the substantive law, but it also requires lawyers to maintain the knowledge and awareness about technological changes that could impact the legal profession. These changes unquestionably include social media technology and other social networking platforms, especially as these technologies continue to change the way lawyers communicate with clients.

As of 2015, fourteen states have formally adopted Comment 8 and currently recognize that the competency requirement extends specifically to social media.14 While most states have yet to adopt Comment 8, the proliferation of social media use in the legal profession has created new ethical challenges for lawyers, which has resulted in more state bar associations providing guidance on how competency should extend to social media. For example, both the D.C. Bar

Association and a section of the New York State Bar Association have released advisory materials on social media competence since these two jurisdictions have adopted rules that continue to remain silent on the ethical obligations relating to the use of modern technology in the legal profession.15

In its ethics opinion, the D.C. Bar acknowledged the applicability of social media to the

practice of law and emphasized the importance for lawyers to understand the basic components

12 MODEL RULES OF PROF’L CONDUCT r. 1.1 (AM. BAR ASS’N 1983). 13 MODEL RULES OF PROF’L CONDUCT r. 1.1 cmt. 8 (AM. BAR ASS’N 1983). 14 Matt Kobler, Social Media and Legal Ethics, SLIDESHARE: LINKEDIN (Aug. 28, 2015), https://www.slideshare.net/mjkolber/2015-legal-ethics-of-social-media-lpba. 15 See D.C. Bar Ethics Op. 371; N.Y St. Bar. Ass’n Com. & Fed. Litig. Sec., Social Media Ethics Guidelines (2015).

68 of social media and how the technology may be used to influence a case.16 Specifically, the D.C.

Bar concluded that because the practice of law involves the use or potential use of social media

in a variety of ways, a lawyer’s ignorance or disregard of social media and other modern

technologies may create the potential for ethical misconduct, including violating Rule 1.1

regarding competent representation.17 The Commercial and Federal Litigation Section of the

New York State Bar Association took it one step further when it concluded that a lawyer cannot

be sufficiently competent without a working knowledge of the benefits and risks associated with

the use of social media.18 As social media becomes a popular tool for attorneys to conduct

“digital digging” on a client’s behalf, it is becoming increasingly more difficult for lawyers to

meet the duty of competence if they fail to understand or embrace the use of social media when

providing legal services. 19

Therefore, to ensure continuing compliance with the applicable rules of professional

conduct, every lawyer must adapt to the changing technologies and acknowledge the efficiencies

that the use of social media may bring when providing competent representation. In order to

avoid ethical violations or potential malpractice charges, lawyers must be able to understand

social media technology, regardless if they choose to use the technology themselves when

providing legal services. The mere fact that a majority of Americans use social media in their

day-to-day lives makes it relevant to providing competent representation, especially when it may

require a lawyer to communicate to his or her client about not posting information related to a case, not communicating with the opposing party on social media, or not deleting evidence that could result in potential spoliation sanctions. So, while an attorney’s technological

16 D.C. Bar Ethics Op. 371. 17 Id. 18 N.Y St. Bar. Ass’n Com. & Fed. Litig. Sec., Social Media Ethics Guidelines (2015). 19 John Browning, Legal Ethics and Social Media: It’s Complicated, Dallas Bar Ass’n (Jul. 1, 2015), http://www.dallasbar.org/book-page/legal-ethics-and-social-media-it’s-complicated.

69 incompetence may have been a mere competitive disadvantage a few years ago, with the

proliferation of social media use, it is now a potential legal ethics violation.20

B. Diligence

While there may be some uncertainty as to whether a lawyer has a duty to achieve social

media competence, it would seem that a lawyer’s duty of diligence requires that he or she take a

more active approach towards the use of social media in the fulfillment of his or her duties to a

client. Rule 1.3 of the ABA Model Rules of Professional Conduct provides that a lawyer shall

act with reasonable diligence and promptness in representing a client.21 Because a diligent

attorney must act with “zeal in advocacy upon the client’s behalf,” it seems possible that more

than just a basic understanding or familiarity with social media may be required.22 Therefore,

diligent and prompt representation may actually require the actual use of social media to screen a

client’s social media page or an opposing party’s social media account in order to gather the

relevant information and take the steps necessary to vindicate a client’s cause or endeavor.23

A mere search of a person’s social media page can unlock a treasure trove of information

and with seventy-eight percent of Americans having a social media profile in 2016,24 social

media is becoming a tool for lawyers to better represent their clients.25 According to an article in

the ABA Journal of the Section for Litigation, social media has the potential to offer “rich

repositories of potential pre-litigation intelligence and fodder for cross-examination.”26 As such,

20 Megan Zavieh, Luddite Lawyers Are Ethical Violations Waiting to Happen, Lawyerist Blog (Jul. 10, 2015), https://lawyerist.com/71071/luddite-lawyers-ethical-violations-waiting-happen/. 21 MODEL RULES OF PROF’L CONDUCT r. 1.3 (AM. BAR ASS’N 1983). 22 MODEL RULES OF PROF’L CONDUCT r. 1.3 cmt. 1 (AM. BAR ASS’N 1983). 23 Id. 24 Percentage of U.S. Population with a Social Media Profile from 2008 to 2016, Statista (2017), https://www.statista.com/statistics/273476/percentage-of-us-population-with-a-social-network-profile/. 25 Nicole Black, How Are Lawyers Using Social Media in 2016, MyCase Blog (Feb. 2, 2016), http://www.mycase.com/blog/2016/02/how-are-lawyers-using-social-media-in-2016-infographic/. 26 Andy Radhakant & Matthew Diskin, How Social Media Are Transforming Litigation, 39 A.B.A. J. SEC. LITIG. 3 (2013).

70 a basic search of social media profiles associated with clients, opponents, and witnesses is now

considered to be a minimum level of expected of a competent litigator.27 For

example, a Maryland court has recognized that both and criminal defense attorneys

are increasingly looking at social media for potential evidence and in its opinion, the court

considered it a “matter of professional competence” that lawyers take the time to investigate

social networking sites in the performance of due diligence.28

Because anything posted on a social media account could be equally harmful or helpful to

a client’s case,29 it is imperative that lawyers exercise due diligence by actively using social media, rather than just obtaining a mere understanding of how to use social media. With the vast amount of information readily available on a variety of social media platforms, attorneys are expected to utilize modern technology like social media, to provide competent and diligent representation to a client.30 To meet the duty of diligence, attorneys must recognize that the

most effective way to serve clients may include the use of social media. Moreover, it is very

likely that the attorneys who have yet to incorporate this modern technology into their practices

are placing their clients at a distinct competitive disadvantage.31

C. Confidentiality

27 Id. 28 Griffin v. Maryland, 192 Md. App. 518, 535 (2010); See Zavieh, supra note 20 (explaining that the holding in Griffin v. Maryland regarding the “authentication of the social media evidence was overruled on appeal, but the appellate court took no issue with the idea that attorneys have an obligation to review social media evidence as part of their due diligence.”) 29 Your Social Media Posts May Impact Your Worker’s Comp or Injury Case, DEUTERMAN LAW GROUP Blog (April 5, 2016), http://deutermanlaw.com/social-media-court-case/. 30 Angela M. Scafuri, Tips for Young Lawyers: Ethics and Social Media, A.B.A. SEC. COMM. & BUS. LITIG. (Feb. 23, 2015), http://apps.americanbar.org/litigation/committees/commercial/articles/winter2015-0215-tips-young- lawyers-ethics-social-media.html. 31 Robert Keeling, Social Media is a Powerful Tool, But Be Wary of Ethical Pitfalls, Corporate Counsel (Jan. 13, 2016), http://www.corpcounsel.com/id=1202746988835/Social-Media-Is-a-Powerful-Tool-But-Be-Wary-of-Ethical- Pitfalls?slreturn=20170124100011 (explaining that “… attorneys who have yet to incorporate comprehensive social media searches into their practices place their clients at a distinct competitive disadvantage”).

71 Whether inadvertent or intentional, social media use by lawyers may pose a potential risk

of disclosing confidential information. Preserving confidential or privileged information is at the

very heart of a lawyer’s ethical duties.32 According to Rule 1.6, lawyers are required to maintain

the confidentiality of information relating to the representation of a client unless the client gives

informed consent or the disclosure is impliedly authorized in order to carry out the

representation.33 Confidential information is broadly defined in the comments to Rule 1.6 and

includes “not only matters communicated in confidence by the client but also to all information

relating to the representation, whatever its source.”34

Attorneys who use social media sites for both professional and personal use may risk violating attorney-client confidentiality and as a result, they may lose their jobs or face disciplinary action.35 For example, a complaint was filed against an Illinois assistant public

defender for her blog posts on social media, which revealed confidential client information.36 As

a public defender, the Illinois attorney had access to information about clients that would

otherwise be confidential and used the information to discuss her work at the public defender’s

office on her social media blog.37 The Administrator of the Illinois Attorney Registration and

Disciplinary Commission submitted a complaint that the public defender engaged in misconduct

and violated Rule 1.6(a) of the Illinois Rules of Professional Conduct when her posts 1)

contained “sufficient identifying information” as to the identity of her clients, 2) included

32 Margaret M. DiBianca, Ethical Risks Arising From Lawyers’ Use Of (And Refusal To Use) Social Media, 12 DEL. L. REV. 187 (2011). 33 MODEL RULES OF PROF’L CONDUCT r. 1.6 (AM. BAR ASS’N 1983). 34 MODEL RULES OF PROF’L CONDUCT r. 1.6 cmt. 3 (AM. BAR ASS’N 1983). 35 See Ed Silverstein, Social Media Can Cause Problems for Lawyers When It Comes to Ethics, Professional Responsbility, INSIDE COUNSEL (April 29, 2014), http://www.insidecounsel.com/2014/04/29/social-media-can- cause-problems-for-lawyers-when-i (“Attorneys who post on sites like Facebook also have to worry about violating attorney-client privilege, disciplinary action, losing jobs, or engaging in unauthorized or inadvertent practice of law…”). 36 Complaint Before the Hearing Board of the Illinois Attorney Registration and Disciplinary Commission at 1, In re Kristine Ann Peshek Matter (2009) (No. 6201779). 37Id.

72 confidential information gained in the professional relationship, and 3) the revelation of the

information would be embarrassing or detrimental to her client.38

This complaint before the hearing board in Illinois is just one example of how an attorney

can lose her job or face disciplinary action for revealing confidential client information when

using social media. According to Larry Doyle, a member of the California Bar’s Committee on

Professional Responsibility and Conduct, lawyers are never truly “off duty” from their ethical

obligations to clients, especially due to the “fiduciary nature of the legal profession”.39 In

opining that an attorney’s duty of confidentiality is the ethical standard most at risk of being

violated when using social media, Larry Doyle concluded that attorneys should proceed with

caution when using client information in social media postings and should, ideally, obtain the

consent of the client or former client prior to posting potential confidential information.40

D. Supervision

When it comes to the potential ethical risks of using social media in the legal profession,

lawyers may not avoid these ethical issues merely by delegating social media activities to others

in a firm or within a legal department. No matter how tempted a lawyer may be to assign certain

social media tasks to a or assistant, lawyers have an ethical obligation to supervise the

work of subordinate lawyers and non-lawyers in their firm and ensure that these employees meet

the same ethical standards that govern lawyers’ conduct.41 Rules 5.1 through 5.3 of the ABA

Model Rules of Professional Conduct provide that a lawyer having direct supervisory authority over subordinate lawyers or non-lawyer staff shall make reasonable efforts to ensure that these

38 Id. at 2-3. 39 Larry Doyle, Client Confidentiality and Social Media, Cal. Bar J. (Sept.. 2015). 40 Id. (“Using client information in social media is something best done with caution – and ideally with the consent of the client or former client”). 41 Keeling, supra note –, (“Of course a lawyer may be tempted to avoid these concerns by farming out social media research to a paralegal or assistant … However, lawyers have an ethical obligation not only to supervise the work of non-lawyers assisting them, but also to ensure that non-lawyers meet the same ethical standards governing lawyers”).

73 employees conform to the rules of professional conduct.42 Should the supervising or managing

lawyer order or have knowledge of the specific conduct or know of the conduct at a time when

its consequences can be avoided or mitigated but fails to take reasonable remedial action, the

managing and supervising lawyer shall be responsible for the other lawyer’s violation.43

These rules make it clear that managing and supervising lawyers must take responsibility

for the various employees that work under the lawyer’s direction.44 This ethical duty to

supervise employees regarding social media use extends to conduct that deceitfully sending a

“friend request” to search a person’s social media account for information. For example, the

Philadelphia Bar Association Ethics Committee, the New York City Bar Association, and the

New York State Bar Association have each held in separate opinions that a lawyer or

administrative staff member could not “friend” a witness under false pretenses.45

More recently, the New Jersey Supreme Court ruled that legal ethics regulators could proceed with a case against two attorneys accused of instructing a paralegal to “friend” a litigant in order to access nonpublic social media pages.46 By instructing the paralegal to use social

media as an investigatory tool, the lawyers’ disciplinary case provides a warning to lawyers

across all jurisdictions to supervise employees and be cautious when instructing or having

42 MODEL RULES OF PROF’L CONDUCT r. 5.1-5.3 (AM. BAR ASS’N 1983). 43 MODEL RULES OF PROF’L CONDUCT r. 5.1(c) (AM. BAR ASS’N 1983). 44 See Steven C. Bennett, Ethics of Lawyer Social Networking, 73 Alb. L. Rev. 117 (2009) (“Further, Rules 5.1 through 5.3 make clear that lawyers must take responsibility to supervise paraprofessionals and administrative staff that work under their direction”); see also Gina Hendryx, Lawyer’s Duty to Supervise Non-Lawyer Assistants, 82 OKLA. B. J. 1305 (2011) (“Therefore, the rules require lawyers to make reasonable efforts to ensure that the conduct of non-lawyer employees or independent contractors is compatible with the professional obligations of the lawyer”). 45John G. Browning, Ethical Considerations in Lawyers’ Use of Social Media, ATTPRO ALLY 2 (Winter 2012), https://www.attorneyprotective.com/documents/914459/914527/EthicalConsiderationsinLawyersAttProAllyIssue11 Winter2012.pdf. 46 See Debra Cassens Weiss, Top State Court to Hear Case of Lawyers Accused of Asking Paralegal to ‘Friend’ Litigant on Facebook, A.B.A. J. (June 25, 2015, 5:45AM), http://www.abajournal.com/news/article/lawyers_accused_of_directing_paralegal_to_friend_litigant_will_get_new_ jers.

74 knowledge of their employees’ use of social media to investigate a represented adverse party.47

The complaint filed against these two New Jersey lawyers alleged misconduct violating the New

Jersey Disciplinary Rules of Professional Conduct for failure to supervise a subordinate

employee and inducing another person to violate the ethics rules.48 Because it is “inherently

misleading to ‘friend’ a litigation opponent represented by counsel, when the true purpose of the

communication is to secure evidence for an adversarial proceeding,” there seems to be a bright

line as to when it is ethically appropriate to use social media in the course of litigation, especially

when the lawyer’s supervisory role is implicated by an instruction to a subordinate employee to

use social media with the purpose to further a client’s interest.

With 450 million LinkedIn users and 1.13 billion daily active Facebook users, social

media is virtually inescapable for lawyers in the legal profession.49 While the majority of states’

rules of professional conduct continue to remain silent on how social media use implicates a

lawyer’s ethical duties, the growing number of advisory opinions and guidelines indicate that the

duties of competency, diligence, confidentiality, and supervision impliedly extend to social

media use as an increasingly large number of attorneys use social media in the performance of

legal services. To avoid violating ethical rules and risking malpractice charges, lawyers must

learn to accept the efficiencies that social media use may bring to the representation of clients.

With the endless capabilities of social media to search for and share information with others,

more lawyers are beginning to embrace social media as a tool for client development and

47 See Onika K. Williams, Oks Ethics Case Based on Paralegal’s Improper Use of Facebook, A.B.A. LITIG. NEWS (Aug. 31, 2016), https://apps.americanbar.org/litigation/litigationnews/top_stories/083116-ethics- paralegal-facebook.html. (“Robertelli v. N.J. Office of Attorney Ethics serves as a warning for attorneys to be cautious when using social media as an investigatory tool, even if only procedurally specific to the New Jersey ethics system”). 48 Robertelli v. N.J. Office of Atty. Ethics, 134 A.3d 963,966 (N.J. 2016). 49 Peggy Gruenke, A Lawyer’s Guide to Avoiding Ethical Pitfalls in Social Media, OHIO ST. B. ASS’N SOLO, SMALL FIRMS & GEN. PRAC. NEWS (Aug. 16, 2016), https://www.ohiobar.org/Member-Center/Business- Development/Pages/A-lawyers-guide-to-avoiding-ethical-pitfalls-in-social-media.aspx.

75 networking, not just for investigating opposing parties. However, much like how the refusal to

use social media in the legal profession can risk violations of ethics rules, the misuse of social

media may create equally dangerous risks, misconduct and ethical violations.

III. Attorney Conduct and Social Media Use: What Are the Ethical Issues?

As social media continues to change the way lawyers and clients communicate it would seem that social media technology is a double-edged sword for attorneys in the legal profession; attorneys may violate the rules of professional responsibility either by refusing to use social media or by misusing social media. With more lawyers beginning to use social media for business purposes,50 attorney misuse of social media is arguably more likely to occur given that

the majority of states have yet to acknowledge the ethical risks and potential professional

conduct violations that may result when lawyers use social media to investigate cases, provide

educational commentary, develop a larger client base, or engage in career networking.

To date, there is little guidance for attorneys navigating the ethical minefield when it

comes to social media use in the legal profession. The uncertain ethical boundaries of lawyers’

social media use are only “underscored by the lack of charges filed for ethics violations arising

out of attorney’s use of social media for marketing and promoting their practice.”51 To provide

insight as to how the current rules of professional conduct apply to an attorney’s conduct and

social media use, some attorneys and state ethics commissions have published guidelines and

advisory opinions on how the current ethics rules extend to social media in the context of

advertising, misrepresentation, and communicating with others. The overall consensus is that no

matter how attorneys use social media, they must be careful to avoid potential ethical violations.

50 Relying on the 2015 A.B.A. Survey Report, Shields explained that lawyers continue to use social media platforms for professional purposes, regardless of whether the lawyer’s firms are establishing an online presence. See Allison Shields, Social Media, A.B.A. TECHREPORT 3 (2015). 51Wall, supra note 10.

76 A. Advertising

With seventy-one percent of lawyers using social media for career development and

advertising in 2015,52 it is hard to imagine that the ABA once prohibited lawyer advertising for

sixty-nine years.53 Today, legal advertising involves an active quest for clients and its purpose is

to assist the public in learning about and obtaining legal services.54 As a permissible method for

developing a strong client base, legal advertising continues to be regulated by the applicable

rules of professional conduct within each state.55 According to Rule 7.2 of the ABA Model

Rules of Professional Conduct, a lawyer may advertise legal services through written, recorded,

or electronic communication, including public media.56

Within the legal industry, social media has become a powerful marketing tool for lawyers because it combines “personalized observation with facts and insights from the lawyer’s area of

focus in order to help create new client relationships.”57 By creating new opportunities for lawyers to advertise and grow their legal practices, the development of new social media platforms is forcing ethics regulators to reconsider the current ethics rules in order to accommodate social media in the legal profession. Until ethics regulators and state bar associations decide to make a change in the rules, it is generally accepted that the existing rules

52 Shields, supra note 50 (explaining that career development was the top reason for lawyers’ social media based on the 2015 A.B.A. Legal Technology Survey Report and has been the top reason since 2011). 53 Geoffrey C. Hazard, Jr. ET. AL, Why Lawyers Should Be Allowed to Advertise: A Market Analysis of Legal Services, 58 N.Y.U L. REV 1084 (1983). 54 MODEL RULES OF PROF’L CONDUCT r. 7.2 cmt. 1 (AM. BAR ASS’N 1983). 55 See generally Differences Between State Advertising and Solicitation Rules and the ABA Model Rules of Professional Conduct, A.B.A. add. (June 2, 2016). 56 MODEL RULES OF PROF’L CONDUCT r. 7.2 (AM. BAR ASS’N 1983); However, a lawyer must not use similar means to solicit clients. See MODEL RULES OF PROF’L CONDUCT r. 7.3 (AM. BAR ASS’N 1983). 57 Ed Poll, The Slippery Ethical Slope of Social Media, A.B.A. LAW PRACTICE TODAY (Nov. 2012), http://www.americanbar.org/content/dam/aba/publications/law_practice_today/the-slippery-ethical-slope-of-social- media.authcheckdam.pdf.

77 are equally applicable to social media, especially since the “advertising ethics rules govern the

message, not the medium.”58

To provide insight on how these ethics rules may apply to social media advertising, the

Florida Bar Association changed its guidelines on social media to advise attorneys that social

media profiles used to promote the lawyer or law firm’s practice are subject to all of the general

regulations set forth in the state’s rules of professional conduct.59 The Florida guidelines also concluded that “unsolicited invitations sent directly from one social media site to a third party to view the lawyer’s page would be considered as solicitations in violation of the rule, unless the recipient is the lawyer’s current client, former client, relative, or is another lawyer.”60 In

addition, the Florida guidelines specifically required that a Tweet or social media post must

include geographic information as well as the name of at least one attorney in the law firm.61

Similarly, to Florida, the New York City Bar Association provided its own analysis relating to the ethical issues that may arise when lawyers use social media for legal advertising.

In its guidelines, the association introduced a five-factor test to determine if a lawyer’s use of social media constitutes legal advertising.62 Extending the opinion to all social media platforms,

the association identified five criteria: “the lawyer makes the content; the primary purpose is for

client retention of the lawyer for pecuniary gain; the content relates to the lawyer’s legal

services; new clients are the intended audience; and the content does not fall into an exception to

58 Wall, supra note 10; see Browning, supra note 19 (recommending that lawyers “treat social media as forms of communication subject to the same rules and ethical constraints as more traditional modes …”). 59 See Wall, supra note 10 (explaining that the purpose of the state’s revised advertising guidelines were to “provide a helpful primer for practical application of these rules). 60 Id. (discussing the applicability of social media to Rule 4-7.4(a) of the Florida’s rules of professional conduct regarding solicitation). It may be noted that this ethics rule was deleted from the Florida code effective May 1, 2013. See RULES REGULATING THE FLA. BAR r. 4-7.4 (FLA. BAR ASS’N 2017). 61 See Ellis, supra note 4 (explaining that since many posts on Twitter would be considered advertising, it is especially problematic for lawyers in Florida, where the Tweet must include geographic information and “the name of at least 1 lawyer in the firm”). 62 N.Y. City Bar Ass’n Comm. on Prof’l Ethics, Formal Op. 2015-7.

78 the definition of attorney advertising.”63 According to the New York City Bar Association, a

lawyer’s social media profile constitutes legal advertising only if there is “clear evidence that a

lawyer’s primary purpose is to attract paying clients.”64

Because “more and more of the communication we do on social media and new technology is being characterized as advertising and almost anything we say that is self-

promotional is being seen as advertising,” an increasing number of states are releasing ethics

opinions and guidelines in order to start defining the ethical boundaries of permissible social

media use for legal advertising.65 While some have criticized the New York City Bar

Association’s five-factor test as being highly subjective,66 other states have taken alternative approaches when examining the ethical implications of social media and legal advertising. For example, in a 2012 the State Bar of California concluded that material posted by an attorney on social media will be subject to the state’s rules of professional conduct if the material is a communication for the purposes of the ethics rules regarding advertising and solicitation or if it is an advertising by electronic media as defined by state law.67 Phrased

differently, “an attorney may post information about her practice on Facebook, Twitter, or other

social media websites, but those postings may be subject to compliance” with the ethics rules “if

their content can be considered to be ‘concerning the availability for professional

employment.’”68

63 Catherine McLeod Chiccine, Ethics Opinion Draws Line On When Social Media Is Considered Advertising, A.B.A. LITIG. NEWS (May 20, 2016), https://apps.americanbar.org/litigation/litigationnews/top_stories/052016- social-media-advertising.html. 64 Id. 65 G.M. Filisko, The Ethics of Online Advertising, A.B.A. FOR L. STUDENTS: BEFORE THE BAR BLOG (March 3, 2013), http://abaforlawstudents.com/2013/03/03/ethics-online-advertising/. 66 Chiccine, supra note 63 (explaining the view of the A.B.A. Section of Litigation’s Ethics & Professionalism Committee regarding the New York City Bar’s five-factor test, Chiccine concluded that “while it provides detailed guidance, Section leaders say the five-factor test is highly subjective”). 67 St. Bar of Cal. Standing Comm. on Prof’l Resp. & Conduct, Formal Op. 2012-186. 68 Id.

79 While they may have different ways to determine what constitutes legal advertising, the

overwhelming consensus by these state bar associations and ethics advisory opinions is that

lawyers will continue to face ethical risks when it comes to legal marketing and these risks are

even more likely to become a problem when lawyers use social media as an advertising tool. In other words, when the social media platforms are used to communicate information about legal services relating to advertising, soliciting clients, or communicating about a legal specialization, the existing rules of professional conduct are equally applicable to social media marketing as they are to traditional methods of marketing, like television advertisements or print ads in a newspaper.69 Until states formally adopt new ethics rules specifically related to lawyer

advertising on social media, it is recommended that lawyers review their jurisdiction’s rules of

professional conduct to ensure that all public communications including statements, claims, and

advertisements on social media websites are in compliance with the rules.

B. Misrepresentation

Arguably one of the most significant ethical duties that a lawyer can have is “the duty to

refrain from conduct involving dishonesty, fraud or deception.” 70 When it comes to providing

legal services and using social media as a communication tool, it is imperative that lawyers avoid

making any misrepresentations or statements that could be construed as a false or misleading

communication.71 Rule 7.1 of the ABA Model Rules of Professional Conduct states that a

lawyer shall not make a false or misleading communication about the lawyer or the lawyer’s

services.72 Because the rule also prohibits truthful statements that are misleading, lawyers must

69 See Wall, supra note 10. 70 Keeling, supra 31 (Explaining that it is “among the most elemental ethical obligations for attorneys”). 71 MODEL RULES OF PROF’L CONDUCT r. 7.1 (AM. BAR ASS’N 1983) (explaining what is a false or misleading communication, Rule 7.1 defines it as a statement that “contains a material misrepresentation of fact or law, or omits a fact necessary to make the statement considered as a whole not materially misleading”). 72 Id.

80 be extremely cautious as to what is posted on their social media profiles, especially when there is

a substantial likelihood that the truthful statement “will lead a to formulate a

specific conclusion about the lawyer or the lawyer’s services for which there is no reasonable

factual foundation.”73

With lawyers increasingly relying on social media as an advertising and client

development tool, the risk for misrepresentation is even greater when it comes to social media

recommendations, endorsements, and testimonials. Today, these may come in the form of peer

review ratings on Martindale-Hubbell, client ratings for lawyers on Avvo, or skill endorsements

on LinkedIn.74 While lawyers have traditionally been reviewed by their professional successes

and established reputations, social media is presenting new ethical challenges for state bar

associations when a lawyer’s colleagues and clients are flooding to social media to provide

review and referrals.

If not carefully constructed and properly posted, these recommendations, endorsements,

and testimonials may result in potential ethical violations for false or misleading communications

on social media. For example, in a 2014 formal ethics opinion, the North Carolina State Bar

established limitations for making and publishing recommendations and endorsements on social

media.75 Specifically, a lawyer may not display or even accept an endorsement or recommendation from a judge on a lawyer’s social media page when it would result in the appearance of judicial partiality.76 However, the North Carolina State Bar did indicate that

lawyers may post endorsements or recommendations that contain truthful and not misleading

73 MODEL RULES OF PROF’L CONDUCT r. 7.2 cmt. 2 (AM. BAR ASS’N 1983). 74 See Nicolas Gaffney, The Lawyer Raters: In Their Own Words, 37 A.B.A. L. PRACTICE MAGAZINE 1 (2011) (providing descriptions of various social media legal rating services and the overall rating process). 75 N.C. St. Bar, Formal Op. 2014-8. 76 Id.

81 content, so long as the endorsements or recommendations are coming from persons other than

judges.77

While this seemingly implies that client reviews and testimonials are acceptable under the

rules of professional conduct, lawyers again must use caution to monitor what the social media

communications say and what the ethics rules of their state bar association prohibit. In separate

formal advertising opinions, the Virginia State Bar and the Pennsylvania Bar Association both

expressly prohibited testimonials related to the results and/or comparisons of representation and

only supported “soft endorsements.”78 Similarly, the South Carolina Bar Association also

prohibits testimonials and ordinarily prohibits client endorsements, especially when they may

create unjustified expectations.79 Even if the endorsement or recommendation is true, an

unsubstantiated comparison of a lawyer’s services or fees with the services or fees of another

lawyer may be misleading and could result in a reasonable person forming an unjustified

expectation that the same results mentioned in the review could be obtained for another

prospective client.80

The takeaway from these varying ethical opinions is simple: all lawyers must familiarize themselves with their state’s position on recommendations and endorsements and must abide by the ethical rules formally adopted in their jurisdiction. Because the rules of professional conduct are state-specific, it is very likely that states may have a more restricting rule regarding misrepresentations and endorsements than the ABA Model Rules currently provide.81 Therefore,

with social media websites like AVVO, LinkedIn, Facebook, Twitter, Google+, and Instagram, a

77 Id. 78 Va. St. Bar of Cal. Standing Comm. on Law. Advert. & Solicitation, Formal Op. 2001-1750 (providing that “examples of ‘soft endorsements’ include statements such as the lawyer always returned phone calls and the attorney always appeared concerned”). 79 See RULES OF PROF’L CONDUCT r. 7.1 (S.C. BAR ASS’N 2017). 80 MODEL RULES OF PROF’L CONDUCT r. 7.1 cmt. 3 (AM. BAR ASS’N 1983). 81 See generally Differences Between State Advertising and Solicitation Rules and the ABA Model Rules of Professional Conduct, A.B.A. add. (June 2, 2016).

82 lawyer must acknowledge his or her responsibility for all of the social media content that is

posted and to take reasonable measures to ensure that third-party social media posts do not

violate ethics rules.82

C. Legal Advice and Social Media Communications

Today, lawyers and law firms are using social media to establish an online presence with the purpose of engaging in social media advertising, client development, case research, and overall communication as discussed above. With the various ways lawyers use social media to

communicate with prospective clients, it is important for lawyers to understand the ethical risks

that may arise when giving legal advice or opinions on social media, especially when it may

create an unintended attorney-client relationship.

When it comes to an attorney’s social media use, the perception of what constitutes legal

advice is very unclear and as social media changes the way lawyers communicate with the

public, it is entirely possible that an attorney-client relationship may be created through social

media communications. Through a Q&A session on Twitter or a social media blog post

welcoming inquiries on legal matters, certain social media communications may create a

prospective client-lawyer relationship under Rule 1.18 of the ABA Model Rules of Professional

Responsibility.83 Without a proper disclaimer or a reasonably understandable warning that

would limit the lawyer’s obligations, a consultation is likely to have occurred if a lawyer

specifically requests or invites the submission of information about a potential representation.84

This includes any lawyer request through the lawyer’s advertising in any medium, including

social media.85

82 N.Y. St. Bar. Ass’n Com. & Fed. Litig. Sec., Social Media Ethics Guidelines 2.C-D (2015). 83 MODEL RULES OF PROF’L CONDUCT r. 1.18 (AM. BAR ASS’N 1983). 84 MODEL RULES OF PROF’L CONDUCT r. 1.18 cmt. 2 (AM. BAR ASS’N 1983). 85 Id.

83 To avoid creating an unintended lawyer-client relationship, lawyers must consider

whether information advice on a blog or social media website would create an impression of

giving legal advice that could be relied on by a person visiting the site.86 Regardless of the type

of social media communication used, it is an attorney’s responsibility to make it clear to the

website visitor or potential client that an attorney-client relationship either has or has not been

created. To address this issue, the Virginia State Bar Standing Committee on Legal Ethics

released an opinion regarding the obligations of a lawyer who receives confidential information

on a law firm’s website.87 Based on the opinion, a lawyer does not owe a duty of confidentiality

to a person who provides unsolicited confidential information. However, if the website invites

the visitor to submit information by email to the firm for evaluation of his or her claim, a limited

attorney-client relationship will have been created.88

According to the ABA Standing Committee on Ethics and Professional Responsibility, no

clear line exists to determine what is legal information and what is legal advice.89 Therefore,

lawyers must exercise caution and restraint when social media users seek to communicate and

obtain legal advice on social media. For example, in the social media guidelines established by

the Commercial and Federal Litigation Section of the New York State Bar Association in 2015, a

lawyer may provide general answers to legal questions asked on social media, but “cannot

provide specific legal advice on a social media network because a lawyer’s responsive

communications may be found to have created an attorney-client relationship and legal advice

86 James M. McCauley, Blogging and Social Networking for Lawyers: Ethical Pitfalls, 58 VA. LAW. 26 (2010). 87 Va. St. Bar of Cal. Standing Comm. on Legal Ethics, Formal Op. 2008-1842 (regarding the obligations of a lawyer who receives confidential information through a law firm website or telephone voicemail). 88 See McCauley, supra note 86 (expanding the Virginia Legal Ethics Opinion 1842). 89 A.B.A. Comm. on Ethics & Prof’l Responsibility, Formal Op. 10-457 (concluding that “[a]lthough no exact line can be drawn between legal information and legal advice, both the context and content of the information offered are helpful in distinguishing between the two”).

84 also may impermissibly disclose” privileged information.90 To avoid the creation of any

unintended attorney-client relationships, it is generally recommended that lawyers provide a

clearly written warning or disclaimer on the social media website to avoid a potential

misunderstanding regarding whether an attorney-client relationship has been created; whether the

visitor’s information will be kept confidential; or whether legal advice has been given.91

IV. Social Media and Litigation

As the use of social media by lawyers and law firms continues to grow, the reality of

managing legal ethics risks remains a very serious concern when social media serves as a tool for

legal advertising, communicating with clients and members of the public, and investigating cases

during litigation. In 2016, seventy-eight percent of the United States population had a social media profile and according to future estimates, the number of worldwide social media users is

expected to reach nearly 2.5 billion users by 2018.92 With this proliferation of social media use,

lawyers must learn how to use social media to their advantage, especially when social media is a

treasure trove of potentially relevant information that would help prove a client’s case. For

litigation purposes, lawyers have been using social media “for and against plaintiffs and defendants to prove their case” and with an increasing number of courts declaring social media evidence admissible, social media is transforming the way litigators practice law.93

90 N.Y. St. Bar. Ass’n Com. & Fed. Litig. Sec., Social Media Ethics Guidelines 3.A (2015). 91 See A.B.A. Comm. on Ethics & Prof’l Responsibility, Formal Op. 10-457 (advising that in order to “avoid misleading readers, lawyers should make sure that legal information is accurate and current, and should include qualifying statements or disclaimers that “may preclude a finding that a statement is likely to create unjustified expectations or otherwise mislead a prospective client”); but see Harvey, supra note 11 (citing to a quote in the South Carolina Ethics Opinion 12-03, which states that “[a]ttempting to disclaim (through buried language) an attorney-client relationship in advance of providing specific legal advice in a specific matter, and using similarly buried language to advise against reliance on the advice is patently unfair and misleading to laypersons”). 92 Percentage of U.S. Population with a Social Media Profile From 2008 to 2016, STATISTA: THE STATISTICS PORTAL (2017), https://www.statista.com/statistics/273476/percentage-of-us-population-with-a-social-network- profile/. 93 Mike Wallagher, How Can Lawyers Use Social Media to Their Advantage, LLRX Blog (Oct. 23, 2015), http://www.llrx.com/2015/10/how-can-lawyers-use-social-media-to-their-advantage/.

85 As many social media users publish endless amounts of personal information, the basic

task of conducting social media searches on clients, opponents, and witnesses is becoming a

minimum level of due diligence expected of competent litigators.94 One example of using social

media as an investigatory tool occurred in 2010, when Wal-Mart obtained a subpoena to gain

access to the Facebook and Myspace social networking profiles of the plaintiff’s wife for every

public and private message, contact, and photo for the previous two and a half years.95 While the case was ultimately settled, it brought attention to the “openness of social media” and its service as a rich repository “of potential pre-litigation intelligence and fodder for cross-examination.”96

Unfortunately for litigators, the silence of the ABA and limited guidance from states on

how a litigator may ethically use social media as an investigatory tool has resulted in uncertainty

when it comes to establishing the ethical boundaries for accessing information about parties of

interest through searches of social media websites.97 These ethical dilemmas are only made

worse by the different privacy settings a person may use, which would then severely limit what a

litigator could learn without having to resort to sending a “friend request” to gain access to the

social media page. This has led to issues relating to communication with represented clients and permissible research for selection.

A. Communications with Represented Clients

94 Radhakant & Diskin, supra note 26 (explaining that running a social media search of these parties is now part of the “minimum level of due diligence expected as a competent litigator”). 95 Ariana Eunjung Cha, What Sites Such as Facebook and Google Know and Whom They Tell, WASH. POST FOREIGN SERV.(May 29, 2010), http://www.washingtonpost.com/wp- dyn/content/article/2010/05/28/AR2010052804853.html. 96 Radhakant & Diskin, supra note 26 (“The openness of social media–and–user’s willingness to tweet and post things they would never dream of saying in a letter or an email–means that social networks offer rich repositories of potential pre-litigation intelligence and fodder for cross-examination”). 97 See Saleel V. Sabnis, Attorney Ethics in the Age of Social Media, A.B.A. SEC. OF LITIG. (June 8, 2016), http://apps.americanbar.org/litigation/committees/professional/articles/spring2016-0616-attorney-ethics-age-social- media.html (explaining how the “deafening silence” of the ABA Model Rules has left attorneys with “little national guidance regarding attorney ethics in the domain of social media”).

86 In representing a client, Rule 4.2 of the ABA Model Rules of Professional Conduct

expressly prohibits lawyers from communicating about the subject of representation with a

person that the lawyer knows to be represented by another lawyer in the matter.98 This rule

arguably applies to social media communications when it applies to “communications with any

person who is represented by counsel concerning the matter to which the communication

relates.”99

In a 2011 legal ethics opinion, the San Diego County Bar Association rejected the

argument that “friending” or submitting an access request to a represented opposing party on

social media is not an ethics violation because it is the same as accessing the public website of an

opposing party.100 While the San Diego County Bar Association noted that nothing prevents an

attorney from accessing a represented party’s public social media page and that such access

offends no ethics rules when it requires no communication to or permission from the represented

party, the same cannot be said for when the privacy settings are active.101 Therefore, because an

attorney must make a request to a represented party “outside of the actual or virtual presence of

defense counsel” to “obtain access to restricted information” on a private social media page, the

attorney will violate the rule of professional conduct prohibiting communications with a

represented party when it makes this type of access request.102

Similarly, the Pennsylvania Bar Association and the New York State Bar Association

have separately reached the same conclusion when both released opinions instructing lawyers not

to contact a represented person through social media websites.103 Moreover, the lawyers may

98 MODEL RULES OF PROF’L CONDUCT r. 4.2 (AM. BAR ASS’N 1983). 99 MODEL RULES OF PROF’L CONDUCT r. 4.2 cmt. 2 (AM. BAR ASS’N 1983). 100 San Diego Cty. Bar Ass’n Legal Ethics Comm., Formal Op. 2011-2. 101 Id. 102 Id. 103 See Penn. Bar Ass’n Ethics Comm., Formal Op. 2014-300 (discussing the ethical limitations regarding the lawyer’s ability to contact relevant persons in a conflict through a social networking site); N.Y. St. Bar Ass’n

87 use information obtained by viewing an adverse party’s profile for use in the lawsuit so long as

the “lawyer does not ‘friend’ the party and instead relies on public pages posted by the party that

are accessible to all members in the network.”104 While some states have only released advisory

opinions and social media guidelines relating to an attorney submitting social media access

requests, the Philadelphia Bar Association extended an additional ethical obligation to lawyers

when it concluded that an attorney will violate the rules of professional conduct when the

attorney asks a non-lawyer employee to “friend” another party.105

When it comes to communicating with represented persons, lawyers must exercise

caution in how they use social media to access the information of an adverse party, witness, or

even prospective clients through social media searches. Because it could be “ethically

problematic for lawyers to ‘friend’ people just to get access to information in their social media

profiles,”106 lawyers must consider these ethical opinions and guidelines issued by the state bar

associations and not try to circumvent any privacy settings that may restrict what a lawyer can

learn from a person’s social media page.

B. Social Media Research for Jury Selection

According to a formal opinion released by the ABA in 2014, it is ethically permissibly

for lawyers to research potential jurors online with no repercussions, so long as they do not send

an access request when the privacy settings are active.107 With more than sixty percent of

Comm. on Prof’l Ethics, Formal Op. 2010-843 (discussing a lawyer’s “access to public pages of another party’s social networking site for the purpose of gathering information for pending litigation”). 104 N.Y. St. Bar Ass’n Comm. on Prof’l Ethics, Formal Op. 2010-843. 105 Phila. Bar Ass’n Prof’l Guidance Comm., Formal Opinion 2009-02. 106 Radhakant & Diskin, supra note 26 (explaining how social media sites are ethical minefields for lawyers). 107 ABA Standing Comm. on Ethics & Prof’l Responsibility, Formal Op. 466 (2014) (explaining that “passive review of a juror’s website or ESM, that is available without making an access request, and of which the juror is unaware, does not violate Rule 3.5(b)”).

88 potential jurors having social media profiles,108 information discovered on social media pages may be more revealing than answers on a juror questionnaire. Because jury selection can be significant to the outcome of a case, it is plausible to suggest that a litigator’s duty of diligence requires a basic search of a potential juror’s social media profile.

In 2012, the New York City Bar Association released a formal opinion on this issue and concluded that not only is it acceptable for lawyers to use social media as a research mechanism to learn as much as possible about potential jurors, but that “lawyers have been chastised for not conducting such research on potential jurors.”109 In using social media to research jurors, both

the New York City Bar Association and the ABA, in separate opinions, provided a few ethical

limitations to lawyers seeking to use social media for this purpose: 1) no ex parte

communications with jurors, which is prohibited by Rule 3.5 of the ABA Model Rules for

Professional Conduct; 2) no deception can be used by an attorney to gain access to a juror’s

website or to obtain information; and 3) lawyers have an obligation to report any juror

misconduct that may be revealed during their social media searches, especially if the misconduct

specifically violates the court’s instructions.110

It is clear from the ABA opinions, state bar association opinions, and general

commentary in the legal profession that using social media to research a potential juror will not

trigger any potential ethical violations. However, as social media use continues to increase

within the legal profession, the ethical concern will not be whether a lawyer may use social

media to research jurors, but instead the question will likely become what may a lawyer do with

108 Amanda Sexton, How Lawyers Can Use Social Media in Investigations and Process Service, ABA TECHSHOW (Jan 3, 2017), http://www.techshow.com/2017/01/how-lawyers-can-use-social-media-in-investigations-and-process- service-3/. 109 N.Y.C. Bar Ass’n Comm. on Prof’l Ethics, Formal Op. 2012-02 (discussing jury research and social media). 110 See Steven J. Boranian, Respecting the Rules for Searching Jurors’ Social Media, LAW360 BLOG (Aug. 20, 2016), https://www.law360.com/articles/830240/respecting-the-rules-for-searching-jurors-social-media (discussing the ABA and New York City opinions regarding the ethical considerations for using social media to research jurors).

89 the information that he discovers.” With the ABA Model Rules of Professional Responsibility

remaining silent on this question and the American College of Trial Lawyers’ Annotated Code of

Trial Conduct addressing only the investigatory phase of juror research and not how lawyers may

actually use the information, uncertainty remains.111

V. Conclusion

The foundational ethical duties to provide competent and diligent representation require

lawyers to work on behalf of their clients in the most efficient and effective ways possible. This

undoubtedly includes the use of social media and the understanding of the ethical risks relating

to social media and client confidentiality, legal advertising, misrepresentations, the unintentional

creation of attorney-client relationships, and the risks relating to social media use during

litigation. While the majority of states have formally adopted rules of professional conduct, most

remain silent as to how social media use may implicate the existing ethical rules. Due to the

unprecedented pace of social media developments and technological changes, ethics regulators

“may be reluctant to amend ethics rules to incorporate social media use” due to the “legitimate

concern that any such rules may become obsolete as social media platforms develop and

change.”112

Despite the lack of formal rules, lawyers and law firms are not being prevented from

establishing an online presence. As state bar associations and disciplinary commissions observe

how social media is transforming the business practices of lawyers within the profession, more

advisory opinions and guidelines are being released to help lawyers navigate the unchartered

111 Sarah Grider Cronan & Neal F. Bailen, “Should I Google the Jury?” and Other Ethical Considerations, A.B.A. SEC. LITIG. PROD. LIAB. COMM. (2016), https://apps.americanbar.org/litigation/committees/products/articles/0407_cronan.html. 112 Chiccine, supra note 63 (discussing the reluctance of ethical regulators to change the rules for social media); See Wall, supra note 10 (explaining that the reluctance to change the ethics rules continues and that “[w]hile some lawyers believe that specialized rules should be adopted for social media, such rules would inevitably become obsolete the moment a newer technology is introduced”).

90 waters of social media communications and marketing within the legal industry. Even though

some opinions contradict each other and some guidelines provide more detail than others, there

are certain measures that lawyers may take to protect themselves from protection ethical

violations when using social media.

For example, lawyers should keep their professional social media pages separate from

their personal profile pages.113 Also, lawyers should be cautious when it comes to social media

features that allow Q&A sessions because these features can make it hard to distinguish whether

a lawyer is giving a personal opinion or offering legal advice.114 Finally, and as always, when in

doubt, every lawyer and legal professional should become familiar with the applicable rules of

professional conduct, ethics opinions, and social media guidance issued by his or her licensing

jurisdiction.

113 Simon Chester & Daniel Del Gobbo, Social Media Networking For Lawyers: A Practical Guide to Facebook, LinkedIn, Twitter, and Blogging, A.B.A. LAW PRACTICE TODAY (Jan 2012), http://www.americanbar.org/publications/law_practice_magazine/2012/january_february/social-media-networking- for-lawyers.html (discussing how some lawyers keep their social media accounts separate for personal and professional uses in order to avoid violating the ethics rules and to prevent an overlap of “their professional and personal worlds” on social media). 114 Id. (discussing the LinkedIn social networking site and how its “feature of asking questions of those within one’s network and responding with answers” can blur the “difficult dividing line between professional development and the provision of legal advice”).

91 For more information on this topic please see:

Taking the Heat for a Tweet: https://www.dmagazine.com/publications/d-ceo/2013/december/legal-matters-of-social-media/

92 [ORAL ARGUMENT NOT YET SCHEDULED] No. 17-7051

IN THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

SPANSKI ENTERPRISES, INC.,

Plaintiff-Appellee,

v.

TELEWIZJA POLSKA, S.A.,

Defendant-Appellant.

On Appeal from the United States District Court for the District of Columbia

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE IN SUPPORT OF APPELLEE

SARANG VIJAY DAMLE CHAD A. READLER General Counsel and Associate Acting Assistant Attorney General Register of Copyrights MARK R. FREEMAN REGAN A. SMITH MEGAN BARBERO Deputy General Counsel Attorneys, Appellate Staff EMMA RAVIV Civil Division, Room 7226 Barbara A. Ringer Fellow U.S. Department of Justice United States Copyright Office 950 Pennsylvania Avenue NW Washington, D.C. 20530 Washington, DC 20530 (202) 532-4631

93 CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES

Pursuant to D.C. Circuit Rule 28(a)(1), the undersigned counsel certifies as follows:

A. Parties and Amici Plaintiff-Appellee is Spanski Enterprises, Inc. and Defendant-Appellant is

Telewizja Polska, S.A. The United States appears in this Court as amicus curiae.

B. Rulings Under Review Defendant-Appellant seeks review of the district court’s July 9, 2015 order denying summary judgment, December 12, 2016 memorandum opinion setting forth findings of fact and conclusions of law, February 14, 2017 memorandum opinion on damages, and February 14, 2017 order entering judgment for Plaintiff-Appellee.

References and citations to these rulings appear in Defendant-Appellant’s brief.

C. Related Cases This case has not previously been before this Court or any other Court, and undersigned counsel is unaware of any other related cases within the meaning of this

Court’s rules.

s/ Megan Barbero MEGAN BARBERO Counsel for the United States

94 TABLE OF CONTENTS

Page

GLOSSARY

STATEMENT OF INTEREST AND SUMMARY OF ARGUMENT ...... 1

STATEMENT OF THE CASE ...... 3

A. Statutory and Legal Background...... 3

B. Factual Background ...... 6

C. Prior Proceedings ...... 7

ARGUMENT ...... 9

I. TVP INFRINGED SEI’S PUBLIC-PERFORMANCE RIGHT BY STREAMING COPYRIGHTED TELEVISION PROGRAMS OVER THE INTERNET FROM ABROAD TO THE AMERICAN PUBLIC ...... 9

A. TVP Infringed By Performing Copyrighted Works To The American Public ...... 11

B. TVP’s Argument That Its Conduct Was Entirely Extraterritorial Is Unavailing ...... 15

II. COPYRIGHT INFRINGEMENT IS A STRICT LIABILITY OFFENSE THAT DOES NOT REQUIRE PROOF OF WRONGFUL INTENT ...... 19

A. Culpable Intent Is Not Required For Copyright Infringement ...... 19

B. TVP’s “Volitional Conduct” Argument Is Foreclosed By Aereo ...... 21

CONCLUSION ...... 26

CERTIFICATE OF COMPLIANCE

CERTIFICATE OF SERVICE

ADDENDUM

95 TABLE OF AUTHORITIES

Cases: Page(s)

Agee v. Paramount Commc’ns, Inc., 59 F.3d 317 (2d Cir. 1995) ...... 4 American Broadcasting Cos. v. Aereo, Inc., 134 S. Ct. 2498 (2014) ...... 1, 2, 4, 5, 12, 18, 19, 21, 22, 23, 24 Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428 (1989) ...... 6 Automattic v. Steiner, 82 F. Supp. 3d 1011 (N.D. Cal. 2015) ...... 7 BWP Media USA, Inc. v. T & S Software Assocs., Inc., 852 F.3d 436 (5th Cir. 2017) ...... 21 Capitol Records, LLC v. Vimeo, LLC, 826 F.3d 78 (2d Cir. 2016) ...... 25 CoStar Grp., Inc. v. LoopNet, Inc., 373 F.3d 544 (4th Cir. 2004) ...... 21, 24, 25 Eckert Int’l, Inc. v. Government of Sovereign Democratic Republic of Fiji, 32 F.3d 77 (4th Cir. 1994) ...... 6 EEOC v. Arabian Am. Oil Co., 499 U.S. 244 (1991) ...... 17 EMI Christian Music Grp., Inc. v. MP3tunes, LLC, 844 F.3d 79 (2d Cir. 2016) ...... 20, 21 Kiobel v. Royal Dutch Petroleum Co., 569 U.S. 108 (2013) ...... 11 Leonard v. Stemtech Int’l, Inc., 834 F.3d 376 (3d Cir. 2016) ...... 21 Morrison v. National Austl. Bank Ltd., 561 U.S. 247 (2010) ...... 2, 10, 11, 12, 14, 17

96 Owens v. Republic of Sudan, 864 F.3d 751 (D.C. Cir. 2017) ...... 6 Perfect 10, Inc. v. Giganews, Inc., 847 F.3d 657 (9th Cir. 2017) ...... 21, 22 Phoenix Consulting, Inc. v. Republic of Angola, 216 F.3d 36 (D.C. Cir. 2000) ...... 6 RJR Nabisco, Inc. v. European Cmty., 136 S. Ct. 2090 (2016) ...... 2, 10, 11, 12, 14, 15, 17 The Robert Stigwood Grp. Ltd. v. O’Reilly, 530 F.2d 1096 (2d Cir. 1976) ...... 6 Subafilms, Ltd. v. MGM-Pathe Commc’ns Co., 24 F.3d 1088 (9th Cir. 1994) ...... 6, 11 Superintendent of Ins. of N.Y. v. Bankers Life & Cas. Co., 404 U.S. 6 (1971) ...... 14 United States v. American Soc’y of Composers, Authors, Publishers, 627 F.3d 64 (2d Cir. 2010) ...... 5

Statutes:

15 U.S.C. § 78j(b) ...... 17 17 U.S.C. § 101 ...... 2, 3, 4, 5, 12, 13, 14, 15, 16, 18 17 U.S.C. § 101 et seq...... 3 17 U.S.C. § 106 ...... 3 17 U.S.C. § 106(4) ...... 1, 3, 10, 12, 13, 15, 21 17 U.S.C. § 504(c)(2) ...... 8, 20 17 U.S.C. § 506(a) ...... 1 17 U.S.C. § 506(a)(1)(A) ...... 9

97 17 U.S.C. § 512(c) ...... 25 17 U.S.C. § 701 ...... 1 28 U.S.C. § 1338(a) ...... 6 28 U.S.C. § 1605(a)(1) ...... 6

Rule:

Fed. R. App. P. 29(a) ...... 1

Legislative Material:

S. Rep. No. 105-190 (1998) ...... 25

Other Authorities:

American Registry for Internet Numbers, Number Resource Policy Manual (Aug. 2017), https://www.arin.net/ policy/nrpm.html ...... 16 2 Melville B. Nimmer & David Nimmer, Nimmer on Copyright (rev. ed. 2017) ...... 4, 13 4 Melville B. Nimmer & David Nimmer, Nimmer on Copyright (rev. ed. 2017) ...... 20, 22 U.S. Gov’t Accountability Office, GAO-15-642, Internet Management: Structured Evaluation Could Help Assess Proposed Transition of Key Domain Name and Other Technical Functions (Aug. 2015), https://www.gao.gov/ assets/680/672055.pdf ...... 16

98 GLOSSARY

Act Copyright Act of 1976 FSIA Foreign Sovereign Immunities Act ISP Internet Service Provider SEI Spanski Enterprises, Inc. (Plaintiff-Appellee) TVP Telewizja Polska, S.A. (Defendant-Appellant)

99 STATEMENT OF INTEREST AND SUMMARY OF ARGUMENT

This case concerns whether the public-performance right under the Copyright

Act of 1976, 17 U.S.C. § 106(4), is implicated when copyrighted audiovisual works are streamed over the Internet to the American public from computer servers located

abroad. This is an issue of first impression in the courts of appeals. The question

directly implicates the interests of the United States Copyright Office, which is

responsible for administering the federal copyright laws. See 17 U.S.C. § 701. This

question is also of significant interest to the United States Department of Justice,

which prosecutes criminal violations of the Copyright Act, including criminal

violations of the public-performance right by entities located abroad that engage in

large-scale streaming of copyrighted works to viewers in the United States. See 17

U.S.C. § 506(a). The United States respectfully submits this amicus brief under Rule

29(a) of the Federal Rules of Appellate Procedure.

It is undisputed that the unauthorized digital streaming of a copyrighted work

to the public over the Internet can violate the copyright owner’s exclusive right “to

perform the copyrighted work publicly.” 17 U.S.C. § 106(4). The Supreme Court

held in American Broadcasting Cos. v. Aereo, Inc., 134 S. Ct. 2498 (2014), that a domestic

company committed copyright infringement by streaming television shows to

members of the public without a license. The United States urges the Court to hold

that a copyright owner’s exclusive right to control the public performance of the work

in the United States is infringed just as clearly when the transmission comprising the

100 unauthorized performance originates overseas. The exclusive right of public

performance under the Copyright Act is the right to perform the work to the public in the United States. When a copyrighted work is streamed over the Internet to the public in the United States, it is “perform[ed] … publicly” in the United States: that is where the audience receives and enjoys the performance of the copyrighted work. See 17

U.S.C. § 101 (defining “[t]o perform … ‘publicly’”). Because the primary focus of the statute is on performances to the American public, imposing liability for a performance transmitted to the American public constitutes a domestic application of the Copyright Act, even if other relevant conduct occurred abroad. See RJR Nabisco,

Inc. v. European Cmty., 136 S. Ct. 2090, 2101 (2016); Morrison v. National Austl. Bank

Ltd., 561 U.S. 247, 267 (2010).

The district court thus correctly held that Telewizja Polska, S.A. (TVP) infringed Spanksi Enterprises, Inc.’s (SEI) exclusive right under the Copyright Act to

“perform … publicly” the television shows at issue in this case. TVP infringed that right when it performed copyrighted works—showing their images and making their audio heard—by transmitting the copyrighted programs from servers located in

Poland to an audience that received the programs in the United States. TVP’s arguments to the contrary misunderstand the nature of the public-performance right and disregard the Supreme Court’s reasoning in Aereo.

The United States further urges the Court to clarify that copyright infringement is a strict liability offense. The district court’s opinion repeatedly states that TVP

101 infringed because it engaged in “volitional and intentional” conduct. Proof of intent,

however, is not required to establish copyright infringement, including infringement

of the public-performance right. To the extent the Copyright Act requires proof that

the defendant engaged in volitional conduct beyond “perform[ing]” the copyrighted

work “publicly,” that requirement is satisfied here because TVP transmitted

copyrighted material from its servers to viewers in the United States.1

STATEMENT OF THE CASE

A. Statutory and Legal Background The Copyright Act, 17 U.S.C. § 101 et seq., confers on the owner of a copyright a set of exclusive rights in the copyrighted work. See generally 17 U.S.C. § 106. One of those exclusive rights is the right “to perform the copyrighted work publicly.” Id.

§ 106(4). To “perform” an “audiovisual work” is “to show its images in any sequence or to make the sounds accompanying it audible.” Id. § 101. The Copyright Act defines “[t]o perform … a work ‘publicly’” as

(1) to perform … it at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered; or (2) to transmit or otherwise communicate a performance … of the work to a place specified by clause (1) or to the public, by means of any device or process, whether the members of the public capable of receiving the performance … receive it in the same place or in separate places and at the same time or at different times.

1 The government expresses no view on the district court’s finding of willfulness or on the damages award.

102 Id.2 Finally, “[t]o ‘transmit’ a performance … is to communicate it by any device or

process whereby images or sounds are received beyond the place from which they are

sent.” Id.

Under these provisions, a cable television provider publicly performs

copyrighted programs when it transmits them to its individual subscribers—even if

the provider is merely capturing and retransmitting broadcast signals, and even if the

individual subscribers choose the shows they wish to watch. American Broadcasting Cos.

v. Aereo, Inc., 134 S. Ct. 2498, 2505-06 (2014). Likewise, an entity publicly performs

copyrighted programs if it streams them to subscribers over the Internet instead of

transmitting them over a dedicated system of cables. Id. at 2507-10; see A1141 (noting

parties’ agreement that “unauthorized streaming of copyrighted content can constitute

a violation of the public performance right”); 2 Melville B. Nimmer & David

Nimmer, Nimmer on Copyright § 8.14[B][3] (rev. ed. 2017) (2 Nimmer on Copyright) (“The

act of streaming constitutes a public performance[.]”). A stream “transmission, like a

television or radio broadcast, is a performance because there is a playing of the

2 There is no requirement that the infringer transmit a performance directly to the public. See Agee v. Paramount Commc’ns, Inc., 59 F.3d 317, 325 (2d Cir. 1995) (noting that public-performance right may be infringed where cable networks transmit “to local cable companies who in turn transmit to individual cable subscribers” (quotation marks omitted)).

103 [copyrighted work] that is perceived simultaneously with the transmission.” United

States v. American Soc’y of Composers, Authors, Publishers, 627 F.3d 64, 74 (2d Cir. 2010).3

In Aereo, the Supreme Court held that Aereo, a streaming company, infringed section 106(4)’s public-performance right by streaming copies of copyrighted shows from its equipment to subscribers over the Internet. The Supreme Court explained that “[w]hen an Aereo subscriber selects a program to watch, Aereo streams the program over the Internet to that subscriber. Aereo thereby ‘communicate[s]’ to the subscriber, by means of a ‘device or process,’ the work’s images and sounds. § 101.

And those images and sounds are contemporaneously visible and audible on the subscriber’s computer (or other Internet-connected device).” 134 S. Ct. at 2508.

Because Aereo made the copyrighted works available to a public audience—i.e., to “a large number of people who are unrelated and unknown to each other,” id. at 2509— the stream transmissions performed the work “publicly.” Id. at 2507-09 (explaining that “an entity performs a work publicly when it ‘transmit[s] … a performance … of the work … to the public’” and concluding that “when Aereo streams the same television program to multiple subscribers, it ‘transmit[s] … a performance’ to all of them” (quoting 17 U.S.C. § 101)).

3 The Second Circuit distinguished downloads, where there is no “contemporaneously perceptible event,” from “stream transmissions,” which “render[] the musical work audible as it is received by the client-computer’s temporary memory.” American Soc’y of Composers, Authors, Publishers, 627 F.3d at 73-74.

104 It is well established that the Copyright Act—including the public-performance

right—generally “ha[s] no application to extraterritorial infringement.” Subafilms, Ltd.

v. MGM-Pathe Commc’ns Co., 24 F.3d 1088, 1095 (9th Cir. 1994) (en banc); see also, e.g.,

The Robert Stigwood Grp. Ltd. v. O’Reilly, 530 F.2d 1096, 1101 (2d Cir. 1976).

B. Factual Background TVP is Poland’s national public company and is owned

by the Polish treasury. A1123.4 TVP owns and operates various Polish-language television channels, including the channel TVP Polonia, which it distributes through its website www.tvp.pl. Id.

Through the parties’ 1994 agreement and a 1999 addendum, TVP granted SEI, a Canadian corporation, the exclusive right to distribute copyrighted TVP Polonia

content in North and South America for twenty-five years. A1123-24; A1266. The

parties’ 2009 settlement agreement confirmed that SEI is the exclusive licensee of

4 TVP has not asserted sovereign immunity under the Foreign Sovereign Immunities Act (FSIA). It appears that TVP has likely waived its immunity in this case. See 28 U.S.C. § 1605(a)(1) (providing that a foreign state may “waive[] its immunity either explicitly or by implication”). The parties’ agreement contains a choice-of-law provision (A1273) that likely operates to waive any claim of sovereign immunity. See Eckert Int’l, Inc. v. Government of Sovereign Democratic Republic of Fiji, 32 F.3d 77, 80 (4th Cir. 1994). TVP also made a “conscious decision to take part in the litigation” without “assert[ing] its immunity under the FSIA either before or in its responsive pleading.” Phoenix Consulting, Inc. v. Republic of Angola, 216 F.3d 36, 39 (D.C. Cir. 2000). Although the parties cite 28 U.S.C. § 1338(a) as a basis for the district court’s subject-matter jurisdiction (TVP Br. 1; SEI Br. 1), the FSIA is “the sole basis for obtaining jurisdiction over a foreign state in our courts.” Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 434 (1989); Owens v. Republic of Sudan, 864 F.3d 751, 763 (D.C. Cir. 2017).

105 TVP Polonia in North and South America, which includes the exclusive right to distribute copyrighted TVP Polonia content over the Internet in the United States.

See A1124. As part of the settlement, TVP agreed to use Internet geo-blocking technologies to prevent users in the United States from viewing programs through

TVP’s website. See A1344.

In 2012, as part of its process for registering TVP Polonia episodes with the

U.S. Copyright Office (see A1124-25; see also A1417-67), SEI’s lawyers discovered that they could stream TVP programs to their offices in New York—apparently because

TVP had intentionally disabled its geo-blocking technology (see A1130-38).

C. Prior Proceedings In 2012, SEI filed a complaint for copyright infringement against TVP, claiming that TVP had infringed SEI’s exclusive right to distribute and publicly perform the copyrighted episodes within the United States. A25-35.

In denying summary judgment, the district court rejected TVP’s argument that its conduct was extraterritorial and not subject to the Copyright Act, reasoning “that copyright infringement that commenced abroad but was complete[d] in the United

States was not wholly extraterritorial, and thus the Copyright Act covered the defendant’s conduct.” A114 (citing Automattic v. Steiner, 82 F. Supp. 3d 1011, 1028

(N.D. Cal. 2015)). The district court explained that, while TVP’s “acts or omissions may have occurred in Poland, at least some part of the alleged infringement occurred in the United States as [SEI] captured and recorded at least some of the episodes from

106 TVP’s website on a computer in the United States.” Id. The court expressed concern

that “[t]o find otherwise would leave a substantial loophole in the copyright laws.” Id.

(quotation marks omitted). “Broadcasters could deliberately transmit potentially

infringing material from locations across the United States’ borders for display in the

United States without regard to the rights of copyright owners set forth in the U.S.

Copyright Act.” Id. (quotation marks omitted).

Following a trial, the district court found that SEI had satisfied its burden of proving copyright infringement. A1130-33; A1138-41. The district court found that SEI held valid copyrights for 51 TVP Polonia episodes. A1124-25; A1130;

A1138-40. The court further found that SEI’s lawyers were able to view those

episodes in the United States. A1130-31; A1133. The court determined that “TVP

acted volitionally in infringing SEI’s copyright” by removing geo-blocking restrictions

(A1134), and that TVP acted “willfully and intentionally” (A1134-38). The district

court held that TVP’s public performance of the copyrighted works was covered by

the Copyright Act because “copyright infringement that commenced abroad but was

completed in the United States was not wholly extraterritorial.” A1141 n.3 (quotation

marks omitted).

The district court issued a separate opinion on statutory damages, finding that

TVP’s infringement was willful and ordering TVP to pay a total of $3,060,000 in

damages. A1253; see 17 U.S.C. § 504(c)(2) (providing for increased statutory damages

where the court finds that “infringement was committed willfully”). The court issued

107 its final judgment in favor of SEI on February 14, 2017. A1257. This appeal followed.

ARGUMENT

I. TVP INFRINGED SEI’S PUBLIC-PERFORMANCE RIGHT BY STREAMING COPYRIGHTED TELEVISION PROGRAMS OVER THE INTERNET FROM ABROAD TO THE AMERICAN PUBLIC

This case presents an issue of first impression in the courts of appeals: whether the unauthorized Internet streaming of copyrighted works to the American public is beyond the reach of the Copyright Act merely because the streaming transmission originates abroad. That question affects the private interests of copyright owners, such as SEI here, in protecting their exclusive right to perform their works to the

American public. But it also implicates the ability of the Department of Justice to prosecute large-scale criminal piracy of copyrighted works by entities located abroad that stream copyrighted works over the Internet to viewers in the United States. Civil infringement liability is the predicate for criminal enforcement of the copyright laws: the Copyright Act imposes criminal penalties for the willful infringement of a copyright, including through unauthorized public performances, for commercial advantage or private financial gain. 17 U.S.C. § 506(a)(1)(A). This Court’s resolution of the question presented may therefore affect the ability of the United States to prosecute large-scale criminal piracy on the Internet.

There is no dispute that unauthorized Internet streaming of copyrighted works to a public audience can infringe the public-performance right. If TVP had streamed

108 SEI’s copyrighted works from servers within the United States to the American

public, it would be liable for infringement. The question in this case is whether TVP’s

performances to the American public are beyond the reach of the Copyright Act

because they originated from foreign servers instead.

The Court should answer that question in the negative: under the framework

for analyzing extraterritoriality that the Supreme Court has set forth in recent

decisions, RJR Nabisco, Inc. v. European Cmty., 136 S. Ct. 2090, 2101 (2016); Morrison v.

National Austl. Bank Ltd., 561 U.S. 247, 267 (2010), imposing liability on TVP does

not involve an extraterritorial application of the public-performance right. The

primary “focus” of the statute, RJR Nabisco, 136 S. Ct. at 2101, is on performing the

copyrighted work “publicly,” 17 U.S.C. § 106(4), and on protecting the copyright

holder’s interest in controlling the performance of the work to the public in the

United States. In this case, the public audience for TVP’s Internet transmission of

copyrighted works included members of the American public, who received and

viewed the performances, and it is those performances to the American public that

are the subject of SEI’s infringement complaint.5

Because the events relevant to the statute’s focus occurred within the United

States, imposing liability on TVP in these circumstances for unauthorized

5 The parties dispute whether SEI adequately proved that TVP performed some or all of the copyrighted works to the “public” in the United States. We express no view on that question and assume, for purposes of this brief, that the district court’s determination on that issue is sustained.

109 performances to the American public represents a domestic application of the

Copyright Act, even if TVP initiated the performances abroad. To hold otherwise

would provide a roadmap for criminal enterprises to evade liability under United

States law merely by ensuring that the servers they use to stream pirated works to the

American public are stationed across the border.

A. TVP Infringed By Performing Copyrighted Works To The American Public

In RJR Nabisco, the Supreme Court articulated “a two-step framework for analyzing extraterritoriality issues.” 136 S. Ct. at 2101 (citing Morrison, 561 U.S. at 262-

66, 267 n.9, and Kiobel v. Royal Dutch Petroleum Co., 569 U.S. 108, 115 (2013)). “At the first step,” the court “ask[s] whether the presumption against extraterritoriality has been rebutted—that is, whether the statute gives a clear, affirmative indication that it applies extraterritorially.” Id. Here, the relevant provisions of the Copyright Act contain no such indication. Subafilms, Ltd. v. MGM-Pathe Commc’ns Co., 24 F.3d 1088,

1095 (9th Cir. 1994) (en banc). This case thus turns on the second step, which seeks to “determine whether the case involves a domestic application of the statute,” and which does so “by looking to the statute’s ‘focus.’” RJR Nabisco, 136 S. Ct. at 2101.

“If the conduct relevant to the statute’s focus occurred in the United States, then the case involves a permissible domestic application even if other conduct occurred abroad.” Id. At this second step, a court ascertains the “focus” of a particular statutory provision by identifying the acts that the provision “seeks to ‘regulate’” and

110 the parties or interests that it “seeks to ‘protec[t].’” Morrison, 561 U.S. at 267

(alteration in original); see RJR Nabisco, 136 S. Ct. at 2100-01.

Under that framework, it is a domestic application of the Copyright Act’s public-performance provisions to impose liability on TVP for streaming copyrighted content from servers located abroad to the American public. Section 106(4) does not protect against every unauthorized performance of a copyrighted work; it protects the copyright owner only against the unauthorized performance of the work “publicly.”

17 U.S.C. § 106(4). As relevant here, the Copyright Act defines a public performance to include “transmit[ting] or otherwise communicat[ing] a performance … to the public.” 17 U.S.C. § 101. A copyright holder thus has no claim for infringement unless there is not only a performance, but a performance to the public. American

Broadcasting Cos. v. Aereo, Inc., 134 S. Ct. 2498, 2504 (2014) (“This case requires us to answer two questions: First, in operating in the manner described above, does Aereo

‘perform’ at all? And second, if so, does Aereo do so ‘publicly’?”). Particularly in light of extraterritoriality principles, the most natural reading of the Copyright Act’s public-performance provisions is that the relevant “public” is the public in the United

States. See RJR Nabisco, Inc., 136 S. Ct. at 2100 (“Absent clearly expressed congressional intent to the contrary, federal laws will be construed to have only domestic application.”). In enacting the public-performance right, Congress was concerned about protecting copyright holder’s exclusive right to perform copyrighted

111 works to the public in the United States and prohibiting the unauthorized performance of such works to the American public.

Congress’s focus on the public nature of the performance makes sense: “It would, of course, be unthinkable for an infringement to arise every time someone, for his own amusement or that of his friends, were to read a book aloud or sing a song.”

2 Nimmer on Copyright § 8.14[c]. There is thus no doubt that singing a copyrighted song in the privacy of one’s own home does not infringe the public-performance right. But if the same singer performed to a stadium full of people in New York, the copyright would be infringed because the copyrighted work would have been performed to the public. The result changes because the audience changes: only in the second example is the singer performing “publicly.” 17 U.S.C. § 106(4).

Nothing in the Copyright Act, furthermore, turns on the particular technological mechanism by which the performance to the public is effected. If the same singer visited a studio in Canada and transmitted his performance of the copyrighted song live to the stadium in New York, the public audience that received and enjoyed the show would not change. The singer in the Canadian studio would

“transmit” his performance to the public within the meaning of the relevant provisions when he “communicate[d] it by any device or process whereby images or sounds are received beyond the place from which they are sent.” 17 U.S.C. § 101.

And the song would be “received” and enjoyed by the audience in New York, even though communicated electronically from the studio in Canada. The result would be

112 the same because Congress was explicit that the mode of transmission does not

change the analysis—it can be “any device or process.” Id. (emphasis added). What

matters under the Copyright Act is that a performance is transmitted to the public in

the United States.

Framed in terms of the Supreme Court’s decisions in RJR Nabisco and Morrison, performances of a copyrighted work to the American public, who receive and view the performances, are the primary “focus” of the relevant provisions. The text of sections 106(4) and 101 makes clear that the public-performance right “seeks to

‘regulate’” transmissions to the American public and “to ‘protec[t]’” the copyright holder’s exclusive right to perform the work to that public. Morrison, 561 U.S. at 267

(alteration in original) (quoting Superintendent of Ins. of N.Y. v. Bankers Life & Cas. Co.,

404 U.S. 6, 10, 12 (1971)). To the extent TVP made unauthorized performances to the American public, therefore, imposing liability on TVP is a permissible domestic application of the Act.

This reading of the Copyright Act is reinforced by the fact that TVP’s contrary interpretation would create a significant gap in the public-performance right. It would mean, for example, that large-scale criminal copyright pirates could avoid United

States copyright liability simply by locating their servers outside the United States.

Similarly, television stations in San Diego and El Paso could eliminate the need to obtain U.S. copyright licenses simply by moving their broadcast antennae to Tijuana

113 and Ciudad Juarez. Congress could not have intended the public-performance right to be susceptible to such ready evasion.

B. TVP’s Argument That Its Conduct Was Entirely Extraterritorial Is Unavailing

TVP nevertheless contends that its conduct was entirely extraterritorial and outside the scope of the Copyright Act because (1) its performances occurred entirely in Poland, and (2) any unauthorized performances in the United States were performances by its website users, not by TVP. Neither contention is correct.

1. TVP contends (Br. 36) that its performance occurred “entirely in Poland,” where it “upload[ed] non-geo-blocked programs to its [streaming] system.” This argument is misplaced for two reasons. First, it misunderstands the relevant statutory provisions, which focus primarily on the public audience that receives (or is capable of receiving) the transmission. And in any event, as the Supreme Court has explained, the existence of some foreign conduct in a statute’s application does not mean that the provision is being applied extraterritorially. See RJR Nabisco, 136 S. Ct. at 2101.

First, TVP is wrong to contend that the infringement analysis begins and ends at the point of initial transmission. As discussed, the relevant statutory provisions protect the right to perform a copyrighted work “publicly,” meaning that the copyright holder has the exclusive right to perform the copyrighted work to the public. 17 U.S.C. §§ 101, 106(4). That right includes the right to transmit the performance to the public, “whether the members of the public capable of receiving

114 the performance … receive it in the same place or in separate places and at the same

time or at different times.” Id. § 101. The transmission may occur “by any device or

process whereby images or sounds are received beyond the place from which they are

sent.” Id. The Copyright Act thus defines a public performance based on who

receives or is capable of receiving it. A transmission to the public or to a public place

is covered, but a private transmission is not—even if it otherwise involves exactly the

same conduct by the defendant.

Even if one focuses on the “perform[ance]” component of the public-

performance right, as TVP urges (see Br. 39), it is plain that TVP’s performance was

not complete in Poland. To “perform” a television program or other audiovisual

work means “to show its images in any sequence or to make the sounds accompanying

it audible.” 17 U.S.C. § 101 (emphasis added). For the performances at issue, the

copyrighted programs were “show[n]” and “audible” in the United States when they

were received by viewers on devices located here. TVP’s performances are therefore

within the domestic focus, and thus the reach, of the statute.6

6 The domestic component of TVP’s performance is particularly apparent here because the district court found that TVP altered its geo-blocking technology to stream copyrighted content to the public in the United States. A1134-38. TVP’s system thus directed the transmission of data comprising the copyrighted works to the unique Internet Protocol addresses of devices located in the United States. See generally U.S. Gov’t Accountability Office (GAO), GAO-15-642, Internet Management: Structured Evaluation Could Help Assess Proposed Transition of Key Domain Name and Other Technical Functions 5 (Aug. 2015), https://www.gao.gov/assets/680/672055.pdf; American Registry for Internet Numbers (ARIN), Number Resource Policy Manual (Aug. 2017), https://www.arin.net/policy/nrpm.html.

115 Second, and in any event, the Supreme Court’s decision in Morrison makes clear that the location of the defendant’s conduct is not necessarily dispositive of the extraterritoriality inquiry. In that case, the Court held that the “focus” of section

10(b) of the Securities Exchange Act of 1934 was “not upon the place where the deception originated, but upon purchases and sales of securities in the United States.”

561 U.S. at 266. The Court stressed that “Section 10(b) does not punish deceptive conduct, but only deceptive conduct ‘in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered.’”

Id. (quoting 15 U.S.C. § 78j(b)). The Court therefore held that even though the defendants in Morrison “engaged in the deceptive conduct” and “made misleading public statements” in the United States, the case involved an impermissible extraterritorial application of the statute because the relevant securities transactions occurred abroad. Id. The Court stressed that the question was not whether there was

“some domestic activity,” but whether the domestic activity “was the ‘focus’ of congressional concern.” Id. (quoting EEOC v. Arabian Am. Oil Co., 499 U.S. 244, 255

(1991)). The Court’s reasoning in Morrison thus strongly implies that, if the domestic conduct that was the focus of the statute (the purchase and sale of domestic securities) had occurred within the United States, section 10(b) could have reached the alleged fraud, even if the defendant’s deceptive conduct occurred abroad. See also RJR

Nabisco, 136 S. Ct. at 2101 (“If the conduct relevant to the statute’s focus occurred in

116 the United States, then the case involves a permissible domestic application even if

other conduct occurred abroad[.]”).

Applying the Supreme Court’s reasoning to this case, even if all of TVP’s

conduct in transmitting the copyrighted works occurred in Poland, section 106(4) still

prohibits TVP’s conduct: the primary focus of the Copyright Act’s public-

performance provisions is on performances to the American public, and the public

audience that received the unauthorized performances at issue in this case was in the

United States.

2. TVP relies (Br. 34-36) on the Supreme Court’s decision in Aereo to argue that the only performance in the United States in this case was not by TVP, but by users of its website—i.e., the individuals who selected the content to view from the

TVP website, directed TVP’s servers to stream the content to their devices, and received the content. This argument fundamentally misunderstands Aereo.

In Aereo, the streaming company mounted a similar defense: it contended that

only its users “performed” the works within the meaning of the Copyright Act, and

that those performances were permissible private performances. The Supreme Court

rejected that argument. It held that “both the broadcaster and the viewer of a

television program ‘perform,’ because they both show the program’s images and make

audible the program’s sounds.” Aereo, 134 S. Ct. at 2506 (citing 17 U.S.C. § 101). The

Court recognized that “Aereo’s system remains inert until a subscriber indicates that

she wants to watch a program. Only at that moment, in automatic response to the

117 subscriber’s request, does Aereo’s system activate an antenna and begin to transmit

the requested program.” Id. at 2507. But the Court rejected the dissent’s argument

that this feature made Aereo like “a copy shop that provides its patrons with a library

card” and that “is not directly liable whenever a patron uses the shop’s machines to

‘reproduce’ copyrighted materials found in that library.” Id. (quotation marks

omitted). The majority concluded that Aereo was instead like a traditional cable

company that publicly performs the programs it retransmits, notwithstanding the

“single difference” that the subscriber “click[s] on a website” to “activate[] machinery

that intercepts and reroutes” signals to the subscribers over the Internet—a difference

that “means nothing” to the subscriber or the broadcaster. Id.

Under the reasoning of Aereo, TVP performed the copyrighted material when

its servers transmitted the work via the Internet to viewers in the United States. It

may be the case, as TVP argues, that its users also performed the copyrighted

episodes, but that does not relieve TVP of liability for infringement any more than it

did so for Aereo.

II. COPYRIGHT INFRINGEMENT IS A STRICT LIABILITY OFFENSE THAT DOES NOT REQUIRE PROOF OF WRONGFUL INTENT

A. Culpable Intent Is Not Required For Copyright Infringement

The district court found that “TVP’s infringement was volitional and intentional” (A1123), and stressed throughout its opinion that TVP acted

“intentionally.” See A1127 (TVP “actively engaged in changing video formats” in

118 order “to intentionally make the programming available in the U.S.”); A1134 (“TVP acted willfully and intentionally to infringe SEI’s copyright.”); A1135 (“[t]he infringement was intentional and willful” and “TVP employees acted intentionally”);

A1136 (“[t]he evidence also shows intentional manipulation of workflow logs”);

A1141 (“TVP volitionally and intentionally infringed”). While these findings may bear, for example, on the appropriate remedy for TVP’s conduct, the court’s emphasis on TVP’s intent may suggest that the court erroneously believed that a finding of culpable intent was necessary to establish liability for infringement.

It is well established that “[c]opyright infringement is a strict liability offense in the sense that a plaintiff is not required to prove unlawful intent or culpability.” EMI

Christian Music Grp., Inc. v. MP3tunes, LLC, 844 F.3d 79, 89 (2d Cir. 2016); 4 Melville B.

Nimmer & David Nimmer, Nimmer on Copyright § 13.08[B][1] (rev. ed. 2017) (4 Nimmer on Copyright) (“[T]he innocent intent of the defendant constitutes no defense to liability. A bit of reflection suffices to realize that such innocence should no more constitute a defense in an infringement action that it would to a charge of conversion of tangible personalty. In each instance, the injury is worthy of redress, regardless of defendant’s innocence.”). Indeed, the Copyright Act specifically provides for a reduction in the applicable statutory damages where the “infringer was not aware and had no reason to believe that his or her acts constituted an infringement of copyright.” 17 U.S.C. § 504(c)(2). The district court erred to the extent it suggested that intent is necessary predicate to infringement liability.

119 B. TVP’s “Volitional Conduct” Argument Is Foreclosed By Aereo

TVP also argues (Br. 24) that it should not be held liable because its conduct

was not “volitional.” In TVP’s view, it merely provided a website, and only its users

engaged in the “volitional conduct” that led to infringement because they visited the

website and viewed TVP’s programs from the United States. This argument cannot

be squared with the Supreme Court’s Aereo decision, which rejected a similar

volitional-conduct argument raised by the streaming service in that case.

All agree that to infringe the public-performance right, a defendant must

engage in specific conduct: it must “perform” the copyrighted material “publicly.” 17

U.S.C. § 106(4). TVP’s “volitional conduct” argument concerns whether the statute

requires something more—for example, whether the defendant must engage in

conduct that is in some manner “directed to the plaintiff’s copyrighted material.” Aereo,

134 S. Ct. at 2512 (Scalia, J., dissenting) (emphasis added). While several courts of

appeals have adopted a “volitional conduct” requirement,7 they have tended to equate the existence of the necessary “volitional conduct” with the existence of proximate causation. On this understanding, the “volitional conduct” requirement simply means

7 See, e.g., BWP Media USA, Inc. v. T & S Software Assocs., Inc., 852 F.3d 436, 439 (5th Cir. 2017) (“In direct-infringement cases, courts have trended toward requiring volitional conduct.”); Perfect 10, Inc. v. Giganews, Inc., 847 F.3d 657, 666-67 (9th Cir. 2017); EMI Christian Music Grp., Inc., 844 F.3d at 96; Leonard v. Stemtech Int’l, Inc., 834 F.3d 376, 387 (3d Cir. 2016); CoStar Grp., Inc. v. LoopNet, Inc., 373 F.3d 544, 549-50 (4th Cir. 2004).

120 that a defendant is not liable for acts of copyright infringement for which it is not the

proximate legal cause. The Ninth Circuit, for example, recently explained that “direct

infringement requires the plaintiff to show causation (also referred to as ‘volitional

conduct’) by the defendant.” Perfect 10, Inc., 847 F.3d at 666 (observing that “volition”

in copyright infringement “simply stands for the unremarkable proposition that

proximate causation historically underlines copyright infringement liability no less

than other ” (quotation marks omitted)); 4 Nimmer on Copyright § 13.08[C][1]-[3].

This Court has not addressed whether there is a separate “volitional conduct” requirement in the Copyright Act. There is no need to resolve that question in this case, however, because TVP’s particular “volitional conduct” argument is foreclosed by the Supreme Court’s decision in Aereo. TVP, like Aereo, streamed copyrighted content from its servers to the American public, which received and viewed the copyrighted programs. Aereo, too, contended that it was not responsible for the infringement because only its subscribers engaged in the necessary volitional conduct.

As already discussed, the Supreme Court squarely rejected that argument. 134 S. Ct. at 2506 (holding that “both the broadcaster and the viewer of a television program

‘perform,’ because they both show the program’s images and make audible the program’s sounds”). Under the Court’s reasoning in Aereo, TVP is liable for direct infringement of SEI’s public-performance right: any volitional conduct requirement under the Copyright Act is satisfied here because TVP transmitted copyrighted material from its servers to viewers in the United States.

121 Indeed, the facts of this case make the imposition of copyright infringement

liability unremarkable. TVP is a sophisticated actor, and its programs apparently have

a sufficient public audience outside of Poland to make it worthwhile for TVP to

license the relevant North and South American copyright interests exclusively to SEI.

TVP thus had ample reason to expect that members of the public in the United States

would seek to view the copyrighted programs in violation of SEI’s exclusive rights.

Furthermore, the district court found that TVP intentionally disabled its geo-blocking

technology in attempt to reach audiences in those territories, including in the United

States. In effect, TVP targeted the U.S. public. Imposing liability on TVP in these

circumstances readily satisfies any notion of proximate cause.8

TVP’s contrary argument tracks the reasoning of Justice Scalia’s dissenting

opinion in Aereo. Justice Scalia would have adopted a type of volitional-conduct requirement; as he opined, “the Act’s text, which defines ‘perform’ in active, affirmative terms” and “makes it unlawful to copy or perform copyrighted works, not to copy or perform in general,” requires conduct by the defendant that is “directed to the plaintiff’s copyrighted material.” 134 S. Ct. at 2512 (Scalia, J., dissenting). Justice

8 This case accordingly does not require the Court to decide whether the Copyright Act would reach foreign conduct on the Internet less directly and foreseeably related to infringement in the United States, such as a video posted by a foreign user on a personal blog or private website. TVP is therefore wrong to suggest that holding it liable for infringement on these facts would impose U.S. copyright liability “on the rest of the world” unless individuals and entities “geo-block Internet access requests from the U.S.” TVP Br. 36-37.

122 Scalia would have held that Aereo was like a copy shop that was not liable for direct

infringement because, unlike video-on-demand services such as Netflix, it did “not

‘perform’ for the sole and simple reason that it does not make the choice of content”

for its subscribers to view. Id. at 2514; id. at 2513 (“When a user signs in to Netflix,

for example, ‘thousands of … movies [and] TV episodes’ carefully curated by Netflix

are ‘available to watch instantly.’ … That selection and arrangement by the service

provider constitutes a volitional act directed to specific copyrighted works and thus

serves as a basis for direct liability.” (first and second alterations in original)).

The majority in Aereo did not endorse Justice Scalia’s analysis, and the

majority’s reasoning squarely forecloses TVP’s argument here. It is doubtful,

however, that TVP would prevail even under Justice Scalia’s approach to volitional

conduct. TVP, like Netflix, selects the content to upload onto its website and

arranges that content for viewers to select and stream programs. Under Justice

Scalia’s reasoning, TVP’s “selection and arrangement” of the programs on its website,

and the subsequent streaming of those programs to viewers in the United States,

“serves as a basis for direct liability” because it is “directed to the plaintiff’s

copyrighted material.” 134 S. Ct. at 2513 (Scalia, J., dissenting).

TVP also falsely equates its video-on-demand system, which is populated by

TVP with the content of TVP’s choice and then streamed by TVP to viewers in the

United States, with hosting services offered by Internet service providers (ISPs) that enable users to post content of their own choosing. See TVP Br. 24-25 (citing CoStar

123 Grp., Inc., 373 F.3d at 550, 555). Hosting services of that kind, such as electronic

bulletin board services, are generally not liable for copyright infringement by users

who upload unauthorized content, at least where (among other things) they act

promptly to remove infringing content of which they have notice. See, e.g., CoStar, 373

F.3d at 550.9 Unlike an ISP that passively hosts third-party content, TVP selects and posts its own content to its website and then streams that content to viewers on demand. Video-on-demand services of that kind are engaged in the public performance of copyrighted works, as Aereo makes clear. When TVP performed the

copyrighted works in this case to members of the American public, it infringed SEI’s

exclusive public-performance right under section 106(4).

9 In the Digital Millennium Copyright Act of 1998, Congress provided a safe harbor against infringement liability for Internet service providers who comply with takedown notices after a third party has posted copyrighted material on its website or servers, and satisfy other requirements. 17 U.S.C. § 512(c). Congress designed the ISP safe harbor to “clarif[y] the liability faced by service providers who transmit potentially infringing material over their networks,” S. Rep. No. 105-190, at 2 (1998), while “ensur[ing] that the efficiency of the Internet will continue to improve and that the variety and quality of services on the Internet will expand.” Id.; see Capitol Records, LLC v. Vimeo, LLC, 826 F.3d 78, 82 (2d Cir. 2016). TVP disclaims any reliance on the safe harbor provisions for ISPs. See TVP Br. 39.

124 CONCLUSION

For the foregoing reasons, the judgment of the district court should be affirmed.

Respectfully submitted,

SARANG VIJAY DAMLE CHAD A. READLER General Counsel and Associate Acting Assistant Attorney General Register of Copyrights MARK R. FREEMAN REGAN A. SMITH MEGAN BARBERO Deputy General Counsel Attorneys, Appellate Staff EMMA RAVIV Civil Division, Room 7226 Barbara A. Ringer Fellow U.S. Department of Justice United States Copyright Office 950 Pennsylvania Avenue NW Washington, D.C. 20530 Washington, DC 20530 (202) 532-4631

October 2017

125 CERTIFICATE OF COMPLIANCE

This brief complies with the type-volume limit of Federal Rule of Appellate

Procedure 29(a)(5) and 32(a)(7)(B) because it contains 6,500 words. This brief also complies with the typeface and type-style requirements of Federal Rule of Appellate

Procedure 32(a)(5)-(6) because it was prepared using Microsoft Word 2013 in

Garamond 14-point font, a proportionally spaced typeface.

s/ Megan Barbero MEGAN BARBERO

126 CERTIFICATE OF SERVICE

I hereby certify that on October 4, 2017, I electronically filed the foregoing brief with the Clerk of the Court for the United States Court of Appeals for the

District of Columbia Circuit by using the appellate CM/ECF system. Participants in the case are registered CM/ECF users, and service will be accomplished by the appellate CM/ECF system.

s/ Megan Barbero MEGAN BARBERO

127 ADDENDUM

128 TABLE OF CONTENTS

17 U.S.C. § 101 (excerpts) ...... A1

17 U.S.C. § 106 ...... A2

17 U.S.C. § 506(a) ...... A3

129 17 U.S.C. § 101 (excerpts)

To “perform” a work means to recite, render, play, dance, or act it, either directly or by means of any device or process or, in the case of a motion picture or other audiovisual work, to show its images in any sequence or to make the sounds accompanying it audible.

. . . .

To perform or display a work “publicly” means—

(1) to perform or display it at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered; or

(2) to transmit or otherwise communicate a performance or display of the work to a place specified by clause (1) or to the public, by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times. . . . .

To “transmit” a performance or display is to communicate it by any device or process whereby images or sounds are received beyond the place from which they are sent.

130 17 U.S.C. § 106

Subject to sections 107 through 122, the owner of copyright under this title has the exclusive rights to do and to authorize any of the following:

(1) to reproduce the copyrighted work in copies or phonorecords;

(2) to prepare derivative works based upon the copyrighted work;

(3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending;

(4) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works, to perform the copyrighted work publicly;

(5) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work, to display the copyrighted work publicly; and

(6) in the case of sound recordings, to perform the copyrighted work publicly by means of a digital audio transmission.

131 17 U.S.C. § 506(a)

(a) Criminal infringement.—

(1) In general.—Any person who willfully infringes a copyright shall be punished as provided under section 2319 of title 18, if the infringement was committed—

(A) for purposes of commercial advantage or private financial gain;

(B) by the reproduction or distribution, including by electronic means, during any 180-day period, of 1 or more copies or phonorecords of 1 or more copyrighted works, which have a total retail value of more than $1,000; or

(C) by the distribution of a work being prepared for commercial distribution, by making it available on a computer network accessible to members of the public, if such person knew or should have known that the work was intended for commercial distribution.

(2) Evidence.—For purposes of this subsection, evidence of reproduction or distribution of a copyrighted work, by itself, shall not be sufficient to establish willful infringement of a copyright.

(3) Definition.—In this subsection, the term “work being prepared for commercial distribution” means—

(A) a computer program, a musical work, a motion picture or other audiovisual work, or a sound recording, if, at the time of unauthorized distribution—

(i) the copyright owner has a reasonable expectation of commercial distribution; and

(ii) the copies or phonorecords of the work have not been commercially distributed; or

(B) a motion picture, if, at the time of unauthorized distribution, the motion picture—

(i) has been made available for viewing in a motion picture exhibition facility; and

132 (ii) has not been made available in copies for sale to the general public in the United States in a format intended to permit viewing outside a motion picture exhibition facility.

133 Digital age changes all the rules on intellectual property

By Mark Schultz, opinion contributor — 11/06/17 01:50 PM EST 6 The views expressed by contributors are their own and not the view of The Hill 11

When the DMCA was originally passed, there were fewer than 3 million webpages. Facebook, Instagram, iTunes, PayPal, Skype and YouTube did not exist.

The leading service providers included AOL, and the most popular search engine was Yahoo!, not Google (which was in beta ). Today, there are more than 4.5 billion webpages, with vastly heavier traffic and more complex data.

A well-calibrated compromise among late 1990s businesses to help battle online infringement, the DMCA gave creative businesses an orderly, moderately speedy process for identifying and “containing” specific stolen copies of their work posted online.

In exchange for taking down the specifically identified file, phone companies and emerging internet service providers like AOL and Yahoo! got immunity from liability.

At dialup modem speeds, this all worked pretty well. But within a year, Napster debuted, bringing on the era of massive, non-stop, virtually instant infringement. The premises underlying the DMCA were rendered utterly naïve.

“Retrieving” a single file became useless. Online infringement was no longer a potentially infectious outbreak to be contained by stately processes. It had become, and remains, a chronic condition to be managed.

The burdens imposed on rights holders by this antiquated system are immense. For example, Google’s latest transparency report reveals that in 2016, Google alone received well over 900 million takedown requests.

The DMCA’s single file containment approach leads to an endless, futile game of whack-a-mole, where creators send the same takedown notice, for the same works, over and over and over.

For example, in a three-month period, Disney sent 34,970 takedown notices for illegal copies of "Avengers: Age of Ultron" to a single site (Uploaded.net), an average of more than 375 notices a day. NBC Universal sent even more (58,246) for "Furious 7," averaging nearly 650 notices a day to one site.

Online theft chills creativity and innovation

While large, creative companies at least have the scale, resources and sophistication to play this game, however unhappily, it is essentially impossible for smaller businesses and individual creators.

For instance, in 2014, Grammy Award winning composer Maria Schneider testified before Congress that she spends more time sending notices than creating music, and she is hopelessly outmatched by online thieves thanks to the DMCA’s feeble protections.

The costs are staggering. The Music Industry Coalition, found that between 2001 and 2015, music industry revenues fell from $14 billion to $7 billion — losses attributed significantly to piracy. What’s more, piracy isn’t just a problem for content creators — it’s also a ncern for innovative new online distribution services. In a 2015 letter to shareholders, Netflix stated, “Piracy continues to be one of our biggest competitors. [Its] sharp rise … is sobering.”

134 The recent launch of the anti-piracy coalition, the Alliance for Creativity and Entertainment, which includes movie studios, cable and broadcast networks and online streaming services, underscores that online theft is everyone’s problem.

The DMCA must be improved

Copyright law has served us well from the age of quills to the age of computers; and Congress has from time to time updated the law to stay abreast of new technologies, embracing photography, radio, sound recordings, movies, television, software, video games and more.

Along the way, we became a literate and creative nation with the world’s most innovative, influential and lucrative creative industries. It’s now time for copyright laws to reflect the digital age.

Congress should amend the DMCA to ensure application of the safe harbor only to truly good-faith intermediaries, denying protections to infringers and those who build businesses around infringement. As Congress considers this important priority, the administration shouldn’t bind Congress’ hands by including DMCA-like safe harbors in NAFTA.

Until Congress acts, we have two modest suggestions to ensure that our laws reflect and protect today’s legitimate digital marketplace, while at the same time leaving flexibility for the future.

First, courts should more faithfully enforce the statutory conditions that must be met to qualify for the DCMA safe harbor protection. The courts should also stop ignoring and give effect to the DMCA provision that requires service providers to act to block infringements.

Second, service providers should voluntarily implement systems ensuring that infringing materials are taken down and stay down.

In this rapid age of innovation and change in the way movies, books, music, , software and other cultural innovation is created and consumed, it is important to have laws that continue to incentivize creativity and innovation.

American cultural and economic leadership depend on it.

Professor Mark F. Schultz joined the faculty of Southern Illinois University School of Law in 2003. He teaches and writes primarily in the area of intellectual property. He is a member of the Federalist Society Regulatory Transparency Project on IP. They recent wrote a white paper on the subject of DMCA.

135 The John Marshall Law Review

Volume 50 | Issue 1 Article 7

Fall 2016 Flo & Eddie, Inc. V. Sirius XM Radio, Inc.: Will Terrestrial Radio and Pre-1972 Sound Recordings Remain “Happy Together”?, 50 J. Marshall L. Rev. 191 (2016) Kyle Prillman

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Recommended Citation Kyle Prillman, Flo & Eddie, Inc. V. Sirius XM Radio, Inc.: Will Terrestrial Radio and Pre-1972 Sound Recordings Remain “Happy Together”?, 50 J. Marshall L. Rev. 191 (2016)

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136 FLO & EDDIE, INC. V. SIRIUS XM RADIO, INC.: WILL TERRESTRIAL RADIO AND PRE-1972 SOUND RECORDINGS REMAIN “HAPPY TOGETHER”?

KYLE PRILLAMAN*

I. INTRODUCTION ...... 191 II. BACKGROUND ...... 194 A. The Development of Copyright Protection for Sound Recordings ...... 195 B. Current Copyright Protection for Sound Recordings ...... 199 C. The Difference Between Digital and Terrestrial Radio Stations ...... 202 III. ANALYSIS ...... 204 A. Flo & Eddie Strike Gold in the Golden State ...... 204 B. Flo & Eddie Hit it Big in New York ...... 206 C. Florida Hits the Brakes on Flo & Eddie’s Winning Streak ...... 208 D. The Consequences of the Flo & Eddie Cases for Terrestrial Radio ...... 209 E. The Fair Pay, Fair Play Act of 2015 ...... 211 IV. PROPOSAL ...... 213 A. Say Goodbye to Oldies Radio Stations ...... 214 1. Passing on Sound Recording Performance Fees to Advertisers ...... 215 2. Screening Out Pre-1972 Sound Recordings and Shifting Formats ...... 215 B. State Copyright Law Creates a Confusing and Unmanageable System of Protection ...... 216 C. Terrestrial Radio Increases Sales While Digital Radio Decreases Album Sales ...... 217 V. CONCLUSION ...... 218

I. INTRODUCTION

The famous American author Mark Twain once stated that “[o]nly one thing is impossible for God: to find any sense in any copyright law on the planet.”1 Although Mark Twain is well known

* J.D. Candidate, The John Marshall Law School, Chicago, 2017; B.A., University of Illinois, Urbana-Champaign, 2010. This comment was generally inspired by my passion for playing and recording music. I would to thank my wife, Eleni Prillaman, for her unending support and for contributing her extensive knowledge of the radio industry. I would also like to thank my family for their support, and specifically my father, attorney Roger Prillaman, for bringing this issue to my attention. 1. Directory of Mark Twain's Maxims, Quotations, and Various Opinions, www.twainquotes.com/Copyright.html (last accessed Nov. 26, 2015) (providing a collection of amusing quotes from Mark Twain regarding his frustration with copyright law and legal system in general: “They always talk handsomely about the literature of the land... And in the midst of their enthusiasm they turn

137 for penning satirical quotes, perhaps his cynical view on copyright law holds some truth. After all, the history of American copyright law is fraught with complexity and confusion, as the courts and Congress have struggled to keep pace with the onslaught of technological advancements affecting copyright law.2 In recent times, this struggle is most apparent in a series of lawsuits brought against Sirius XM Radio concerning public performance rights for authors of pre-1972 sound recordings.3 At the forefront of these lawsuits are plaintiffs Flo & Eddie, a pair of musicians who fronted The Turtles, a popular American rock band in the 1960s. Although Flo & Eddie may no longer be releasing hit singles, they are poised to make a deep and lasting impression on the music industry.4 The Turtles achieved the height of their commercial success in 1967 with the number one hit single “Happy Together.”5 Although the group disbanded in 1970, the group’s two lead vocalists, Howard Kaylan and Mark Volman, continued to perform The Turtles’ music with a new group called “Flo & Eddie.”6 Kaylan and Volman also formed the corporate entity Flo & Eddie, Inc., which purchased all of The Turtles master sound recordings in 1971.7 Over the next forty years, Flo & Eddie, Inc. licensed the rights to The Turtles’ sound recordings for various commercial uses, but never expressly licensed the rights to publicly perform the sound recordings to any terrestrial or digital radio stations.8

around and do what they can to discourage it.” - Speech in Congress, 1906; “Whenever a copyright law is to be made or altered, then the idiots assemble.” Mark Twain's Notebook, 1902-1903; “Lawyers are like other people--fools on the average; but it is easier for an ass to succeed in that trade than any other.” quoted in Sam Clemens of Hannibal, Dixon Wecter). 2. See Capitol Records, Inc. v. Naxos of Am., Inc., 4 N.Y.3d 540, 555 (2005) (discussing Congress’s motivations for passing the Sound Recording Amendment Act in 1971). 3. Flo & Eddie, Inc. v. Sirius XM Radio, Inc., No. CV 13-5693 PSG (RZx), 2014 U.S. Dist. LEXIS 139053 (C.D. Cal. Sept. 22, 2014); Flo & Eddie, Inc. v. Sirius XM Radio, Inc., 62 F. Supp.3d 325 (S.D.N.Y. 2014); Flo & Eddie, Inc. v. Sirius XM Radio, Inc., Case No. 13-23182-CIV, 2015 U.S. Dist. LEXIS 80535 (S.D. Fla. June 22, 2015). 4. Id. 5. See John Bush, The Turtles Biography, ALL MUSIC, www .allmusic.com/artist/the-turtles-mn0000564239/biography, (last visited Oct. 18, 2015) (providing a comprehensive biography of The Turtles, including the following interesting facts: The group was initially called “The Tyrtles”, which was an homage to “The Byrds”; the groups first hit single was a cover of the Bob Dylan song “It Ain’t Me Babe”; the group had three more top ten hit singles in besides “Happy Together”; although the group disbanded in 1970, the two lead vocalists Howard Kaylan and Mark Volman would go on to play with Frank Zappa’s Mother of Invention and later would form the group Flo & Eddie). 6. Id. 7. See Flo & Eddie, 2014 U.S. Dist. LEXIS 139053, at *1-2 (reviewing the historical background for how Flo & Eddie, Inc. came to own The Turtles’ master recordings). 8. Id.

138 In 2014, Flo & Eddie brought a class action suit against Sirius XM Radio, Inc. in the Central District of California, alleging that Sirius XM had infringed upon Flo & Eddie’s exclusive right to publicly perform The Turtles’ pre-1972 sound recordings.9 However, federal copyright law does not provide sound recording copyright owners the exclusive right of public performance.10 Rather, due to a loophole in federal copyright law that allows state law to govern sound recordings made prior to February 15, 1972, Flo & Eddie were able to bring its claim under California copyright law.11 After Flo & Eddie were granted summary judgment by the California District Court, they filed similar lawsuits against Sirius XM in New York and Florida District Courts.12 The court in New York also granted summary judgment for Flo & Eddie while the Florida District Court granted summary judgment for Sirius XM.13 Although Sirius XM is classified as a digital radio broadcaster, the courts’ rulings in California and New York have been interpreted as exposing terrestrial (AM/FM) radio stations to the same liability as Sirius XM.14 With potential damages in the hundreds of millions of dollars, the terrestrial radio industry has

9. See Kevin Goldberg, New Hope for Old Performance Right Holders, COMMLAWBLOG, (Sept. 26, 2014) www.commlawblog.com/2014/09/articles/broa dcast/new-hope-for-old-performance-right-holders/ (providing an extensive overview of the various lawsuits brought by Flo & Eddie, Inc. against digital broadcasters, including Sirius XM, and explaining that the basis for Flo & Eddie’s claim is a loophole in federal copyright law which excludes pre-1972 sound recordings from federal protection); Flo & Eddie sued on behalf of a class, consisting of owners of sound “[r]ecordings fixed prior to February 15, 1972 . . . which have been performed, distributed, reproduced, or otherwise exploited by Sirius XM . . . without a license or authorization to do so from August 21, 2009 to August 21, 2016.” Class Notice, PRE 1972 SOUND RECORDINGS (June 16, 2016), www.pre1972soundrecordings.com/docs/notice.pdf. Furthermore, the performance, distribution, or reproduction must have taken place in one of the states in which Flo & Eddie filed suit, which was California, New York, or Florida. See id. (providing notice for class members who own sound recordings that were performed, distributed, or reproduced in California). 10. Goldberg, supra note 9. 11. Id. 12. Id. 13. Id. 14. See Kevin Goldberg, Broadcasters Now in the Sights of Pre-1972 Performance Right Holders, COMMLAWBLOG, (Aug. 23, 2015), www.commlawbl og.com/2015/08/articles/broadcast/broadcasters-now-in-the-sights-of-pre-1972- performance-right-holders/ (providing that some sound recording copyright owners have already brought action against terrestrial radio stations in California based on the holding of Flo & Eddie, Inc. v. Sirus XM Radio, Inc.; for example, “ABS Entertainment (which claims to hold exclusive rights to recordings by, among others, Al Green, Otis Clay and Willie Mitchell) has filed separate class action lawsuits in the United States District Court for the Central District of California against three of the biggest radio broadcasters in the country – CBS, iHeartMedia and Cumulus Media – seeking damages in excess of $5 million from each. Most ominously for broadcasters, the complaints are based on the defendants’ delivery of music content not only through the Internet and mobile devices, but also over the radio.”).

139 become concerned with the possibility of future litigation.15 To make matters worse for the terrestrial radio industry, the “Fair Play, Fair Pay Act” is currently pending in Congress, which if passed would prospectively require terrestrial radio stations to pay performance fees to all sound recording copyright owners.16 Section II of this comment will provide a historical review of copyright protection for sound recordings, providing context for Congress’s exclusion of pre-1972 sound recordings from federal copyright protection. Section II will also explain the current state of copyright protection for sound recordings and the differences between digital and terrestrial radio. Section III of this comment will analyze the three separate lawsuits brought by Flo & Eddie against Sirius XM, revealing how pre-1972 sound recording copyright owners may have standing to bring similar lawsuits against terrestrial radio stations. Section III will also examine the Fair Play Fair Pay Act of 2015, which if passed would require both terrestrial and digital radio stations to pay performance fees for broadcasting pre and post-1972 sound recordings. Finally, Section IV will propose that Congress should provide pre-1972 sound recordings with the same scope of protection as post-1972 sound recordings. Section IV will conclude that terrestrial radio stations should not be required to pay sound recording performance fees for broadcasting pre-1972 sound recordings.

II. BACKGROUND

Part A of this Section provides a brief historical background of copyright protection for musical works, focusing on the development of copyright protection for sound recordings. Part B explains the current state of copyright protection for sound recordings, including the exclusion of pre-1972 sound recordings from federal copyright protection. Finally, Part C explores the pertinent differences between digital radio stations, such as Sirius XM, and terrestrial radio stations.

15. See Ben Sisario, SiriusXM Settles Royalty Dispute Over Old Recordings, N.Y. TIMES, (June 26, 2015), www.nytimes.com/2015/06/27/business/sirius-xm- settles-royalty-dispute-over-old-recordings.html?_r=0 (reporting that Sirius XM recently settled a similar class action law suit regarding performance fees for pre-1972 sound recordings in California state court for $210 million). 16. See Ed Christman, 'Fair Play, Fair Pay Act' Introduced, Seeks Cash from Radio Stations, BILLBOARD, (Apr. 13, 2015, 4:44 PM), www.billboard.com/artic les/business/6531693/fair-play-fair-pay-act-performance-royalty-radio (providing an overview of the proposed “Fair Play, Fair Pay” Act and explaining the possible implications it proposes for the terrestrial radio industry).

140 A. The Development of Copyright Protection for Sound Recordings

Similar to many legal philosophies in the United States, copyright law ultimately owes its existence to English common law.17 Before the Revolutionary War, the American Colonies generally applied English copyright law protecting the rights of authors and publishers.18 As the colonies transitioned into independent states, there was intense pressure from the Continental Congress and individual authors for state to create statutory copyright laws modeled after English law.19 By 1786, twelve of the thirteen states had created statutory copyright laws providing literary authors at least fourteen years of protection from the date of first publication.20 This system of state administered copyright protection persisted until the adoption of the United States Constitution.21 The Drafters of the Constitution quickly came to the conclusion that a unified system of federal copyright protection was preferable

17. See Capitol Records, 4 N.Y.3d at 546-540 (discussing the origins of copyright law as a background for the Court’s analysis of present day state common law copyright protection of pre-1972 sound recordings; the Courts historical review starts with the invention of the printing press in England in the 15th century, noting that it was not the authors or publishers of printed material who sought copyright protection, but rather the Crown, which planned to use copyright law as a way to censor printed publications; the Court continues to describe how England developed a more legitimate form of copyright protection with the Statute of Anne in 1709, which “broadened the concept of copyrights to include the ability of an author to decide whether a literary work would be published and disseminated to the public (referred to as the "right of first publication") and, if distributed, how the work would be reproduced in the future. The Statute of Anne vested an author or publisher of a literary work with statutory copyright protection for specified time periods--new works received 14 years of copyright protection (with the possibility of a 14-year renewal) and previously published works were entitled to 21 years of protection.”; the Court further discusses how several American states used the Statute of Anne as a model when drafting statutory copyright law prior to the adoption of the United States Constitution). 18. Id. 19. See Thomas B. Nachbar, Constructing Copyright's Mythology, 6 GREEN BAG 2d 37, 38 (2002) (discussing how the 18th Century American author named Noah Webster led a lobbying effort to convince the state legislatures to pass statutory copyright laws; Noah’s primary motivation for the lobbying effort was to secure copyright protection for his three volume text titled “the Grammatical Institute”; although Noah claimed that his lobbying effort was the driving force behind the majority of the states passing statutory copyright laws, it is well known that Noah was not the only party interested in such an outcome, and the role played by the Continental Congress was certainly a contributing factor). 20. Id. 21. Capitol Records, 4 N.Y.3d at 550. (explaining that while the states passed statutory copyright laws prior to the adoption of the United State’s Constitution, many states also had a common law system of copyright protection in place to protect the work of authors).

141 to a system of copyright protection administered by the individual states.22 As a result, the Founders included the “Copyright and Patent Clause” in the Constitution, giving Congress the power “[t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”23 Shortly after the adoption of the Constitution, Congress passed the Copyright Act of 1790, awarding authors of maps, charts, and books the exclusive right to reproduction and distribution of their works.24 Although the Copyright Act of 1790 was limited in the types of works it protected, the scope of federal copyright protection gradually expanded through the legislative process and the courts.25 However, up until the early 20th century, both Congress and the courts declined to address whether federal copyright protection could be extended beyond communications of the “written word.”26 In White-Smith Music Pub. Co. v. Apollo Co., 209 U.S. 1 (1908), the United States Supreme Court addressed whether federal copyright law covered perforated music rolls used in player pianos.27 “Although acknowledging that the Copyright Act of 1790 had been amended as far back as 1831 to include "musical composition[s]," the Court believed that only written works that could be "see[n] and read" met the requirement for filing with the Library of Congress--a prerequisite to securing federal copyright protection.”28 The Court concluded that music rolls, and by

22. Id. 23. U.S. CONST. art. I, § 8, cl 8. 24. Melanie Jolson, Comment, Business and Technology: Congress Killed the Radio Star: Revisiting the Terrestrial Radio Sound Recording Exemption in 2015, 2015 COLUM. BUS. L. REV. 764, 770-771 (2015); Gary Pulsinelli, Happy Together? The Uneasy Coexistence of Federal and State Protection for Sound Recordings, 82 TENN. L. REV. 167, 172 (2014). 25. Pulsinelli, supra note 24, at 172. 26. See Brian G. Shaffer, Comment, Sirius XM Radio, Inc., Defendant: The Case for a Unified Federal Copyright System for Sound Recordings, 35 PACE L. REV. 1016, 1018 (2015) (providing that all federal copyright statutes up until the early 1900s were "created with sole reference to the written word", and therefore the courts found federal copyright statutes inapplicable to musical works other than sheet music). 27. See White-Smith Music Pub. Co. v. Apollo Co., 209 U.S. 1 (1908) (discussing how a work must be “seen and read” in order to be covered by federal copyright protection, the Court provided the following explanation as to why perforated player pianos rolls were not protected: “The fact is clearly established in the testimony in this case that even those skilled in the making of these rolls are unable to read them as musical compositions, as those in staff notation are read by the performer. It is true that there is some testimony to the effect that great skill and patience might enable the to read his record as he could a piece of music written in staff notation. But the weight of the testimony is emphatically the other way, and they are not intended to be read as an ordinary piece of sheet music, which to those skilled in the art conveys, by reading, in playing or singing, definite impressions of the melody.”); see also Capitol Records, 4 N.Y.3d, at 552. 28. Capitol Records, 4 N.Y.3d at 552 (quoting Apollo, 209 U.S. at 17).

142 extension sound recordings, were not covered by federal copyright law.29 In 1909 Congress passed a substantial revision of the Copyright Act of 1790.30 Based on the Supreme Court’s decision in White-Smith, Congress decided that sound recordings could not be “published,” which at the time was a requirement for federal copyright protection. Thus, sound recordings were excluded from federal copyright protection under the 1909 Copyright Act.31 However, Congress specifically stated that the Act, “shall [not] be construed to annul or limit the right of the author or proprietor of an unpublished work, at common law or in , to prevent the copying, publication, or use of such unpublished work without his consent, and to obtain damages therefor.”32 Thus, the individual states were given the power to protect sound recordings through statutory and common law.33 Following the Copyright Act of 1909, the supreme courts of Pennsylvania and New York held that sound recordings were covered by state common law copyright protection.34 This system of exclusive state protection for sound recordings would persist until Congress was forced to reconsider the issue in 1971.35 Since the passing of the Copyright Act of 1909, technological advancements and the development of copyright law in foreign countries caused Congress to become concerned with the states’ ability to effectively administer copyright protection for sound recordings.36 Specifically, Congress was concerned with technological advancements that allowed individuals to easily engage in the unauthorized copying and selling of sound recordings, also known as “music piracy.”37 In the early 1970s, Congress began considering a comprehensive revision of federal copyright law, but decided that music piracy needed to be addressed immediately.38 Thus, in 1971 Congress passed the Sound Recording Amendment Act (“the 1971 Act”), providing federal statutory copyright protection for sound recordings.39

29. Id. 30. See Shaffer, supra note 26, at 1018 (discussing how the Supreme Court’s decision in White-Smith Music Pub. Co. v. Apollo Co. affected the Copyright Act of 1909). 31. Id. at 1019. 32. Id. at 1019 (quoting 17 U.S.C. § 2 (repealed 1978). 33. Shaffer, supra note 26, at 1019. 34. See id. at 1019-1020 (discussing the Supreme Court of Pennsylvania’s holding in Waring v. WDAS Broad. Station, 194 A. 631 (Pa. 1937) and the Supreme Court of New York’s holding in Metro. Opera Ass'n v. Wagner-Nichols Recorder Corp., 101 N.Y.S.2d 483 (Sup. Ct. 1950)). 35. Id. at 1020. 36. Pulsinelli, supra note 24, at 172. 37. See Capitol Records, 4 N.Y.3d at 555 (discussing Congress’s motivations for passing the Sound Recording Amendment Act in 1971). 38. Id. 39. Id.; Sound Recording Amendment Act, Pub. L. No. 92-140, § 3, 85 Stat.

143 Although the 1971 Act generally brought sound recordings under the umbrella of federal copyright protection, the Act did not give authors of sound recordings a complete “bundle” of exclusive rights to their works.40 Rather, the Act only conferred exclusive rights for reproduction, adaptation and distribution of sound recordings, with the exclusive right for public performance notably absent.41 Congress chose to exclude the exclusive right for public performance due to intense lobbying efforts from both the recording industry and the radio industry.42 The recording industry wanted Congress to protect sound recordings from music piracy.43 However, the radio industry did not want to pay royalties for “publicly performing” music over the airwaves, arguing that the radio provided free promotion for the recording industry.44 Therefore, 1971 Act was a compromise between the wishes of the recording and radio industries.45 When drafting the 1971 Act, Congress decided that federal copyright protection for sound recordings would be prospective, covering sound recordings made after February 15, 1972.46 In effect, this provision gave the states the exclusive authority to provide copyright protection for pre-1972 sound recordings.47 However, there was a debate between the House and the Senate as to how long pre-1972 sound recordings should be exclusively protected by the states.48 While the Senate was satisfied with allowing the states to indefinitely protect pre-1972 sound recordings, the House wanted to set a date at which federal copyright law would pre-empt the states exclusive protection of pre-1972 sound recordings.49 Eventually the House prevailed, with the 1971 Act providing that federal copyright law would pre-empt any and all state copyright law protecting pre-1972 sound recordings on February 15, 2047.50 Although the 1971 Act was a major revision of federal copyright law

391, 392 (1971). 40. See Steve Gordon & Anjana Puri, The Current State of Pre-1972 Sound Recordings: Recent Federal Court Decisions in California and New York Against Sirius XM Have Broader Implications Than Just Whether Satellite and Internet Radio Stations Must Pay for Pre-1972 Sound Recordings, 4 N.Y.U. J. OF INTELL. PROP. & ENT. LAW 336, 342 (2015) (discussing the types of exclusive rights given to authors of sound recordings by the 1971 Sound Recording Amendment Act and how the lobbying efforts of the recording and radio industry influenced Congress to exclude the exclusive right of public performance for the owners of sound recording copyrights). 41. Id. 42. Id. 43. Id. 44. Id. 45. Id. 46. Capitol Records, 4 N.Y.3d at 555-556. 47. Id. 48. Id. 49. Id. 50. Id. at 556.

144 and its application to sound recordings, Congress would revisit the topic just five years later with the Copyright Act of 1976.51

B. Current Copyright Protection for Sound Recordings

The Copyright Act of 1976 (“the 1976 Act”) was the result of Congress’s growing concern that federal copyright law had become unmanageable.52 The 1976 Act created a “unitary system of copyright” and proved to be the most significant revision of federal copyright law since the original 1790 Copyright Act.53 Although the 1976 Act simply reaffirmed much of the 1971 Act, the 1976 Act further clarified and solidified the scope of federal copyright protection for sound recordings.54 Under the 1976 Act, a recorded song is protected by one copyright for the musical composition and another copyright for the sound recording.55 The United States Copyright Office provides the following definition of a musical composition: A Musical Composition consists of music, including any accompanying words, and is normally registered as a work of performing arts. The author of a musical composition is generally the composer and the lyricist, if any. A musical composition may be in the form of a notated copy (for example, sheet music) or in the form of a phonorecord (for example, cassette tape, LP, or CD).56 Additionally, the United States Copyright Office provides that, “[a] Sound Recording results from the fixation of a series of musical, spoken, or other sounds. The author of a sound recording is the performer(s) whose performance is fixed, or the record producer who processes the sounds and fixes them in the final recording, or both.”57 In short, a composition copyright protects the music and lyrics, which can be displayed on sheet music, while a sound recording copyright protects a specific performance of a musical

51. See generally id.; Copyright Act of 1976, Pub. L. No. 94-553, 90 Stat. 254 (1976) (codified as amended in scattered sections of 17 U.S.C.). 52. Jay Mason All, Again, From the Top! The Continuing Pursuit of a General Public Performance Right in Sound Recordings, 22 ALB. L.J. SCI. & TECH. 1, 12-13 (2012). 53. Eva E. Subotnik & June M. Besek, Constitutional Obstacles? Reconsidering Copyright Protection for Pre-1972 Sound Recordings, 37 COLUM. J.L. & ARTS 327, 330 (2014); Payton McCurry Bradford, Comment, (Don't) Give It Up or Turnit a Loose: State Law Copyright Protection of Pre-1972 Sound Recordings in Blank-Slate Jurisdictions Like Georgia, 49 GA. L. REV. 819, 827 (2015). 54. Bradford supra note 53, at 829. 55. See 17 U.S.C. § 102(a) (2012) (providing that federal copyright protection is provided for “musical works, including any accompanying words” and “sound recordings”). 56. Copyright Registration of Musical Compositions and Sound Recordings, UNITED STATES COPYRIGHT OFFICE, www.copyright.gov/register/pa-sr.html (last visited Sept. 9, 2015). 57. Id.

145 work that has been “fixed” in the form of a recording.58 The distinction between a musical composition copyright and a sound recording copyright is important because each copyright provides its owner(s) with a different set of exclusive rights.59 Under the 1976 Act, the owners of composition copyrights are given exclusive rights to reproduce the work, prepare derivative works, distribute copies, perform the work publicly, and display the work publicly.60 These exclusive rights are the copyright owner’s “bundle of rights.”61 As for sound recordings, Congress chose to reaffirm the 1971 Act, granting the same “bundle of rights” as compositions, with the exception of the exclusive right to perform the work publicly.62 Under the 1976 Act, Congress defined two ways in which a copyrighted work can be publicly performed.63 The first is “to perform or display it at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered.”64 The second is “to transmit or otherwise communicate a performance . . . of the work to . . . the public, by means of any device or process.”65 Thus, a

58. See generally Flo & Eddie, 62 F. Supp.3d at 335-36 (discussing the difference between composition and sound recording copyrights). 59. Id.; 17 U.S.C. § 106 (2012). 60. 17 U.S.C. § 106 (2012). It is important to note that the term “musical” works in § 106 refers to compositions and clause (6) was added by The Digital Performance Right in the Sound Recordings Act of 1995; The entire section reads as follows: “Subject to sections 107 through 122 [17 USCS §§ 107 through 122], the owner of copyright under this title has the exclusive rights to do and to authorize any of the following: (1) to reproduce the copyrighted work in copies or phonorecords; (2) to prepare derivative works based upon the copyrighted work; (3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending; (4) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works, to perform the copyrighted work publicly; (5) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work, to display the copyrighted work publicly; and (6) in the case of sound recordings, to perform the copyrighted work publicly by means of a digital audio transmission.”). Id. 61. Id. 62. Id. 63. Jolson, supra note 24, at 777. 64. 17 U.S.C. § 101 (2012). 65. Id.

146 musical composition and/or sound recording is publicly performed when a song is played by a band in front of a crowd, such as at a music venue, or when a recorded song is played over the radio or a jukebox.66 In order to comply with the 1976 Act, a license must be acquired from the musical composition copyright owner before a copyrighted song is publicly performed.67 Without a license, the party publicly performing the song will be infringing upon the composition copyright owner’s exclusive right of public performance and may be held liable for damages.68 Conversely, a party generally does not need to acquire a license from a sound recording copyright owner before publicly performing a copyrighted recording of a song because the 1976 Act does not grant sound recording copyright owners the exclusive right of public performance.69 However, there are two exceptions to this general rule.70 Similar to the 1971 Act, the 1976 Act excludes pre-1972 sound recordings from federal protection.71 The 1976 Act expressly provides that the states may individually govern pre-1972 sound recordings until federal law preempts it in 2067.72 Therefore, the states may decide to grant pre-1972 sound recording copyright owners the exclusive right of public performance, even though this would not align with the 1976 Act.73 In 1995, Congress passed the Digital Performance Rights in Sound Recordings Act (DPRA), granting the owners of sound

66. See Jolson, supra note 24, at 777 (providing examples for the definitions of public performance set forth in 17 U.S.C. § 101). 67. See Pulsinelli, supra note 24, at 178 (discussing when a license is needed in order to publicly perform a copyrighted work). 68. Id. 69. See 17 U.S.C. § 106 (providing that sound recording copyright owners do not have the exclusive right to publicly perform their works). 70. 17 U.S.C. § 301(c) (2012); see also Capital Records, 4 N.Y.3d at 557 (explaining when a license must be acquired from a sound recording copyright owner). 71. See 17 U.S.C. § 301(c) (providing that, “With respect to sound recordings fixed before February 15, 1972, any rights or remedies under the common law or statutes of any State shall not be annulled or limited by this title until February 15, 2067. The preemptive provisions of subsection (a) shall apply to any such rights and remedies pertaining to any cause of action arising from undertakings commenced on and after February 15, 2067. Notwithstanding the provisions of section 303 [17 USCS § 303], no sound recording fixed before February 15, 1972, shall be subject to copyright under this title before, on, or after February 15, 2067.”). 72. See 17 U.S.C. § 301(c) (Congress decided to extend the date set by the 1971 Act for federal preemption from 2047 to 2067). 73. See Capitol Records, 4 N.Y.3d at 557 (discussing how the states may define what constitutes “publication” for pre-1972 sound recordings, even if it does not align with federal copyright law; if the states are able to define what constitutes publication contrary to federal law, the states may also provide the exclusive right of public performance for the owners of sound recording copyrights, even if this is inconsistent with federal law).

147 recording copyrights the exclusive right of public performance via “on demand” digital broadcasts.74 Just three years after the DPRA, Congress passed the Digital Millennium Copyright Act (DMCA), which extended sound recording copyright owners the exclusive right to broadcast their sound recordings via “non-interactive non- subscription services,” such as Internet and satellite radio stations.75 As a result, digital music broadcasters must pay “performance fees” for the public performance of sound recordings.76 It should be noted that the DPRA and DMCA only apply to public performances via digital broadcasters, and in no way affect the broadcast of sound recordings via terrestrial radio.77 Furthermore, both the DPRA and the DMCA only apply to post-1972 sound recordings, as the 1976 Act specifically excludes pre-1972 sound recordings from federal copyright protection.78

C. The Difference Between Digital and Terrestrial Radio Stations

In the 1920s, terrestrial radio (AM/FM radio) was just beginning to gain traction as a new medium of mass communication.79 Originally, most terrestrial radio stations were commercial free, funded by the manufactures of radio receivers or the department stores that sold radio receivers.80 However, in 1923, many terrestrial radio stations started selling commercial airtime to businesses, ushering in the age of commercial radio.81 With the advent of the television in the 1950s, radio became less lucrative as an advertising platform.82 However, the radio industry has remained viable, presently accounting for seven percent of advertising revenue in the United States.83 Although the radio industry as a whole has remained economically stable, many smaller stations are currently struggling to make a profit.84

74. All, supra note 52, at 14; Digital Performance Right in Sound Recordings Act of 1995, Pub. L. No. 104-39, 109 Stat. 336 (1995), amended by Digital Millennium Copyright Act of 1998, Pub. L. No. 105-304, 112 Stat. 2860, 2905 (1998) (codified at 17 U.S.C. § 114). 75. All, supra note 52, at 14; Digital Millennium Copyright Act of 1998, Pub. L. No. 105-304, 112 Stat. 2860, 2905 (1998) (codified at 17 U.S.C. § 114). 76. Id. 77. Id. 78. 17 U.S.C. § 301(c). 79. See MICHAEL C. KEITH, THE RADIO STATION, 5 (Anglina Ward et al. eds., 7th ed. 2007) (discussing the origins of terrestrial radio). 80. Id. 81. See id. (providing that the first ever paid announcement on terrestrial radio occurred in 1923 when WEAF in New York aired a ten minutes advertisement for a Queens based real estate company). 82. Id. at 9-17. 83. Id. 84. Id. at 17.

148 Terrestrial radio stations are required to pay performance royalty fees to musical composition copyright owners for all songs played or “publicly performed” over the airwaves.85 However, rather than negotiating a license and royalty rate with each individual copyright owner, radio stations acquire a blanket license from one or more of the three performing rights societies (PROs): American Society of Composers, Authors and Publishers (ASCAP), Broadcast Music, Inc. (BMI), and the Society of European State Authors and Composers (SESAC).86 Terrestrial radio stations generally pay a percentage of their annual gross profits to one or more of the PROs for a blanket license.87 The PROs then distribute the proceeds to musical composition copyright owners.88 As previously mentioned, terrestrial radio stations do not pay royalties to sound recording copyright owners.89 In the 1990s, a competitor to terrestrial radio emerged, broadcasting a digital signal via satellites directly to consumers across the country.90 In 2001, satellite radio station Sirius XM started broadcasting nationwide.91 Satellite radio stations offer a superior listening experience due to the absence of commercials and a high fidelity digital broadcast signal.92 However, unlike terrestrial radio, satellite radio stations require that listeners pay a monthly subscription fee.93 In addition to satellite radio stations such as Sirius XM, many digital radio stations broadcast via the Internet and cable TV providers.94 Similar to terrestrial radio stations, digital radio stations must pay performance royalty fees to musical composition copyright owners through ASCAP, BMI, and SESAC.95 However, due to the requirements set forth by the DPRA and the DMCA, digital radio stations must also pay royalties to sound recording copyright owners.96 These royalties are collected and dispersed by an

85. See Woods v. Bourne Co., 60 F.3d 978, 984 (2d Cir. 1995) (discussing how copyright owners collect payment for public performance of their works through the different performing rights organizations: ASCAP, BMI and SESAC). 86. Id. at 983-984; see generally Broad. Music, Inc. v. Columbia Broad. Sys., Inc., 441 U.S. 1 (1979) (discussing blanket licenses issued by PROs and holding that such blanket licenses do not constitute illegal price fixing under the Sherman Act). 87. Woods, 60 F.3d at 984. 88. Id. 89. 17 U.S.C. § 106. 90. See Keith, supra note 79, at 31 (discussing the emergence of satellite radio and its impact on terrestrial radio). 91. Id. 92. Id. 93. Id. 94. Id. at 32. 95. Music Royalties, ROYALTY EXCHANGE, www.royaltyexchange.com/learn/ music-royalties/ (last visited Oct. 11, 2015). 96. See id. (discussing how modern federal copyright law requires digital broadcasters to pay performance fees for the public performance of musical

149 organization called Sound Exchange, which operates independently of ASCAP, BMI, and SESAC.97

III. ANALYSIS

Parts A, B, and C of this section analyze the lawsuits brought by Flo & Eddie against Sirius XM in California, New York, and Florida federal district courts. Part D explores the possible consequences of these cases for terrestrial radio stations, focusing on whether terrestrial stations could be exposed to the same liability as Sirius XM. Finally, part E analyzes the pending “Fair Pay, Fair Play Act”, which if passed would require terrestrial and digital radio stations to pay performance fees for pre and post-1972 sound recordings.

A. Flo & Eddie Strike Gold in the Golden State

Flo & Eddie brought its first lawsuit against Sirius XM in the Los Angeles Superior Court on August 1, 2013.98 In its complaint, Flo & Eddie alleged violations of California Civil Code § 980(a)(2), California's Unfair , conversion, and misappropriation.99 Shortly after the complaint was filed, Sirius XM filed a notice of removal based on diversity jurisdiction and the case was removed to the U.S. District Court for the Central District of California.100 Flo & Eddie subsequently moved for summary judgment, arguing that Sirius XM was liable for, “publicly performing Flo & Eddie's recordings by broadcasting and streaming the content to end consumers and to secondary delivery and broadcast partners.”101 Sirius XM did not dispute that it had publicly performed Flo & Eddie’s pre-1972 sound recordings without first obtaining authorization.102 Therefore, the court’s only task was to decide whether Flo & Eddie should be granted judgment as a matter of law.103

compositions as well as sound recordings). 97. Id. 98. Noah Drake, Flo & Eddie, Inc. v. Sirius XM Radio, Inc.: Public Performance Rights for Pre-1972 Sound Recordings, 6 CALIF. L. REV. 61, 65 (2015). 99. Flo & Eddie, 2014 U.S. Dist. LEXIS 139053, at *1-2. 100. Id. 101. Drake, supra note 98; see also Flo & Eddie, 2014 U.S. Dist. LEXIS 139053, at *4 (seeking summary judgment for all causes of action against Sirius XM, including a claim that Sirius XM had unlawfully copied Flo & Eddies recordings in the course of broadcasting the recordings; however, as this paper is concerned exclusively with the issue of public performance, this claim will not be discussed). 102. Flo & Eddie, 2014 U.S. Dist. LEXIS 139053, at *6-7. 103. Id.

150 Whether Flo & Eddie were entitled to judgment as a matter of law rested squarely upon the court’s interpretation of California Civil Code § 980(a) (2).104 The statute, in relevant part, states that, “[t]he author of an original work of authorship consisting of a sound recording initially fixed prior to February 15, 1972, has an exclusive ownership therein until February 15, 2047.”105 The statute only provides one exception to the author’s exclusive ownership, permitting the “independent fixation of other sounds” to recreate the original sound recording.106 This is colloquially referred to as making a “cover” of a recorded song.107 Flo & Eddie argued that the “exclusive ownership” provision in the statute included the exclusive right of public performance.108 Conversely, Sirius XM argued that the statute was ambiguous and did not convey the exclusive right of public performance.109 After considering the statutory language and applicable , the court held that the statute unambiguously granted the owners of pre-1972 sound

104. See id. at *8-9 (discussing that 17 U.S.C. § 301 excludes pre-1972 sound recordings from federal protection and therefore Flo & Eddies “rights to [its] recordings depend solely on whatever rights are afforded to sound recording owners under California law.”). 105. See Cal. Civ. Code § 980 (providing the rights of authors of original works which are not governed by federal copyright law; the pertinent part of the statute reads as follows: “(1) The author of any original work of authorship that is not fixed in any tangible medium of expression has an exclusive ownership in the representation or expression thereof as against all persons except one who originally and independently creates the same or similar work. A work shall be considered not fixed when it is not embodied in a tangible medium of expression or when its embodiment in a tangible medium of expression is not sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration, either directly or with the aid of a machine or device. (2) The author of an original work of authorship consisting of a sound recording initially fixed prior to February 15, 1972, has an exclusive ownership therein until February 15, 2047, as against all persons except one who independently makes or duplicates another sound recording that does not directly or indirectly recapture the actual sounds fixed in such prior sound recording, but consists entirely of an independent fixation of other sounds, even though such sounds imitate or simulate the sounds contained in the prior sound recording.”). 106. Id. 107. See Flo & Eddie, 2014 U.S. Dist. LEXIS 139053, at *13 (providing that, “. . . the Court's textual reading of § 980(a)(2), giving the words ‘their usual and ordinary meaning and construing them in context[,]’ is that the intended ownership of a sound recording in California to include all rights that can attach to intellectual property, save the singular, expressly-stated exception for making "covers" of a recording.”). 108. Id. 109. See id. at *15-16 (discussing Sirius XM’s claim that the statute was ambiguous, which relied on the legislative history of the statute; the court eventually held that the language of the statute was clear and unambiguous on its face and therefore the court need not consider such legislative history; however, the court note that the legislative history actually supported the inclusion of the exclusive right of public performance).

151 recordings the exclusive right of public performance.110 Based on this interpretation of the statute, the court granted summary judgment in favor of Flo & Eddie.111

B. Flo & Eddie Hit it Big in New York

On August 16, 2013, Flo & Eddie filed a complaint against Sirius XM in the United States District Court for the Southern District of New York.112 Similar to its complaint filed in California, Flo & Eddie alleged that Sirius XM was liable for the unauthorized public performance of its pre-1972 sound recordings under New York state law.113 However, unlike California, New York does not have any that enumerates the rights of sound recording copyright owners.114 Therefore, Flo & Eddie had to makes its argument based on New York state common law.115 Sirius XM subsequently filed for summary judgment, arguing that there was a lack of New York case law which covered public performance rights for sound recordings.”116 The court disagreed, holding that Flo & Eddie held a valid “common law copyright,” which includes “public performance rights in pre-1972 sound recordings.”117 The court explained that, “New York has always protected public performance rights in works other than sound recordings that enjoy

110. Id. at *22-23. Sirius argued that there was a lack of case law supporting the that § 980(a)(2) includes the right of public performance, but the court disagreed, citing Capitol Records, LLC v. BlueBeat, Inc., 765 F. Supp. 2d 1198 (C.D. Cal. 2010) and Bagdasarian Prods. v. Capitol Records, No. B217960, 2010 Cal. App. Unpub. LEXIS 6590 (Cal. Ct. App. Aug. 18, 2010). Id. 111. Id. On November 14, 2016, on the eve of trial for damages in this case, Sirius settled with Flo & Eddie for a reported sum of $99 million. Stephen Carlisle, Gentlemen, Hedge Your Bets! Inside the Flo and Eddie-SiriusXM Settlement, NOVA SE. UNIV. (Dec. 1, 2016), https://copyright.nova.edu/flo-eddie- siriusxm-settlement/. Coincidentally, the attorney representing Sirius XM, Daniel Petrocelli, also represented President-elect Donald Trump in the Trump University lawsuit, which was scheduled for trial immediately preceding the Flo & Eddie v. Sirius XM trial. Ashley Cullins, Flo & Eddie Settle With Sirius XM on Eve of California Trial, HOLLYWOOD REPORTER (Nov. 14, 2016, 6:59 PM), www.hollywoodreporter.com/thr-esq/flo-eddie-settle-siriusxm-eve-california- trial-947313. 112. See Flo & Eddie, 62 F. Supp.3d at 335 (providing that Flo & Eddie filed its initial complaint on August 16, 2013, but also filed an amended complaint on November 13, 2013 in response to a motion to dismiss filed by Sirius XM). 113. Id. 114. Kevin Goldberg, Flo & Eddie Take Their Siriusly Winning Ways to the East Coast, COMMLAWBLOG, (Nov. 23, 2014), www.commlawblog.com/2014/11/ articles/broadcast/flo-and-eddie-take-their-siriusly-winning-ways-to-the-east- coast/ 115. Id. 116. Flo & Eddie, 62 F. Supp.3d at 339. 117. Id at 344.

152 the protection of common law copyright,” and there was no reason that sound recordings should be treated differently.118 After denying Sirius XM’s motion for summary judgment, the court issued an ominous warning to both digital and terrestrial radio stations: Sirius is correct that this holding is unprecedented (aside from the companion California case, which reached the same result), and will have significant economic consequences. Radio broadcasters — terrestrial and satellite — have adapted to an environment in which they do not pay royalties for broadcasting pre-1972 sound recordings. Flo & Eddie's suit threatens to upset those settled expectations. Other broadcasters, including those who publicly perform media other than sound recordings, will undoubtedly be sued in follow-on actions, exposing them to significant liability. And if different states adopt varying regulatory schemes for pre-1972 sound recordings, or if holders of common law copyrights insist on licensing performance rights on a state-by-state basis (admittedly, an unlikely result, since such behavior could well cause broadcaster to lose interest in playing their recordings) it could upend the analog and digital broadcasting industries.119 The court further stated that it was unconcerned with the potential policy issues created by its ruling.120 According to the court, these broader policy issues should be left to “Congress, the New York Legislature, and perhaps the New York Court of Appeals.”121 However, on April 15, 2015 the Second Circuit granted Sirius XM’s petition for interlocutory appeal and subsequently certified the following questions to the New York Court of Appeals: “Is there a right of public performance for creators of sound recordings under New York law and, if so, what is the nature and scope of that right?”122

118. See id. (predicting that New York common law includes the exclusive right of public performance based on the following cases: Palmer v. De Witt, 47 N.Y. 532 (1872); Roberts v. Petrova, 213 N.Y.S. 434 (Sup. Ct. 1925); French v. Maguire, 55 How. Pr. 471 (N.Y. Sup. Ct. 1878); Brandon Films v. Arjay Enters., 230 N.Y.S.2d 56 (Sup. Ct. 1962); Roy Exp. Co. Establishment of Vaduz v. CBS, 672 F.2d 1095 (2d Cir. 1982)). 119. Id at 352. 120. Id. at 352-353. 121. Id. 122. Flo & Eddie, Inc. v. Sirius XM Radio, Inc., 821 F.3d 265, 272 (2d Cir. 2016). Shortly before publication of this comment, the New York Court of Appeals held that New York common law does not include the exclusive right of public performance for pre-1972 sound recording copyright owners. Flo & Eddie, Inc. v. Sirius XM Radio, Inc., No. 172, 2016 NY Slip Op 08480 (N.Y. Dec. 20, 2016). While the Second Circuit has not yet implemented this ruling, it represents a massive victory for Sirius XM and casts serious doubt on the viability of similar common law copyright claims against digital and terrestrial broadcasters in other states. Id. However, this ruling does not affect statutory claims, such as Flo & Eddie’s case in California. Id. At the time of publication, the full impact of the New York Court of Appeal’s opinion is unknown, and for this reason, the comment will proceed largely unaltered. Tyler Ochoa, A Seismic

153 C. Florida Hits the Brakes on Flo & Eddie’s Winning Streak

After prevailing in California and New York, Flo & Eddie brought the same allegations against Sirius XM in the United States District Court for the Southern District of Florida.123 Similar to the case in New York, Sirius XM moved for summary judgment, arguing that there was no statutory or common law in Florida that granted sound recording copyright owners the exclusive right of public performance.124 The court agreed with Sirius XM’s arguments, stating that, “[t]here is no specific Florida legislation covering sound recording property rights, nor is there a bevy of case law interpreting common law copyright related to the arts.”125 Undeterred, Flo & Eddie offered an alternative argument that Florida’s general definition of property is broad and therefore includes public performance rights for sound recording copyright owners.126 However, the court declined to follow Flo & Eddie’s argument, finding that it would require the creation of a brand new property right in Florida, which is job reserved for the state legislature.127 As a result, the court granted Sirius XM’s motion for summary judgment.128 In granting Sirius XM’s motion for summary judgment, the federal court acknowledged its deference to the Florida state legislature and state courts.129 In short, the federal court found it was inappropriate to create a new cause of action where the state

Ruling Revisited: No Common-Law Public Performance Rights in Pre-1972 Sound Recordings in New York–Flo & Eddie v. Sirius, TECHNOLOGY & MARKETING LAW BLOG (Jan. 10, 2017), https://blog.ericgoldman.org/archives/2 017/01/a-seismic-ruling-revisited-no-common-law-public-performance-rights-in -pre-1972-sound-recordings-in-new-york-flo-eddie-v-sirius.htm. Furthermore, since the court’s opinion will only control claims based on New York common law, the proposal section of this comment remains valid. Id. 123. Flo & Eddie, 2015 U.S. Dist. LEXIS 80535, at *10-11. 124. See id. at *12 (discussing the difference between the laws covering sound recording copyrights in California, New York, and Florida; the court recognized that Florida law is completely silent on the matter, unlike California and New York). 125. Id. 126. Id. 127. See id. (Judge Gayles declined to follow Flo & Eddie’s argument because, “. . . by endorsing the notion of such an exclusive right, he would be creating an unqualified property right that didn’t exist previously and that even owners of post-1972 recordings don’t have. Under that new right, Flo & Eddie would control every aspect of [its] pre-1972 sound recordings, a broader entitlement than owners of post-1972 recordings have.”). 128. Id. at *17. 129. Kevin Goldberg, Flo & Eddie Hit a Florida Sinkhole, COMMLAWBLOG, (July 8, 2015), www.commlawblog.com/2015/07/articles/intellectual-property/fl o-eddie-hit-a-florida-sinkhole/

154 legislature and state courts were silent on the matter.130 The court also acknowledged three practical issues that would have to be addressed if the court ruled in favor of Flo & Eddie: “(1) who would set and administers royalty rates at the state level; (2) who would determine the owner of a sound recording when the recording artist dies or the record company goes out of business; and (3) what, if any, exceptions exist to the public performance right?”131 Although not expressly stated in the opinion, these issues also exist in other states, including California and New York.132 As a result, the Florida District Court’s decision may have a chilling on further litigation in other states.133 However, the final disposition of this case is far from certain, as Flo & Eddie have appealed to the Eleventh Circuit, which subsequently issued the following certified question to the Florida Supreme Court: “Whether Florida recognizes common law copyright in sound recordings and, if so, whether that copyright includes the exclusive right of reproduction and/or the exclusive right of public performance?”134

D. The Consequences of the Flo & Eddie Cases for Terrestrial Radio

Although Sirius XM was the only defendant in the Flo & Eddie cases, the Courts in these cases did not expressly limit their decisions to digital radio stations.135 In fact, the California and New York federal courts effectively granted the owners of pre-1972 sound recording copyrights an unlimited exclusive right of public performance.136 As a result, the owners of pre-1972 sound recordings have standing to sue any party that publicly performs their works in California and New York without first obtaining a license.137 Therefore, the courts’ rulings may extend liability to a massive group of potential defendants, including terrestrial radio stations, television broadcasters, and music venues.”138 The California and New York federal district courts have created a precarious situation for terrestrial radio stations

130. Id. 131. Id. (quoting Flo & Eddie, 2015 U.S. Dist. LEXIS 80535, at *14). 132. Id. 133. Id. 134. Bill Donahue, Radio Stations, Law Profs Jump Into Florida Pre-'72 Fight, LAW360, (Oct. 14, 2015, 8:27 PM ET), www.law360.com/articles/714027/ radio-stations-law-profs-jump-into-florida-pre-72-fight; Flo & Eddie, Inc. v. Sirius XM Radio, Inc., 827 F.3d 1016, 1025 (11th Cir. 2016). At the time of this comment’s publication, the Florida Supreme Court had not issued an opinion answering the Eleventh Circuit’s certified question. Id. 135. Jolson, supra note 24, at 795. 136. Id. 137. Id. 138. Drake, supra note 98, at 67.

155 broadcasting in those states.139 In order to comply with the courts’ rulings, terrestrial radio stations must obtain licenses before broadcasting any pre-1972 sound recordings.140 However, due to the lack of a statutory licensing scheme in either state, terrestrial radio stations would have to engage in the burdensome task of negotiating individual licenses for every pre-1972 sound recording that that the station broadcasts.141 While the California District Court was silent on this implication, the New York District Court acknowledged that the ruling could “upend the [terrestrial] broadcasting industry.”142 However, the New York District Court declared that it was unconcerned with the implications of its ruling and the issue would have to be resolved through the legislative process or the New York Court of Appeals.143 Following Flo & Eddie’s appeal in Florida, The National Association of Broadcasters and a group of copyright law professors filed amicus briefs advocating that the Eleventh Circuit should affirm the district court’s ruling in favor of Sirius XM.144 Amongst the group of legal scholars is University of California law professor Eugene Volokh, who stated that “[i]mposing an obligation [on broadcasters] to pay such royalties now, retroactively, on a state- by-state basis, would be incredibly disruptive to the broadcast industry . . . .”145 Volokh also pointed out that the record companies and other parties now seeking to enforce a performance fee for sound recordings have historically “spent huge sums of money to lobby for ,” rather than attempting to extract money from the radio industry.146 In late 2015, ABS Entertainment, Inc. filed a class action complaint in the District Court for the Central District of California against the three largest terrestrial radio broadcasters: CBS Radio, iHeartMedia, and Cumulus.147 The complaint alleges that the terrestrial radio broadcasters are liable for publicly performing pre- 1972 sound recordings owned by ABS Entertainment and other class members without authorization, which is the same allegation

139. Id. 140. Id. 141. Id. 142. Flo & Eddie, 62 F. Supp.3d at 352. 143. Id. 144. Donahue, supra note 134. 145. Id. 146. Id. 147. See Eriq Gardner, Radio Giants Facing Bicoastal Legal Demands to Stop Playing Pre-1972 Songs, THE HOLLYWOOD REPORTER, (Aug. 27, 2015 3:27 PM PT), www.hollywoodreporter.com/thr-esq/radio-giants-facing-bicoastal-leg al-818230 (providing that the Flo & Eddie cases have led to lawsuits being filed against other digital radio broadcasters such as Pandora; further providing that a group of record companies had recently settled a lawsuit against Sirius XM for $210 million, based on the same allegations raised by Flo & Eddie against Sirius XM).

156 raised by Flo & Eddie against Sirius XM.148 Although this lawsuit is still in its preliminary stages, the consequences for the terrestrial radio industry will be far reaching.149 With appeals to the Flo & Eddie cases currently pending in the Second and Eleventh Circuits, the issue regarding public performance rights for pre-1972 sound recordings is far from resolved.150 While it is unlikely, if the two circuits come to different decisions based on federal law, the issue would become ripe for consideration by the United States Supreme Court.151 However, there is a bill currently pending in Congress, which if passed would supersede a Supreme Court ruling on the issue of public performance rights for pre-1972 sound recording copyrights.152

E. The Fair Pay, Fair Play Act of 2015

Introduced in April 2015, the Fair Pay, Fair Play Act (“FPFPA”) is a comprehensive piece of legislation that would change federal copyright law in three ways: First, it would create a terrestrial public performance right for recording artists and owners of master sound recordings; second, it would eliminate the Copyright Act’s exemption against federal copyright protection for sound recordings fixed prior to February 15, 1972; third, it would establish a process designed to allow for the setting of consistent fair market royalty rates paid in consideration of the public performance of all sound recordings.153

148. Id. 149. Id. 150. Id. 151. Eriq Gardner, CBS Radio Has Novel Argument to Legal Demand to Stop Playing Pre-1972 Songs, THE HOLLYWOOD REPORTER, (Oct. 21, 2015 10:42 AM PT), www.hollywoodreporter.com/thr-esq/cbs-radio-has-novel-argument- 833596. (discussing how CBS has recently filed a motion to strike the complaint, based on a novel argument that CBS radio does not play pre-1972 recordings; in more detail, CBS claims that it “. . . does not play vinyl sound recordings . . . " In fact, every song CBS has played in the last four years has been a post-1972 digital sound recording that has been re-issued or re-mastered. For example, 'Tired of Being Alone' is found on UMG's 2006 The Best of Al Green compilation. That CD contains the re-mastered version of the song created and registered for copyright in 2000. The 'Let's Stay Together' recording CBS played is the 2003 re-mastered sound recording as re-issued in 2009 by Fat Possum Records."; the court has yet to hear this argument, but its decision should be interesting given its novelty). 152. Fair Play Fair Pay Act of 2015, H.R. 1733, 114th Cong. (1st Sess. 2015). At the time of publication, the FPFPA was still making its way through Congress. Id. 153. See Jeffrey S. Becker, William W. Shields & Stephen Hutton, The Fair Play, Fair Pay Act of 2015: What’s At Stake and For Whom?, ABA, www.ameri canbar.org/publications/entertainment-sports-lawyer/2015/firstedition/Becker_ Shields_Hutton.html (last accessed Oct. 25, 2015) (discussing the amendments proposed by the FPFPA).

157 In short, the FPFPA would grant sound recording copyright owners the same bundle of rights currently held by musical composition copyright owners.154 If Congress passes the FPFPA, pre-1972 sound recordings would be exclusively governed by federal copyright protection.155 The FPFPA would accomplish this by amending the Copyright Act of 1976, which grants the states the authority to govern pre-1972 sound recordings.156 As a result, parties such as Flo & Eddie would no longer have standing under state law to sue digital or terrestrial broadcasters for publicly performing its pre-1972 sound recordings without authorization.157 Rather, both digital and terrestrial radio stations would be required to pay performance fees, regardless of whether the station played sound recordings made before or after 1972.158 Proponents of the FPFPA claim that the bill will make right a “great injustice” by fairly compensating artists for their work.159 However, those that oppose the bill claim that the FPFPA will disproportionately benefit the record labels that own sound recording copyrights rather than the artists who create the sound recordings.160 Furthermore, those that oppose the bill claim that “there is a direct correlation” between airplay and album sales, amounting to $2.4 billion in free promotion for the recording industry and artists each year.161

154. See id. (comparing the bundle of rights held by composition copyright owners under 17 U.S.C. § 106 to the rights of sound recording copyright owners). 155. Id. 156. Id. 157. Id. 158. Id. 159. See Ed Christman, 'Fair Play, Fair Pay Act' Introduced, Seeks Cash from Radio Stations, BILLBOARD, (Apr. 13, 2015 4:44 PM EDT), www.billboard.c om/articles/business/6531693/fair-play-fair-pay-act performance-royalty-radio# sthash.1YNkZC3S.dpuf (providing various arguments in favor of the FPFPA, such as the following: “Because the U.S. doesn’t pay artists when their songs are played on the radio, they also do not receive compensation when their songs are played in other countries. The only other countries other than the U.S. which do not pay a master recordings royalty on terrestrial radio broadcasts are North Korea, Iran and China.”; “. . . stations that make less than $1 million in revenue will only have to pay $500 a year in performance royalties, while college radio stations will only have to pay $100.”). 160. Victor Nava, The ‘Fair Play Fair Pay Act’ Is A Corporate Music Label Cash Grab, THE DAILY CALLER, (Sept. 10, 2015), http://dailycaller.com/2015/09 /10/the-fair-play-fair-pay-act-is-a-corporate-music-label-cash-grab/. 161. See id. (providing various arguments and statistics in opposition to the FPFPA such as the following: “Only 4 percent of Pandora’s revenues go to music publishers (the entities responsible for ensuring the and composers receive their royalties) and 50 percent goes to the record labels.”; “Contrary to what you might think, given the digital age we live in, most people still discover new music over terrestrial airwaves. Eighty-five percent of music listeners identify radio as the place they first hear new music.”).

158 IV. PROPOSAL

This Section proposes that Congress should exempt terrestrial radio stations from paying performance fees for broadcasting pre- 1972 sound recordings. However, Congress should continue to require digital radio stations to pay performance fees for both pre and post-1972 sound recordings. Accordingly, Congress should amend the Copyright Act of 1976 by repealing 17 U.S.C. § 301(c), which allows the states to govern pre-1972 sound recordings.162 By repealing § 301(c), Congress would bring pre-1972 sound recordings under the exclusive protection of federal copyright law, which requires digital radio stations to pay sound recording performance fees, but completely exempts terrestrial radio stations from paying sound recording performance fees.163 If terrestrial radio stations are forced to pay performance fees, many stations primarily broadcasting pre-1972 sound recordings will be confronted with the choice of changing formats or shutting down.164 Furthermore, due to the uncertainty of state copyright law, as seen in California, New York, and Florida, both terrestrial and digital radio stations will be required to pay performance fees in some states, but not others.165 Unless Congress intervenes, the states will produce a confusing and unmanageable system of copyright protection for pre-1972 sound recordings.166 Finally,

162. See 17 U.S.C. § 301(c) (stating that, “With respect to sound recordings fixed before February 15, 1972, any rights or remedies under the common law or statutes of any State shall not be annulled or limited by this title until February 15, 2067”). 163. See 17 U.S.C. § 106(6) (“The owner of copyright under this title has the exclusive rights…in the case of sound recordings, to perform the copyrighted work publicly by means of a digital audio transmission.”); see also All, supra note 52, at 12-13 (providing that the Digital Performance Rights in Sound Recordings Act (DPRA) and Digital Millennium Copyright Act (DMCA) require digital radio stations to pay performance fees for broadcasting post-1972 sound recordings). 164. Mark R. Fratrik, How Will the Radio Industry Be Affected by Pre-1972 Music Performers’ Fees (July 27, 2015) www.biakelsey.com/pdf/ImpactOfP re72MusicRoyalties.pdf (“. . . any increase in programming costs resulting from an imposition of a pre-1972 music performers’ royalty fee may yield several possible responses from local stations. Stations may: 1) attempt to pass costs on to advertisers; 2) seek to screen out pre-1972 recorded music; or 3) shift the programming on the station to a different format. All these alternatives have significant costs associated with them.”). 165. See Pulsinelli, supra note 24, at 201-204 (providing that unlike like federal copyright law, state copyright law protecting pre-1972 sound recordings does not have a compulsory licensing scheme to set performance fee royalty rates; therefore, both digital and terrestrial radio stations will be forced to engage in the burdensome task of negotiating licenses individually with each pre-1972 sound recording copyright owner; furthermore, if a radio station wished to avoid paying performance fees by ceasing its broadcast to those states requiring performance fees, it would be nearly impossible to do so, since the broadcast signals cannot be cut off at states lines). 166. Id.

159 Congress should not exempt digital radio stations from paying sound recording performance fees because digital radio is a “substitute” for album sales, while terrestrial radio increases album sales.167

A. Say Goodbye to Oldies Radio Stations

If the Flo & Eddie decisions are extended to terrestrial radio, the first targets would undoubtedly be “oldies” stations, which primarily broadcast music from the 1950s through the 1970s.168 Oldies radio stations generally focus on classic genres such as “doo- wop, early rock and roll, novelty songs, bubblegum pop, folk rock, psychedelic rock, baroque pop, surf rock, , funk, classic rock, hard rock, , and country.”169 There are approximately 1,850 terrestrial oldies radio stations in the United States that could potentially be affected by the Flo & Eddie decisions.170 After Flo & Eddie were granted summary judgment in the Southern District of New York, the New York State Broadcasters Association commissioned Mark R. Fratrik, Ph.D., to conduct a study on the potential impact of pre-1972 sound recording performance fees on terrestrial radio stations in New York.171 The study analyzes three ways in which oldies stations may accommodate the requirement of paying performance fees. Fratrik explains that “Stations may: 1) attempt to pass costs on to advertisers; 2) seek to screen out pre-1972 recorded music; or 3) shift the programming on the station to a different format.”172 For the reasons discussed below, Fratrik concludes that all three methods ultimately impose significant costs that would force stations to either shut down or change formats in order to avoid broadcasting pre-1972 sound recordings.173 Although Fratrik’s study focuses on terrestrial radio stations in New York, its conclusions may be logically extended to other states.174

167. Matthew S. DelNero, MUSIC: Long Overdue?: An Exploration of the Status and Merit of a General Public Performance Right in Sound Recordings, 6 VAND. J. ENT. L. & PRAC. 181, 196, (2004). 168. See Amy Gold, A History and Definition of Oldies Music, www.allbutforgottenoldies.net/articles/history-and-definition-of-oldies-music.h tml (last accessed November 14, 2015) (discussing the history of oldies radio in the United States). 169. Id. 170. Fratrik, supra note 164. 171. Id. 172. Id. 173. Id. 174. Id.

160 1. Passing on Sound Recording Performance Fees to Advertisers

As previously noted, advertising is the sole source of revenue for terrestrial radio stations, unlike digital radio stations, which generally charge a monthly subscription fee.175 Fratrik explains that local terrestrial radio stations face a highly competitive advertising market due to an abundance of alterative platforms, such as other local radio stations, local television stations, and newspapers.176 Furthermore, local radio stations tend to be less favored than alternative mediums.177 As a result, it is unlikely that oldies stations would be able to raise the price of advertising to accommodate the cost of performance fees, as advertisers would simply shift to other more desirable mediums.178 Accordingly, terrestrial oldies radio stations should not be required to pay pre- 1972 sound recording performance fees since it would negatively affect their sole source of revenue.179 However, digital radio stations should be required to pay performance fees for pre and post-1972 sound recordings, as the cost can be spread across its subscribers through a marginal increase in monthly subscription fees.180

2. Screening Out Pre-1972 Sound Recordings and Shifting Formats

The issue with terrestrial stations “screening out” or removing pre-1972 sound recordings lies with the resources needed to accomplish this task.181 Fratirk explains that smaller radio stations would not be able to afford the additional personnel or other resources needed to sort through the station’s music library and remove pre-1972 recordings.182 The task of sorting out pre-1972 recordings would be especially burdensome for smaller radio stations that do not store music libraries on computers.183 The situation may also present issues for larger and more sophisticated stations because many of these stations use nationally distributed programming services, which may be unwilling to selectively screen-out pre-1972 recordings.184 Therefore, the only practical solution for terrestrial oldies radio stations would be to change

175. Keith, supra note 79, at 31. 176. Fratrik, supra note 164. 177. Id. 178. Id. 179. Id. 180. See Keith, supra note 79, at 31 (providing that terrestrial radio stations’ only source of revenue is the sale of advertising, while Sirius XM charges subscribers a monthly fee). 181. Fratrik, supra note 164. 182. Id. 183. Id. 184. Id.

161 formats in order to completely avoid playing pre-1972 recordings.185 Congress should intervene and prevent an entire radio format from disappearing as the result of state mandated pre-1972 sound recording performance fees.

B. State Copyright Law Creates a Confusing and Unmanageable System of Protection

As previously noted, the drafters of the Constitution decided that a federal system of copyright protection would be preferable to a system of copyright protection administered by the individual states.186 This was an extremely prudent decision by the drafters and yet another example of the foresight they possessed in drafting a Constitution that would stand the test of time.187 It is therefore irrational and unprecedented for Congress to have expressly excluded pre-1972 sound recordings from federal copyright protection.188 This exemption does not fit with the model of a cohesive federal system of copyright protection.189 Furthermore, this exception will lead to a confusing and unmanageable system of copyright protection for pre-1972 sound recordings.190 One of the most problematic aspects of allowing the states to govern pre-1972 sound recordings arises from the mechanics of how sound recordings are broadcast by terrestrial and digital stations.191 If the Flo & Eddie decisions in California and New York apply to terrestrial radio, the stations that broadcast to listeners in these states would be required to pay performance fees for pre-1972 sound recordings.192 At first glance this may seem to only require radio stations located in California and New York to pay performance fees.193 However, upon closer examination, the courts’ holdings actually require all radio stations that have a broadcast range extending into these states to pay performance fees.194 This poses a conundrum for radio stations in adjacent states whose broadcast signal extends into California and New York.195 It is physically impossible for these radio stations to stop their broadcast signal from crossing state lines and equally impossible for the stations to

185. Id. 186. See Capitol Records, 4 N.Y.3d at 550 (explaining why the drafters of the Constitution chose to bring copyright law into the federal domain). 187. Id. 188. Id. 189. Id. 190. Jolson, supra note 24, at 201-204. 191. Id. 192. Flo & Eddie, 2014 U.S. Dist. LEXIS 139053; Flo & Eddie, Inc., 62 F. Supp. 3d at 325. 193. Id. 194. Id. 195. Jolson, supra note 24, at 201-204.

162 determine exactly where each listener is located.196 This situation is absolutely untenable, absent further clarification from state legislatures or the courts.197 Even those terrestrial radio stations located in California and New York may find it nearly impossible to comply with the Flo & Eddie decisions.198 As previously discussed, terrestrial radio stations pay performance fees for musical composition copyrights to PROs based on federally mandated compulsory licensing.199 However, there is no system in place at the state level that provides a compulsory licensing scheme for pre-1972 sound recordings.200 As a result, if forced to pay sound recording performance fees, each terrestrial radio station in California and New York would need to individually negotiate licenses with the copyright owner of every single pre-1972 sound recording that the station broadcasts.201 It is clear that a system of state copyright protection for pre-1972 sound recordings is confusing and unmanageable, necessitating Congress to bring pre-1972 sound recordings exclusively under federal protection.

C. Terrestrial Radio Increases Album Sales While Digital Radio Decreases Album Sales

The primary reason that terrestrial radio stations have historically been exempt from paying sound recording performance fees is due to the “free promotion” that the radio provides for artists and record companies.202 The rationale is that artists and record companies do not directly pay radio stations to broadcast their music, but depend on radio airplay in order to support album sales.203 Therefore, although terrestrial radio does not pay performance fees for sound recordings, it is still providing compensation in the form of free promotion to the artists and record companies who own the “publicly performed” sound recordings.204 It is a “win-win” situation, in which the artists and record companies receive the massive promotional benefit of the terrestrial radio industry while the terrestrial radio industry uses the sound recordings to generate profits through advertising.205

196. Id. 197. Id. 198. Id. 199. See Woods, 60 F.3d at 984 (discussing how copyright owners collect payment for public performance of their works through the different performing rights organizations: ASCAP, BMI and SESAC). 200. Drake, supra note 98, at 67. 201. Id. 202. DelNero, supra note 167. 203. Id. 204. Id. 205. Id.

163 Proponents of pre-1972 sound recording performance fees argue that older recordings do not receive the same promotional benefit as newer recordings, which are likely so sell more .206 However, this argument can be countered by the fact that some record labels still realize a significant amount of income from the sale of their “back catalogues,” which in some cases consist of mainly pre-1972 recordings.207 Therefore, it appears that some artists and record companies are attempting to “double dip” on profits by receiving free promotion from radio as well as sound recording performance fees.208 Accordingly, Congress should seek to prevent artists and record labels from requiring terrestrial radio stations from paying any sound recording performance fees, including those imposed by the recent Flo & Eddie decisions. While terrestrial radio has a positive effect on record sales, digital radio seems to have the inverse effect.209 According to the Recording Industry Association of America, physical album sales have declined by 80 percent over the last decade, while digital radio revenue has skyrocketed, now making up “32 percent of the annual revenue of record labels.”210 Digital radio is now considered a “substitute” for physical albums, especially on-demand digital radio such as Pandora Radio or Spotify.211 Therefore, it is not unreasonable for Congress to require digital radio stations to pay performance fees for both pre and post-1972 sound recordings.

V. CONCLUSION

The United States Congress should exempt terrestrial radio stations from paying performance fees for broadcasting pre-1972 sound recordings, but should require digital radio stations to pay performance fees for both pre and post-1972 sound recordings. If Congress does not act soon, the Flo & Eddie decisions may put “oldies” terrestrial radio stations out of business. Additionally, Congress must act to prevent the states from creating a confusing and unmanageable system of copyright protection for pre-1972 sound recordings, which deviates from the intended purpose of federal copyright law. Finally, Congress should continue to require digital radio stations to pay performance fees due to its negative impact on record sales.

206. Id. 207. See Back catalogues spin a new generation of profits for record labels, (Sept. 19, 2009 7:07 EDT) www.theguardian.com/business/2009/sep/20/beatles- -back-catalogue-reissues (providing that the sale of “back catalogues” have recently been on the rise for record companies such as EMI). 208. Id. 209. Ben Sisaria, Adele’s Album Will Be Big. But Will It Be Streaming?, N.Y. TIMES (Nov. 5, 2015), www.nytimes.com/2015/11/06/business/media/adele-25- streaming-new-album.html?_r=1. 210. Id. 211. DelNero, supra note 167; Sisaria, supra note 209.

164 Pace I.P., Sports & Entertainment Law Forum Volume 2 Article 7 Issue 1 Spring 2012

April 2012 For the Love of the Name: Professional Athletes Seek Trademark Protection Brett Harris Pavony Pace Law School

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Recommended Citation Brett H. Pavony & Jaia Thomas, For the Love of the Name: Professional Athletes Seek Trademark Protection, 2 Pace. Intell. Prop. Sports & Ent. L.F. 153 (2012). Available at: http://digitalcommons.pace.edu/pipself/vol2/iss1/7

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165 For the Love of the Name: Professional Athletes Seek Trademark Protection

Abstract Brett Pavony & Jaia Thomas wrote an article that explores the burgeoning relationship between professional sports and trademark law. After providing an overview of the various requirements outlined by the United States Patent and Trademark Office (USPTO), the article transitions into exploring the emerging trend of sports figures seeking federal trademark protection. Brett & Jaia blend their expertise and research to present an article that focuses on an analytical examination of professional athletes seeking trademark protection. The article also offers a glimpse into the future of intellectual property law as it pertains to professional athletes. As more and more athletes seek to take advantage of the legal tools afforded through U.S. trademark law, the article concludes by offering practical advice for athletes as they continue to protect and monetize their personal brands.

Cover Page Footnote Brett Harris Pavony is currently a third-year law student, graduating this May from Pace Law School in White Plains, New York. Brett has focused his law studies on Intellectual Property, Sports & Entertainment Law. He received his B.A. in Political Science from The George Washington University in 2007 and subsequently worked at Latham & Watkins LLP as a paralegal before moving back to New York to pursue his law degree. Brett serves as Editor of PIPSELF and plans to take the New York & New Jersey Bar Examinations this summer.

Jaia A’lice Thomas is currently the Managing Partner at The Law Office of Jaia Thomas, a New York-based sports and entertainment law practice. She earned her J.D. from The George Washington University Law School and her B.A. in Political Science from Colgate University. She also holds a Certificate in Television, Film and New Media Production from University of California, Los Angeles. She is a member of the American Bar Association and New York Bar Association.

This article is available in Pace I.P., Sports & Entertainment Law Forum: http://digitalcommons.pace.edu/pipself/vol2/iss1/7

166 FOR THE LOVE OF THE NAME

For the Love of the Name: Professional Athletes Seek Trademark Protection

Brett Harris Pavony1 and Jaia Thomas2

When famed wide receiver Terrell Owens signed with the Dallas Cowboys in the summer of 2006, he instructed the world to ‘Getcha Popcorn Ready’. Since 2006, while avid football fans have been busy getting their popcorn ready, the phrase has become ubiquitous. In 2007, recognizing the potential profit that could be garnered, Terrell Owens (“T.O.”) sought federal trademark protection for the phrase. T.O. is one of countless athletes who now rely on United

States trademark law to protect their intellectual properties. This article seeks to elucidate the intersection of professional athletes and trademark law.

The purpose of this article is to shed light on the growing trend of professional athletes seeking trademark protection. Section I of this Article provides a brief primer on trademark law.

Section II evaluates the modern-day relationship between sports, professional athletes, and trademark law. Section III analyzes certain lawsuits and provides examples of the legal hurdles faced by athletes seeking to secure trademark protection for their respective intellectual properties. Section IV offers recommendations and strategies for those in the legal and sports

1 Brett Harris Pavony is currently a third-year law student, graduating this May from Pace Law School in White Plains, New York. Brett has focused his law studies on Intellectual Property, Sports & Entertainment Law. He received his B.A. in Political Science from The George Washington University in 2007 and subsequently worked at Latham & Watkins LLP as a paralegal before moving back to New York to pursue his law degree. Brett serves as Editor of PIPSELF and plans to take the New York & New Jersey Bar Examinations this summer. 2 Jaia A’lice Thomas is currently the Managing Partner at The Law Office of Jaia Thomas, a New York-based sports and entertainment law practice. She earned her J.D. from The George Washington University Law School and her B.A. in Political Science from Colgate University. She also holds a Certificate in Television, Film and New Media Production from University of California, Los Angeles. She is a member of the American Bar Association and New York Bar Association.

167 PACE I.P., SPORTS & ENTERTAINMENT LAW FORUM profession navigating the landmine of trademark registration and protection. Lastly, Section V offers a list of recommendations for those working within the realm of sports.

I. First Down: Trademark Law Up the Middle

The Federal Trademark Act of 1946,3 commonly known as the Lanham Act, governs trademark law.4 The Lanham Act defines a trademark as any word, name, symbol or device or combination thereof, used by an individual or company to identify and distinguish his, her or its goods, including a unique product, from the goods of another, and to indicate the source of the goods, even if that source is unknown.5 In a famous Supreme Court decision, it was held that,

“the primary purpose of trademark law is to aid consumers in assuring them that the products with the same trademark come from the same source.”6 A trademark can receive legal registration & protection in one of three distinct venues: (1) common law; (2) state; and (3) federal. This article will exclusively focus on federal trademark law.

To receive federal trademark protection, an applicant must register with the United States

Patent and Trademark Office (“USPTO”), alleging to use the mark or ‘intend to use’ the mark in commerce. A mark is “in commerce,” with respect to goods, when the mark is placed on the goods and they are sold or transported in commerce.7 There are two ways to establish protectable, exclusive trademark rights in the U.S. The first way is through actual use which can be accomplished by affixing the trademark to the goods or to point-of-purchase displays for

3 15 U.S.C. §§ 1051-1127 (1946). 4 Id. §§ 1114-21. 5 Id. §1127. 6 Qualitex Co. v. Jacobson Products Co. Inc., 514 U.S. 159, 115 S. Ct. 1300, 131 L. Ed. 2d 248 (1995). 715 U.S.C. § 1127 (1946).

168 FOR THE LOVE OF THE NAME them, or by displaying a service mark in rendering or advertising the services.8 The second avenue is through an intent-to-use. This is based on a bona fide plan to use the mark, but the mark must be used in the ordinary course of trade.9

Trademark rights continue indefinitely as long as the mark is in use directly or through a licensee; however, federal registrations must be renewed every ten years and a declaration of use must be filed during the sixth year after registration. A mark is considered abandoned when its use has been disconnected, with intent not to resume. Intent not to resume can be inferred from nonuse for three consecutive years or when it has lost its trademark significance through any course of conduct. Federal trademark protection provides constructive notice of your exclusive ownership rights to everyone who later starts using that trademark anywhere in the country, and it gives federal courts jurisdiction to hear infringement claims.

The Lanham Act defines trademark infringement as the reproduction, counterfeiting, copying or imitation in commerce of a registered mark “in connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake or to deceive”10 without consent of the registrant. The ‘likely to cause confusion’ element, which has proven to be the key factor in the majority of sports trademark cases, has been particularly important in trademark infringement cases involving professional sports leagues and sports good manufacturers and sellers.11

The potential value of the assets of sports enterprises – including the identifying them – should not be underestimated. Even slogans can be established, registered,

8 See id. (“The term “service mark” means any word, name, symbol, or device, or any combination thereof (1) used by a person or (2) which a person has a bona fide intention to use in commerce and applies to register on the principal register established by this Act, to identify and distinguish the services of one person, including a unique service, from the services of others and to indicate the source of the services, even if that source is unknown.”). 9 nd WILLIAM M. BORCHARD, TRADEMARK & THE ARTS 34 (2 ed. 1990). 10 15 U.S.C. § 1114(1)(a) (1946). 11 Id.

169 PACE I.P., SPORTS & ENTERTAINMENT LAW FORUM and protected as trademarks or service marks in the same manner as single words or unique designs.12 Lawyers who handle intellectual property rights say the practice has accelerated in recent years as athletes and sports figures seek to extend their brands into the entertainment world. Unfortunately, the Federal Trademark Office does not keep statistics on the professional athletes who file for protection, nor does the International Trademark Association, which represents owners.13

II. Second Down: Play-Action Past, Present & Future Marks

Already happening at a record rate today, sports’ figures have been using trademark law to protect nicknames and slogans for decades. Hall of Fame coach Pat Riley, an iconic figure in and around the sport of basketball, obtained a trademark for the term ‘three-peat’ in 1989, when he was then head coach of the Los Angeles Lakers. The term ‘three-peat’ indicates that a team has won three consecutive championships, an extremely rare and remarkable feat in any sport.

Riley’s first trademark related only to the appearance of ‘three-peat’ on: T-shirts, hats, and jackets. He has since registered three additional trademarks on his catchphrase, specifically covering its use on: nonmetal key chains, plaques, collector plates, mugs, tankards, bumper stickers, decals, paper pennants, paperweights, posters, and trading cards.14

Since 1989, countless professional athletes and sports figures have sought trademark protection – ranging from Manny Ramirez (‘Manny Being Manny’) to Donovan McNabb

(‘Donovan McNabb’). It should be noted that trademark protection in the sports world is not only confined to athletes and coaches seeking protection of their name or phrase but also

12 JOHN D. OATHOUT, TRADEMARKS 25 (1981). 13 Katie Thomas, Sports Stars Seek Profit in Catchphrases, N.Y. TIMES, Dec. 9, 2010, at A1, available at http://www.nytimes.com/2010/12/10/sports/10trademark.html. 14 Dave McKenna, Cheap Seats: Three-Peat Offender, WASHINGTON CITY PAPER (June 21, 2002), http://www.washingtoncitypaper.com/articles/23988/three-peat-offender.

170 FOR THE LOVE OF THE NAME expands to athletes seeking to protect the name of business endeavors (Amare Stoudemire –

‘Stoudemires’) as well as the licensing of names to third-party companies (Chad Johnson has licensed the name ‘Mad Chad’ to Rocklive, as an iPhone app game).

A. Nicknames and Catchphrases

Professor J. Gordon Hylton of Marquette University Law School noted, “World renowned athletes like Michael Jordan and Tiger Woods have earned millions of dollars above and beyond their income from competing in sports by successfully exploiting their own names.”15 Additionally, Daniel Glazer, a member of Intellectual Property Magazine’s Advisory

Board and a Senior Editor of The Trademark Reporter, explains, “Most of these athletes (filing for protection) have a very limited period of time where they have their primary earning years, and this is a way to capitalize on their fame and maximize their earnings during their playing career.”16 Statistics indicate that the average NFL career is 3.5 years, with the number fluctuating because of varied factors (e.g. the average career length for a player who makes a club’s opening day roster in his rookie season is six years).17 The average NBA career length is

4.8 years and the average MLB career length is 5.6 years.18

Former New York Giant Michael Strahan may be known as a Super Bowl champion and one of the best defensive ends in NFL history, but his fame increased significantly when he delivered his memorable phrase “Stomp You Out.” What initially began as a pre-game ritual

15 J. GORDON HYLTON, THE OVER-PROTECTION OF INTELLECTUAL PROPERTY RIGHTS IN SPORT (2010), available at http://shiac.com/files/arablexsportiva-presentations/004003.pdf. 16 Katie Thomas, Sports Stars Seek Profit in Catchphrases, N.Y. TIMES, Dec. 9, 2010, at A1, available at http://www.nytimes.com/2010/12/10/sports/10trademark.html. 17 What is Average NFL Player’s Career Length? Longer than you might think, Commissioner Goodell says, NFL COMM. BLOG (Apr. 18, 2011), http://nflcommunications.com/2011/04/18/what-is-average-nfl-player%E2%80%99s- career-length-longer-than-you-might-think-commissioner-goodell-says/. 18 Adam Beasley, At the Buzzer: An NBA Settlement, MIAMI HERALD (Nov. 27, 2011), http://www.miamiherald.com/2011/11/27/v-fullstory/2518717/the-nba-lockout-playing-chicken.html.

171 PACE I.P., SPORTS & ENTERTAINMENT LAW FORUM between Strahan and his teammates, ‘Stomp You Out’, referring to “stomping out” Tom Brady and the New England Patriots in Super Bowl XLII, came to fame in his legendary Super Bowl

Parade speech in New York City. Strahan filed for trademark protection of the phrase19 on May

27, 2008, and on June 9, 2008 (12 days after his filing date), Strahan officially retired from the

NFL. Strahan’s trademark is a clear illustration of a superstar athlete relying on trademark law, in order to profit from his athletic fame, post-retirement.

On January 7, 2010, New York Jets defensive back Darrelle Revis filed for federal trademark protection. Revis is best known for shutting down the opponent’s best receiver and is regarded as one of the very elite defensive players in the NFL. Playing defensive back against the fastest and most talented offensive players in the world is no easy task, but Revis has excelled since the first snap of his career. In the 2008 season, Jets head coach Rex Ryan referred to his star as “Revis Island” in a press conference. Essentially, ‘Revis Island’ means that Revis will guard the best player on the opposing team, in man-to-man coverage. ‘Revis Island’ is one of the catchier phrases emanating from recent professional sports, and the trademark gives protection to its use on: T-shirts, sweatshirts, sweatpants, hats, footwear, sleepwear and swimwear. Trademark licensing allows Revis, the owner of ‘Revis Island’, to license his mark to retailers, manufacturers, and sports stores, with a percentage of a royalty rate, determined and fixed in the Licensing Agreement, going directly to Revis.

In addition to the athletes mentioned above, there are many others that have filed for federal trademark protection. Terrell Owens currently has three live trademarks: (1) ‘Getcha

Popcorn Ready’ which is a catchphrase; (2) ‘ T.O.’ which is his nickname; and (3) ‘I love me some me’ another catchphrase. Jared Allen, current Pro-Bowl Defensive End for the Minnesota

19 The phrase primarily protect clothing, mainly men’s and women’s sportswear.

172 FOR THE LOVE OF THE NAME

Vikings, has a live and registered federal trademark, ‘Got Strange’. New York Yankees shortstop Derek Jeter has a federally protected mark ‘Turn 2,’ which can be used on all sorts of baseball–related attire.

Lance Armstrong owns potentially the most well-known and lucrative trademark.

Armstrong’s ‘LIVESTRONG’ mark is universally known and owned by his company, the Lance

Armstrong Foundation. Armstrong’s foundation is the owner of the LIVESTRONG trademark for wristbands and fundraising. The LIVESTRONG mark was first used in interstate commerce in December of 2003 and, Armstrong’s foundation secured a federal trademark registration on

January 31, 2006. Armstrong’s foundation has fifteen registered or pending trademark applications, primarily in the jewelry class and fundraising class.20

B. Business Endeavors

Not only do many athletes seek trademark protection for their names, nicknames and particular catchphrases but numerous athletes also seek trademark protection for their wide- ranging business endeavors. Earlier this year, NBA All-star Kevin Garnett filed for federal trademark protection of the name ‘Holla Energy’. Unlike Revis and Strahan, Garnett’s trademark ‘Holla Energy’ refers to a business endeavor that is not a nickname, slogan or catchphrase related to Garnett as an athlete. The ‘Holla Energy’ trademark is filed in the category of light beverage products and the description provided to the USPTO is “energy drinks, sports drinks, and soft drinks.” New York Knicks power forward Amare Stoudemire has also filed for trademark protection of several business endeavors. This year, Mr. Stoudemire

20 Tamara H. Bennett, Livestrong: Barking up the Trademark Tree, I.P. & ENT. L. BLOG (Sept. 14, 2007), http://ipandentertainmentlaw.wordpress.com/2007/09/14/livestrong-barking-up-the-trademark-tree/.

173 PACE I.P., SPORTS & ENTERTAINMENT LAW FORUM filed for ‘Stoudemire’s Downtown’ and ‘Stoudemires’, which is listed as a restaurant and bar service.

It is worth noting, for those athletes attempting to register a trademark, they should understand that the use of such mark must be continuous. Jonathan Goins, a Partner at the

Atlanta law firm, Gonzales Saggio & Harlan states that, “Often athletes have a name associated with a new business idea or venture that is short-term, which may defeat the purpose of trademark protection given that securing and maintaining its registration requires continuous use.” Mr. Goins has a breadth of experience in the intellectual property practice areas of trademark, copyright and trade secret. Recently, he secured federal registration for the trademark

‘Wilfork U Up’ on behalf of NFL defensive tackle Vincent Wilfork of the New England Patriots.

C. Trademark Licensing

A trademark owner can license a trademark for use in connection to goods and services in different fields of use and geographical markets, as long as the trademark is in use and under quality control by the trademark holder.21 Trademark licenses can last as long as the parties to the license agreement wish and as long as there is no abandonment of the trademark.22

Trademark licensing allows the licensor to share their mark with a licensee, typically to arouse the sale of ordinary goods such as t-shirts and hats. When a trademark owner licenses their intellectual property, it is critical that a detailed and extensive licensing agreement is prepared.

The licensor has many options on how to protect, profit, and control their mark. The licensor can

21 DANIELLE M. CONWAY, ROBERT W. GOMULKIEWICZ, & XUAN-THAO NGUYEN, LICENSING INTELLECTUAL nd PROPERTY: LAW AND APPLICATION 140 (Wolters Kluwer, 2 ed. 2011) 22 Id.

174 FOR THE LOVE OF THE NAME choose between an exclusive license23 and a non-exclusive license.24 Additionally, a ‘quality control’ provision is a vital and indispensable feature, distinctive to trademark licensing. The licensor must control the nature and quality of goods or services sold under its trademark. The protected interests are those of the consumer. The quality and nature of the licensed goods or services must be the same as they were before the licensing agreement.

III. Third Down: If Winning Isn’t Everything, Why Do They Keep Score

- Vince Lombardi

Athletes seeking to secure trademark protection for their intellectual properties are often met with legal hurdles and obstacles. As Glenn Wong noted, “As a result of the growth in the use of sports trademarks, there has been an increasing amount of litigation in this area with the guidelines governing the use of sports trademarks still being established in the courts.”25

Perhaps the most well known legal battle surrounding trademark protection involves NFL quarterback, Vince Young. In December 2008, Vince Young filed a lawsuit against Rodney

Vannerson, Tom Roberson and former Major League baseball player Enos Cabell, who had filed an intent-to-use trademark application with the USPTO, for the right to use the marks ‘VY’26 and

‘Invinceable’.27 Although the defendants had yet to sell merchandise containing these marks, they had “contacted several manufacturers” and “produced samples of various products for use

23 Exclusive license is where the licensor grants licensee the right to use the mark in connection with certain goods/services in a particular region and no other licensees may receive rights for same goods/services in that region. 24 Non-exclusive license is where licensee is not the only party that may use the mark in connection with goods/services in a particular region. 25 Glenn M. Wong, Recent Trademark Law Cases Involving Professional and Intercollegiate Sports, 87 Det. C.L. Rev. 87 (1986). 26 See, e.g., Darren Heitner, Tennessee Titans, VINCESANITY (Dec. 23, 2008), http://bleacherreport.com/articles/96340-vincesanity (“VY was a nickname he grew up with as a child.”). 27 See id. (“Young got his nickname ‘Invinceable’ after winning the Rose Bowl almost singlehandedly in 2006.”).

175 PACE I.P., SPORTS & ENTERTAINMENT LAW FORUM with the ‘VY’ and ‘Invinceable’ marks.”28 Also, Young alleged that defendants had

“approached organizations to develop marketing strategies” as well as “tested the market with several different types of products using the mark.”29

According to the lawsuit, Young alleged that defendants filed the intent-to-use applications for the purpose of creating a false connection with Young and interfering with his proprietary right to use the ‘VY’ and ‘Invinceable’ marks. Young further alleged that defendants violated the Lanham Act by failing to obtain Young’s consent before registering a trademark that consisted of a “name, portrait, or signature identifying a particular living individual.”30 After five years of disputing the matter, the case was settled, and Vince Young presently owns the trademark, ‘VY’31 and ‘Invinceable’.32

Trademark infringement cases are not confined to the sport of football. In January 2010,

Shaquille O’Neal’s company, Mine O’ Mine, filed a lawsuit against Michael Calmese for opening an online store called ‘Shaqtus Orange Clothing Co.’ and for selling ‘Shaqtus’ apparel and collectibles. Calmese’s store featured an animated character in the form of a cactus with the facial features of O’Neal wearing an orange basketball jersey, bearing the name Phoenix Shaqtus and the number 32.33 The website offered Shaqtus products such as: adult and kids apparel, hats, bags, pillows, journals and more. During his tenure with the Phoenix Suns, the public dubbed

O’Neal ‘The Big Cactus’ and ‘The Big Shaqtus’ in reference to the combination of O’Neal and the cacti that are prevalent in Phoenix, Arizona. In his suit, O’Neal brought the following claims against Calmese: trademark infringement, unfair competition, trademark dilution, cybersquatting

28 Young v. Vannerson, 612 F. Supp. 2d 829 at 836 (S.D. Tex. 2009). 29 Id. 30 Id. 31 Classified for use on clothing items (e.g. hats, jackets, dresses, blouses, shirts and sportswear). 32 Classified for use in entertainment in the nature of football competitions and entertainment services, personal appearances by a sports celebrity. 33 Mine O'Mine, Inc. v. Calmese, No. 2:10-CV-00043-KJD, 2011 WL 2728390, at *1 (D. Nev. July 12, 2011). 33 Id. at 2.

176 FOR THE LOVE OF THE NAME and violation of the right of publicity.34 O’Neal claimed that the Shaqtus mark contained the

Shaq mark in its entirety and Calmese was using the mark in connection with goods covered by

O’Neal’s trademark rights.

In the October 2011 ruling, Judge Kent Dawson found Calmese guilty of trademark infringement and unfair competition. He issued an injunction barring Calmese from using the

‘Shaqtus’ mark and the website domain names shaqtus.com, shaqtus.net, and any other marks or domain names confusingly similar to any of the Shaq trademarks.35 No financial damages were awarded. The judge opined that there was a likelihood of confusion among consumers as to the origin of t-shirts sold by both O’Neal’s company and Calmese’s firm.36 According to the court order, “both Shaqtus and the Shaq mark begin with the same four letters and therefore when consumers read and hear the two terms, Shaqtus and Shaq, they see and hear words that are similar in sight and sound.”37 Further, since Shaq and Shaqtus have both been used to refer to

O’Neal, the marks are similar in meaning. It should be noted that O’Neal’s company, Mine O’

Mine, owns numerous trademark registrations in the United States and abroad, including such marks as: ‘Shaq’n up with Hoopz,’ ‘Shaqtacular,’ ‘Shaq Attaq’ and ‘Dunkman.’

IV. Fourth Down: The Future of Federal Trademark Protection for Athletes

34 Id. 35 Id. at 6. 36 Id. 37 J. GORDON HYLTON, THE OVER-PROTECTION OF INTELLECTUAL PROPERTY RIGHTS IN SPORT (2010), available at http://shiac.com/files/arablexsportiva-presentations/004003.pdf.

177 PACE I.P., SPORTS & ENTERTAINMENT LAW FORUM

As Professor J. Gordon Hylton aptly noted, “In the modern era, intellectual property rights have become a major source of revenue for the sports industry.”38 The National Football

League Properties (“NFLP”) receives millions of dollars in revenues each year as a result of the sale of sportswear, athletic equipment and other gift items bearing the trademarks of the NFL and its member teams. For example, fans quickly recognize the aqua-colored dolphin jumping through the bright orange sun ring as the logo for the Miami Dolphins football club. The

Dolphin’s trademark, the logos of the other thirty-one NFL teams, and sometimes those identifying the NFL itself, are licensed to hundreds of manufacturers. These companies produce over 400 NFL promotional items and goods.39

What does the future hold for professional athletes seeking trademark law? Many within the legal community expect a continuing rise in the number of athletes seeking federal trademark protection. According to attorney Jonathan Goins, “We will continue to see an increase in trademark applications and trademark litigation by athletes.”40 He further states that “The unsettled, unregulated nature or use of the Internet and advancements in technologies for social media platforms will continue to make it difficult for athletes to control their image and prevent commercial exploitation, unauthorized, or infringing use. The increase in monetization of sports as an industry, including additional revenue streams of media-driven television shows based on persons’ affiliations with players, will continue to drive the athlete’s desire for greater trademark protection and controlling the use and image of any trademark associated therewith.”41 Chris

Cabott agrees, stating that, “there will certainly be an increase as the ability to create merchandise that can be trademarked and sold directly to a social media following increases.”

38 E-mail from Jonathon Goins, Senior Editor, The Trademark Reporter, to author (Nov. 27, 2011) (on file with author). 39 Id. 40 Id. 41 Id.

178 FOR THE LOVE OF THE NAME

According to Cabbott, “There has never been a better time for direct to consumer sales than

Twitter and website provide.”42 Given the upsurge in professional athletes seeking trademark protection, the future looks bright for post-retirements athletes, but what can be done to ensure that?

Moving forward, it is imperative for sports agents and attorneys representing athletes to ensure that their clients are aware of their intellectual property rights, in particular and specifically trademark rights. Ideally, all professional athletes should have a basic, rudimentary understanding of trademark law. Trademarks can provide an enormous source of income for athletes during their professional career and long after retirement. As Cabott notes, “The average career span of an athlete is short as compared to non-athletes. In view of this shortened span that is not immune from the ever-expanding cost of living, it is important that athletes be able to transition to off-the-field careers that offer consistent income streams, while adjusting to life after the field, court, ice or diamond. Building brands as an athlete and learning to leverage those brands early will help ease the transition.”43 However, agents and attorneys should not bear all the responsibility. Professional organizations such as the National Football League

Players Association, should work to educate and inform their players about the intricacies of trademark law as well. Jonathan Goins recommends, “All major professional league players associations should offer an instructional course to first-year players on intellectual property rights.”44 Attorney Cabott agrees, stating, “Similar to what the NFL does with its broadcasting boot camp, all leagues should offer courses to their athletes that address branding, social media,

42 E-mail from Christopher Cabbott, Adjunct Law Professor, Temple University School of Law, to author (Jan. 17, 2012) (on file with author). 43 Id. 44 Daniel Miller, Locked-Out NBA Stars Explore Hollywood, THE HOLLYWOOD REPORTER (Oct. 23, 2011), http://www.hollywoodreporter.com/news/locked-nba-stars-explore-hollywood-252274.

179 PACE I.P., SPORTS & ENTERTAINMENT LAW FORUM merchandising, monetization of the foregoing and the laws that protect such exploitation.”45

Although this article exclusively focuses on trademark law, it should be noted that attorneys and agents should also make a concerted effort to educate and inform athlete clients about all the legal tools available to them for protection of their intellectual properties – ranging from copyright to patent law.

V. Touchdown

In an October 23, 2011 article entitled, Locked-Out NBA Stars Explore Hollywood,46 The

Hollywood Reporter discussed players’ pursuits outside the confines of professional basketball.

The article mentioned Philadelphia 76-ers forward Elton Brand and Cleveland Cavalier Baron

Davis producing films. The article noted that “such deals [referring to the then existing NBA

Lockout] aren’t just about cashing a paycheck” but as Jeff Marks of Premier Partnerships47 said,

“The projects are just as important for developing athletes’ brands as well.”48

The professional athletes of the past are not the professional athletes of the present. With their own reality shows, web series, clothing brands and restaurants, it is now more important than ever for professional athletes to legally protect their intellectual property rights. The recent

NFL and NBA lockouts have given players ample time to consider alternative sources of capital, as well as outside ventures. Professional athletes deserve a heightened awareness of their intellectual property rights and need a better understanding of what the law has to offer, so that the relationship between trademark law and sports can continue to grow and effectively co-exist.

45 E-mail from Christopher Cabbott, Adjunct Law Professor, Temple University School of Law, to author (Jan. 17, 2012) (on file with author). 46 Premier Partnerships is a sports business consultancy firm. 47 Daniel Miller, Locked-Out NBA Stars Explore Hollywood, THE HOLLYWOOD REPORTER (Oct. 23 20122, 12:17 PM), http://www.hollywoodreporter.com/news/locked-nba-stars-explore-hollywood-252274. 46 Id.

180 Inspiration vs. Copying: Where’s the Line in Hollywood? By Amanda G. Ciccatelli July 7, 2017

When it comes to television shows, it not always clear what is “copyrightable.” Sometimes, filmmakers and screen can get into serious trouble if they don’t follow specific television copyright laws accordingly. Austin-based filmmaker Lex Lybrand watched the June 4th episode of the hit HBO series “Silicon Valley” to shockingly find strong similarities between the episode “The Patent Troll” and his own film “The Trolls.”

“The Trolls” tells the story of a Texas-based start-up that loses everything to a patent troll. In the “Silicon Valley” episode, the app created by the main characters is threatened by a patent troll. The “Silicon Valley” episode in question was written by Andrew Law, who has written for several other shows including Late Night with Seth Meyer, according to IMDB.

Lybrand wrote “The Trolls” in 2014, shot it in 2015 and premiered it in Austin in March 2016. According to him, the indie film is not unknown to HBO – in fact, he had conversations with them a couple of years ago about the film. KVUE reported that although Lybrand has yet to take legal action, he said his film was funded by an intellectual property law firm Cesari & Reed LLP.

Jed Wakefield of Fenwick & West recently sat down with IPWatchdog to discuss Lybrand’s case and the impact of copyright infringement when it comes to movie scripts. Wakefield focuses his practice on IP litigation, with an emphasis on trademark, copyright, trade secret and right of publicity matters, as well as licensing, technology transfers, and other commercial disputes. He also represents technology companies in advertising, privacy, unfair competition and other consumer related issues.

There are many legal implications of copyright infringement in the gaming, movie and television industry – the gaming, movie, and television industries depend on copyright for protection.

“Writers – particularly of commercially successful works – often face copyright infringement claims, but a lot of these cases fail,” he said.

Blockbuster movies tend to draw lots of lawsuits, many of which fail. For instance, there have been numerous unsuccessful lawsuits against James Cameron by individuals claiming that his science fiction films – including Avatar and the Terminator films – infringed their copyrights, according to Wakefield. Sometimes the lawsuits involved multiple people claiming that they that the same film infringed their different works. These cases have generally been unsuccessful, and courts have awarded Cameron his attorneys’ fees.

“The MPAA often advocates for stronger copyright laws and ever-increasing damages, particularly when it comes to intermediary liability,” he explained. “But companies and individuals operating in these industries also find themselves on the receiving end of copyright lawsuits in these sorts of alleged plagiarism cases, where the risk of high damages awards can force parties to settle even dubious claims.”

The side by side comparison that the filmmakers prepared to show supposed infringement is entirely unpersuasive, according to Wakefield. He represents real Silicon Valley technology startups in litigation all the time, and the fact pattern that these two stories present (a tech company getting a letter from a patent troll, consulting counsel, etc.) plays out very often in Silicon Valley.

“These plot elements strike me as wholly unoriginal. Even the use of the term ‘troll the trolls’ does not seem to be original to this filmmaker, either,” he said.

So, how can film writers protect themselves from copyright infringement?

Wakefield advises that authors keep records and notes of independent authorship, and they should register their works. He added, “Any author asked to review someone else’s script or treatment should think twice before doing so, and should return unread materials. Individuals and businesses should not enter into nondisclosure agreements without a good reason for doing so.”

“Many Hollywood movies take their inspiration from other movies or works—or go even further—without running afoul of the Copyright Act,” he explained. “Copyright law does not protect scenes or plot elements that are common to a genre.”

For example, in Walker v. Time Life Films, Inc., an author claimed that the film “Fort Apache, The Bronx” infringed the copyright in a book. Both the book and the film begin with the murder of a black and a white policeman with a gun at close range; both depict cockfights, drunks, stripped cars, prostitutes and rats; both feature as central characters third- or fourth-generation Irish policemen who live in Queens and frequently drink; both show disgruntled officers and unsuccessful foot chases of criminals. The court found that these similarities did not support an infringement claim because they related to uncopyrightable material.

Wakefield said, “There isn’t always a clear difference between using something as inspiration vs. copying it. The line is not always clear, but generally ideas are not copyrightable–only original expression is.”

181 Protecting IP Rights in the Sports and Entertainment Industries Policing IP and Reputational Rights on Social Media, Structuring Sponsorships and Endorsements, Negotiating Licensing Deals

TUESDAY, JUNE 20, 2017

Today’s faculty features:

Thomas M. Dunlap, Partner, Dunlap Bennett & Ludwig, Vienna, Va.

Michael D. (Mike) Hobbs, Jr., Partner, Troutman Sanders, Atlanta

Michael D. Steger, Founder, Law Offices of Michael D. Steger, New York

Jaia Thomas, Founder, The Law Office of Jaia Thomas, Los Angeles

182 Hart v. Electronic Arts, Inc., 717 F.3d 141 (2013) 107 U.S.P.Q.2d 1001, 41 Media L. Rep. 1985 [4] photograph of player in game's montage was shielded by First Amendment. 717 F.3d 141 United States Court of Appeals, Third Circuit. Reversed and remanded.

Ryan HART, individually and on Ambro, Circuit Judge, dissented and filed opinion. behalf of all others similarly situated v. ELECTRONIC ARTS, INC., a Attorneys and Law Firms Delaware Corporation; Does 1–50. *144 Michael Rubin, Esq. [argued] Altshuler, Berzon, Ryan Hart, Appellant. Nussbaum & Rubin, San Francisco, CA, Timothy J. No. 11–3750. McIlwain, Esq. McIlwain & Mullen, Hoboken, NJ, Keith | A. McKenna, Esq., Montclair, NJ, for Appellant. Ryan Argued: Sept. 19, 2012. Hart. | Elizabeth A. McNamara, Esq., [argued], Davis, Wright Opinion Filed: May 21, 2013. & Tremaine, New York, NY, Bruce S. Rosen, Esq. Synopsis McCusker, Anselmi, Rosen & Carvelli, Florham Park, Background: Former college football player brought NJ, for Appellee Electronic Arts, Inc. putative class action in New Jersey state court against P. Casey Pitts, Esq., Michael Rubin, Esq., Altshuler, developer, alleging misappropriation of Berzon, Nussbaum & Rubin, San Francisco, CA, for likeness and identity of player and others similarly Major League Baseball Players Association, Major situated for commercial purpose in connection with League Soccer Players Union, NFL Players Association, several college football-related games. Developer removed NHL Players Association, and National Basketball action. The United States District Court for the District Players Association, Amici Appellant. of New Jersey, Freda L. Wolfson, J., 808 F.Supp.2d 757, granted developer's motion for summary judgment. Player Duncan W. Crabtree–Ireland, Esq., Screen Actors Guild, appealed. Los Angeles, CA, for Screen Actors Guild, Inc., American Federation of Television and Radio Artists, AFL–CIO, and Luminary Group LLC, Amici Appellant. Holdings: The Court of Appeals, Greenaway, Jr., Circuit Nathan E. Siegel, Esq., Levine, Sullivan, Koch & Schulz, Judge, held that: Washington, DC, for Advance Publications, Inc., A & E Television Networks, Inc., Activision Blizzard, Inc., [1] transformative use test was proper analytical Bloomberg News, Capcom U.S.A., Inc., Comic Book framework in this case; Legal Defense Fund, Daily News, L.P., Dow Jones Local Media Group, ESPN, Inc., First Amendment [2] manner in which player's identity was incorporated Coalition, Forbes, Inc., Freedom Communications, Inc., and transformed in game provided little support for Gannett Co., Inc., Gawker Media, Hybrid Films, Inc., developer's argument; The McClatchy Company, National Public Radion, Inc., The New York Times Co., North Jersey Media [3] extent to which game players could alter digital Group Inc., Pennsylvania Newspaper Association, Press– avatars did not satisfy transformative use test in favor of Enterprise Company, The Radio Television Digital News developer; and Association, Reporters Committee for Freedom of the Press, Square–Enix, Inc., Take–Two Interactive Software,

183 Hart v. Electronic Arts, Inc., 717 F.3d 141 (2013) 107 U.S.P.Q.2d 1001, 41 Media L. Rep. 1985 Inc., THQ, Inc., The Washington Post Co., and Wenner I Manual § 12.01.1 (2011) (“Only an amateur student- Media, Amici Appellee. athlete is eligible for inter-collegiate athletics participation in a particular sport.”). In relevant part, these rules state Douglas E. Mirell, Esq., Eric B. Schwartz, Esq., Loeb & that a collegiate athlete loses his or her “amateur” status Loeb, Los Angeles, CA, Motion Picture Association of if (1) the athlete “[u]ses his or her athletics skill (directly America, Inc., Amicus Appellee. or indirectly) for pay in any form in that sport,” id. § 12.1.2, or (2) the athlete “[a]ccepts any remuneration Julie A. Ahrens, Esq. Stanford Law School Stanford, or permits the use of his or her name or picture to CA, for the Organization for Transformative Works, advertise, recommend or promote directly the sale or International Documentary Association, International use of a commercial product or service of any kind,” Documentary Association, Digital Media Law Project, 2 Irene Calboli, Danielle M. *145 Conway, Jon M. Garon, id. § 12.5.2.1. In comporting with these bylaws, Hart Deborah R. Gerhardt, Greg Lastowka, Mark A. Lemley, purportedly refrained from seizing on various commercial Yvette Joy Liebesman, Phillip R. Malone, Jason M. opportunities. 3 On the field, Hart excelled. At 6′2′, Schultz, Jessica Silbey, Amici Appellee. weighing 197 pounds, and typically wearing a visor and armband on his left wrist, Hart amassed an impressive Before: AMBRO, GREENAWAY, JR., and list of achievements as the Scarlet Knights' starting * TASHIMA , Circuit Judges. quarterback. As of this writing, Hart still holds the Scarlet Knights' records for career attempts, completions, and *146 interceptions. 4 Hart's skill brought success to the OPINION team and during his senior year the Knights were invited to the Insight Bowl, their first Bowl game since 1978. GREENAWAY, JR., Circuit Judge. Hart's participation in college football also ensured his In 2009, Appellant Ryan Hart (“Appellant” or “Hart”) 1 inclusion in EA's successful NCAA Football videogame brought suit against Appellee Electronic Arts, Inc. franchise. EA, founded in 1982, is “one of the world's (“Appellee” or “EA”) for allegedly violating his right of leading interactive entertainment software companies,” publicity as recognized under New Jersey law. Specifically, and “develops, publishes, and distributes interactive Appellant's claims stemmed from Appellee's alleged use software worldwide” for consoles, cell phones, and of his likeness and biographical information in its NCAA PCs. (App. at 529–30.) EA's catalogue includes NCAA Football series of videogames. The District Court granted Football, the videogame series at issue in the instant case. summary judgment in favor of Appellee on the ground The first edition of the game was released in 1993 as that its use of Appellant's likeness was protected by the Bill Walsh College Football. EA subsequently changed the First Amendment. For the reasons set forth below, we will name first to College Football USA (in 1995), and then reverse the grant of summary judgment and remand the to the current NCAA Football (in 1997). New editions case back to the District Court for further proceedings. in the series are released annually, and “allow[ ] users to experience the excitement and challenge of college football” by interacting with “over 100 virtual teams and I. Facts thousands of virtual players.” (Id. at 530.)

Hart was a quarterback, player number 13, with the A typical play session allows users the choice of two teams. Rutgers University NCAA Men's Division I Football “Once a user chooses two college teams to compete against team for the 2002 through 2005 seasons. As a condition each other, the video game assigns a stadium for the of participating in college-level sports, Hart was required match-up and populates it with players, coaches, referees, to adhere to the National Collegiate Athletic Association's mascots, cheerleaders and fans.” 5 (Id.) In addition to this (“NCAA”) amateurism rules as set out in Article 12 of the “basic single-game format,” EA has introduced a number NCAA bylaws. See, e.g., NCAA, 2011–12 NCAA Division of additional game modes that allow for “multi-game”

184 Hart v. Electronic Arts, Inc., 717 F.3d 141 (2013) 107 U.S.P.Q.2d 1001, 41 Media L. Rep. 1985 play. (Id. at 530–31.) Thus, with the release of NCAA Rutgers University's Bowl Game against Arizona State Football 98, EA introduced the “Dynasty Mode,” which University.” 9 (App. at 370.) allows users to “control[ ] a college program for up to thirty seasons,” including “year-round responsibilities of a On November 12, 2010, Appellee filed a motion to dismiss college coach such as recruiting virtual high school players the claim pursuant to Federal Rule of out of a random-generated pool of athletes.” (Id. at 531.) 12(b)(6) or, in the alternative, summary judgment Later, in NCAA Football 2006, EA introduced the “Race pursuant to Federal Rule of Civil Procedure 56(c). While for the Heisman” (later renamed “Campus Legend”), conceding, for purposes of the motion only, that it had which allows users to “control a single [user-made] virtual violated Appellant's right of publicity, Appellee argued player from high school through his collegiate career, that it was entitled to dismissal or summary judgment making his or her own choices regarding practices, on First Amendment grounds. Hart v. Elec. Arts, Inc., academics and social activities.” (Id. at 531–32.) 808 F.Supp.2d 757, 766 (D.N.J.2011). The motion was accompanied by a Statement of Undisputed Fact and In no small part, the NCAA Football franchise's success various supporting materials, including declarations. owes to its focus on realism and detail—from realistic Appellant opposed the motion, arguing that “discovery sounds, to game mechanics, to team mascots. 6 This focus [was] still in it's [sic] infancy.” (App. at 9.) The court below on realism also ensures that the “over 100 virtual teams” rejected this argument, noting that Appellant had “fail[ed] in the game are populated by digital avatars that resemble to identify how discovery would assist the Court in their real-life counterparts and share their vital and deciding this speech-based tort case.” Hart, 808 F.Supp.2d biographical information. Thus, for example, in NCAA at 764. The District Court then construed the motion as Football 2006, Rutgers' quarterback, player number 13, one for summary judgment, citing its intent to “rely on the is 6′2′ tall, weighs 197 pounds and resembles Hart. affidavits and exhibits submitted by the parties,” id., and Moreover, while users can change the digital avatar's ruled in favor of Appellee, holding that NCAA Football appearance and most of the vital statistics (height, weight, was entitled to protection under the First Amendment. throwing distance, etc.), certain details remain immutable: Appellant timely appealed, arguing that the District Court the player's home state, home town, team, and class year. erred in granting summary judgment prematurely and, in the alternative, erred in holding that NCAA Football Appellant filed suit against EA in state court for, was shielded from right of publicity claims by the First among other things, violation of *147 his right of Amendment. The matter is now before us for review. publicity. Appellant's first amended complaint, filed in October 2009, alleged that Appellee violated his right of publicity by appropriating his likeness for use II. Jurisdiction and Standard of Review in the NCAA Football series of videogames. Appellee subsequently removed the action to federal court, and [1] We have jurisdiction to hear this appeal pursuant to the District Court subsequently dismissed all but one of 28 U.S.C. § 1291. Our review of the District Court's order the claims. 7 Thereafter, on October 12, 2010, Appellant granting summary judgment is plenary. Azur v. Chase filed his second amended complaint, again alleging Bank, USA, Nat'l Ass'n, 601 F.3d 212, 216 (3d Cir.2010). a claim pursuant to the right of publicity based on “To that end, we are ‘required to apply the same test the Appellee's purported misappropriation of Appellant's district court should have utilized initially.’ ” Chambers ex identity and likeness to enhance the commercial value rel. Chambers v. Sch. *148 Dist. of Phila. Bd. of Educ., of NCAA Football. Specifically, Appellant alleges that 587 F.3d 176, 181 (3d Cir.2009) (quoting Oritani Sav. & (1) Appellee replicated his likeness in NCAA Football Loan Ass'n v. Fidelity & Deposit Co. of Md., 989 F.2d 635, 2004, 2005, and 2006 (complete with biographical and 637 (3d Cir.1993)). career statistics) 8 and that (2) Appellee used Appellant's image “in the promotion for [NCAA Football ] wherein [2] Summary judgment is appropriate “where the [Appellant] was throwing a pass with actual footage from pleadings, depositions, answers to interrogatories,

185 Hart v. Electronic Arts, Inc., 717 F.3d 141 (2013) 107 U.S.P.Q.2d 1001, 41 Media L. Rep. 1985 admissions, and affidavits show there is no genuine issue Ass'n, ––– U.S. ––––, 131 S.Ct. 2729, 2733, 180 L.Ed.2d of material fact and that the moving party is entitled 708 (2011). As the Supreme Court has noted, “video to judgment as a matter of law.” Azur, 601 F.3d at games communicate ideas—and even social messages— 216 (quoting Nicini v. Morra, 212 F.3d 798, 805–06 (3d through many familiar literary devices (such as characters, Cir.2000) (en banc) (citing Fed.R.Civ.P. 56(c))). 10 To dialogue, plot, and music) and through features distinctive be material, a fact must have the potential to alter the to the medium (such as the player's interaction with the outcome of the case. See Kaucher v. Cnty. of Bucks, 455 virtual world).” Id. As a result, games enjoy the full force F.3d 418, 423 (3d Cir.2006). “Once the moving party of First Amendment protections. As with other types of points to evidence demonstrating no issue of material fact expressive conduct, the protection afforded to games can exists, the non-moving party has the duty to set forth be limited in situations where the right of free expression specific facts showing that a genuine issue of material fact necessarily conflicts with other protected rights. exists and that a reasonable factfinder could rule in its favor.” Azur, 601 F.3d at 216. In determining whether [6] The instant case presents one such situation. Here, summary judgment is warranted “[t]he evidence of the Appellee concedes, for purposes of the motion and appeal, nonmovant is to be believed, and all justifiable inferences that it violated Appellant's right of publicity; in essence, are to be drawn in his favor.” Anderson v. Liberty Lobby, misappropriating his identity for *149 commercial Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 exploitation. (Appellant's Br. at 8, 34; Tr. at 50:12–:16.) (1986); see also Chambers ex rel. Chambers, 587 F.3d at However, Appellee contends that the First Amendment 181. “Further, [w]e may affirm the District Court on any shields it from liability for this violation because NCAA grounds supported by the record.” Kossler v. Crisanti, 564 Football is a protected work. To resolve the tension F.3d 181, 186 (3d Cir.2009) (en banc) (internal quotation between the First Amendment and the right of publicity, marks omitted). we must balance the interests underlying the right to free expression against the interests in protecting the right of [3] In connection with Appellant's request for additional publicity. See Zacchini v. Scripps–Howard Broad. Co., 433 discovery, we review “[w]hether a district court U.S. 562, 574–75, 97 S.Ct. 2849, 53 L.Ed.2d 965 (1977). 11 prematurely grant[ed] summary judgment ... for abuse of discretion.” Radich v. Goode, 886 F.2d 1391, 1393 (3d Courts have taken varying approaches in attempting to Cir.1989) (citing Dowling v. City of Phila., 855 F.2d 136 strike a balance between the competing interests in right (3d Cir.1988)). “To demonstrate an abuse of discretion, of publicity cases, some more appealing than others. In [an appellant] must show that the District Court's decision our discussion below, we first consider the nature of the was arbitrary, fanciful or clearly unreasonable.” Moyer interests we must balance and then analyze the different v. United Dominion Indus., Inc., 473 F.3d 532, 542 (3d approaches courts have taken to resolving the tension Cir.2007) (internal quotation marks omitted); see also between the First Amendment and the right of publicity. Hanover Potato Prods., Inc. v. Shalala, 989 F.2d 123, 127 (3d Cir.1993) (“An abuse of discretion arises when ‘the district court's decision rests upon a clearly erroneous A. The Relevant Interests at Issue finding of fact, an errant conclusion of law or an improper application of law to fact.” (internal quotation marks Before engaging with the different analytical schemes, we omitted)). first examine the relevant interests underlying the rights of free expression and publicity.

III. Discussion 1. Freedom of Expression [4] [5] We begin our analysis by noting the self- evident: video games are protected as expressive speech Freedom of expression is paramount in a democratic under the First Amendment. Brown v. Entm't Merchs. society, for “[i]t is the function of speech to free men from

186 Hart v. Electronic Arts, Inc., 717 F.3d 141 (2013) 107 U.S.P.Q.2d 1001, 41 Media L. Rep. 1985 the bondage of irrational fears.” Whitney v. California, have been held applicable to not only political speech, 274 U.S. 357, 376, 47 S.Ct. 641, 71 L.Ed. 1095 (1927) but to “entertainment [including, but certainly not limited (Brandeis, J., concurring). As Justice Louis Brandeis to,] motion pictures, programs broadcast *150 by radio wrote nearly a century ago: and television, and live entertainment, such as musical and dramatic works.” Tacynec v. City of Phila., 687 Those who won our independence F.2d 793, 796 (3d Cir.1982). Thus, “[t]he breadth of this believed that the final end of protection evinces recognition that freedom of expression the state was to make men free is not only essential to check tyranny and foster self- to develop their faculties.... They government but also intrinsic to individual liberty and valued liberty both as an end and dignity and instrumental in society's search for truth.” Dun as a means. They believed liberty & Bradstreet, Inc. v. Greenmoss Builders, Inc., 472 U.S. to [be] the secret of happiness 749, 787, 105 S.Ct. 2939, 86 L.Ed.2d 593 (1985) (Brennan, and courage to be the secret of J., dissenting). liberty. They believed that freedom to think as you will and to [7] The interest in safeguarding the integrity of these speak as you think are means protections therefore weighs heavily in any balancing indispensable to the discovery and inquiry. Still, instances can and do arise where First spread of political truth; that Amendment protections yield in the face of competing without free speech and assembly interests. See, e.g., Eldred v. Ashcroft, 537 U.S. 186, 219– discussion would be futile; that with 20, 123 S.Ct. 769, 154 L.Ed.2d 683 (2003) (discussing the them, discussion affords ordinarily interplay between copyright law and First Amendment adequate protection against the protections); Dun & Bradstreet, Inc., 472 U.S. at 757– dissemination of noxious doctrine; 61, 105 S.Ct. 2939 (determining that a state may allow that the greatest menace to recovery of damages in certain defamation cases after freedom is an inert people; that balancing “the State's interest in compensating private public discussion is a political individuals for injury to their reputation against the duty; and that this should be First Amendment interest in protecting this type of a fundamental principle of the expression”). Ultimately, we must determine whether the American government. interest in safeguarding the right of publicity overpowers the interest in safeguarding free expression. Id. at 375, 47 S.Ct. 641.

In keeping with Justice Brandeis' eloquent analysis, the great legal minds of generations past and present have 2. The Right of Publicity 12 recognized that free speech benefits both the individual and society. The Supreme Court in Procunier v. Martinez The right of publicity grew out of the noted that the protection of free speech serves the torts, specifically, from the tort of “invasion of privacy needs “of the human spirit—a spirit that demands by appropriation.” J. THOMAS MCCARTHY, THE self-expression,” adding that “[s]uch expression is an RIGHTS OF PUBLICITY AND PRIVACY § 1:23 (2d integral part of the development of ideas and a sense of ed. 2012). Thus, when New Jersey first recognized the identity.” 416 U.S. 396, 427, 94 S.Ct. 1800, 40 L.Ed.2d concept in 1907, its analysis looked to the “so-called right 224 (1974), overruled on other grounds by Thornburgh of privacy” and the limits on that concept. Edison v. v. Abbott, 490 U.S. 401, 109 S.Ct. 1874, 104 L.Ed.2d Edison Polyform Mfg. Co., 73 N.J.Eq. 136, 67 A. 392, 394 459 (1989). Suppressing such expression, therefore, is (N.J.Ch.1907) (enjoining a company from using the name tantamount to rejecting “the basic human desire for or likeness of Thomas Edison to promote its products). recognition and [would] affront the individual's worth Additionally, we note that, even at this early stage the and dignity.” Id. Indeed, First Amendment protections New Jersey court recognized that an individual enjoyed a

187 Hart v. Electronic Arts, Inc., 717 F.3d 141 (2013) 107 U.S.P.Q.2d 1001, 41 Media L. Rep. 1985 property interest in his or her identity. Id. (“[I]t is difficult a golf game); see also Canessa v. J.I. Kislak, Inc., 97 to understand why the peculiar cast of one's features is N.J.Super. 327, 235 A.2d 62, 76 (Law Div.1967) (“[T]he not ... one's property, and why its pecuniary value, if it reality of a case such as we have here is, in the court's has one, does not belong to its owner, rather than to the opinion, simply this: plaintiffs' names and likenesses person seeking to make an unauthorized use of it.”). belong to them. As such they are property. They are things of value.”). However, this early conceptualization had limitations, particularly when it came to protecting the property The current incarnation of the right of publicity in interests of celebrities and people already in the public New Jersey is that set forth in the RESTATEMENT eye. See id. (“It is certain that a man in public life may (SECOND) OF TORTS (1977). See, e.g., Bisbee v. John not claim the same immunity from publicity that a private C. Conover Agency, Inc., 186 N.J.Super. 335, 452 A.2d citizen may.”); see also MCCARTHY, supra, at § 1:25. 689, 690–91 (App.Div.1982) (looking to the Restatement Faced with this limitation on the legal doctrine, courts (Second) of Torts for the “four areas of invasion of began to recognize a “right of publicity,” which protected privacy,” including “appropriation of the other's name or publicly known persons from the misappropriation of likeness”); see also G.D. v. Kenny, 205 N.J. 275, 15 A.3d their identities. The first case to describe this protection 300, 311 (2011). According to the Restatement, “[o]ne who as a “right of publicity” was Haelan Labs., Inc. v. appropriates to his own use or benefit the name or likeness Topps Chewing Gum, Inc., 202 F.2d 866 (2d Cir.1953) of another is subject to liability to the other for invasion (concerning baseball cards in gum packages). There, the of privacy.” RESTATEMENT (SECOND) OF TORTS Second Circuit held that “in addition to and independent § 652 C. The comments also make clear that “the right of that right of privacy ..., a man has a right in the publicity created by [the rule in § 652 C] is in the nature of a property value of his photo *151 graph.... This right might be right.” Id. § 652 C cmt a. 13 called a ‘right of publicity.’ ” Id. at 868. New Jersey courts, which had long recognized a “right of privacy [and] a right [8] [9] New Jersey law therefore recognizes that “[t]he of property,” were not far behind in voicing their support right to exploit the value of [an individual's] notoriety or for this concept. Ettore v. Philco Television Broad. Corp., fame belongs to the individual with whom it is associated,” 229 F.2d 481, 491 (3d Cir.1956). for an individual's “name, likeness, and endorsement carry value and an unauthorized use harms the person In the seminal case of Palmer v. Schonhorn Enters., Inc., both by diluting the value of the name and depriving the Superior Court of New Jersey noted that that individual of compensation.” McFarland v. Miller, 14 F.3d 912, 919, 923 (3d Cir.1994). As such, the goal [p]erhaps the basic and underlying of maintaining a right of publicity is to protect the theory is that a person has property interest that an individual gains and enjoys in the right to enjoy the fruits his identity through his labor and effort. Additionally, of his own industry free from as with protections for intellectual property, the right of unjustified interference. It is unfair publicity is designed to encourage further development of that one should be permitted this property interest. Accord Zacchini, 433 U.S. at 573, to commercialize or exploit or 97 S.Ct. 2849 (“[T]he State's interest in permitting a ‘right capitalize upon another's name, of publicity’ ... is closely analogous to the goals of patent reputation or accomplishments and copyright law, focusing on the right of the individual merely because the owner's to reap the reward of his endeavors....”). accomplishments have been highly publicized. Since neither the New Jersey courts nor our own circuit 96 N.J.Super. 72, 232 A.2d 458, 462 (Ch.Div.1967) have set out a definitive methodology for balancing the (citations omitted) (finding an infringement of property tension between *152 the First Amendment and the rights where a golfer's name was used in connection with right of publicity, we are presented with a case of first

188 Hart v. Electronic Arts, Inc., 717 F.3d 141 (2013) 107 U.S.P.Q.2d 1001, 41 Media L. Rep. 1985 impression. We must therefore consult the approaches of of his act as long as [he] gets the commercial benefit of other courts in the first instance. such publication,” id. at 573, 97 S.Ct. 2849, the claim at issue in the Zacchini concerned “the strongest case for a ‘right of publicity,’ ” because it did not involve the “appropriation of an entertainer's reputation to enhance B. How Courts Balance the Interests the attractiveness of a commercial product,” but instead We begin our inquiry by looking at Zacchini v. Scripps– involved “the appropriation of the very activity by which Howard Broadcasting Co., the only Supreme Court case the entertainer acquired his reputation in the first place,” addressing the First Amendment in a right of publicity id. at 576, 97 S.Ct. 2849. context. In this case, the Court called for a balancing test to weigh the interest underlying the First Amendment Ultimately, the Court ruled in favor of the human against those underpinning the right of publicity. 433 cannonball, and held that U.S. at 574–75, 97 S.Ct. 2849. This decision sets the [w]herever the line in particular stage for our analysis of three systematized analytical situations is to be drawn between frameworks that have emerged as courts struggle with media reports that are protected and finding a standardized way for performing this balancing those that are not, we are quite inquiry. sure that the First and Fourteenth Amendments do not immunize the media when they broadcast a 1. Zacchini and the Need for Balance performer's entire act without his consent. The Constitution no more In Zacchini, an Ohio television news program recorded prevents a State from requiring and subsequently broadcast Mr. Hugo Zacchini's entire respondent to compensate petitioner “human cannonball” act from a local fair. The daredevil for broadcasting his act on television brought suit alleging a violation of his right of publicity than it would privilege respondent as recognized by Ohio law. Id. at 563–66, 97 S.Ct. 2849. to film and broadcast a copyrighted The Ohio courts held that Zacchini's claim was barred on dramatic work without liability to First Amendment grounds, and the case then came before the copyright owner. the Supreme Court. Id. at 574–75, 97 S.Ct. 2849. Thus, while the Court did not In setting out the interests at issue in the case, the Supreme itself engage in an explicit balancing inquiry, it did suggest Court noted (as we did above) that “the State's interest that the respective interests in a case should be balanced in permitting a ‘right of publicity’ is in protecting the against each other. proprietary interest of the individual in his act in part to encourage such entertainment.” Id. at 573, 97 S.Ct. In the wake of Zacchini, courts began applying a balancing 2849. This aspect of the right, the Court noted, was inquiry to resolve cases where a right of publicity “analogous to the goals of patent and copyright law,” claim collided *153 with First Amendment protections. given that they too serve to protect the individual's ability While early cases approached the analysis from an ad to “reap the reward of his endeavors.” Id. In Zacchini, hoc perspective, see, e.g., Guglielmi v. Spelling–Goldberg the performance was the “product of [Zacchini's] own Prods., 25 Cal.3d 860, 160 Cal.Rptr. 352, 603 P.2d 454 talents and energy, the end result of much time, effort (1979) (en banc), courts eventually began developing and expense.” Id. at 575, 97 S.Ct. 2849. Thus much of its standardized balancing frameworks. Consequently, we economic value lay “in the right of exclusive control over now turn our attention to more standardized balancing the publicity given to his performance.” Id. Indeed, while tests to see whether any of them offer a particularly the Court noted that “[a]n entertainer such as petitioner compelling methodology for resolving the case at hand usually has no objection to the widespread publication and similar disputes. 14

189 Hart v. Electronic Arts, Inc., 717 F.3d 141 (2013) 107 U.S.P.Q.2d 1001, 41 Media L. Rep. 1985 Id. The court instead applied what it called a “sort of predominant use test”:

2. The Modern Balancing Tests If a product is being sold that predominantly exploits the Following Zacchini, courts began developing more commercial value of an individual's systematized balancing tests for resolving conflicts identity, that product should be between the right of publicity and the First Amendment. held to violate the right of publicity Of these, three tests are of particular note: the and not be protected by the commercial-interest-based Predominant Use Test, the First Amendment, even if there is trademark-based Rogers Test, and the copyright-based some ‘expressive’ content in it that Transformative Use Test. The Rogers and Transformative might qualify as ‘speech’ in other Use tests are the most well-established, while the circumstances. If, on the other hand, Predominant Use Test is addressed below only because the predominant purpose of the Appellant argues in favor of its adoption. We consider product is to make an expressive each test in turn, looking at its origins, scope of comment on or about a celebrity, application, and possible limitations. For the reasons the expressive values could be given discussed below, we adopt the Transformative Use Test greater weight. as being the most appropriate balancing test to be applied here. Id. (quoting Mark S. Lee, Agents of Chaos: Judicial Confusion in Defining the Right of Publicity–Free Speech Interface, 23 LOY. L.A. ENT. L. REV.V. 471, 500 a. Predominant Use Test (2003)). The TCI court considered this to be a “more balanced balancing test [particularly for] cases where Appellant urges us to adopt the Predominant Use Test, speech is both expressive and commercial.” Id. After which first appeared in Doe v. TCI Cablevision, 110 applying the test, the court ruled for Twist, holding that S.W.3d 363 (Mo.2003) (en banc), a case that considered “the metaphorical reference to Twist, though a literary a hockey player's right of publicity claim against a device, has very little literary value compared to its comic book publishing company. In TCI, Anthony commercial value.” Id. “Tony” Twist, a hockey player, brought suit against a number of individuals and entities involved in producing We decline Appellant's invitation to adopt this test. By and publishing the Spawn comic book series after the our reading, the Predominant Use Test is subjective introduction of a villainous character named Anthony at best, arbitrary at worst, and in either case calls “Tony Twist” Twistelli. upon judges to act as both impartial jurists and discerning art critics. These two roles cannot co-exist. In balancing Twist's property interests in his own name Indeed, Appellant suggests that pursuant to this test and identity against the First Amendment interests of we must evaluate “what value [Appellee is] adding the comic book creators, the TCI court rejected both the to the First Amendment expressiveness [of NCAA Transformative Use and Rogers tests, noting that they Football ] by appropriating the commercially valuable gave “too little consideration to the fact that many uses likeness?” (Tr. at 14:15–:18.) Since “[t]he game would have of a person's name and identity have both expressive the exact same level of First Amendment expressiveness and commercial components.” Id. at 374. The Supreme if [Appellee] didn't appropriate Mr. Hart's likeness,” Court of Missouri considered both tests to be too rigid, Appellant urges us to find that NCAA Football fails the noting *154 that they operated “to preclude a cause of Predominant Use Test and therefore is not shielded by action whenever the use of the name and identity is in any the First Amendment. (Tr. at 7:10–12.) Such reasoning, way expressive, regardless of its commercial exploitation.” however, leads down a dangerous and rightly-shunned road: adopting Appellant's suggested analysis would be

190 Hart v. Electronic Arts, Inc., 717 F.3d 141 (2013) 107 U.S.P.Q.2d 1001, 41 Media L. Rep. 1985 tantamount to admitting that it is proper for courts In that case, Ginger Rogers brought suit against the to analyze select elements of a work to determine how producers and distributors of, Ginger and Fred, a film much they contribute to the entire work's expressiveness. that was alleged to infringe on Rogers' right of publicity Moreover, as a necessary (and insidious) consequence, the and confuse consumers in violation of the Act. (Despite Appellant's approach would suppose that there exists a its title, the film was not about either Ginger Rogers or broad range of seemingly expressive speech that has no Fred Astaire.) In analyzing the right of publicity claim First Amendment value. 15 under Oregon law, the Second Circuit noted Oregon's “concern for the protection of free expression,” and held Appellee rightly argues that the Predominant Use Test that Oregon would not “permit the right of publicity is antithetical to our First Amendment , (Tr. to bar the use of a celebrity's name in a movie title unless the title was wholly unrelated to the movie or at 25:2–:9), and we likewise reject the Test. 16 We was simply a disguised commercial advertisement for the instead turn our attention to the Rogers Test, which was sale of goods or services.” Id. at 1004 (internal quotation proposed by Appellee and which draws its inspiration 18 from trademark law. marks omitted). After applying this test, the Rogers court concluded that the right of publicity claim merited dismissal because “the title ‘Ginger and Fred’ is clearly related to the content of the movie and is not a disguised b. The Rogers Test advertisement for the sale of goods and services or a 19 The Rogers Test looks to the relationship between collateral commercial product.” Id. at 1004–05. the celebrity image and the work as a whole. 17 As But while the test, as articulated in Rogers, arguably the following discussion *155 demonstrates, however, applied only to the use of celebrity identity in a work's adopting this test would potentially immunize a broad title, Appellee suggests that the test can—and should—be swath of tortious activity. We therefore reject the Rogers applied more broadly. For support, Appellee looks to the Test as inapposite in the instant case. Restatement (Third) of Unfair Competition, released in 1995, which characterizes the tort as follows:

i. Origins and Scope of the Rogers Test *156 One who appropriates the commercial value of a person's Various commentators have noted that right of publicity identity by using without consent claims—at least those that address the use of a person's the person's name, likeness, or other name or image in an advertisement—are akin to indicia of identity for purposes trademark claims because in both instances courts must of trade is subject to liability for balance the interests in protecting the relevant property [appropriate relief]. right against the interest in free expression. See, e.g., ETW Corp. v. Jireh Publ'g, Inc., 332 F.3d 915, 924 (6th Cir.2003) RESTATEMENT (THIRD) OF UNFAIR (noting that “a Lanham Act false endorsement claim is COMPETITION § 46. In explaining the term “use for the federal equivalent of the right of publicity” (citing purposes of trade,” the Restatement notes that it does not Bruce P. Keller, The Right of Publicity: Past, Present, and “ordinarily include the use of a person's identity in news Future, 1207 PLI CORP. LAW & PRAC. HANDBOOK reporting, commentary, entertainment, works of fiction 159, 170 (2000))). It is little wonder, then, that the or nonfiction, or in advertising that is incidental to such inquiry championed by Appellee originated in a case that uses.” Id. § 47. also focused upon alleged violations of the trademark- specific Lanham Act. Rogers v. Grimaldi, 875 F.2d 994 (2d Moreover, the comments to Section 47 of the Restatement Cir.1989). also note that:

191 Hart v. Electronic Arts, Inc., 717 F.3d 141 (2013) 107 U.S.P.Q.2d 1001, 41 Media L. Rep. 1985 v. Wozencraft, 15 F.3d 432 (5th Cir.1994). We do not find [t]he right of publicity as recognized any of these cases particularly persuasive. by statute and common law is fundamentally constrained by the In Matthews, for example, the Fifth Circuit considered public and constitutional interest in whether a fictional novel incorporating events from the freedom of expression. The use life of an undercover narcotics officer violated the officer's of a person's identity primarily right of publicity. In setting out the legal standard for a for purpose of communicating right of publicity claim, the court noted that it made no information or expressing ideas difference “whether [the book] is viewed as an historical is not generally actionable as a or a fictional work, so long as it is not simply a disguised violation of the person's right of commercial advertisement for the sale of goods or publicity.... Thus the use of a services.” Matthews, 15 F.3d at 440 (quotation marks and person's name or likeness in news internal citations omitted). This single, cryptic quotation reporting, whether in newspapers, notwithstanding, the court ultimately held in favor of magazines, or broadcast news, the book's author after applying a wholly different—and does not infringe the right of seemingly inapposite—First Amendment analysis: actual publicity. The interest in freedom malice. 20 See id. (“[A]bsent a showing of actual malice ... of expression also extends to use [the book] is protected by the First Amendment.”). in entertainment and other creative works, including both fiction and *157 But where Matthews took an ambivalent position, nonfiction. The use of a celebrity's the Sixth Circuit seemed—at least for a short time—to name or photograph as part of embrace the Rogers Test. In Parks v. LaFace Records, an article published in a fan the Sixth Circuit was asked to determine whether a rap magazine or in a feature story song entitled Rosa Parks infringed on the Civil Rights broadcast on an entertainment icon's right of publicity. Parks, 329 F.3d at 441–42. After program, for example, will not noting that Rogers was decided in the context of a movie, infringe the celebrity's right of the Sixth Circuit held that an expansion of the test to publicity. Similarly, the right of “the context of other expressive works [was supported] publicity is not infringed by the by comment c of § 47 of the Restatement (Third) of dissemination of an unauthorized Unfair Competition.” Id. at 461. Consequently, the Sixth print or broadcast biography. Use of Circuit ruled that there was an issue of material fact as to another's identity in a novel, play, or whether the title of the song (“Rosa Parks”) was “wholly motion picture is also not ordinarily unrelated” to the lyrics. Id. We find Parks to be less than an infringement.... However, if the persuasive given that just over a month later another panel name or likeness is used solely to of the Sixth Circuit decided ETW Corp. v. Jireh Publishing, attract attention to a work that is Inc., a right of publicity case where the Circuit applied not related to the identified person, the Transformative Use Test. See 332 F.3d 915, 937 (6th the user may be subject to liability 21 for a use of the other's identity in Cir.2003). advertising. Interestingly, this is not the first time that we have Id. at § 47 cmt. c (emphasis added). Appellee argues that considered the proper scope of the Rogers Test. Indeed, the above language adopts the Rogers Test and applies we expressed doubt (albeit in dicta) over whether the Test it to right of publicity claims dealing with any part of a could apply beyond the title of a work in Facenda v. N.F.L. work, not only its title. Appellee also cites to a number of Films, Inc., 542 F.3d 1007 (3d Cir.2008), a case centering cases purportedly supporting its position. See, e.g., Parks on a suit by the estate of a well-known sports narrator v. LaFace Records, 329 F.3d 437 (6th Cir.2003); Matthews against a sports film production company for Lanham Act

192 Hart v. Electronic Arts, Inc., 717 F.3d 141 (2013) 107 U.S.P.Q.2d 1001, 41 Media L. Rep. 1985 violations and breach of the narrator's right of publicity. —when targeted at the sports-fan market segment. Given In analyzing the trademark claim, we expressed hesitation that Appellant played intercollegiate football, however, at extending the Rogers Test beyond the title of a work, products targeting the sports-fan market would, as a adding that few other courts had done so at the time of our matter of course, relate to him. Yet under Appellee's decision. Id. at 1018. Nothing in Appellee's argument has approach, all such uses would be protected. It cannot be swayed us from this position and we thus remain skeptical that the very activity by which Appellant achieved his that the Rogers Test applies to the general contents of a renown now prevents him from protecting his hard-won work when analyzing right of publicity claims. celebrity. We decline to endorse such a conclusion and therefore reject the Rogers test as inapplicable. 22

ii. Analysis of the Rogers Test [10] On the other hand, we do agree with the Rogers court in so far as it noted that the right of publicity Ultimately, we find that the Rogers Test does not present does not implicate the potential for consumer confusion the proper analytical approach for cases such as the one at and is therefore potentially broader than the protections bar. While the Test may have a use in trademark-like right offered by the Lanham Act. Rogers, 875 F.2d at 1004. of publicity cases, it is inapposite here. We are concerned Indeed, therein lies the weakness of comparing the right of that this test is a blunt instrument, unfit for widespread publicity to trademark protections: the right of publicity application in cases that require a carefully calibrated is broader and, by extension, protects a greater swath of balancing of two fundamental protections: the right of free property interests. Thus, it would be unwise for us to expression and the right to control, manage, and profit adopt a test that hews so closely to traditional trademark from one's own identity. principles. Instead, we need a broader, more nuanced test, which helps balance the interests at issue in cases such as The potential problem with applying the Rogers Test in the one at bar. The final test—the Transformative Use this case is demonstrated by the following statement from Test—provides just such an approach. Appellee's brief:

Because, as a former college football player, Hart's likeness is not ‘wholly c. The Transformative Use Test unrelated’ to NCAA Football and Looking to intellectual property law for guidance on the game is not a commercial how to balance property interests against the First advertisement for some unrelated Amendment has merit. We need only shift our gaze away product, Hart ... does not try to meet from trademark, to the broader vista of copyright law. the ... test. Thus, we come to the case of Comedy III Prods., Inc. (Appellee's Br. at 24.) Effectively, Appellee argues that v. Gary Saderup, Inc., which imported the concept of Appellant should be unable to assert a claim for “transformative” use from copyright law into the right of appropriating his likeness as a football player precisely publicity context. 25 Cal.4th 387, 106 Cal.Rptr.2d 126, 21 because his likeness was used for a game about football. P.3d 797, 804–08 (2001). This concept lies at the core of a Adopting this line of reasoning threatens to turn the right test that both Appellant and Appellee agree is applicable of publicity on its head. to this case: the Transformative Use Test. 23

Appellant's career as a college football player suggests that the target audience *158 for his merchandise and i. Genesis of the Transformative Use Test performances (e.g., his actual matches) would be sports fans. It is only logical, then, that products appropriating The Transformative Use Test was first articulated by and exploiting his identity would fare best—and thereby the Supreme Court of California *159 in Comedy III. would provide ne‘er-do-wells with the greatest incentive That case concerned an artist's production and sale of

193 Hart v. Electronic Arts, Inc., 717 F.3d 141 (2013) 107 U.S.P.Q.2d 1001, 41 Media L. Rep. 1985 t-shirts and prints bearing a charcoal drawing of the are not, from the celebrity fan's viewpoint, good Three Stooges. The California court determined that substitutes for conventional depictions of the celebrity while “[t]he right of publicity is often invoked in the and therefore do not generally threaten markets for context of commercial speech,” it could also apply in celebrity memorabilia that the right of publicity is instances where the speech is merely expressive. Id., 106 designed to protect.” Id. The court was also careful to Cal.Rptr.2d 126, 21 P.3d at 802–803. The court also emphasize that “the transformative elements or creative noted, however, that when addressing expressive speech, contributions” in a work may include—under the right “the very importance of celebrities in society means that circumstances—factual reporting, fictionalized portrayal, the right of publicity has the potential of censoring heavy-handed lampooning, and subtle social criticism. significant expression by suppressing alternative versions Id., 106 Cal.Rptr.2d 126, 21 P.3d at 809 (“The inquiry of celebrity images that are iconoclastic, irreverent or is in a sense more quantitative than qualitative, asking otherwise attempt to redefine the celebrity's meaning.” whether the literal and imitative or the creative elements Id., 106 Cal.Rptr.2d 126, 21 P.3d at 803. Thus, while the predominate in the work.”). 24 “the right of publicity cannot, consistent with the First Amendment, be a right to control the celebrity's image by [11] Restating its newly-articulated test, the Supreme censoring disagreeable portrayals,” id., 106 Cal.Rptr.2d Court of California held that the balance between the right 126, 21 P.3d at 807, the right, like copyright, nonetheless of publicity and First Amendment interests turns on offers protection to a form of intellectual property that society deems to have social utility, id., 106 Cal.Rptr.2d *160 [w]hether the celebrity 126, 21 P.3d at 804. likeness is one of the “raw materials” from which an original After briefly considering whether to import the “fair use” work is synthesized, or whether analysis from copyright, the Comedy III court decided that the depiction or imitation of the only the first fair use factor, “the purpose and character celebrity is the very sum and of the use,” was appropriate. Id., 106 Cal.Rptr.2d 126, substance of the work in question. 21 P.3d at 808. Specifically, the Comedy III court found We ask, in other words, whether persuasive the Supreme Court's holding in Campbell v. the product containing a celebrity's Acuff–Rose Music, Inc. that likeness is so transformed that it has become primarily the defendant's own the central purpose of the inquiry into this fair use expression rather than the celebrity's factor ‘is to see ... whether the new work merely likeness. And when we use the word “supercede[s] the objects” of the original creation, or “expression,” we mean expression of instead adds something new, with a further purpose something other than the likeness of or different character, altering the first with new the celebrity. expression, meaning, or message; it asks, in other words, whether and to what extent the new work is Id. (emphasis added). “transformative.” Applying this test, the court concluded that charcoal Id. (emphasis added) (citing Campbell v. Acuff–Rose portraits of the Three Stooges did violate the Stooges' Music, Inc., 510 U.S. 569, 579, 114 S.Ct. 1164, 127 L.Ed.2d rights of publicity, holding that the court could “discern 500 (1994)). no significant transformative or creative contribution” and that “the marketability and economic value of [the Going further, the court explained that works containing work] derives primarily from the fame of the celebrities “significant transformative elements” are less likely depicted.” Id., 106 Cal.Rptr.2d 126, 21 P.3d at 811. to interfere with the economic interests implicated by the right of publicity. For example, “works of parody or other distortions of the celebrity figure

194 Hart v. Electronic Arts, Inc., 717 F.3d 141 (2013) 107 U.S.P.Q.2d 1001, 41 Media L. Rep. 1985

Id., 134 Cal.Rptr.2d 634, 69 P.3d at 479. The court ii. Application of the Transformative Use Test therefore found that “fans who want to purchase pictures of [the Winter brothers] would find the drawing of Given its relative recency, few courts have applied the the Autumn brothers unsatisfactory as a substitute for Transformative Use Test, and consequently there is not 25 a significant body of case law related to its application. conventional depictions.” Id. Consequently, the court Nonetheless, a handful of cases bear mention as they help rejected the *161 brothers' claims for a right of publicity frame our inquiry. violation.

[12] In 2003, the Supreme Court of California revisited Also in 2003, the Sixth Circuit decided ETW, a case the Transformative Use Test when two musicians, Johnny focusing on a photograph of Tiger Woods set among and Edgar Winter, who both possessed long white hair a collage of other, golf-related photographs. As we and albino features, brought suit against a comic book previously noted, while ETW mentioned both the Rogers company over images of two villainous half-man, half- case and the Restatement (Third) of Unfair Competition, worm creatures, both with long white hair and albino the test it ultimately applied was a combination of an features, named Johnny and Edgar Autumn. Winter v. ad-hoc approach and the Transformative Use Test. See DC Comics, 30 Cal.4th 881, 134 Cal.Rptr.2d 634, 69 P.3d ETW, 332 F.3d at 937–38. In holding that the collage 473, 476 (2003). As the brothers' right of publicity claims “contain[ed] significant transformative elements,” id. at necessarily implicated DC Comics' First Amendment 938, the court compared it to the Three Stooges portraits rights, the Winter court looked to the Transformative from Comedy III, and noted that the collage “does Use Test. In summarizing the test, the court explained not capitalize solely on a literal depiction of Woods.” that “[a]n artist depicting a celebrity must contribute Id. Instead, the “work consists of a collage of images something more than a ‘merely trivial’ variation, [but in addition to Woods's image which are combined to must create] something recognizably ‘his own,’ in order to describe, in artistic form, a historic event in sports qualify for legal protection.” Id., 134 Cal.Rptr.2d 634, 69 history and to convey a message about the significance of P.3d at 478 (alteration in original) (quoting Comedy III, Woods's achievement in that event.” Id.; see also Comedy 106 Cal.Rptr.2d 126, 21 P.3d at 810–11). Thus, in applying III, 106 Cal.Rptr.2d 126, 21 P.3d at 809 (noting that the test, the Winter court held that “transformative elements or creative contributions ... can take many forms”). [a]lthough the fictional characters Johnny and Edgar Autumn are less- ETW presents an archetypical example of a case falling than-subtle evocations of Johnny somewhere in the middle of Transformative Use Test and Edgar Winter, the books , given that it focuses on the use of do not depict plaintiffs literally. photographs (literal depictions of celebrities), but adds Instead, plaintiffs are merely part a transformative aspect to the work, thereby altering of the raw materials from which the meaning behind the use of the celebrity's likeness. the comic books were synthesized. Arguably, the Comedy III and Winter decisions bookend To the extent the drawings of the spectrum of cases applying the Transformative Use the Autumn brothers resemble Test. Where Comedy III presents a clear example of plaintiffs at all, they are distorted a non-transformative use (i.e., mere literal depictions for purposes of lampoon, parody, of celebrities recreated in a different medium), Winter or caricature. And the Autumn offers a use that is highly transformative (i.e., fanciful brothers are but cartoon characters characters, placed amidst a fanciful setting, that draw —half-human and half-worm—in a inspiration from celebrities). As with ETW, however, most larger story, which is itself quite of the cases discussed below (along with the instant case), expressive. fall somewhere between these two decisions. This same analytical approach—focusing on whether and how the

195 Hart v. Electronic Arts, Inc., 717 F.3d 141 (2013) 107 U.S.P.Q.2d 1001, 41 Media L. Rep. 1985 celebrity's likeness is transformed—appears in decisions sued, claiming a violation of their rights of publicity. The by courts applying the Transformative Use Test to video California Court of Appeal applied the Transformative games, an area of law which we consider next. Use Test.

The No Doubt court began by noting that “in stark contrast to the ‘fanciful creative characters' in Winter iii. The Transformative Use Test and Video Games and Kirby,” the No Doubt avatars could not be altered In mid–2006, the California Court of Appeal decided by players and thus remained “at all times immutable Kirby v. Sega of America, Inc., 144 Cal.App.4th 47, 50 images of the real celebrity musicians.” Id. at 410. But this Cal.Rptr.3d 607 (2006), which addressed a musician's fact, by itself, did not end the court's inquiry since “even right of publicity claim against a video game company. literal reproductions of celebrities can be ‘transformed’ Specifically, the musician (Kierin Kirby) had claimed that into expressive works based on the context into which Sega misappropriated her likeness and signature phrases the celebrity image is placed.” Id. (citing Comedy III, 106 for purposes of creating the character of Ulala, a reporter Cal.Rptr.2d 126, 21 P.3d at 811). Looking to the context in the far flung future. In applying the Transformative of the Band Hero game, the court found that “no matter Use Test, the court noted that not only did Kirby's what else occurs in the game during the depiction of the signature phrases included “ooh la la” but that both she No Doubt avatars, the avatars perform rock songs, the and the videogame character would often use phrases same activity by which the band achieved and maintains like “groove,” “meow,” “dee-lish,” and “I won't give its fame.” Id. at 410–11 (emphasis added). The court up.” Id. at 613. The court also found similarities in explained: appearance between Kirby and Ulala, based on hair style [T]he avatars perform [rock] songs and clothing choice. Id. At the same time, the court as literal recreations of the band held that differences between the two did exist—both members. That the avatars can be in appearance and movement—and that Ulala was not manipulated to perform at fanciful a mere digital recreation of Kirby. Id. Thus, the court venues including outer space or to concluded that Ulala passed the Transformative Use Test, sing songs the real band would rejecting Kirby's argument that the differences between object to singing, or that the avatars her and the character added no additional meaning appear in the context of a videogame or message to the work. Id. at 616–17 (“A work is that contains many other creative transformative if it adds ‘new expression.’ That expression elements, does not transform the alone is sufficient; it need not convey any ‘meaning or avatars into anything other than message.’ ”); see also id. at 617 (“[A]ny imitation of Kirby's the exact depictions of No Doubt's likeness or *162 identity in Ulala is not the sum and members doing exactly what they do substance of that character.”). as celebrities. Several years later, in early 2011, the California courts Id. at 411 (emphasis added). 27 As a final step in its again confronted the right of publicity as it related to analysis, the court noted that Activision's use of highly video games in No Doubt v. Activision Publishing, Inc., realistic digital depictions of No Doubt was motivated 192 Cal.App.4th 1018, 122 Cal.Rptr.3d 397 (2011). The by a desire to capitalize on the band's fan-base, “because case centered on Band Hero, a game that allows player to it encourages [fans] to purchase the game so as to “simulate performing in a rock band in time with popular perform as, or alongside, the members of No Doubt.” Id. songs” by selecting digital avatars to represent them in an (emphasis added). Given all this, the court concluded that in-game band. Id. at 401. Some of the avatars were digital Activision's use of No Doubt's likenesses did infringe on recreations of real-life musicians, including members of the band's rights of *163 publicity. Id. at 411–12. 28 the band No Doubt. 26 After a contract dispute broke off relations between the band and the company, No Doubt

196 Hart v. Electronic Arts, Inc., 717 F.3d 141 (2013) 107 U.S.P.Q.2d 1001, 41 Media L. Rep. 1985 of the news media: what use did the station make of the film footage? iv. Analysis of the Transformative Use Test When a film is used, as here, [13] Like the Predominant Use and Rogers tests, the for a routine portion of a regular Transformative Use Test aims to balance the interest news program, I would hold that protected by the right of publicity against those interests the First Amendment protects the preserved by the First Amendment. In our view, the station from a “right of publicity” Transformative Use Test appears to strike the best or “appropriation” suit, absent balance because it provides courts with a flexible—yet a strong showing by the *164 uniformly applicable—analytical framework. Specifically, plaintiff that the news broadcast was the Transformative Use Test seems to excel precisely a subterfuge or cover for private or where the other two tests falter. Unlike the Rogers Test, commercial exploitation. the Transformative Use Test maintains a singular focus Zacchini, 433 U.S. at 581, 97 S.Ct. 2849 (Powell, J., on whether the work sufficiently transforms the celebrity's dissenting). Consistent with Justice Powell's argument, the identity or likeness, thereby allowing courts to account for Transformative Use Test begins by asking “what use did the fact that misappropriation can occur in any market 30 segment, including those related to the celebrity. the [defendant] make of the [celebrity identity]?” Id.

On the other hand, unlike the Predominant Use Test, Finally, we find that of the three tests, the Transformative applying the Transformative Use Test requires a more Use Test is the most consistent with other courts' ad circumscribed inquiry, focusing on the specific aspects hoc approaches to right of publicity cases. For example, of a work that speak to whether it was merely created a majority of the Supreme Court of California in to exploit a celebrity's likeness. This test therefore Guglielmi v. Spelling–Goldberg Productions argued 31 that recognizes that if First Amendment protections are to the “fictionalized version” of a late actor's life, “depicting mean anything in right of publicity claims, courts must the actor's name, likeness and personality without begin by considering the extent to which a work is the obtaining ... prior consent” was entitled to protection creator's own expression. 29 from a right of publicity claim. 160 Cal.Rptr. 352, 603 P.2d at 455, 457–59. 32 In essence, the actor's identity Additionally, the Transformative Use Test best comports was sufficiently transformed by the fictional elements in with the cautionary language present in various right the book so as to tip the balance of interests in favor of publicity cases. Specifically, we believe that an initial of the First Amendment. See id., 160 Cal.Rptr. 352, 603 focus on the creative aspects of a work helps address P.2d at 457 (Bird, C.J., concurring). Likewise, in Estate our own concern from Facenda, where we noted that of Presley v. Russen, 513 F.Supp. 1339 (D.N.J.1981), the “courts must circumscribe the right of publicity.” Facenda, United States District Court for the District of New Jersey 542 F.3d at 1032. As our discussion below demonstrates, held that an Elvis impersonator's act was subject to right the Transformative Use Test effectively restricts right of of publicity claims because “entertainment that is merely a publicity claims to a very narrow universe of expressive copy or imitation, even if skillfully and accurately carried works. Moreover, we believe that the Transformative out, does not really have its own creative component and Use Test best exemplifies the methodology suggested by does not have a significant value as pure entertainment.” Justice Powell's dissent in Zacchini: Id. at 1359 (emphasis added). Seen through the lens of the Transformative Use Test, the Russen decision Rather than begin with a demonstrates that where no additional transformative quantitative analysis of the elements are present—i.e., the work contains “merely a performer's behavior—is this or is copy or imitation” of the celebrity's identity—then there this not his entire act?—we should can be no First Amendment impediment to a right of direct initial attention to the actions publicity claim. 33 Additionally, in *165 Cardtoons, L.C.

197 Hart v. Electronic Arts, Inc., 717 F.3d 141 (2013) 107 U.S.P.Q.2d 1001, 41 Media L. Rep. 1985 v. Major League Baseball Players Ass'n, 95 F.3d 959 (10th Cir.1996), which focused on the use of baseball players' *166 [14] Having thus cabined our inquiry to the identities for parody trading cards, the transformative appropriate form of Appellant's identity, we note nature of the caricatures on the cards (and the parodic text that—based on the combination of both the digital about the players' “statistics”) was sufficient to quash any avatar's appearance and the biographical and identifying right of publicity claim. Id. at 972–73 (“Because celebrities information—the digital avatar does closely resemble are an important part of our public vocabulary, a parody the genuine article. Not only does the digital avatar of a celebrity does not merely lampoon the celebrity, but match Appellant in terms of hair color, hair style and exposes the weakness of the idea or value that the celebrity skin tone, but the avatar's accessories mimic those worn symbolizes in society.”). 34 by Appellant during his time as a Rutgers player. The information, as has already been noted, also accurately It is little wonder, then, that the Comedy III decision tracks Appellant's vital and biographical details. And looked to all three of these cases for guidance in defining while the inexorable march of technological progress may the Transformative Use Test. See Comedy III, 106 make some of the graphics in earlier editions of NCAA Football look dated or overly-computerized, we do not Cal.Rptr.2d 126, 21 P.3d at 806–09. 35 The fact that such believe that video game graphics must reach (let alone prior holdings can be reconciled with the Test not only cross) the uncanny valley to support a right of publicity bolsters our views as to its propriety, but also ensures that 38 adopting the Transformative Use Test does not result in claim. If we are to find some transformative element, we the sort of backward-looking jurisprudential revision that must look somewhere other than just the in-game digital 39 might disturb prior protections for expressive speech. 36 recreation of Appellant. Cases such as ETW and No Quite to the contrary, adopting the Test ensures that Doubt, both of which address realistic digital depictions of already-existing First Amendment protections in right of celebrities, point to the next step in our analysis: context. publicity cases apply to video games with the same force as to “biographies, documentaries, docudramas, and other Considering the context within which the digital avatar expressive works depicting real-life figures.” (Dissent Op. exists—effectively, looking at how Appellant's identity at 173.) is “incorporated into and transformed by” NCAA Football, (Dissent Op. at 173)—provides little support for In light of the above discussion, we find that the Appellee's arguments. The digital Ryan Hart does what Transformative Use Test is the proper analytical the actual Ryan Hart did while at Rutgers: he plays college framework to apply to cases such as the one at bar. football, in digital recreations of college football stadiums, Consequently, we now apply the test to the facts of the filled with all the trappings of a college football game. instance case. This is not transformative; the various digitized sights and sounds in the video game do not alter or transform the Appellant's identity in a significant way. See No Doubt, 122 Cal.Rptr.3d at 410–11 (“[N]o matter what else occurs C. Application in the game during the depiction of the No Doubt avatars, the avatars perform rock songs, the same activity by which In applying the Transformative Use Test to the instant the band achieved and maintains its fame.”). Indeed, the case, we must determine whether Appellant's identity lack of transformative context is even more pronounced is sufficiently transformed in NCAA Football. As we here than in No Doubt, where members of the band could mentioned earlier, we use the term “identity” to perform and sing in outer space. encompass not only Appellant's likeness, but also his biographical information. It is the combination of these [15] Even here, however, our inquiry is not at an end. two parts—which, when combined, identify the digital For as much as the digital representation and context avatar as an in-game recreation of Appellant—that must evince no meaningful transformative element in NCAA 37 be sufficiently transformed. Football, a third avatar-specific element is also present:

198 Hart v. Electronic Arts, Inc., 717 F.3d 141 (2013) 107 U.S.P.Q.2d 1001, 41 Media L. Rep. 1985 the users' ability to alter the avatar's appearance. This distinguishing factor ensures that we cannot dispose of [U]nder [Appellee's] application this case as simply as the court in No Doubt. See No Doubt, of the transformative test [sic], 122 Cal.Rptr.3d at 410 (noting that the digital avatars presumably no infringement would representing No Doubt were “at all times immutable be found if individuals such as the images of the real celebrity musicians”). Indeed, the ability Dalai Lama and the Pope were for users to change the avatar accounted, in large part, placed within a violent “shoot-em- for the District Court's deciding that NCAA Football up” game, so long as the game satisfied the Transformative Use Test. See *167 Hart, include[d] a “mechanism” by which the user could manipulate their 808 F.Supp.2d at 785. 40 We must therefore consider to characteristics. what extent the ability to alter a digital avatar represents a transformative use of Appellant's identity. (Screen Actors Guild, Inc. et al., Amicus Br. at 21. 43 ) With this concern in mind, *168 therefore, we consider [16] [17] At the outset, we note that the mere whether the type and extent of interactivity permitted is presence of this feature, without more, cannot satisfy sufficient to transform the Appellant's likeness into the the Transformative Use Test. True, interactivity is the Appellee's own expression. We hold that it does not. basis upon which First Amendment protection is granted 41 to video games in the first instance. See Brown, 131 In NCAA Football, Appellee seeks to create a realistic S.Ct. at 2733. However, the balancing test in right of depiction of college football for the users. Part of this publicity cases does not look to whether a particular work realism involves generating realistic representations of loses First Amendment protection. Rather, the balancing the various college teams—which includes the realistic inquiry looks to see whether the interests protected by representations of the players. Like Activision in No the right of publicity are sufficient to surmount the Doubt, therefore, Appellee seeks to capitalize on the already-existing First Amendment protections. See, e.g., respective fan bases for the various teams and players. Guglielmi, 160 Cal.Rptr. 352, 603 P.2d at 458 (considering Indeed, as the District Court recognized, “it seems whether right of publicity protections “outweigh[ ] any ludicrous to question whether video game consumers protection [the] expression would otherwise enjoy under enjoy and, as a result, purchase more EA-produced video the [First Amendment]”). As Zacchini demonstrated, the games as a result of the heightened realism associated right of publicity can triumph even when an essential with actual players.” Hart, 808 F.Supp.2d at 783 (quoting element for First Amendment protection is present. In James J.S. Holmes & Kanika D. Corley, Defining Liability that case, the human cannonball act was broadcast as part for Likeness of Athlete Avatars in Video Games, L.A. Law., of the newscast. See Zacchini, 433 U.S. at 563, 97 S.Ct. May 2011, at 17, 20). Moreover, the realism of the games 2849. To hold, therefore, that a video game should satisfy —including the depictions and recreations of the players the Transformative Use Test simply because it includes —appeals not just to home-team fans, but to bitter rivals a particular interactive feature would lead to improper as well. Games such as NCAA Football permit users to results. Interactivity cannot be an end onto itself. 42 recreate the setting of a bitter defeat and, in effect, achieve some cathartic readjustment of history; realistic depictions Moreover, we are wary of converting the ability to alter of the players are a necessary element to this. 44 That a digital avatar from mere feature to talisman, thereby Appellant's likeness is the default position only serves to opening the door to cynical abuse. If the mere presence support our conclusion that realistic depictions of the of the feature were enough, video game companies could players are the “sum and substance” of these digital commit the most blatant acts of misappropriation only to facsimiles. 45 See Kirby, 50 Cal.Rptr.3d at 617–18. Given absolve themselves by including a feature that allows users that Appellant's unaltered likeness is central to the core to modify the digital likenesses. We cannot accept that of the game experience, we are disinclined to credit users' such an outcome would adequately balance the interests in right of publicity cases. As one amicus brief noted:

199 Hart v. Electronic Arts, Inc., 717 F.3d 141 (2013) 107 U.S.P.Q.2d 1001, 41 Media L. Rep. 1985 ability to alter the digital avatars in our application of the how the celebrity's identity is used in or is altered by Transformative Use Test to this case. other aspects of a work. Wholly unrelated elements do not bear on this inquiry. Even Comedy III, in listing We are likewise unconvinced that NCAA Football satisfies potentially “transformative or creative contributions” the Transformative Use Test because Appellee created focused on elements or techniques that affect the celebrity various in-game assets to support the altered avatars (e.g., identity. See Comedy III, 106 Cal.Rptr.2d 126, 21 additional hair styles, faces, accessories, et al.). In the P.3d at 809 (discussing factual reporting, fictionalized first instance, the relationship between these assets and portrayal, heavy-handed lampooning, and subtle social the digital avatar is predicated on the users' desire to criticism); see also Winter, 134 Cal.Rptr.2d 634, 69 P.3d alter the avatar's appearance, which, as we have already at 478–79 (noting that “[a]n artist depicting a celebrity noted, is insufficient to satisfy the Test. The ability to must contribute something more than a ‘merely trivial’ make minor alterations—which substantially maintain variation” before proceeding to discuss how the Winter the avatar's resemblance to Appellant (e.g., modifying brothers' likenesses were altered directly and through only the basic biographical information, playing statistics, context); Kirby, 50 Cal.Rptr.3d at 616–18. To the extent or uniform accessories)—is likewise insufficient, for “[a]n that any of these cases considered the broader context of artist depicting a celebrity must contribute something the work (e.g., whether events took place in a “fanciful more than a ‘merely trivial’ variation.” Winter, 134 setting”), this inquiry was aimed at determining whether Cal.Rptr.2d 634, 69 P.3d at 478–79. Indeed, the ability to this context acted upon the celebrity identity in a way that modify the avatar counts for little where the appeal of the transformed it or imbued it with some added creativity game lies in users' ability to play “as, or alongside” their beyond providing a “merely trivial variation.” 46 Thus, preferred players or team. See No Doubt, 122 Cal.Rptr.3d while we recognize the creative energies necessary for at 411. Thus, even avatars with superficial modifications crafting the various elements of NCAA Football that are to their appearance can count as a suitable proxy or not tied directly to reality, we hold that they have no legal market “substitute” for the original. See Comedy III, 106 significance in our instant decision. Cal.Rptr.2d 126, 21 P.3d at 808; Winter, 134 Cal.Rptr.2d 634, 69 P.3d at 479; Cardtoons, 95 F.3d at 974. For larger To hold otherwise could have deleterious consequences potential *169 changes, such as a different body type, for the state of the law. Acts of blatant misappropriation skin tone, or face, Appellant's likeness is not transformed; would count for nothing so long as the larger work, it simply ceases to be. Therefore, once a user has made on balance, contained highly creative elements in great major changes to the avatar, it no longer represents abundance. This concern is particularly acute in the case Appellant, and thus it no longer qualifies as a “use” of media that lend themselves to easy partition such as of the Appellant's identity for purposes of our inquiry. video games. It cannot be that content creators escape Such possibilities therefore fall beyond our inquiry into liability for a work that uses a celebrity's unaltered identity how Appellant's likeness is used in NCAA Football. That in one section but that contains a wholly fanciful creation the game may lend itself to uses wholly divorced from in the other, larger section. the appropriation of Appellant's identity is insufficient to satisfy the Transformative Use Test. See No Doubt, For these reasons, we hold that the broad application of 122 Cal.Rptr.3d 397 (focusing on the use of the No the Transformative Use Test represents an inappropriate Doubt avatars, not alternative avatars or custom-made application of the standard. Consequently, we shall not characters). credit elements of NCAA Football that do not, in some way, affect the use or meaning of Appellant's identity. In an attempt to salvage its argument, Appellee suggests that other creative elements of NCAA Football, which [18] As a final point, we note that the photograph do not affect Appellant's digital avatar, are so numerous of Appellant that appears in NCAA Football 2009 that the videogames should be considered transformative. does not bear on our analysis above. On that subject, We believe this to be an improper inquiry. Decisions we agree *170 with the District Court that the applying the Transformative Use Test invariably look to

200 Hart v. Electronic Arts, Inc., 717 F.3d 141 (2013) 107 U.S.P.Q.2d 1001, 41 Media L. Rep. 1985 photograph is “but a fleeting component part of the is consumers' desire to experience a realistic football montage” and therefore does not render the entire work playing experience with their favorite teams. EA's use nontransformative. Hart, 808 F.Supp.2d at 786. The of actual college athletes' likenesses motivates buyers to reasoning from ETW is sufficiently applicable: the context *171 purchase a new edition each year to keep up with of Appellant's photograph—the montage—imbues the their teams' changing rosters. The burn to Hart and other image with additional meaning beyond simply being a amateur athletes is that, unlike their active professional representation of the player. See ETW, 332 F.3d at counterparts, they are not compensated for EA's use of 938 (holding that the photographs in a collage were their likenesses in its video games. Were this case viewed “combined to describe, in artistic form, a historic event strictly on the public's perception of fairness, I have no in sports history and to convey a message about the doubt Hart's position would prevail. 2 significance of [Tiger] Woods's achievement in that event”). Consequently, this particular use of Appellant's Hart claims that he has under New Jersey law a right of likeness is shielded by the First Amendment and therefore publicity to prevent others from unfairly appropriating can contribute nothing to Appellant's claim for violation the value of his likeness for their commercial benefit, of his right of publicity. and that the First Amendment does not shield EA's infringement of this right. This claim requires us to balance the competing interests implicated by the right IV. Conclusion of publicity and the First Amendment. I agree with my colleagues that the Transformative Use Test is the We therefore hold that the NCAA Football 2004, 2005 preferred approach for balancing these interests, but we and 2006 games at issue in this case do not sufficiently part ways on its interpretation and application. The result transform Appellant's identity to escape the right of is that they side with Hart, and I with EA. publicity claim and hold that the District Court erred in granted summary judgment in favor of Appellee. 47 The Transformative Use Test gives First Amendment While we do hold that the only apparent use of Appellant's immunity where, in an expressive work, an individual's likeness in NCAA Football 2009 (the photograph) is likeness has been creatively adapted in some way. protected by the First Amendment, Appellant's overall Correctly applied, this test strikes an appropriate balance claim for violation of his right of publicity should between countervailing rights—the publicity interest in have survived Appellee's motion for summary judgment. protecting an individual's right to benefit financially Consequently, we need not address Appellant's desire for when others use his identifiable persona for their own additional discovery. We shall reverse the District Court's commercial benefit versus the First Amendment interest in grant of summary judgment and remand this case back insulating from liability a creator's decision to interweave to the court below for further proceedings consistent with real-life figures into its expressive work. this opinion. My colleagues limit effectively their transformative inquiry to Hart's identity alone, disregarding other features of the work. This approach, I believe, does not AMBRO, Circuit Judge, dissenting. find support in the cases on which they rely. Further, My colleagues and I take the same road but read the my colleagues penalize EA for the realism and financial signs differently. Hence we stop at different places. I wish success of NCAA Football, a position I find difficult to I was with them; I am not. I recognize that Electronic reconcile with First Amendment protections traditionally Arts, Inc. (“EA”) has taken for the 2005 version of afforded to true-to-life depictions of real figures and NCAA Football what most good Rutgers fans during works produced for profit. Because I conclude that the Ryan Hart's playing days know—the Rutgers quarterback Transformative Use Test protects EA's use of Hart's is Hart—and parlayed that recognition into commercial likeness in NCAA Football, I respectfully dissent. success. 1 A key to the profitability of NCAA Football

201 Hart v. Electronic Arts, Inc., 717 F.3d 141 (2013) 107 U.S.P.Q.2d 1001, 41 Media L. Rep. 1985 at 158–61], but later disregard that recitation. When addressing Hart's claim, their analysis proceeds by I. Formulation of the Transformative Inquiry analyzing, on a step-by-step basis, the digital avatar To determine whether an individual's identity has been based on Hart, the context in which that avatar is set in “transformed” for purposes of the Transformative Use NCAA Football, and the users' ability to alter the avatar's Test, I believe it is necessary to review the likeness in the appearance, concluding at each step that Hart's likeness context of the work in its entirety, rather than focusing is not sufficiently changed to qualify as “transformative.” only on the individual's likeness. This interpretation is in In the last instance, my colleagues reject as immaterial line with the approach taken in Comedy III Productions, the myriad other creative elements of the video game on Inc. v. Gary Saderup, Inc., 25 Cal.4th 387, 106 Cal.Rptr.2d the ground that “[d]ecisions applying the Transformative 126, 21 P.3d 797 (2001), in which the Supreme Court Use Test invariably look to how the celebrity's identity of California first put in play the Transformative Use is used,” and that “[w]holly unrelated elements do not Test. Per Comedy III, the right of publicity prevails over bear on this inquiry.” [Majority Op. at 169 (emphasis in competing First Amendment interests “[w]hen artistic original).] But by cabining their inquest to Hart's likeness expression takes the form of a literal depiction or imitation alone, their approach is at odds with California Supreme of a celebrity for commercial gain.” Id., 106 Cal.Rptr.2d Court decisions on the Transformative Use Test. 4 126, 21 P.3d at 808 (citing *172 Zacchini v. Scripps– Howard Broad. Co., 433 U.S. 562, 575–76, 97 S.Ct. 2849, The infirmity of this approach is highlighted by ETW 53 L.Ed.2d 965 (1977)). To determine whether a work Corp. v. Jireh Publishing, Inc., 332 F.3d 915 (6th qualifies as “transformative” and not simply “literal,” the Cir.2003), in which the Sixth Circuit Court of Appeals Comedy III Court explained that “the inquiry is whether concluded that an artist's use of several photographs the celebrity likeness is one of the ‘raw materials' from *173 of Tiger Woods in a commemorative collage was which an original work is synthesized, or whether the “transformative,” and thus shielded from Woods' right- depiction or imitation of the celebrity is the very sum and of-publicity suit. My colleagues do not—and, in my substance of the work in question.” Id., 106 Cal.Rptr.2d view, cannot—explain how the photographic images of 126, 21 P.3d at 809 (emphases added). Woods were transformed if they limit their analysis to “how the celebrity's identity is used.” [Majority Op. at Likewise, when applying the Transformative Use Test 169 (emphasis in original).] Instead, their discussion of two years later in Winter v. DC Comics, 30 Cal.4th 881, ETW recognizes that the Sixth Circuit held that the 134 Cal.Rptr.2d 634, 69 P.3d 473 (2003), the California artist's use qualified for First Amendment protection Supreme Court explained that the defendant's use was under the Transformative Use Test because “the collage transformative because it could “readily ascertain that ‘contain[ed] significant transformative elements,’ ” and [the portrayals] are not just conventional depictions of the combination of images “ ‘describe[d], in artistic form, plaintiffs but contain significant expressive content other a historic event in sports history[—the 1997 Masters than plaintiffs' mere likenesses.” Id., 134 Cal.Rptr.2d 634, golf tournament—]and ... convey[ed] a message about 69 P.3d at 479 (emphasis added). The Court also observed the significance of Woods' achievement in that event.’ that the characters were placed in a “larger story, which ” [Majority Op. at 161 (first alteration in original) is itself quite expressive.” Id. 3 The repeated focus on the (emphasis added) (quoting ETW, 332 F.3d at 938; citing use of an individual's likeness in the context of the work Comedy III, 106 Cal.Rptr.2d 126, 21 P.3d at 809).] No as a whole leaves me little doubt that we must examine doubt the use at issue here—creating digital avatars the creative work in the aggregate to determine whether of football teams and placing them in an interactive it satisfies the Transformative Use Test and merits First medium designed for user interaction and manipulation Amendment protection. —is significantly more “transformative” than the use in ETW, which simply combined several photographs into a My colleagues correctly recite the Transformative Use photomontage. Test set out in Comedy III and Winter [Majority Op.

202 Hart v. Electronic Arts, Inc., 717 F.3d 141 (2013) 107 U.S.P.Q.2d 1001, 41 Media L. Rep. 1985 To me, a narrow focus on an individual's likeness, do not suggest that all digital portrayals of an individual rather than how that likeness is incorporated into and are entitled to First Amendment protection. Rather, the transformed by the work as a whole, is a flawed work should be protected if that likeness, as included formulation of the transformative inquiry. The whole in the creative composition, has been transformed into —the aggregate of many parts (including, here, many something more or different than what it was before. individuals)—is the better baseline for that inquiry. And in any event the profit that flows from EA's realistic depiction of Hart (and the myriad other college football players portrayed in NCAA Football ) is not constitutionally significant, nor even an appropriate II. Harmonization of the Transformative consideration, when applying the Transformative Use Use Test with First Amendment Precedent Test. 7 Transformative use must mesh with existing constitutional protections for works of expression. The My colleagues' understanding of the Transformative Use First Amendment extends protection to biographies, Test underplays the creative elements of NCAA Football documentaries, docudramas, and other expressive works by equating its inclusion of realistic player likenesses depicting real-life figures, whether the accounts are to increase profits with the wrongful appropriation of factual or fictional. See, e.g., Matthews v. Wozencraft, Hart's commercial value. This approach is at odds with 15 F.3d 432, 439–40 (5th Cir.1994) (biographical the First Amendment protection afforded to expressive novel); Ruffin–Steinback v. dePasse, 82 F.Supp.2d works incorporating real-life figures. That protection 723, 730–31 (E.D.Mich.2000) (television miniseries), does not depend on whether the characters are depicted aff'd, 267 F.3d 457, 461–62 (6th Cir.2001); Seale v. realistically or whether their inclusion increases profits. Gramercy Pictures, 949 F.Supp. 331, 337 (E.D.Pa.1996); See Guglielmi, 160 Cal.Rptr. 352, 603 P.2d at 460–62 Hicks v. Casablanca Records, 464 F.Supp. 426, 433 (Bird, C.J., concurring) (concluding that acceptance of (S.D.N.Y.1978) (docudrama and novel); Guglielmi v. this argument would chill free expression and mean “the Spelling–Goldberg Prods., 25 Cal.3d 860, 160 Cal.Rptr. creation of historical novels and other works inspired by 352, 603 P.2d 454, 458–59 (1979) (docudrama). 5 “That actual events and people would be off limits to the fictional books, newspapers, and magazines are published and author”). sold for profit does not prevent them from being a form of expression whose liberty is safeguarded by the In sum, applying the Transformative Use Test in the First Amendment.” Joseph Burstyn, Inc. v. Wilson, 343 manner done by my colleagues creates a medium-specific U.S. 495, 501, 72 S.Ct. 777, 96 L.Ed. 1098 (1952). metric that provides less protection to video games than Accordingly, courts have rejected as counter to free other expressive works. Because the Supreme Court's expression the claim that constitutional protection is decision in Brown forecloses just such a distinction, see diminished because a celebrity's name or likeness was 131 S.Ct. at 2740, my colleagues' treatment of realism and used to increase a product's value and marketability. See profitability in their transformative use analysis puts us on Guglielmi, 160 Cal.Rptr. 352, 603 P.2d at 460–62 (Bird, a different course. C.J., concurring). 6

The protection afforded by the First Amendment to those III. Application to Hart's Claim who weave celebrities *174 into their creative works and sell those works for profit applies equally to video games. With this understanding of the Transformative Use See Brown v. Entm't Merchs. Ass'n, ––– U.S. ––––, 131 Test, I conclude EA's use of avatars resembling actual S.Ct. 2729, 2733, 180 L.Ed.2d 708 (2011). Thus EA's use players is entitled to First Amendment protection. NCAA of real-life likenesses as “characters” in its NCAA Football Football transforms Hart's mere likeness into an avatar video game should be as protected as portrayals (fictional that, along with the rest of a digitally created college or nonfictional) of individuals in movies and books. I football team, users can direct and manipulate in

203 Hart v. Electronic Arts, Inc., 717 F.3d 141 (2013) 107 U.S.P.Q.2d 1001, 41 Media L. Rep. 1985 fictional football games. With the many other creative is transformed by the artistry necessary to create a digitally features incorporated throughout the games, sufficient rendered avatar within the imaginative and interactive expressive *175 transformation takes place to merit First world EA has placed that avatar. Amendment protection. I am thus convinced that, as used in NCAA Football, Hart's “likeness is one of the ‘raw materials' from which NCAA Football involves myriad original graphics, videos, sound effects, and game scenarios. These artistic aspects [the] original work is synthesized ... [rather than] the very permit a user to direct the play of a college football team sum and substance of the work in question.” Comedy whose players may be based on a current roster, a past III, 106 Cal.Rptr.2d 126, 21 P.3d at 809. EA bases its roster, or an entirely imaginary roster comprised of made- NCAA Football characters on countless real-life college up players. Users are not reenacting real games, but rather football players, and it certainly seeks to depict their are directing the avatars in invented games and seasons. physical and biographical characteristics realistically. Yet Further, the “Campus Legend” and “Dynasty Mode” these “are not just conventional depictions of [Hart] but features permit users to control virtual players and teams contain significant expressive content other than [his] for multiple seasons, creating the means by which they can mere likeness[ ].” Winter, 134 Cal.Rptr.2d 634, 69 P.3d generate their own narratives. Such modes of interactive at 479. NCAA Football uses creative means to achieve its play are, I submit, imaginative transformations of the overall goal of realistically replicating a college football games played by real players. experience in which users may interact, direct, and control the players' avatars, including the one based on Hart's As noted by the District Court, it is not only the user likeness. I find this use transformative. that contributes to the interactivity; EA has created “multiple permutations available for each virtual player * * * * * * image.” Hart v. Elec. Arts, Inc., 808 F.Supp.2d 757, 785 (D.N.J.2011). This furthers the game's transformative The Transformative Use Test I support would prevent interactivity. In fact, the majority opinion expressly commercial exploitation of an individual's likeness where approves the District Court's analysis on this point. the work at issue lacks creative contribution that [Majority Op. at 167 n.40.]. transforms that likeness in a meaningful way. I sympathize with the position of Hart and other similarly situated By limiting their inquiry to the realistic rendering of college football players, and understand why they feel Hart's individual image, my colleagues misapply the it is fair to share in the significant profits produced by Transformative Use Test. Contrary to their assertion including their avatar likenesses into EA's commercially successful *176 video game franchise. I nonetheless that the other creative elements of NCAA Football are “[w]holly unrelated” [Majority Op. at 169], those elements remain convinced that the creative components of NCAA contain sufficient expressive transformation to are, in fact, related to EA's use of Hart's likeness. If and Football merit First Amendment protection. Thus I respectfully when a user decides to select the virtual 2005 Rutgers' dissent, and would affirm the District Court's grant of football team as a competitor in a game, and to the summary judgment in favor of EA. extent that user does not alter the characteristics of the avatar based on Hart's likeness, the numerous creative elements of the video games discussed above are part of All Citations every fictional play a user calls. Any attempt to separate these elements from the use of Hart's likeness disregards 717 F.3d 141, 107 U.S.P.Q.2d 1001, 41 Media L. Rep. NCAA Football 's many expressive features beyond an 1985 avatar having characteristics similar to Hart. His likeness

Footnotes * Honorable A. Wallace Tashima, Senior United States Circuit Judge for the Ninth Circuit, sitting by designation.

204 Hart v. Electronic Arts, Inc., 717 F.3d 141 (2013) 107 U.S.P.Q.2d 1001, 41 Media L. Rep. 1985 1 Appellant's action purports to be a class action on behalf of similarly situated individuals. Because the putative class members all face the same issues with regard to the First Amendment we will focus our attention and analysis on Appellant in particular. 2 The NCAA Manual also states that where a collegiate athlete's name or picture appears on commercial items ... or is used to promote a commercial product sold by an individual or agency without the student-athlete's knowledge or permission, the student athlete (or the institution acting on behalf of the student-athlete) is required to take steps to stop such an activity in order to retain his or her eligibility for intercollegiate athletics. NCAA, 2011–12 NCAA Division I Manual § 12.5.2.2 (2011). 3 NCAA bylaws limit college athletes like Hart to receiving only non-athletic financial aid, either through academic scholarships or need-based aid, or athletic scholarships, which cover only tuition and various school-related expenses. See NCAA, 2011–12 NCAA Division I Manual § 15 (2011). 4 Until his recent displacement by Mike Teel, Hart also held the team records for career yards and touchdowns. 5 Appellee licenses, from the Collegiate Licensing Company (the NCAA's licensing agent), “the right to use member school names, team names, uniforms, logos, stadium fight songs, and other game elements.” (App. at 532.) Unlike certain of its other videogame franchises, EA does not license the likeness and identity rights for intercollegiate players. 6 For example, an article on the EA Sports blog explained that “[e]ach year, NCAA Football playbook designer Anthony White strives to make each team's playbook accurately represent their system and play style.... [E]ach year, Anthony adds in actual plays run by teams that can only be found in specific playbooks.” (App. at 663.). 7 The District Court had diversity jurisdiction over the case pursuant to 28 U.S.C. § 1332(a)(1). 8 Appellant alleges that the physical attributes exhibited by the virtual avatar in NCAA Football are his own (i.e., he attended high school in Florida, measures 6#2# tall, weighs 197 pounds, wears number 13, and has the same left wrist band and helmet visor) and that the avatar's speed, agility, and passer rating reflected actual footage of Appellant during his tenure at Rutgers. (App. at 369–71.). 9 It is unclear from the complaint what exactly this allegation covers. However, Appellee concedes that “[a] photograph of [Appellant] is included in a photo montage of actual players within NCAA Football 09 which is visible only when the game is played on certain game platforms by those users who select Rutgers as their team.” (App. at 475.). 10 Fed.R.Civ.P. 56 was revised in 2010. The standard previously set forth in subsection (c) is now codified as subsection (a). The language of this subsection is unchanged, except for “one word—genuine ‘issue’ bec[ame] genuine ‘dispute.’ ” Fed.R.Civ.P. 56 advisory committee's note, 2010 amend. 11 While it is true that the right of publicity is a creature of state law and precedent, its intersection with the First Amendment presents a federal issue, and, thus, permits us to engage in the sort of balancing inquiry at issue here. See, e.g., Zacchini, 433 U.S. at 566–68, 97 S.Ct. 2849. 12 As we have noted, Appellee concedes that NCAA Football infringes on the right of publicity as recognized in New Jersey. Our inquiry, therefore, does not concern the elements of the tort or whether Appellee's actions satisfy this standard. Rather, we are concerned only with whether the right to freedom of expression overpowers the right of publicity. 13 In 1995 the RESTATEMENT (THIRD) OF UNFAIR COMPETITION set forth the elements of a free-standing right of publicity claim, unconnected to the right of privacy torts. See RESTATEMENT (THIRD) OF UNFAIR COMPETITION § 46–49 (1995). While we discuss this version of the tort further below, we decline to address it here because New Jersey has yet to adopt the Restatement (Third)'s version of the tort and the accompanying comments. Accord Castro v. NYT Television, 370 N.J.Super. 282, 851 A.2d 88, 96–97 (App.Div.2004) (citing to RESTATEMENT (SECOND) OF TORTS § 652 C (1977) in discussing a right of publicity claim). 14 We reject as inapplicable in this case the suggestion that those who play organized sports are not significantly damaged by appropriation of their likeness because “players are rewarded, and handsomely, too, for their participation in games and can earn additional large sums from endorsement and sponsorship arrangements.” C.B.C. Distrib. & Mktg., Inc. v. Major League Baseball Advanced Media, L.P., 505 F.3d 818, 824 (8th Cir.2007) (discussing Major League Baseball players); see also, e.g., Cardtoons, L.C. v. Major League Baseball Players Ass'n, 95 F.3d 959, 974 (10th Cir.1996) (“[T]he additional inducement for achievement produced by publicity rights are often inconsequential because most celebrities with valuable commercial identities are already handsomely compensated.”). If anything, the policy considerations in this case weigh in favor of Appellant. As we have already noted, intercollegiate athletes are forbidden from capitalizing on their fame

205 Hart v. Electronic Arts, Inc., 717 F.3d 141 (2013) 107 U.S.P.Q.2d 1001, 41 Media L. Rep. 1985 while in school. Moreover, the NCAA most recently estimated that “[l]ess than one in 100, or 1.6 percent, of NCAA senior football players will get drafted by a National Football League (NFL) team.” NCAA, Estimated Probability of Competing in Athletics Beyond the High School Interscholastic Level, available at http://www.ncaa.org/wps/wcm /connect/public/ncaa/ pdfs/20 12/estimated+probability+of+competing+in +athletics+beyond+the+high +school+interscholastic+ level. Despite all of his achievements, it should be noted that Ryan Hart was among the roughly ninety-nine percent who were not drafted after graduation. 15 This concept is almost wholly foreign to free expression save for highly circumscribed categories of speech: obscenity, incitement, and fighting words. See Brown v. Entm't Merchs. Ass'n, ––– U.S. ––––, 131 S.Ct. 2729, 2733, 180 L.Ed.2d 708 (2011). 16 We also agree with Chief Justice Bird's rejection of an identical argument: “The right of publicity derived from public prominence does not confer a shield to ward off caricature, parody and satire. Rather, prominence invites creative comment.” Guglielmi, 160 Cal.Rptr. 352, 603 P.2d at 460. 17 The various cases and scholarly sources refer to this test in three different ways: the Relatedness Test, the Restatement Test, and the Rogers Test. The “Relatedness” moniker should be self-explanatory even at this early point in our discussion; the propriety of the other two names will become clear shortly. For our purposes, we will refer to the test as the Rogers Test. 18 For support, the Rogers court looked to California and New York case law. Frosch v. Grosset & Dunlap, Inc., 75 A.D.2d 768, 427 N.Y.S.2d 828, 829 (1980) (“It is enough that the book is a literary work and not simply a disguised commercial advertisement for the sale of goods or services.”); Guglielmi v. Spelling–Goldberg Prods., 25 Cal.3d 860, 160 Cal.Rptr. 352, 603 P.2d 454, 457 n. 6 (1979) (“Such statements establish that this is not a case in which the use is wholly unrelated to the individual.... [T]his is not a case in which a celebrity's name is used to promote or endorse a collateral commercial product or is otherwise associated with a product or service in an advertisement.”). 19 Still, it bears noting that while the Rogers Test was arguably forged in the crucible of trademark law—and the Rogers court appeared to consult trademark principles for inspiration—the court also pointed out that “the right of publicity, unlike the Lanham Act, has no likelihood of confusion requirement” and is therefore “potentially more expansive than the Lanham Act.” Rogers v. Grimaldi, 875 F.2d 994, 1004 (2d Cir.1989). 20 In Hustler Magazine, Inc. v. Falwell, 485 U.S. 46, 108 S.Ct. 876, 99 L.Ed.2d 41 (1988), the Supreme Court clarified its holding in Zacchini v. Scripps–Howard Broadcasting Co., 433 U.S. 562, 97 S.Ct. 2849, 53 L.Ed.2d 965 (1977), as standing for the proposition that “the ‘actual malice’ standard does not apply to the tort of appropriation of a right of publicity.” Hustler, 485 U.S. at 52, 108 S.Ct. 876. 21 To be fair, the ETW court did briefly mention the Rogers decision before engaging in a lengthy discussion of the RESTATEMENT (THIRD) OF UNFAIR COMPETITION, ultimately concluding that the Restatement stood for the rather mundane principle that a right of publicity implicates a balancing test. ETW Corp., 332 F.3d at 930–36. As we noted above, the balancing utilized by the ETW court was the Transformative Use Test. 22 We recognize that in Brown v. Elec. Arts, No. 2:09–cv–01598–FMC–RZ, 2009 WL 8763151 (C.D.Cal. Sept. 23, 2009), the District Court applied the Rogers test in analyzing another EA sports game: Madden NFL. Note, however, that the case did not involve a right of publicity claim, but a claim under the Lanham Act. Id. at *1–2. 23 Unlike in New Jersey, California's right of publicity is a matter of both the state's statutory law and its common law. Laws v. Sony Music Entm't, Inc., 448 F.3d 1134, 1138 (9th Cir.2006) (discussing both the statutory and the common law cause of action); see also Cal. Civ.Code § 3344; Eastwood v. Superior Court, 149 Cal.App.3d 409, 198 Cal.Rptr. 342, 347 (1983). This difference notwithstanding, the laws are strikingly similar—and protect similar interests. Under California law, “any person who knowingly uses another's name ... or likeness, in any manner, or in any products, merchandise, or goods, or for the purposes of advertising or selling, or soliciting purchases of ... shall be liable for any damages sustained by the person or persons injured as a result thereof.” Cal. Civ.Code § 3344(a). In the words of the California Supreme Court, “the right of publicity is essentially an economic right. What the right of publicity holder possesses is not a right of , but a right to prevent others from misappropriating the economic value generated by the celebrity's fame....” Comedy III, 106 Cal.Rptr.2d 126, 21 P.3d at 807. This is analogous to the conceptualization of the right of publicity in New Jersey, and we consequently see no issue in applying balancing tests developed in California to New Jersey. 24 The court in Comedy III also added an ancillary question to its inquiry: “does the marketability and economic value of the challenged work derive primarily from the fame of the celebrity depicted?” Comedy III, 106 Cal.Rptr.2d 126, 21 P.3d at

206 Hart v. Electronic Arts, Inc., 717 F.3d 141 (2013) 107 U.S.P.Q.2d 1001, 41 Media L. Rep. 1985 810. If not, then “there would generally be no actionable right of publicity.” Id. However, the inverse is not necessarily true: even if the work does derive its value principally from the celebrity's depiction, “it may still be a transformative work.” Id. 25 The Winter court also found unpersuasive arguments that the comic books were marketed by “trading on [the brothers'] likenesses and reputations to generate interest in the comic book series.” Winter v. DC Comics, 30 Cal.4th 881, 134 Cal.Rptr.2d 634, 69 P.3d 473, 479 (2003). The court held that considerations of marketing strategy were “irrelevant” because the “question is whether the work is transformative, not how it is marketed.” Id. 26 According to the decision, members of No Doubt participated in a full-day motion capture photography session at Activision's studios so that the band members' Band Hero avatars would accurately reflect their appearances, movements, and sounds. No Doubt then closely reviewed the motion capture photography and the details related to the appearance and features of their avatars to ensure the representations would meet with approval. The end results are avatars that closely match the appearance of each of the No Doubt band members. No Doubt, 122 Cal.Rptr.3d at 402. 27 For support, the No Doubt court relied on the Ninth Circuit's decision in Hilton v. Hallmark Cards, where our sister court held that a greeting card depicting Paris Hilton's head on a cartoon waitress accompanied by the line “that's hot” was not transformative and thus infringed on Hilton's right of publicity. 599 F.3d 894, 911 (9th Cir.2010) (“While a work need not be phantasmagoric as in Winter or fanciful as in Kirby in order to be transformative, there is enough doubt as to whether Hallmark's card is transformative under our case law that we cannot say Hallmark is entitled to the defense....”). 28 Before moving on, it behooves us to mention a pair of cases decided in the Northern District of California: Davis v. Elec. Arts Inc., No. 10–cv–03328, 2012 WL 3860819 (N.D.Cal. Mar. 29, 2012); Keller v. Elec. Arts, Inc., No. 09–cv–01967, 2010 WL 530108 (N.D.Cal. Feb. 8, 2010). Both cases concern right of publicity claims asserted against EA for use of football players' likenesses in their game franchises. Davis related to EA's Madden NFL games while Keller is simply our own case incarnated in California. In both disputes the court applied the Transformative Use Test, and in both instances the court decided that EA's use of the players' likenesses failed the Test. Davis, 2012 WL 3860819, at *5–6; Keller, 2010 WL 530108, at *3–5. We note these cases in passing only because they are both currently on appeal before the Ninth Circuit and we feel it imprudent to rely too heavily on decisions that our sister court is still considering. 29 While we acknowledge that the test in Comedy III included a question as to whether the “marketability and economic value of [the work] derive primarily from the fame of the celebrities depicted,” Comedy III, 106 Cal.Rptr.2d 126, 21 P.3d at 810, we note that this is a secondary question. The court in Comedy III rightly recognized that the balancing inquiry suggested by the Supreme Court in Zacchini cannot start and stop with commercial purpose or value. 30 While the Predominant Use Test may appear to accomplish the same task, we think it does not. In point of fact, it merely looks to the expressive “value” of a celebrity's identity, not its use, vis-à-vis the challenged work. 31 The Supreme Court of California affirmed the lower court's decision to dismiss the case without engaging with the right of publicity claim beyond noting that the right “expires upon the death of the person so protected.” Guglielmi, 160 Cal.Rptr. 352, 603 P.2d at 455. The Chief Justice's concurring opinion, joined by a majority of the court, provided a full analysis of the issue, and in subsequent years has been treated as the Court's majority opinion. See Comedy III, 106 Cal.Rptr.2d 126, 21 P.3d at 803 (citing the Guglielmi concurrence while noting that “[a] majority of this court” had agreed to its reasoning); see also Guglielmi, 160 Cal.Rptr. 352, 603 P.2d at 464 (Newman, J., concurring) (“I concur in the discussion in the Chief Justice's opinion that sets forth principles for determining whether an action based on the invasion of an individual's right of publicity may be maintained in the face of a claim that the challenged use is an exercise of freedom of expression.”). 32 After noting that the movie was protected despite being a work of fiction that was made for profit, Guglielmi, 160 Cal.Rptr. 352, 603 P.2d at 458–59, Chief Justice Bird rejected the contention that defendants “could have expressed themselves without using [the actor's] name and likeness,” arguing that “[n]o author should be forced into creating mythological worlds or characters wholly divorced from reality. The right of publicity derived from public prominence does not confer a shield to ward off caricature, parody and satire. Rather, prominence invites creative comment.” Id., 160 Cal.Rptr. 352, 603 P.2d at 459–60. 33 The court's “recognition that defendant's production has some [First Amendment] value,” did not diminish its conclusion that “the primary purpose of defendant's activity [was] to appropriate the commercial value of the likeness of Elvis Presley.” Russen, 513 F.Supp. at 1360. In this regard the court analogized the case to Zacchini, holding that the Elvis impersonator

207 Hart v. Electronic Arts, Inc., 717 F.3d 141 (2013) 107 U.S.P.Q.2d 1001, 41 Media L. Rep. 1985 had “appropriated the ‘very activity [live stage show] by which [Presley initially] acquired his reputation.” Id. at 1361 (alteration in original). 34 The Tenth Circuit also considered the economic incentives underlying the right of publicity. See Cardtoons, 95 F.3d at 973–74. After a close examination, the court recognized only one principal benefit for celebrities from having control over works of parody: “control over the potential effect the parody would have on the market for nonparodic use of one's identity.” Id. at 974. However, the court quickly added that parody “rarely acts as a market substitute for the original.” Id. As a consequence, the court ruled in favor of the card manufacturer. 35 We note here that, by our reading, the Transformative Use Test best comports with the language in RESTATEMENT (THIRD) OF UNFAIR COMPETITION § 47 cmt. c. While we acknowledge that other courts have read the Restatement as adopting the Rogers Test, we believe that the various examples listed in Comment C all exemplify the sort of transformative uses that would generally pass the analysis set forth in Comedy III. 36 Indeed, in compiling its non-exhaustive list of “transformative elements or creative components,” the Comedy III court looked for examples from previous decisions—including Guglielmi, Cardtoons, and even Parks. See Comedy III, 106 Cal.Rptr.2d 126, 21 P.3d at 809–10. 37 This joint focus on both likeness and identifying information avoids a conflict with C.B.C. Distribution & Mktg., Inc. v. Major League Baseball Advanced Media, L.P., 505 F.3d 818 (8th Cir.2007), which held that use of major league baseball players' records in a fantasy baseball game was protected by the First Amendment even against right of publicity claims because such information was publicly available. Id. at 823–24. The presence of a digital avatar that recreates Appellant in a digital medium differentiates this matter from C.B.C. 38 It remains an open question, however, whether right of publicity claims can extend into the bygone days of 8–bit graphics and pixilated representations. 39 It is no answer to say that digitizing Appellant's appearance in and of itself works a transformative use. Recreating a celebrity's likeness or identity in some medium other than photographs or video cannot, without more, satisfy the test; this would turn the inquiry on its head—and would contradict the very basis for the Transformative Use Test. See, e.g., Comedy III, 106 Cal.Rptr.2d 126, 21 P.3d at 809 (applying the Transformative Use Test to charcoal drawings of the Three Stooges); see also Estate of Presley v. Russen, 513 F.Supp. 1339, 1359 (D.N.J.1981) ( “[E]ntertainment that is merely a copy or imitation, even if skillfully and accurately carried out, does not really have its own creative component and does not have a significant value as pure entertainment.”). 40 To be clear, the District Court focused specifically on the ability to alter the digital avatars, not on the alterations themselves: [I]t is not the user's alteration of Hart's image that is critical. What matters for my analysis of EA's First Amendment right is that EA created the mechanism by which the virtual player may be altered, as well as the multiple permutations available for each virtual player image. Hart, 808 F.Supp.2d at 785. That is, the court below did not look to the users' creations as proxies for Appellee's expression. While we disagree with its final decision, we agree with the District Court's careful navigation of this point. 41 We note, too, that all games are interactive—that is a product of the medium. Identifying an interactive feature that acts upon the celebrity's likeness, therefore, is only the first step in the analysis. 42 The other side of this coin is equally true: interactivity is not the sine qua non of transformative use. Works involving video games may still be transformative even where no specific interactive features affect the celebrity likeness. See, e.g., Kirby v. Sega of Am., Inc., 144 Cal.App.4th 47, 50 Cal.Rptr.3d 607 (2006). 43 We do not discount the possibility that such a game—given the juxtaposition of spiritual leaders and the hyper violence of certain modern video games—could still pass the Transformative Use Test on other grounds. 44 We set aside the “Dynasty” and “Campus Legends” game modes in this inquiry. We see no legally significant difference between these modes and the ability in Band Hero to select alternative avatars to represent the players or to allow members of No Doubt to play with other bands or sing other musicians' songs. See No Doubt, 122 Cal.Rptr.3d at 401. 45 Admittedly, just as the presence of a photorealistic depiction of a celebrity cannot be the end of the inquiry, the mere fact that Appellant's likeness is the default appearance of the avatar cannot, without more, end our analysis. It is merely another factor to consider in the balancing exercise.

208 Hart v. Electronic Arts, Inc., 717 F.3d 141 (2013) 107 U.S.P.Q.2d 1001, 41 Media L. Rep. 1985 46 As we have already discussed, the broader context of NCAA Football does not transform Appellant's likeness into anything other than a digital representation of Appellant playing the sport for which he is known, while surrounded by the trappings of real-world competition. 47 There can be no doubt that video games such as NCAA Football are the product of great effort, skill, and creative and technical prowess. As the Supreme Court noted in Brown, video games convey messages and expressive content in a way that is similar to prior media for expression. Brown v. Entm't Merchs. Ass'n, ––– U.S. ––––, 131 S.Ct. 2729, 2733, 180 L.Ed.2d 708 (2011). At the same time, games open new avenues through which artists and speakers can express their opinions and observations—by playing the game, a user is integrated into the expressive work in a way that has never before been achieved. Surely, then, the First Amendment protects video games in the first instance, and nothing in our decision today should be read to diminish this fact. Rather, our inquiry looked to whether other interests may surmount the First Amendment protection—as they can surmount protections for other modes of expression. In finding that NCAA Football failed to satisfy the Transformative Use Test, we do not hold that the game loses First Amendment protection. We merely hold that the interest protected by the right of publicity in this case outweighs the Constitutional shield. 1 That said, most outside Rutgers do not know that quarterback # 13 is Ryan Hart. They did not know that in 2005, and even today many, if not most, Rutgers fans no longer connect # 13 with Hart. Fame fades so quickly we call it fleeting. Even nostalgic memories nod off. For example, name the BYU quarterback when it was college football's national champion in 1984. (Hint: it wasn't Ty Detmer.). 2 See generally Taylor Branch, The Shame of College Sports, The Atlantic, Oct. 2011, at 80–110 (lambasting NCAA “amateurism” and “student-athlete” policies as “legalistic confections propagated by the universities so they can exploit the skills and fame of young athletes,” and discussing lawsuits challenging these policies); see also Alexander Wolff, When Worlds Collide, Sports Illustrated, Feb. 11, 2013, at 18; Joe Nocera, Pay Up Now, N.Y. Times Mag., Jan. 1, 2012, at 30–35 (advocating payment of college athletes to alleviate “[t]he hypocrisy that permeates big-money college sports” arising from amateurism rules). 3 While the Winter decision makes several references to the physical differences between the plaintiffs and their likenesses, these statements were made with respect to the Court's conclusion that “the portrayals do not greatly threaten plaintiffs' right of publicity” insofar as they were unlikely to decrease their commercial value. 134 Cal.Rptr.2d 634, 69 P.3d at 479. Similarly, there is no real contention that NCAA Football is harming ticket sales of college football games or decreasing Hart's commercial value; if anything, it seems more likely that both have been augmented by the popularity of EA's video games. 4 The majority opinion relies heavily on two lower court decisions in California considering the right of publicity in the video game context, No Doubt v. Activision Publishing, Inc., 192 Cal.App.4th 1018, 122 Cal.Rptr.3d 397 (2011), and Kirby v. Sega of America, Inc., 144 Cal.App.4th 47, 50 Cal.Rptr.3d 607 (2006). I do not consider these cases particularly instructive, as they were not decided by the architect of the Transformative Use Test, the Supreme Court of California. Thus, I do not attempt to explain or distinguish their holdings except to note that I believe No Doubt, which focused on individual depictions rather than the work in its entirety, was wrongly decided in light of the prior precedent in Comedy III and Winter. 5 While my colleagues acknowledge the need for uniform First Amendment treatment of different mediums in the abstract [Majority Op. at 165], it is difficult to reconcile their actual application of the Transformative Use Test to the video game here with the above-cited cases. 6 As recognized by my colleagues, then-Chief Justice Bird's views in Guglielmi commanded the support of the majority of the California Supreme Court, and were relied on by the Comedy III Court to guide its definition of the Transformative Use Test. [Majority Op. at 164 n.31.]. 7 In devising the Transformative Use Test, the California Supreme Court borrowed from “the purpose and character of the use” factor relevant to a copyright fair use defense, see 17 U.S.C. § 107(1), yet it rejected “a wholesale importation of the fair use doctrine into right of publicity law,” Comedy III, 106 Cal.Rptr.2d 126, 21 P.3d at 807. Nonetheless, it appears my colleagues permit another fair use factor to creep into their transformative analysis. Namely, their focus on the marketability of NCAA Football seems colored by the factor considering “the effect of the use upon the potential market for or value of the copyrighted work,” see 17 U.S.C. § 107(4), notwithstanding that this element was expressly excluded from Comedy III 's articulation of the Transformative Use Test, see 106 Cal.Rptr.2d 126, 21 P.3d at 808 n. 10. Further, even if consideration of “market effect” were appropriate in a transformative analysis, I do not believe this factor

209 Hart v. Electronic Arts, Inc., 717 F.3d 141 (2013) 107 U.S.P.Q.2d 1001, 41 Media L. Rep. 1985 would weigh in favor of finding an infringing use here because, as pointed out supra note 3, there is no contention that EA's inclusion of Hart's likeness in NCAA Football has caused a decline in the commercial value of his identity or persona.

End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works.

210 Keller v. Electronics Arts, Inc., Not Reported in F.Supp.2d (2010) 94 U.S.P.Q.2d 1130, 38 Media L. Rep. 1353

EA, a Delaware corporation with a principal place of 2010 WL 530108 business in California, develops interactive entertainment United States District Court, software. It produces, among other things, the “NCAA N.D. California. Football” series of video games. In the games, consumers Samuel Michael KELLER, on behalf of himself can simulate football matches between college and and all others similarly situated, Plaintiff, university teams. Plaintiff alleges that, to make the games realistic, EA designs the virtual football players v. to resemble real-life college football athletes, including ELECTRONIC ARTS, INC.; National himself. He claims that these virtual players are nearly Collegiate Athletics Association; and identical to their real-life counterparts: they share the Collegiate Licensing Company, Defendants. same jersey numbers, have similar physical characteristics and come from the same home state. To enhance the No. C 09–1967 CW. accuracy of the player depictions, Plaintiff alleges, EA | sends questionnaires to team equipment managers of Feb. 8, 2010. college football teams. Although EA omits the real-life athletes' names from “NCAA Football,” Plaintiff asserts that consumers may access online services to download ORDER ON DEFENDANTS' MOTIONS team rosters and the athletes' names, and upload them TO DISMISS (Docket Nos. 34, 47, 48) AND into the games. Plaintiff claims that, in recent iterations, ELECTRONIC ARTS' ANTI–SLAPP EA has included features that facilitate the upload of this MOTION TO STRIKE (Docket No. 35) information. CLAUDIA WILKEN, District Judge. Plaintiff alleges that EA uses his likeness without his *1 Defendants Electronic Arts, Inc. (EA), the National consent. He asserts that NCAA, an unincorporated Collegiate Athletics Association (NCAA) and the association based in Indiana, and CLC, a Georgia Collegiate Licensing Company (CLC) move separately to corporation headquartered in Atlanta, facilitated this use. dismiss Plaintiff Samuel Michael Keller's claims against Plaintiff claims that EA, NCAA and CLC met at NCAA's them. EA also moves to strike Plaintiff's claims against it Indiana headquarters and EA's California headquarters pursuant to California Civil Code section 425.16 (Docket to negotiate the agreements that underlie the alleged No. 35). Plaintiff opposes the motions. As amici curiae, misconduct. James “Jim” Brown and Herbert Anthony Adderley filed a brief in opposition to EA's motion to dismiss. Plaintiff alleges other misconduct by NCAA and CLC, The motions were heard on December 17, 2009. Having related to NCAA's amateurism rules. Plaintiff maintains considered all of the papers submitted by the parties, the that NCAA's approval of EA's games violates NCAA's Court DENIES EA's Motion to Dismiss (Docket No. 34), “duty to NCAA athletes to honor its own rules prohibiting GRANTS NCAA's Motion in part and DENIES it in part the use of student likenesses....” Compl. ¶ 15. He cites (Docket No. 48), DENIES CLC's Motion (Docket No. NCAA Bylaw 12.5, which prohibits the commercial 47) and DENIES EA's Motion to Strike (Docket No. 35). licensing of the “name, picture or likeness” of athletes at NCAA-member institutions. Compl. ¶ 13. Plaintiff asserts that CLC must honor NCAA's prohibitions on the use of student likenesses. BACKGROUND

Plaintiff is a former starting quarterback for the Arizona *2 Plaintiff charges NCAA with violations of Indiana's State University and University of Nebraska football right of publicity statute, civil conspiracy and breach of teams. contract. He charges CLC with civil conspiracy and . Against EA, he pleads claims for violations

211 Keller v. Electronics Arts, Inc., Not Reported in F.Supp.2d (2010) 94 U.S.P.Q.2d 1130, 38 Media L. Rep. 1353 of California's statutory and common law rights of living or deceased person whose image and likeness have publicity, civil conspiracy, violation of California's Unfair commercial value. Id. § 32–36–1–6. Indiana Code section Competition Law and unjust enrichment. He intends to 32–36–1–8 provides, move to certify his case as a class action and seeks, among other things, damages and an injunction prohibiting the A person may not use an aspect of a personality's future use of his and putative class members' likenesses. right of publicity for a commercial purpose during the personality's lifetime or for one hundred (100) years after the date of the personality's death without having obtained previous written consent from a person .... LEGAL STANDARD (emphasis added). A complaint must contain a “short and plain statement of the claim showing that the pleader is entitled to Although the parties do not offer controlling authority relief.” Fed.R.Civ.P. 8(a). Dismissal under Rule 12(b)(6) on this point, the plain language of the statute favors for failure to state a claim is appropriate only when the NCAA's position. Plaintiff argues that NCAA's liability complaint does not give the defendant fair notice of a under Indiana law arises from its knowing approval of legally cognizable claim and the grounds on which it rests. EA' s use of his likeness. This interpretation expands Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. liability under the Indiana statute to include persons who 1955, 167 L.Ed.2d 929 (2007). In considering whether the enable right of publicity violations. However, Plaintiff complaint is sufficient to state a claim, the court will take does not offer any authority to show that section 32–36–1– all material allegations as true and construe them in the 8 encompasses this type of misconduct. The Court declines light most favorable to the plaintiff. NL Indus., Inc. v. to adopt Plaintiff's interpretation. Kaplan, 792 F.2d 896, 898 (9th Cir.1986). However, this principle is inapplicable to legal conclusions; “threadbare *3 Plaintiff makes a related argument that NCAA should recitals of the elements of a cause of action, supported be held liable under Indiana's right of publicity statute by mere conclusory statements,” are not taken as true. as a co-conspirator of EA, which used his likeness. He Ashcroft v. Iqbal, ––– U.S. ––––, 129 S.Ct. 1937, 1949–50, cites cases that provide that co-conspirators can be held 173 L.Ed.2d 868 (2009) (citing Twombly, 550 U.S. at 555). liable as joint tortfeasors for damages caused by another co-conspirator. See, e.g., Applied Equip. Corp. v. Litton Saudi Arabia Ltd., 7 Cal.4th 503, 511, 28 Cal.Rptr.2d 475, DISCUSSION 869 P.2d 454 (1994); Boyle v. Anderson Fire Fighters Ass'n Local 1262, 497 N.E.2d 1073, 1079 (Ind.Ct.App.1986). I. Indiana Right of Publicity Claim However, these cases are inapposite because Plaintiff has Plaintiff alleges that NCAA violated his Indiana right of not alleged that either EA or CLC, NCAA's alleged co- publicity. He argues that Indiana law applies to NCAA conspirators, violated Indiana's right of publicity statute. because its headquarters are located in Indiana and the alleged violation occurred in Indiana. NCAA argues Plaintiff's Indiana right of publicity claim against NCAA that Plaintiff's claim fails as a matter of law because is dismissed with leave to amend to allege that NCAA used he does not allege that it used his image or likeness. his likeness or conspired with others to violate his right of Plaintiff responds that NCAA used his likeness because it publicity under Indiana law. “expressly reviewed and knowingly approved each version of each NCAA-brand videogame....” Opp'n to NCAA's Mot. to Dismiss at 4. II. California Right of Publicity Claims California's right of publicity statute provides, Under Indiana law, personalities have a property Any person who knowingly uses interest in, among other things, their images and another's name, voice, signature, likenesses. Ind.Code § 32–36–1–7. A personality is a photograph, or likeness, in any

212 Keller v. Electronics Arts, Inc., Not Reported in F.Supp.2d (2010) 94 U.S.P.Q.2d 1130, 38 Media L. Rep. 1353 manner, on or in products, DC Comics, 30 Cal.4th 881, 885, 134 Cal.Rptr.2d 634, 69 merchandise, or goods, or for P.3d 473 (2003)) (internal quotation marks omitted). purposes of advertising or selling, or soliciting purchases of, products, *4 To determine whether a work is transformative, a merchandise, goods or services, court must inquire into without such person's prior consent ... shall be liable for any whether the celebrity likeness is one damages sustained by the person or of the “raw materials” from which persons injured as a result thereof. an original work is synthesized, or whether the depiction or imitation Cal. Civ.Code § 3344(a). The statutory right of publicity of the celebrity is the very sum and complements the common law right of publicity, which substance of the work in question. arises from the misappropriation tort derived from the We ask, in other words, whether law of privacy. See Comedy III Prods., Inc. v. Saderup, a product containing a celebrity's 25 Cal.4th 387, 391, 106 Cal.Rptr.2d 126, 21 P.3d 797 likeness is so transformed that it has (2001). To state a claim under California common law, become primarily the defendant's a plaintiff must allege “ ‘(1) the defendant's use of the own expression rather than the plaintiff's identity; (2) the appropriation of plaintiff's name celebrity's likeness. And when we or likeness to defendant's advantage, commercially or use the word “expression,” we mean otherwise; (3) lack of consent; and (4) resulting injury.’ “ expression of something other than Hilton v. Hallmark Cards, 580 F.3d 874, 889 (9th Cir.2009) the likeness of the celebrity. (quoting Downing v. Abercrombie & Fitch, 265 F.3d 994, 1001 (9th Cir.2001)). Although the statutory and common Comedy III, 25 Cal.4th at 406, 106 Cal.Rptr.2d 126, law rights are similar, there are differences. For example, 21 P.3d 797. “An artist depicting a celebrity must to state a claim under section 3344, a plaintiff must prove contribute something more than a merely trivial variation, knowing use in addition to satisfying the elements of but create something recognizably his own, in order a common law claim. Kirby v. Sega of Am., Inc., 144 to qualify for legal protection.” Winter, 30 Cal.4th at Cal.App.4th 47, 55, 50 Cal.Rptr.3d 607 (2006). 888, 134 Cal.Rptr.2d 634, 69 P.3d 473 (quoting Comedy III, 25 Cal.4th at 408, 106 Cal.Rptr.2d 126, 21 P.3d EA does not contest the sufficiency of Plaintiff's claims. 797) (internal quotation and editing marks omitted). It asserts, however, that his right of publicity claims are The analysis “simply requires the court to examine barred by the First Amendment and California law. The and compare the allegedly expressive work with the Court considers and rejects each of these defenses in turn. images of the plaintiff to discern if the defendant's work contributes significantly distinctive and expressive content.” Kirby, 144 Cal.App.4th at 61, 50 Cal.Rptr.3d A. Transformative Use Defense 1 607. “If distinctions exist, the First Amendment bars A defendant may raise an affirmative defense that the claims based on appropriation of the plaintiff's identity or challenged work is “protected by the First Amendment likeness; if not, the claims are not barred.” Id. inasmuch as it contains significant transformative elements or that the value of the work does not Two California Supreme Court cases “bookend the derive primarily from the celebrity's fame.” Hilton, 580 spectrum” used to measure a work's transformative F.3d at 889 (quoting Comedy III, 25 Cal.4th at 407, nature. Hilton, 580 F.3d at 890–91. On one end, Comedy 106 Cal.Rptr.2d 126, 21 P.3d 797) (internal quotation III provides an example of a nontransformative work. marks omitted). The defense “poses what is essentially a There, the defendant's “literal, conventional depictions of balancing test between the First Amendment and the right The Three Stooges,” drawn in charcoal and printed on of publicity.” Hilton, 580 F.3d at 889 (quoting Winter v. tee-shirts, did not contain transformative elements that warranted protection by the First Amendment. Comedy

213 Keller v. Electronics Arts, Inc., Not Reported in F.Supp.2d (2010) 94 U.S.P.Q.2d 1130, 38 Media L. Rep. 1353 III, 25 Cal.4th at 409, 106 Cal.Rptr.2d 126, 21 P.3d 797. the quarterback for Arizona State University shares many Interpreting Comedy III, the Ninth Circuit stated that of Plaintiff's characteristics. For example, the virtual “it is clear that merely merchandising a celebrity's image player wears the same jersey number, is the same height without that person's consent ... does not amount to a and weight and hails from the same state. EA's depiction transformative use.” Hilton, 580 F.3d at 890. of Plaintiff is far from the transmogrification of the Winter brothers. EA does not depict Plaintiff in a different Winter offers the opposite bookend. There, a comic book form; he is represented as he what he was: the starting publisher depicted two musicians, Johnny and Edgar quarterback for Arizona State University. Further, unlike Winter, as half-human, half-worm cartoon characters. in Kirby, the game's setting is identical to where the public Winter, 30 Cal.4th at 890, 134 Cal.Rptr.2d 634, 69 P.3d found Plaintiff during his collegiate career: on the football 473. The court affirmed summary judgment in favor of field. the defendant, holding that the images were sufficiently transformative. The court stated, EA asserts that the video game, taken as a whole, contains transformative elements. However, the broad view EA Although the fictional characters asks the Court to take is not supported by precedent. Johnny and Edgar Autumn are less- In Winter, the court focused on the depictions of the than-subtle evocations of Johnny plaintiffs, not the content of the other portions of the and Edgar Winter, the books do not comic book. The court in Kirby did the same: it compared depict plaintiffs literally. Instead, Ulala with the plaintiff; its analysis did not extend beyond plaintiffs are merely part of the the game's elements unrelated to Ulala. These cases show raw materials from which the comic that this Court's focus must be on the depiction of Plaintiff books were synthesized. in “NCAA Football,” not the game's other elements.

Id. Accordingly, at this stage, EA's transformative use defense fails. Using Comedy III and Winter as guideposts, Kirby applied the transformative use analysis to a video game. There, the court held that the main character in the defendant's video B. Public Interest Defense game was transformed. The plaintiff was a musician and “Under California law, ‘no cause of action will lie for the dancer, known for saying the phrase “ooh la la.” Kirby, publication of matters in the public interest, which rests 144 Cal.App.4th at 50–51, 50 Cal.Rptr.3d 607. Ulala, on the right of the public to know and the freedom of the the main character in the defendant's game, worked as a press to tell it.’ “ Hilton, 580 F.3d at 892 (quoting Montana news reporter in the twenty-fifth century, “dispatched to v. San Jose Mercury News, Inc., 34 Cal.App.4th 790, 793, investigate an invasion of Earth.” Id. at 52, 50 Cal.Rptr.3d 40 Cal.Rptr.2d 639 (1995)). “ ‘Public interest attaches to 607. Although there were similarities between the two, people who by their accomplishments or mode of living the court held Ulala to be “more than a mere likeness or create a bona fide attention to their activities.’ “ Hilton, literal depiction of Kirby.” Id. at 59, 50 Cal.Rptr.3d 607. 580 F.3d at 892 (quoting Dora v. Frontline Video, Inc. ., 15 “Ulala contains sufficient expressive content to constitute Cal.App.4th 536, 542, 18 Cal.Rptr.2d 790 (1993)). a ‘transformative work’ under the test articulated by the [California] Supreme Court.” Id. In particular, Ulala was In Gionfriddo v. Major League Baseball, the court held extremely tall and wore clothing that differed from the that the defendants were entitled to the public interest plaintiff's and the setting for the game was unlike any in defense. 94 Cal.App.4th 400, 415, 114 Cal.Rptr.2d 307 which she had appeared. Id. (2001). There, the plaintiffs, four former baseball players, claimed that the defendants' use of their names and *5 Here, EA's depiction of Plaintiff in “NCAA Football” statistics violated their rights of publicity. Id. at 405–07, is not sufficiently transformative to bar his California 114 Cal.Rptr.2d 307. Their information appeared on a right of publicity claims as a matter of law. 2 In the game, website, which reported historical team rosters and listed

214 Keller v. Electronics Arts, Inc., Not Reported in F.Supp.2d (2010) 94 U.S.P.Q.2d 1130, 38 Media L. Rep. 1353 names of players who won awards during each season. Id. (“Entertainment features receive the same constitutional at 406, 114 Cal.Rptr.2d 307. The defendants also included protection as factual news reports.”). But it does not still photographs of the plaintiffs from their playing days follow that these protections are absolute and always in video documentaries. Id. The court characterized these trump the right of publicity. uses as “simply making historical facts available to the public through game programs, Web sites and video EA cites cases in which courts held that the public clips.” Id. at 411, 114 Cal.Rptr.2d 307. Because the public interest exception protected online fantasy baseball had an interest in the plaintiffs' athletic performance, the and football games. Although these games are more First Amendment protected the “recitation and discussion analogous to “NCAA Football,” the cases are nonetheless of [their] factual data.” Id. distinguishable. In C.B.C. Distribution and Marketing v. Major League Baseball Advanced Media, a declaratory The public interest defense also applied in Montana. judgment action, the plaintiff sold “fantasy baseball There, the defendant newspaper sold posters containing products” that included the names and statistics of reproductions of newspaper pages reporting on the San major league baseball players. 505 F.3d 818, 820–21 Francisco 49ers' win in the 1990 Super Bowl; these (8th Cir.2007). Through these products, consumers could pages contained images of the plaintiff. 34 Cal.App.4th form fantasy baseball teams and compete with other at 792, 40 Cal.Rptr.2d 639. The plaintiff conceded that users. Id. at 820. “A participant's success ... depend[ed] the original newspaper accounts were protected by the on the actual performance of the fantasy team's players First Amendment, but challenged their reproduction as on their respective actual teams during the course of posters. Id. at 794, 40 Cal.Rptr.2d 639. The court held that the major league baseball season.” Id. at 820–21. The the posters were entitled to the same First Amendment defendant counterclaimed, arguing that these products protection as the original news stories. The court stated, violated players' rights of publicity. The court disagreed. It analogized the case to Gionfriddo, and held that the use *6 Montana's name and likeness of the players' information in the fantasy game was a “ appeared in the posters for precisely ‘recitation and discussion’ “ of the players' information. the same reason they appeared Id. at 823–24 (quoting Gionfriddo, 94 Cal.App.4th at 411, on the original newspaper front 114 Cal.Rptr.2d 307). pages: because Montana was a major player in contemporaneous C.B.C. Distribution is inapplicable here. Success in newsworthy sports events. Under “NCAA Football” does not depend on updated reports these circumstances, Montana's of the real-life players' progress during the college football claim that SJMN used his face season. Further, EA's game provides more than just the and name solely to extract the players' names and statistics; it offers a depiction of the commercial value from them fails. student athletes' physical characteristics and, as noted, enables consumers to control the virtual players on a Id. (emphasis in original). Citing Montana, the Ninth simulated football field. EA' s use of Plaintiff's likeness Circuit stated that the public interest defense “is about ... goes far beyond what the court considered in C.B.C. publication or reporting.” Hilton, 580 F.3d at 892. Distribution. “NCAA Football” is unlike the works in Gionfriddo EA is not entitled to the public interest defense on this and Montana. The game does not merely report or motion. publish Plaintiff's statistics and abilities. On the contrary, EA enables the consumer to assume the identity of various student athletes and compete in simulated college C. Section 3344(d) Exemption football matches. EA is correct that products created for *7 California Civil Code section 3344(d) provides a entertainment deserve constitutional protection. See, e.g., public affairs exemption to the statutory right of publicity. Gionfriddo, 94 Cal.App.4th at 410, 114 Cal.Rptr.2d 307 It exempts from liability under section 3344 “a use of a

215 Keller v. Electronics Arts, Inc., Not Reported in F.Supp.2d (2010) 94 U.S.P.Q.2d 1130, 38 Media L. Rep. 1353 name ... or likeness in connection with any news, public on subject matter considered “public affairs,” EA is affairs, or sports broadcast or account, or any political not entitled to the statutory defense because its use of campaign.” Cal. Civ.Code § 3344(d). This exemption is Plaintiff's image and likeness extends beyond reporting not coextensive with the public interest defense; it “is information about him. designed to avoid First Amendment questions in the area of misappropriation by providing extra breathing space Accordingly, Plaintiff's California statutory and common for the use of a person's name in connection with matters law right of publicity claims are not barred as a matter of of public interest.” New Kids on the Block v. News Am. law. III. Civil Conspiracy Claims Pub., Inc., 971 F.2d 302, 310 n. 10 (9th Cir.1992) (citing Eastwood v. Superior Court, 149 Cal.App.3d 409, 421, 198 Defendants move separately to dismiss Plaintiff's civil Cal.Rptr. 342 (1983)). conspiracy claims. All challenge the sufficiency of Plaintiff's claims, arguing that he does not plead an In Dora v. Frontline Video, Inc., a California court held underlying tort, which is a necessary element. CLC that section 3344(d) barred a plaintiff's statutory right of separately asserts the agent immunity defense. publicity claim. 15 Cal.App.4th at 546, 18 Cal.Rptr.2d 790. The defendant's documentary on surfing contained, *8 Plaintiff did not specify the state law under which among other things, the plaintiff's name and likeness. Id. his civil conspiracy claims arise. For the purposes of this at 540, 18 Cal.Rptr.2d 790. The court held that this use motion, the Court assumes that his claims arise under was exempted by section 3344(d) because the plaintiff's California law. name and likeness were used in connection with public affairs. In doing so, the court addressed the meaning of “public affairs.” The court distinguished “public affairs” A. Sufficiency of the Claims from “news,” stating that “ ‘public affairs' was intended Civil conspiracy “is not a cause of action, but a legal to mean something less important than news.” Dora, 15 doctrine that imposes liability on persons who, although Cal.App.4th at 545, 18 Cal.Rptr.2d 790. Thus, the subject not actually committing a tort themselves, share with the matter encompassed by public affairs is not limited “to immediate tortfeasors a common plan or design in its topics that might be covered on public television or public perpetration.” Applied Equipment Corp., 7 Cal.4th at 510, radio.” Id. at 546, 18 Cal.Rptr.2d 790. 28 Cal.Rptr.2d 475, 869 P.2d 454 (citing Wyatt v. Union Mortgage Co., 24 Cal.3d 773, 784, 157 Cal.Rptr. 392, 598 Here, Plaintiff does not dispute EA's contention that P.2d 45 (1979)). “Standing alone, a conspiracy does no college athletics are “public affairs.” He asserts, however, harm and engenders no tort liability. It must be activated by the commission of an actual tort.” Applied Equipment that section 3344(d) only applies to factual reporting. 3 In Corp., 7 Cal.4th at 511, 28 Cal.Rptr.2d 475, 869 P.2d 454. essence, he asserts that section 3344(d) applies to the same type of “reporting” as does the public interest defense. A claim for civil conspiracy consists of three elements: “(1) the formation and operation of the conspiracy, (2) Neither party offered direct authority on the type of wrongful conduct in furtherance of the conspiracy, and use for which the section 3344(d) exemption applies. (3) damages arising from the wrongful conduct.” Kidron However, Montana is instructive. There, the court stated v. Movie Acquisition Corp., 40 Cal.App.4th 1571, 1581, that “the statutory cause of action specifically exempts 47 Cal.Rptr.2d 752 (1995). “The conspiring defendants from liability the use of a name or likeness in connection must ... have actual knowledge that a tort is planned with the reporting of a matter in the public interest.” 34 and concur in the tortious scheme with knowledge of its Cal.App.4th at 793, 40 Cal.Rptr.2d 639 (emphasis added). unlawful purpose.” Id. at 1582, 47 Cal.Rptr.2d 752 (citing Thus, without authority requiring otherwise, the Court Wyatt, 24 Cal.3d at 784–86, 157 Cal.Rptr. 392, 598 P.2d construes section 3344(d) to require the same type of 45). This knowledge must be combined with an intent to activity as the public interest defense discussed above, aid in achieving the objective of the conspiracy. Kidron, 40 4 namely reporting. Although “NCAA Football” is based Cal.App.4th at 1582, 47 Cal.Rptr.2d 752; Schick v. Bach,

216 Keller v. Electronics Arts, Inc., Not Reported in F.Supp.2d (2010) 94 U.S.P.Q.2d 1130, 38 Media L. Rep. 1353 193 Cal.App.3d 1321, 1328, 238 Cal.Rptr. 902 (1987). A claim of unlawful conspiracy must contain “enough fact V. Breach of Contract Claim to raise a reasonable expectation that discovery will reveal NCAA argues that Plaintiff does not state a breach of evidence of illegal agreement .” Twombly, 550 U.S. at contract claim because he has not identified an enforceable 556. A bare allegation that a conspiracy existed does not contract. Because Plaintiff does not specify the state law suffice. Id. under which his claim arises, the Court assumes that California law applies. Plaintiff alleges that there were meetings among Defendants in California and Indiana. Compl. ¶¶ 54–56. To assert a cause of action for breach of contract in He asserts that Defendants knew of NCAA principles California, a plaintiff must plead: (1) existence of a barring the licensing of student-athlete identities, but contract; (2) the plaintiff's performance or excuse for non- nonetheless approved EA's games containing the athletes' performance; the defendant's breach; and (4) damages to likenesses without their consent. Compl. ¶¶ 12–15. Finally, the plaintiff as a result of the breach. Armstrong Petrol. he claims that EA's actions violated his California Corp. v. Tri–Valley Oil & Gas Co., 116 Cal.App.4th 1375, 1391 n. 6, 11 Cal.Rptr.3d 412 (2004). statutory and common law rights of publicity. 5 These factual allegations sufficiently support liability under Plaintiff has not identified a contract that he is seeking 6 Plaintiff's civil conspiracy claim. to enforce. Although he refers to an NCAA document as a contract, he does not attach the document to his complaint. Instead, he states that by signing the B. CLC's Agent Immunity Defense document, the athletes agree that “they have ‘read and CLC maintains that the agent immunity defense bars understand’ the NCAA's rules” and that “to the best of Plaintiff's conspiracy claim against it. This defense [their] knowledge [they] have not violated any amateurism provides that no liability shall lie “if the alleged rules.” Compl. ¶ 14. These phrases, on their own, do not conspirator, though a participant in the agreement indicate that the document is a contract. Plaintiff's breach underlying the injury, was not personally bound by the of contract claim against NCAA is dismissed with leave to duty violated by the wrongdoing and was acting only as amend to allege or attach an enforceable contract. the agent or employee of the party who did have that duty.” Doctors' Co. v. Superior Court, 49 Cal.3d 39, 44, 260 Cal.Rptr. 183, 775 P.2d 508 (1989). VI. Unjust Enrichment Claims Plaintiff claims that EA and CLC were unjustly enriched CLC maintains that Plaintiff's allegations that its role as a through the sale of video games that use his likeness. EA licensing company entering into agreements on behalf of and CLC argue that his claim is barred because California NCAA establishes, as a matter of law, that it is NCAA's law does not provide a cause of action for unjust agent. These allegations are not sufficient at this early enrichment. Even if it did, EA and CLC argue, Plaintiff's stage to establish CLC's entitlement to this defense. allegations regarding the existence of a contract with NCAA would independently bar an unjust enrichment claim. IV. Section 17200 Claim *9 EA maintains that Plaintiff fails to state a claim under California courts appear to be split on whether there is California Business and Professions Code section 17200 an independent cause of action for unjust enrichment. because he does not allege an underlying wrong or seek Baggett v. Hewlett–Packard Co., 582 F.Supp.2d 1261, available relief. However, as discussed above, Plaintiff 1270–71 (C.D.Cal.2007) (applying California law). One sufficiently asserts right of publicity and civil conspiracy view is that unjust enrichment is not a cause of action, claims. With regard to relief, he seeks an injunction, or even a remedy, but rather a general principle, which EA concedes is available under section 17200. Thus, underlying various legal doctrines and remedies. McBride Plaintiff has stated a section 17200 claim against EA. v. Boughton, 123 Cal.App.4th 379, 387, 20 Cal.Rptr.3d

217 Keller v. Electronics Arts, Inc., Not Reported in F.Supp.2d (2010) 94 U.S.P.Q.2d 1130, 38 Media L. Rep. 1353 115 (2004). In McBride, the court construed a “purported” unjust enrichment claim as a cause of action seeking A cause of action against a person . Id. There are at least two potential bases for arising from any act of that person a cause of action seeking restitution: (1) an alternative in furtherance of the person's right to breach of contract damages when the parties had a of petition or free speech under contract which was procured by fraud or is unenforceable the United States or California for some reason; and (2) where the defendant obtained a Constitution in connection with a benefit from the plaintiff by fraud, duress, conversion, or public issue shall be subject to a similar conduct and the plaintiff chooses not to sue in tort special motion to strike, unless the but to seek restitution on a quasi-. Id. at court determines that the plaintiff 388, 20 Cal.Rptr.3d 115. In the latter case, the law implies has established that there is a a contract, or quasi-contract, without regard to the parties' probability that the plaintiff will intent, to avoid unjust enrichment. Id. prevail on the claim. California anti-SLAPP motions are available to litigants *10 Another view is that a cause of action for unjust proceeding in federal court. Thomas v. Fry's Elecs., Inc., enrichment exists and its elements are receipt of a benefit 400 F.3d 1206, 1206 (9th Cir.2005). California courts and unjust retention of the benefit at the expense of analyze anti-SLAPP motions in two steps. “First, the another. Lectrodryer v. SeoulBank, 77 Cal.App.4th 723, court decides whether the defendant has made a threshold 726, 91 Cal.Rptr.2d 881 (2000); First Nationwide Savings showing that the challenged cause of action is one arising v. Perry, 11 Cal.App.4th 1657, 1662–63, 15 Cal.Rptr.2d from protected activity.” Equilon Enter. v. Consumer 173 (1992). Cause, Inc., 29 Cal.4th 53, 67, 124 Cal.Rptr.2d 507, 52 P.3d 685 (2002). Second, the court “determines whether Even under the more restrictive analysis of McBride, the plaintiff has demonstrated a probability of prevailing Plaintiff sufficiently pleads claims for restitution against on the claim.” Id. EA and CLC on the theory that they obtained a benefit from him through their alleged wrongful conduct. His Assuming that the challenged causes of action arise from breach of contract claim against NCAA does not bar these protected activity, Plaintiff makes a sufficient showing of claims. Although EA and CLC correctly note that the his probability of success on the merits. EA incorrectly existence of such a contract could bar a restitutionary argues that Plaintiff has a substantial burden to show claim against a contracting party, it is not clear that his probability of success. It maintains that the Court must alleged contract with NCAA defined any rights between apply “the same standard governing motions for summary him and EA and CLC. Cf. Cal. Med. Ass'n v. Aetna judgment, nonsuit, or directed .” EA's Mot. to U.S. Healthcare of Cal., 94 Cal.App.4th 151, 172, 114 Strike at 12. However, this standard does not apply in Cal.Rptr.2d 109 (2001) (holding that “as a matter of law, federal court. a quasi-contract action for unjust enrichment does not lie where, as here, express binding agreements exist and “At the second step of the anti-SLAPP inquiry, the define the parties' rights”). Thus, Plaintiff has adequately required probability that [a party] will prevail need not be stated his unjust enrichment claim for restitution against high.” Hilton, 580 F.3d at 888–89. The “statute does not EA and CLC. bar a plaintiff from litigating an action that arises out of the defendant's free speech or petitioning; it subjects to VII. EA's Anti–SLAPP Motion to Strike potential dismissal only those actions in which the plaintiff Finally, EA moves under California Code of Civil cannot state and substantiate a legally sufficient claim.” Procedure section 425.16 to strike all of Plaintiff's claims Id. at 888 (quoting Navellier v. Sletten, 29 Cal.4th 82, against it. Section 425.16(b)(1), which addresses Strategic 93, 124 Cal.Rptr.2d 530, 52 P.3d 703 (2002)) (quotation Lawsuits Against Public Participation (SLAPP), provides, marks omitted). In Thomas v. Fry's Electronics, the case that provides that anti-SLAPP motions are available to

218 Keller v. Electronics Arts, Inc., Not Reported in F.Supp.2d (2010) 94 U.S.P.Q.2d 1130, 38 Media L. Rep. 1353 litigants proceeding in federal court, the court stated that “federal courts may not impose a heightened pleading CONCLUSION requirement in derogation of federal notice pleading rules.” 400 F.3d at 1207; see also Empress LLC v. City For the foregoing reasons, the Court DENIES EA's & County of S.F., 419 F.3d 1052, 1056 (9th Cir.2005) Motion to Dismiss (Docket No. 34), GRANTS NCAA's (holding that “a heightened pleading standard should only Motion in part and DENIES it in part (Docket No. 48), be applied when the Federal Rules of Civil Procedure DENIES CLC's Motion (Docket No. 47) and DENIES so require”); Verizon, Inc. v. Covad Commc'ns. Co., 377 EA's Motion to Strike (Docket No. 35). Plaintiff's claims F.3d 1081, 1091 (9th Cir.2004) (holding that procedural for violation of his Indiana right of publicity and breach “state laws are not used in federal court if to do so of contract against NCAA are dismissed with leave to would result in a direct collision with a Federal Rule amend. In accordance with this Court's Order of January of Civil Procedure” and noting that federal courts have 15, 2010 on consolidation, Plaintiff has thirty days from “accordingly refused to apply certain discovery-limiting the date of this Order to file a consolidated amended provisions of the anti-SLAPP statute because they would complaint. A case management conference is scheduled conflict with Fed.R.Civ.P. 56”). for April 27, 2010 at 2:00 p.m.

*11 Under Federal Rule of Civil Procedure 8, Plaintiff IT IS SO ORDERED. has sufficiently stated his claims against EA. Accordingly, the Court denies EA's special motion to strike Plaintiff's All Citations claims as a SLAPP. Not Reported in F.Supp.2d, 2010 WL 530108, 94 U.S.P.Q.2d 1130, 38 Media L. Rep. 1353

Footnotes 1 Amici invite the Court to adopt another standard to assess right of publicity claims. Because the Court finds that the transformative test is sufficient for the purposes of this motion, it does not address amici's arguments. 2 EA asks the Court to take judicial notice of the content of the video games “NCAA Football 2006” through “NCAA Football 2009,” “NCAA March Madness 2006” through “NCAA March Madness 2008,” and “NCAA Basketball 2009;” paragraphs four of the Strauser and O'Brien Declarations summarizing the content of these video games; various press releases announcing the release date of the video games; a United States Copyright Office document indicating the date of first publication for “NCAA March Madness 2007;” an August 15, 2008 order from Kent v. Universal Studios, Inc., Case No. 08–2704 (C.D.Cal.); and the content of the CBSSports.com Fantasy College Football game. (Docket No. 36.) Generally, in ruling on a motion to dismiss, a court cannot consider material outside of the complaint. Branch v. Tunnell, 14 F.3d 449, 453 (9th Cir.1994), overruled on other grounds in Galbraith v. County of Santa Clara, 307 F.3d 1119, 1127 (9th Cir.2002). However, a court may consider exhibits submitted with the complaint and those documents “whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading.” Id. at 453–54. Because Plaintiff refers to the video games in his complaint, the Court GRANTS EA's request for judicial notice of them. Plaintiff does not mention the press releases or other materials proffered by EA. Therefore, the Court DENIES EA's request as to the other materials. 3 EA understands Plaintiff to argue that reporting implicates newsworthy information. So interpreted, EA claims, Plaintiff's argument must fail because Dora draws a distinction between “news” and “public affairs.” The Court does not construe Plaintiff's argument in the same way. Instead, the Court reads Plaintiff to argue that “NCAA Football” does not constitute “reporting” and, as a result, EA does not use his name and likeness in a manner that is exempted by section 3344(d). 4 Although section 3344(d) and the public interest defense implicate the same type of activity, they are nonetheless not coextensive because section 3344(d) defines safe harbors for reporting in particular contexts. See New Kids on the Block, 971 F.2d at 310 n. 10.

219 Keller v. Electronics Arts, Inc., Not Reported in F.Supp.2d (2010) 94 U.S.P.Q.2d 1130, 38 Media L. Rep. 1353 5 Plaintiff alleges that Defendants conspired to deprive “class members of their right to protect their names, likenesses and rights to publicity and their contractual, property rights.” Compl. ¶ 80. For the purposes of this motion, the Court construes this allegation to refer to EA's alleged violation of Plaintiff's California right of publicity because he does not state a claim based on the tortious conduct of any other Defendant. 6 Citing Everest Investors 8 v. Whitehall Real Estate Limited Partnership XI, 100 Cal.App.4th 1102, 123 Cal.Rptr.2d 297 (2002), CLC also argues that it cannot accrue tort liability under a civil conspiracy theory because Plaintiff has not alleged that it can make video games. This argument is unavailing. Everest Investors 8 states that “tort liability from a conspiracy presupposes that the conspirator is legally capable of committing the tort—that he owes a duty to the plaintiff recognized by law and is potentially subject to liability for the breach of that duty.” Id. at 1106, 123 Cal.Rptr.2d 297. Nothing in the record indicates that CLC is legally incapable of violating Plaintiff's rights of publicity.

End of Document © 2017 Thomson Reuters. No claim to original U.S. Government Works.

220 STATE OF NEW YORK ______

8155

2017-2018 Regular Sessions IN ASSEMBLY

May 31, 2017 ______

Introduced by M. of A. MORELLE, WEINSTEIN -- read once and referred to the Committee on Judiciary

AN ACT to amend the civil rights law, in relation to the right of publicity; and to amend the civil practice law and rules, in relation to the timeliness of commencement of an action for violation of the right of publicity

The People of the State of New York, represented in Senate and Assem- bly, do enact as follows:

1 Section 1. Section 50 of the civil rights law is renumbered section 2 50-f and a new section 50 is added to read as follows: 3 § 50. Definitions. For the purposes of sections fifty-f, fifty-g, 4 fifty-h and fifty-one of this article, the following terms shall have 5 the following meanings: 6 1. "Characteristic" means a distinctive appearance, gesture or manner- 7 ism recognized as an identifying attribute of an individual. 8 2. "Deceased individual" means any individual, including his or her 9 name, voice, signature or likeness, regardless of the individual's place 10 of domicile, residence or citizenship at the time of death or otherwise, 11 who has died. 12 3. "Secretary" means the secretary of state. 13 4. "Fund-raising" means an organized activity to solicit donations of 14 money or other goods or services from persons or entities by an organ- 15 ization, company or public entity. 16 5. "Individual" means a natural person, living or dead. 17 6. "Likeness" means an image, photograph, painting, sketching, model, 18 diagram, or other recognizable representation of an individual's face or 19 body, and includes a characteristic. 20 7. "Name" means the actual or assumed name, or nickname, of a living 21 or deceased individual that identifies that individual. 22 8. "Person" means any natural person, firm, association, partnership, 23 corporation, company, syndicate, receiver, common law trust, conserva-

EXPLANATION--Matter in italics (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD11384-02-7

221 1 tor, statutory trust, or any other entity by whatever name known or 2 however organized, formed or created, and includes not-for-profit corpo- 3 rations, associations, educational and religious institutions, political 4 parties, and community, civic or other organizations. 5 9. "Photograph" means any photograph or photographic reproduction, 6 still or moving, or any videotape, online or live television trans- 7 mission, of any individual, in which the individual is readily identifi- 8 able. 9 10. "Registration to establish a claim of right" means a registration 10 by a person claiming to be a successor in interest in the right of 11 publicity of a deceased individual with the department of state. 12 11. "Signature" means a handwritten or otherwise legally binding form 13 of an individual's name, written or authorized by that individual, that 14 distinguishes the individual from all other individuals. 15 § 2. Section 50-f of the civil rights law, as relettered by section 16 one of this act, is amended to read as follows: 17 § 50-f. Right of [privacy] publicity for living and deceased individ- 18 uals. [A person, firm or corporation that uses for advertising purposes, 19 or for the purposes of trade, the name, portrait or picture of any 20 living person without having first obtained the written consent of such 21 person, or if a minor of his or her parent or guardian, is guilty of a 22 misdemeanor.] A living or deceased individual's name, voice, signature 23 and likeness, individually and collectively known as his or her right of 24 publicity, is personal property, freely transferable or descendible, in 25 whole or in part, by contract or by means of any trust or testamentary 26 instrument, whether such contract, trust or testamentary instrument was 27 entered into or executed before or after the effective date of the chap- 28 ter of the laws of two thousand seventeen which amended this section. 29 Such right of publicity shall not be used without obtaining the written 30 consent of the individual, his or her successors or assigns as provided 31 for in the provisions of this article pertaining to the right of public- 32 ity or, in the case of a minor, of his or her parent or guardian. 33 § 3. The civil rights law is amended by adding two new sections 50-g 34 and 50-h to read as follows: 35 § 50-g. Duration of an individual's right of publicity. Every individ- 36 ual's right of publicity shall continue to exist for forty years after 37 his or her death, and does not expire upon the death of the individual, 38 regardless of whether the law of the domicile, residence or citizenship 39 of the individual at the time of death or otherwise recognizes a similar 40 or identical property right. 41 § 50-h. Methods of transfer and conveyance. 1. The rights recognized 42 under the provisions of this article pertaining to the right of public- 43 ity are freely transferable and descendible, in whole or in part, by the 44 following: 45 (a) contract; 46 (b) license; 47 (c) gift; 48 (d) trust; 49 (e) testamentary document. The rights shall vest in the persons enti- 50 tled to the right of publicity under the testamentary instrument of the 51 deceased individual effective as of the date of that individual's death. 52 In the absence of an express transfer in a testamentary instrument of 53 the deceased individual's right of publicity, a provision in the testa- 54 mentary instrument that provides for the disposition of the residue of 55 the deceased individual's assets shall be effective to transfer the

222 1 rights recognized under this article in accordance with the terms of 2 that provision; and 3 (f) intestate succession. The right to publicity of an individual 4 dying intestate shall be distributed under the laws of intestate 5 succession, and the rights and remedies of this article may be exercised 6 and enforced by a person or persons who possess at least a fifty-one 7 percent interest of the individual's right of publicity. Such persons 8 shall make a proportional accounting to, and shall act at all times in 9 good faith with respect to, any other person in whom the rights being 10 enforced have vested. 11 2. The rights established by the provisions of this article pertaining 12 to the right of publicity shall also be freely transferable or descendi- 13 ble by any subsequent owner of the deceased individual's right to 14 publicity as recognized by this article. Nothing in the provisions of 15 this article pertaining to the right of publicity shall be construed to 16 render invalid or unenforceable any contract entered into by a deceased 17 individual during his or her lifetime by which the deceased individual 18 assigned the rights, in whole or in part, to use his or her right of 19 publicity as defined in this article. 20 3. If any deceased individual does not transfer his or her rights 21 under this section by contract, license, gift, trust or testamentary 22 document, and there are no surviving persons as described in paragraph 23 (f) of subdivision one of this section, then the property rights associ- 24 ated with the deceased individual's right of publicity shall terminate. 25 4. Any person claiming to be a successor in interest to the right of 26 publicity of a deceased individual under this article or a licensee of a 27 deceased individual's right of publicity shall register that claim with 28 the secretary on a form prescribed by the secretary and upon payment of 29 a fee of fifty dollars. The form shall include the name and date of 30 death of the deceased individual, the name and address of the claimant, 31 the basis of the claim, and a sworn affidavit under penalty of perjury 32 as to the rights claimed. Claims registered under this registry and 33 information regarding such successors in interest to the deceased indi- 34 vidual's right of publicity shall be public records. 35 5. Upon receipt and after filing of any document pursuant to this 36 section, the secretary shall post the document along with the entire 37 registry of persons claiming to be successors in interest to the 38 deceased individual's right of publicity or a registered licensee under 39 this section upon an internet website developed by the secretary for 40 such purpose. The secretary may reproduce by digital or other means any 41 of the filings or documents and destroy the original filing or document. 42 6. The secretary is authorized to promulgate such regulations as he or 43 she shall deem necessary to implement the provisions of subdivisions 44 four and five of this section. 45 7. No action shall be brought under the provisions of this article 46 pertaining to the right of publicity by reason of any use of a deceased 47 individual's right of publicity occurring after the expiration of the 48 duration of the right of publicity as provided in section fifty-g of 49 this article. Furthermore, no action may be brought under the provisions 50 of this article pertaining to the right of publicity for a violation of 51 a deceased individual's right of publicity unless the claim is regis- 52 tered and posted on the secretary's public internet website within forty 53 years of such individual's death. 54 8. If there is a right of publicity registration for a deceased indi- 55 vidual, any person seeking to license right of publicity for the indi- 56 vidual shall have the right to rely upon such registration and posting

223 1 and thereby presume that the person who has registered and posted his or 2 her claim on the secretary's public internet website has the right to 3 assign or license the deceased individual's right of publicity. The 4 registration and posting of a person's claim to a deceased individual's 5 right of publicity on the secretary's public internet website shall 6 constitute a defense to an action brought under the provisions of this 7 article pertaining to the right of publicity. 8 9. Any person who knowingly makes a false or fraudulent representation 9 in connection with a registration with the secretary to establish a 10 claim to a deceased individual's right of publicity pursuant to this 11 section shall be liable for any damages sustained as a result of the 12 false or fraudulent registration as determined by a court of competent 13 jurisdiction. 14 10. Any document filed with the secretary, whether such document is a 15 reproduction or an original, may be destroyed by the secretary forty- 16 seven years after the death of the individual whose right of publicity 17 has been registered therein. The secretary shall remove any document 18 registered and posted upon the public internet website upon showing of a 19 court order from a court of competent jurisdiction that a person claim- 20 ing to be a successor in interest to a deceased individual's right of 21 publicity has no property rights in the right of publicity of the 22 deceased. 23 11. Nothing contained in the provisions of this article related to the 24 right of publicity shall be deemed to abrogate or otherwise limit any 25 rights or remedies otherwise conferred by federal or state law. 26 § 4. Section 51 of the civil rights law, as amended by chapter 674 of 27 the laws of 1995, is amended to read as follows: 28 § 51. Action for injunction and for damages. 1. Applicability. The 29 provisions of this article related to the right of publicity apply to an 30 act or event that occurs within New York, regardless of a deceased indi- 31 vidual's domicile, residence or citizenship. Furthermore, the rights 32 recognized under the provisions of this article pertaining to the right 33 of publicity, shall be deemed to exist at the time of death regardless 34 of the domicile, residence or citizenship of any deceased individual. 35 2. Exceptions. Consent for use of another individual's right of 36 publicity as provided in the provisions of this article pertaining to 37 the right of publicity shall not be required when used in connection 38 with the following: 39 (a) news, public affairs or sports broadcast, including the promotion 40 of and advertising for a sports broadcast, an account of public interest 41 or a political campaign; 42 (b) in: 43 (i) a play, book, magazine, newspaper, musical composition, visual 44 work, work of art, audiovisual work, radio or television program if it 45 is fictional or nonfictional entertainment, or a dramatic, literary or 46 musical work; 47 (ii) a work of political, public interest or newsworthy value includ- 48 ing a comment, criticism, parody, satire or a transformative creation of 49 a work of authorship; or 50 (iii) an advertisement or commercial announcement for any of the works 51 described in paragraph (a) of this subdivision or this paragraph; or 52 (c) use of the right of publicity of a deceased individual where the 53 licensee or successor in interest has failed to register and post a 54 claim of right under section fifty-h of this article until such time as 55 a claim of right has been registered and posted as required under such 56 section.

224 1 3. Limited immunity. Owners or employees of any medium used for adver- 2 tising including, but not limited to, newspapers, magazines, radio and 3 television networks and stations, cable television systems, billboards, 4 and transit ads, by whom any use of an individual's right of publicity 5 for commercial purposes in violation of that individual's right of 6 publicity is published or disseminated, shall not be liable under the 7 provisions of this article pertaining to the right of publicity unless 8 it is established that the owners or employees had knowledge of the 9 unauthorized use as prohibited by the provisions of this article 10 pertaining to the right of publicity. 11 4. Action for injunction and for damages. Any [person] individual 12 either living or deceased whose [name, portrait, picture or voice] right 13 of publicity is used within this state for advertising purposes [or], 14 for the purposes of trade or for purposes of fund-raising or solicita- 15 tion of donations, without the written consent first obtained as [above] 16 provided [may] in the provisions of this article pertaining to the right 17 of publicity is entitled to maintain an equitable action for violation 18 of the individual's right of publicity in the supreme court of this 19 state against the person[, firm or corporation] so using his [name, 20 portrait, picture or voice] or her right of publicity, to prevent and 21 restrain the use thereof; and may also sue and recover damages for any 22 injuries sustained including an amount equal to the greater of seven 23 hundred fifty dollars or compensatory damages by reason of such use and 24 if the defendant shall have knowingly used such person's [name, 25 portrait, picture or voice] right of publicity in such manner as is 26 forbidden or declared to be unlawful by [section fifty] the provisions 27 of this article relating to the right of publicity, the [jury] finder of 28 fact, in its discretion, may award exemplary damages. [But nothing] A 29 violation of an individual's right of publicity may occur without regard 30 to whether the use or activity is for profit or not-for-profit. 31 5. No defense. It shall not constitute a defense to an action for 32 violation of an individual's right of publicity that such violation 33 includes more than one individual. 34 6. Use and transfer. Nothing contained in this article shall be so 35 construed as to prevent any [person, firm or corporation] individual or 36 person from selling or otherwise transferring any material containing 37 such [name, portrait, picture or voice] right of publicity as provided 38 in the provisions of this article relating to the right of publicity in 39 whatever medium to any user of such [name, portrait, picture or voice] 40 right of publicity, or to any third party for sale or transfer directly 41 or indirectly to such a user, for use in a manner lawful under this 42 article[; nothing]. 43 7. Photographers. Nothing contained in this article shall be so 44 construed as to prevent any person[, firm or corporation,] practicing 45 the profession of photography, from exhibiting [in or about his or its 46 establishment] specimens of the work of such [establishment] photogra- 47 pher, unless the same is continued by such person[, firm or corporation] 48 after written notice objecting thereto has been given by the [person] 49 individual portrayed[; and nothing]. 50 8. Manufacturers, writers, composers and artists. Nothing contained in 51 this article shall be so construed as to prevent any person[, firm or 52 corporation] from using the [name, portrait, picture or voice of] right 53 of publicity owned by any manufacturer or dealer in connection with the 54 goods, wares and merchandise manufactured, produced or dealt in by [him] 55 the manufacturer which [he] has been sold or disposed of with such 56 [name, portrait, picture or voice] right of publicity used in connection

225 1 therewith; or from using the [name, portrait, picture or voice] right of 2 publicity of any author, composer or artist in connection with his or 3 her literary, musical or artistic productions which he or she has sold 4 or disposed of with such [name, portrait, picture or voice] right of 5 publicity used in connection therewith. 6 9. Copyright owners of a sound recording. Nothing contained in this 7 section shall be construed to prohibit the copyright owner of a sound 8 recording from disposing of, dealing in, licensing or selling that sound 9 recording to any party, if the right to dispose of, deal in, license or 10 sell such sound recording has been conferred by contract or other writ- 11 ten document by such living person or the holder of such right. [Nothing 12 contained in the foregoing sentence shall be deemed to abrogate or 13 otherwise limit any rights or remedies otherwise conferred by federal 14 law or state law.] 15 10. Termination of post mortem right of publicity. Nothing in the 16 provisions of this article pertaining to the right of publicity shall be 17 construed as prohibiting the use of the deceased individual's right of 18 publicity that occurs after the expiration of forty years following his 19 or her death. Nor shall anything in the provisions of this article 20 pertaining to the right of publicity be construed as creating liability 21 or giving rise to any remedy for any actions or conduct involving the 22 use of a deceased individual's right of publicity that occurred prior to 23 the effective date of the chapter of the laws of two thousand seventeen 24 which amended this section. 25 11. Statute of Limitations. Actions brought under the provisions of 26 this article pertaining to the right of publicity shall be commenced 27 within one year of the date of discovery of the injury to the plaintiff 28 or from the date through the exercise of due diligence such injury 29 should have been discovered by the plaintiff, whichever is earlier. 30 § 5. The section heading and subdivision 3 of section 215 of the civil 31 practice law and rules are amended to read as follows: 32 Actions to be commenced within one year: against sheriff, coroner or 33 constable; for escape of prisoner; for assault, battery, false imprison- 34 ment, malicious prosecution, libel or slander; for violation of right of 35 [privacy] publicity; for penalty given to informer; on 36 award. 37 3. an action to recover damages for assault, battery, false imprison- 38 ment, malicious prosecution, libel, slander, false words causing special 39 damages, or a violation of the right of [privacy] publicity under 40 [section fifty-one] article five of the civil rights law; 41 § 6. This act shall take effect on the one hundred eightieth day after 42 it shall have become a law, and shall apply to deceased individuals who 43 died on or after such date.

226 For more information on this topic please see:

The Creative Power of Musical Borrowing and the Efforts to Control It: https://today.duke.edu/2017/04/creative-power-musical-borrowing-and-efforts-control-it

227 Case Western Reserve Law Review

Volume 64 | Issue 1

2013 A Short Treatise on Amateurism and Antitrust Law: Why the NCAA's No-Pay Rules Violate Section 1 of the Sherman Act Marc Edelman

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Recommended Citation Marc Edelman, A Short Treatise on Amateurism and Antitrust Law: Why the NCAA's No-Pay Rules Violate Section 1 of the Sherman Act, 64 Cas. W. Res. L. Rev. 61 (2013) Available at: http://scholarlycommons.law.case.edu/caselrev/vol64/iss1/10

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228 Case Western Reserve Law Review·Volume 64·Issue 1·2013 A Short Treatise on Amateurism and Antitrust Law: Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act

Marc Edelman† Abstract

The National Collegiate Athletic Association (NCAA) oversees nearly every aspect of the $11 billion college sports industry. Its powers include scheduling championship events, determining eligibility rules, entering into commercial contracts, and punishing members that refuse to follow its authority. In recent years, some NCAA members have become increasingly wealthy—grossing annual revenues upwards of $100 million per year. Yet the NCAA’s rules still deprive these members of the opportunity to share their wealth with student-athletes. This Article explains why the NCAA’s “no-pay” rules violate section 1 of the Sherman Act. Part I introduces the NCAA, its principle of amateurism, and its traditional enforcement mechanisms. Part II provides a brief overview of section 1 of the Sherman Act—the “comprehensive of economic liberty” in American trade. Part III explains why the NCAA’s no-pay rules constitute both an illegal form of wage fixing and an illegal group boycott. Part IV then explores eight lower court decisions that incorrectly held the NCAA’s eligibility rules were noncommercial and thus exempt from antitrust scrutiny. Meanwhile, Part V analyzes four additional lower court decisions that misconstrued the NCAA’s eligibility rules as procompetitive under a rule of reason analysis. Finally, Part VI concludes that even if a court were to find that competitive balance is a reasonable basis for upholding certain no-pay rules, such rules still should not be promulgated by the NCAA, but rather by individual conferences.

† Professor Marc Edelman ([email protected]) is an Associate Professor of Law at the Zicklin School of Business, Baruch College, City University of New York. He is also a summer adjunct professor at Fordham University School of Law. Professor Edelman earned his B.S. in economics from the Wharton School (University of Pennsylvania) and both his J.D. and M.A. from the University of Michigan. He has published more than twenty law review articles on the intersection of sports and the law. Professor Edelman wishes to thank students Daniel Berger, Derek Carrillo, Kristen Chiger and Robert Pellow for their research assistance. He also wishes to thank his wife Rachel Leeds Edelman for reviewing an earlier draft of this Article.

229 Case Western Reserve Law Review·Volume 64 ·Issue 1·2013 Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act

Contents Introduction ...... 63 I. The NCAA, Its Principle of Amateurism, and Its Internal Enforcement Mechanisms ...... 64 A. The NCAA ...... 64 B. The NCAA’s Principle of Amateurism and Its Enforcement ...... 66 C. How Fear of the “Death Penalty” Has Chilled Student-Athlete Pay and Destroyed the Free Market for College Athletics to the Detriment of Consumers ...... 68 II. An Introduction to Section 1 of the Sherman Act ...... 70 A. Overview ...... 70 B. Threshold Requirements ...... 72 C. Competitive Effects Analysis ...... 73 III. Analyzing the NCAA’s No-Pay Rules Under Section 1 of the Sherman Act ...... 75 A. Challenging the NCAA’s No-Pay Rules as Illegal Wage-Fixing Restraints ...... 76 B. Challenging the NCAA’s No-Pay Rules As an Illegal Group Boycott ...... 78 1. The Seminal Case: NCAA v. Board of Regents ...... 79 2. Other Instructive Supreme Court Opinions ...... 80 IV. Why Lower Court Decisions Finding the NCAA’s Eligibility Rules To Be Noncommercial Are Either Inapposite or Wrongly Decided ...... 83 A. A Brief Discussion of the Eight Lower Court Decisions Finding the NCAA Eligibility Rules To Be Noncommercial ...... 83 B. Why Each of These Eight Cases Was Wrongly Decided ...... 86 V. Why Lower Court Decisions Holding the NCAA Eligibility Rules to Be Procompetitive Are Similarly Misguided ...... 89 A. Cases Finding the NCAA Eligibility Rules Are Procompetitive ...... 90 B. Why Each of These Four Cases Was Wrongly Decided ...... 91 VI. Why Closer Game Scores Cannot Save the NCAA No-Pay Rules, but May Support Preserving Such Rules on a Conference-by-Conference Basis ...... 95 Conclusion ...... 98

230 Case Western Reserve Law Review·Volume 64 ·Issue 1·2013 Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act

Introduction

The National Collegiate Athletic Association (NCAA) oversees nearly every aspect of the $11 billion college sports industry.1 Its powers include scheduling championship events, determining eligibility rules, entering into commercial contracts, and punishing members that refuse to follow its authority.2 In recent years, some NCAA members have become increasingly wealthy—grossing annual revenues upwards of $100 million per year.3 Yet the NCAA’s rules deprive these members of the opportunity to share their wealth with student-athletes.4 Instead, the NCAA and its leaders hide behind a “veil of amateurism” that maintains the wealth of college sports “in the hands of a select few administrators, athletic directors, and coaches.”5

1. See NCAA v. Bd. of Regents of the Univ. of Okla., 468 U.S. 85, 88 (1984) (explaining that, since the NCAA’s inception in 1905, the NCAA has “adopted and promulgated playing rules, standards of amateurism, standards for academic eligibility, regulations concerning recruitment of athletes, and rules governing the size of athletic squads and coaching staffs”); see also Where Does the Money Go?, Nat’l Collegiate Athletic Ass’n, http://www.ncaa.org/wps/wcm/connect/public/NCA A/Answers/Nine+points+to+consider_one (accessed by entering the URL in the Internet Archive index) (stating that “[o]verall annual revenue for college athletics programs for 2008–09 was estimated at about $10.6 billion”). 2. See infra Part I.A–B. 3. See College Athletics Revenues and Expenses, ESPN.COM, http://espn.go.com/ncaa/revenue (last visited Sept. 27, 2013) (showing that, in 2008, five NCAA member schools grossed revenue in excess of $100 million per year and several others were close to that threshold). 4. See 2013–14 NCAA Division I Manual § 12.1.2, at 59 (2013) [hereinafter 2013–14 Division I Manual], available at http://www.ncaapublications.com/p-4322-2013-2014-ncaa-division-i- manual.aspx (prohibiting, as part of the criteria for amateur status, individuals from receiving various forms of “pay” in return for “athletics skill or participation”); see also David Wharton, Plan Is on the Money to Some: Conferences Will Have Option of Giving Student-Athletes an Extra $2,000 a Year, L.A. TIMES, Nov. 17, 2011, at C1 (quoting Boise State University President Robert Kustra’s position that, even though student-athletes are unpaid, they “have it pretty good”); NCAA Office of the President, Nat’l Collegiate Athletic Ass’n, http://www.ncaa.org/wps/wcm/connect/public/NCAA/NCAA+Presiden t/NCAA+President+Mark+Emmert (last visited Sept. 27, 2013) (quoting NCAA president Mark Emmert’s declaration that “[a]s long as [he is] president of the NCAA, [it] will not pay student-athletes to play sports”). 5. Amy Christian McCormick & Robert A. McCormick, The Emperor’s New Clothes: Lifting the NCAA’s Veil of Amateurism, 45 SAN DIEGO L. REV. 495 (2008) (arguing that college sports hide behind a “veil of amateurism” because “[t]he idea that major college sports are amateur is demonstrably

231 Case Western Reserve Law Review·Volume 64 ·Issue 1·2013 Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act

Although the NCAA rulebook has long evaded legal scrutiny, courts are finally beginning to overturn certain aspects of the NCAA’s rules that are deemed to be anticompetitive. For example, courts have struck down the NCAA’s nationwide limits on televised football broadcasts and its caps on assistant coaches’ salaries.6 Nevertheless, the need to reform the college athletics industry extends far beyond these areas. It is not just the outer fringes of the NCAA rules that violate antitrust law: it is the whole shebang. This Article explains why the NCAA’s no-pay rules violate section 1 of the Sherman Act. Part I introduces the NCAA, its principle of amateurism, and its traditional enforcement mechanisms. Part II provides a brief overview of section 1 of the Sherman Act—the “comprehensive charter of economic liberty” in American trade.7 Part III, applying precedent from the Supreme Court and the Tenth Circuit, explains why the NCAA no-pay rules constitute both an illegal form of wage fixing and an illegal group boycott. Part IV then explores eight lower court decisions that incorrectly held the NCAA eligibility rules were noncommercial and thus exempt from antitrust scrutiny. Meanwhile, Part V analyzes four additional lower court decisions that misconstrued the NCAA eligibility rules as procompetitive under a rule of reason review. Finally, Part VI concludes that even if a court were to find that competitive balance is a reasonable basis for upholding certain no-pay rules, such rules still should not be promulgated by the NCAA, but rather by the individual conferences.

I. The NCAA, Its Principle of Amateurism, and Its Internal Enforcement Mechanisms

A. The NCAA The NCAA is the “dominant trade association” of American colleges that compete in intercollegiate sports.8 It comprises

false”); Marc Edelman, Note, Reevaluating Amateurism Standards in Men’s College Basketball, 35 U. MICH. J.L. Reform 861, 864 (2002). 6. See Bd. of Regents, 468 U.S. at 88 (overturning the NCAA’s limits on televised football broadcasts); Law v. NCAA, 134 F.3d 1010 (10th Cir. 1998) (holding that a salary cap on “restricted-earnings” coaches is illegal). 7. N. Pac. Ry. Co. v. United States, 356 U.S. 1, 4 (1958). See also Reitner v. Sonotone Corp., 442 U.S. 330, 343 (1979) (describing how the Sherman Act economically protects people as individuals). 8. Banks v. NCAA, 746 F. Supp. 850, 852 (N.D. Ind. 1990), aff’d, 977 F.2d 1081 (7th Cir. 1992); see also Coll. Athletic Placement Serv., Inc. v. NCAA, No. 74-1144, 1974 WL 998, at *2 (D.N.J. Aug. 22, 1974) (describing the NCAA as “the largest and most prestigious association of colleges and athletic conferences in the United States”).

232 Case Western Reserve Law Review·Volume 64 ·Issue 1·2013 Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act approximately twelve hundred member schools that participate in ninety-five different active athletic conferences.9 Its mission is to promulgate playing rules, host championship events, enforce standards of academic eligibility, and promote the general growth of college athletics.10 The NCAA was first chartered in 1905 by trustees of sixty-two colleges as a forum to discuss health risks in college sports.11 But by the end of World War II, the NCAA had expanded its reach into hosting sporting events and setting eligibility rules.12 In 1948, the NCAA introduced its first written code to govern members’ recruiting practices and financial aid payouts.13 Then, four years later, the NCAA replaced that code with a broader set of rules to govern membership, infractions, and punishment.14

9. See Worldwide Basketball & Sport Tours, Inc. v. NCAA, 388 F.3d 955, 957 (6th Cir. 2004) (noting that the NCAA’s membership includes more than twelve hundre colleges); About the NCAA: Membership, Nat’l Collegiate Athletic Ass’n http://www.ncaa.org/wps/wcm/connect/ public/ncaa/about+the+ncaa/membership+new (last updated Aug. 13, 2012) (stating that there are a total of 95 active NCAA conferences in Division I, Division II, and Division III sports); see also Bd. of Regents, 468 U.S. at 99 (1984) (defining the NCAA as “an association of schools which compete against each other to attract television revenues, not to mention fans and athletes”). 10. See Worldwide Basketball, 388 F.3d at 957 (explaining that the NCAA “promulgates rules and regulations” pertaining to college sports); see also Bd. of Regents of the Univ. of Okla. v. NCAA, 707 F.2d 1147, 1153 (10th Cir. 1983) (describing the NCAA as “essentially an integration of the and rule-enforcing activities of its member institutions”), aff’d, 468 U.S. 85 (1984); Banks, 746 F. Supp. at 852 (explaining that according to the NCAA’s constitution, its purpose is to maintain amateur athletics “as an integral part of the educational program and the athlete as an integral part of the student body and by so doing, retain a clear line of demarcation between intercollegiate athletics and professional sports”). 11. History, Nat’l Collegiate Athletic Ass’n, http://www.ncaa.org/ wps/wcm/connect/public/NCAA/About+the+NCAA/History (last updated Aug. 13, 2012). 12. See Enforcement, Nat’l Collegiate Athletic Ass’n, http://web.archive.org/web/20130310042307/http://ncaa.org/wps/wcm /connect/public/ncaa/enforcement/resources/chronology+of+enforcement (last updated Jan. 21, 2013) (accessed using the Internet Archive index) (noting the NCAA’s 1948 adoption of strict regulations and the establishment of an investigative committee). 13. See id. (describing the “Sanity Code” as “the first set of regulations with teeth”). 14. See id. (explaining the creation and scope of authority of the Membership Committee and its Subcommittee on Infractions).

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Today, the NCAA operates pursuant to a formal constitution and bylaws that are voted upon by its members.15 In addition, NCAA members vote annually on committee members to “direct policy between [annual] conventions.”16 As a condition of membership, all NCAA colleges must agree to abide by the association’s written rules, as well as by its committees’ decisions.17 Members do not have the chance to opt out of rules based on their financial preference, nor do they have the right to opt out on moral grounds.18 B. The NCAA’s Principle of Amateurism and Its Enforcement One area in which the NCAA establishes rules pertains to the amateur status of student-athletes. The NCAA’s principle of amateurism, as drafted and approved by its membership, states that “student-athletes shall be amateurs in intercollegiate sport, and their participation shall be motivated by education and by the physical, mental and social benefits to be derived.”19 As such, the NCAA bylaws limit the quantity of student-athletes’ financial aid to an amount “set by the Association’s membership.”20 In addition, NCAA bylaws prohibit student-athletes from accepting remuneration in any form based on their status as athletes.21

15. Bd. of Regents of the Univ. of Okla. v. NCAA, 546 F. Supp. 1276, 1282 (W.D. Okla. 1982), aff’d in part, remanded in part, 707 F.2d 1147 (10th Cir. 1983), aff’d, 468 U.S. 85 (1984); see also Worldwide Basketball, 388 F.3d at 957 (noting that the NCAA “adopts bylaws formulated by a legislative body drawn from the Association’s membership”). 16. Warner Amex Cable Commc’ns v. Am. Broad. Cos., 499 F. Supp. 537, 540 n.2 (S.D. Ohio 1980); see also Smith v. NCAA, 139 F.3d 180, 183 (1998) (explaining that NCAA “member institutions agree to abide by and enforce [association] rules”). 17. See Worldwide Basketball, 388 F.3d at 957. 18. E.g., 2013–14 Division I Manual, supra note 4, §§ 2.8, 3.1.1, 3.2.1.2, 3.2.4.1, at 4, 8–9 (setting forth the principle of rules compliance and unequivocally requiring all members to adhere to the rules and principles set forth in the NCAA constitution, bylaws, and legislation). 19. Id. § 2.9, at 4 (setting forth the principle of amateurism); see also Marc Edelman, Closing the “Free Speech” Loophole: Protecting College Athletes’ Publicity Rights in Commercial Videogames, 65 FLA. L. REV. 553, 557 (2013) (quoting the principle of amateurism); cf. Kenneth L. Shropshire, Legislation for the Glory of Sport: Amateurism and Compensation, 1 SETON HALL J. SPORT L. 7, 9 (1991) (“The payment of money to amateur athletes has traditionally been viewed to be contrary to the very essence of the true meaning of amateurism.”). 20. 2013–14 Division I Manual, supra note 4, § 12.01.4, at 57. 21. Edelman, supra note 19, at 577 (citing 2011–12 Division I Manual, § 12.1.2, at 62 (2011), available at http://www.ncaapublications.com/ productdownloads/D112.pdf). NCAA no-pay rules were originally intended to preserve the scarce number of college athletic opportunities for members of the general student body. See Jennifer A. Mueller, The

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In modern times, the NCAA works tirelessly to enforce its principle of amateurism.22 One way that the NCAA enforces this principle is by levying penalties against members that provide student-athletes with benefits beyond the NCAA-permitted amount. Such penalties may include fines, the loss of television appearances, or revocation of the opportunity to compete in postseason games.23 In addition, the NCAA’s most severe penalty—colloquially known as the “death penalty”—empowers the association to shut down any repeat violator’s athletic program during regular-season competition.24 Since the NCAA first established its death penalty in June 1985, the association has only enforced the sanction once, against Southern Methodist University’s football team during the 1987 athletic season.25 This sanction resulted in Southern Methodist University’s dramatic

Best Defense Is a Good Offense: Student-Athlete Amateurism Should Not Become a Fantasy, 2009 U. ILL. J.L. TECH. & POL’Y 527, 534–35 (2009) (explaining how the NCAA’s principle of amateurism was originally intended to “maintain intercollegiate athletics as an integral part of the student body”). 22. See Steve Ellis, University Officials Approve Get-Tough Measures, ORLANDO SENTINEL, June 22, 1985, at C1 (explaining why the NCAA passed measures that called for “tougher penalties for cheaters and greater institutional responsibility”).

23. 2013–14 Division I Manual, supra note 4, §§ 19.9.5.1–.2, 10.9.7(h), at 322–23. 24. Id. §§ 19.9.3, 19.9.7(a), at 321–23 (authorizing the disciplinary panel ban “specified competition in the sport during the regular season” and enumerating aggravating factors, such as repeat violations, that would justify such a penalty); see also Ellis, supra note 22 (describing the death penalty as a “two-year ban on scholarships, recruiting, and intercollegiate competition”); S.M.U. Awaits Decision, N.Y. TIMES, Feb. 21, 1987, at 51 (describing the NCAA’s adoption of the death penalty); NCAA Committee on Infractions, Southern Methodist University Infractions Report 2 (Feb. 25, 1987) [hereinafter SMU INFRACTIONS REPORT] (“At the June 1985 special Convention, the NCAA membership enacted a series of mandatory penalties applicable to member institutions found guilty of repeat major violations.”).

25. See SMU Infractions Report, supra note 24, at 2 (“During the period September 1985 through December 1986, monthly payments ranging from $50 to $725 were made to numerous student-athletes in the sport of football from funds provided by an outside representative of the university’s athletics interests.”). The report also found that “[thirteen] football team members received payments during the 1985–86 academic year that totaled approximately $47,000, and eight student- athletes continued to receive payments from September through December 1986 that totaled approximately $14,000.” Id. See also Time to Bench S.M.U.?, N.Y. TIMES, Dec. 6, 1986, at 26 (noting that SMU was accused specifically of paying one student-athlete $25,000 to sign a national letter of intent and arranging with another alumnus to provide free housing for a student-athlete).

235 Case Western Reserve Law Review·Volume 64 ·Issue 1·2013 Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act loss of football-related revenues, not only for that particular season but also for many years that followed.26 The economic annihilation of Southern Methodist University’s football program continues to serve as a powerful deterrent against other colleges paying their student- athletes.27 C. How Fear of the “Death Penalty” Has Chilled Student-Athlete Pay and Destroyed the Free Market for College Athletics to the Detriment of Consumers In recent years, most NCAA members have fully abided by the NCAA’s principle of amateurism, even though it has meant that college athletic directors and coaches earn millions of dollars while their student-athletes continue to live below the poverty line.28 Even in the cases in which a particular athletic director or coach has wanted to improve his athletes’ standard of living, the NCAA

26. See Michael Goodwin, N.C.A.A. Bans Football at S.M.U. for ’87 Season, N.Y. TIMES, Feb. 26, 1987, at A1 (noting that shortly after the NCAA sought to impose its death penalty, it seemed the sanction was intended primarily to ensure that a school would be denied “important sources of revenue”). 27. See Ellis, supra note 22 (quoting Clemson University’s Bill Atchley, who described the sanction as a “deterrent”); see also SMU INFRACTIONS REPORT, supra note 24, at 2–6 (noting that the sanction in which an NCAA member loses its ability to compete in a given sport is referred to as the death penalty and is intended to have a “deterrent value for others who might be tempted” to violate the NCAA rules, which held true in the SMU case because, once the threat of such sanction became recognized, there was “evidence of actions by the university to obtain full compliance with NCAA regulations”); N.C.A.A. Acts Against Kansas, N.Y. TIMES, Nov. 2, 1988, at B9 (explaining that the NCAA’s threat to give the University of Kansas basketball team such a sanction led the university to cut ties with three boosters who were purportedly paying the school’s athletes). See generally Joe Drape, Penalties Upheld for Alabama and Kentucky, N.Y. TIMES, Sept. 18, 2002, at D6 (quoting the chairman of the NCAA Appeals Committee, Terry Don Phillips, as saying that “[t]he death penalty would have likely been imposed” against the University of Alabama’s football team if it were not for “institutional cooperation” to stop the payments from boosters to college athletes). 28. See Joe Nocera, Here’s How to Pay Up Now, N.Y. TIMES, Jan. 1, 2012, 32 (Magazine) (noting that premier college coaches can earn “as much or more than a professional coach” and that, specifically, Ohio State University football coach Urban Meyer makes an estimated $4 million per year); see also Fred Frommer, Advocacy Group Says Top College Athletes Worth Six Figures, ESPN.COM, Sept. 12, 2011, http://espn.go.com/college-sports/story/_/id/6962151/advocacy-group- says-top-college-athletes-worth-six-figures (discussing a survey that found even student-athletes that received the maximum amount of financial aid permitted under the NCAA’s bylaws are often left “below the poverty line”).

236 Case Western Reserve Law Review·Volume 64 ·Issue 1·2013 Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act amateurism bylaws serve as an impediment.29 For example, in June 2011, seven Southeastern Conference football coaches proposed designating a share of their multimillion-dollar salaries to establish stipends of $300 per game for their student-athletes.30 However, superiors at each school nixed the stipend plan in fear of the NCAA’s rebuke.31 The NCAA’s continued failure to allow colleges to make independent business decisions about student-athlete pay hurts not only the student-athletes but also the college football consumers.32 For example, if the seven Southeastern Conference colleges had not quashed their coaches’ stipend plan, those colleges would have been able to use the stipends to recruit better players—producing a stronger on-field football product and thus leading to greater fan satisfaction.33 Nevertheless, by complying with a zero salary cap, these colleges succumbed to the will of the majority and surrendered the opportunity to compete most effectively both on and off the field.34

29. For further information on the NCAA amateurism bylaws and the enforcement of these bylaws, see supra Part I.B. 30. See Spurrier Proposes Paying Players, PITTSBURGH POST-GAZETTE, June 5, 2011, at D9 (describing how Spurrier, head coach of the South Carolina Gamecocks, proposed a plan to pay football players $300 per game out of his own salary). 31. See generally NCAA Shelves $2,000 Athlete Stipend, ESPN.COM, (Dec. 16, 2011), http://espn.go.com/college-sports/story/_/id/7357868/ncaa- puts-2000-stipend-athletes-hold (expressing concern that paying stipends to student-athletes would “violate the NCAA’s philosophy on amateur sports”). 32. Cf. NCAA v. Bd. of Regents of the Univ. of Okla., 468 U.S. 85, 107 (1984) (holding that “[a] restraint that has the effect of reducing the importance of consumer preference in setting price and output is not consistent with . . . antitrust law”). 33. See Lee Goldman, Sports and Antitrust: Should College Students Be Paid to Play?, 65 NOTRE DAME L. REV. 206, 211 (1990) (noting that if an individual NCAA member provides greater compensation to student- athletes than the NCAA-permitted amount, “it may attract better athletes, larger attendance, more lucrative television contracts, and greater national publicity”). But cf. Gary R. Roberts, The NCAA, Antitrust, and Consumer Welfare, 70 TUL. L. REV. 2631, 2651 (1996) (“The extent to which a system of free-market bidding for players [in college athletics] would thus reshuffle the allocation of players among colleges is hard to determine, and it would be even harder to ascertain the extent to which the reshuffled deck would provide a better quality product for consumers.”). 34. Cf. Goldman, supra note 33, at 226–27 (recognizing that a cap on college athlete compensation prevents schools from competing for student-athletes in a free market based on their internal resources).

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II. An Introduction to Section 1 of the Sherman Act

The NCAA’s principle of amateurism is long embedded in the history of college athletics; however, its concerted effort to destroy the free market for recruiting student-athletes is subject to scrutiny under section 1 of the Sherman Act.35 Indeed, the principle’s no-pay rules can reasonably be interpreted as the very antithesis to the type of competitive markets envisioned by drafters of the Sherman Act.36 A. Overview Section 1 of the Sherman Act, in pertinent part, states that “[e]very contract, combination[,] . . . or conspiracy, in the restraint of trade or commerce . . . is declared to be illegal.”37 This section of antitrust law provides “a comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade.”38 It rests on the basic belief that “unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality, and the greatest material progress.”39 Read literally, section 1 of the Sherman Act would seem to prohibit all commercial contracts.40 However, courts have interpreted the act, in conjunction with preexisting common law, to prohibit only

35. See Taylor Branch, The Shame of College Sports, Atlantic Monthly, Oct. 2011, at 84 (explaining that the NCAA has attempted to enshrine amateur ideals into collegiate sports since its inception); see also Bd. of Regents, 468 U.S. at 99 (1984) (“By participating in an association which prevents member institutions from competing against each other . . . the NCAA member institutions have created a horizontal restraint—an agreement among competitors on the way in which they will compete with one another. A restraint of this type has often been held to be unreasonable as a matter of law.”). 36. See discussion infra Part III. 37. Sherman Act §§ 1–7, 15 U.S.C. §§ 1–7 (2006). 38. N. Pac. Ry. Co. v. United States, 356 U.S. 1, 4 (1958); see also Reiter v. Sonotone Corp., 442 U.S. 330, 342–43 (1979). 39. Northern Pacific, 356 U.S. at 4; see also Baum Research & Dev. Co. v. Hillerich & Bradsby Co., 31 F. Supp. 2d 1016, 1021 (E.D. Mich. 1998) (“The Sherman Act reflects a legislative judgment that ultimately competition will produce not only lower prices, but also better goods and services.” (quoting Nat’l Soc’y of Prof’l Eng’rs v. United States, 435 U.S. 679, 695 (1978)) (internal quotation marks omitted)). 40. Bd. of Regents of the Univ. of Okla. v. NCAA, 546 F. Supp. 1276, 1304 (W.D. Okla. 1982) aff’d in part, remanded in part, 707 F.2d 1147 (10th Cir. 1983), aff’d, 468 U.S. 85 (1984); see also Law v. NCAA, 902 F. Supp. 1394, 1402 (D. Kan. 1995).

238 Case Western Reserve Law Review·Volume 64 ·Issue 1·2013 Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act those contracts that “unreasonably” restrain trade.41 To determine whether a restraint “unreasonably” restrains trade, a court will apply a two-part test.42 First, the court will determine whether the restraint involves “concerted action between two legally distinct economic entities” in a manner that affects “trade or commerce among the several states” (“threshold requirements”).43 If these threshold requirements are met, the court will then determine whether the alleged restraint unduly suppresses competition within any relevant market (“competitive effects test”).44

41. Bd. of Regents, 546 F. Supp. at 1304 (citing Standard Oil Co. of N.J. v. United States, 221 U.S. 1, 31 (1911)); see also Law v. NCAA, 134 F.3d 1010, 1016 (10th Cir. 1998) (“Because nearly every contract that binds the parties to an agreed course of conduct is a ‘restraint of trade’ of some sort, the Supreme Court has limited the restrictions contained in section 1 to bar only ‘unreasonable restraints of trade.’” (quoting NCAA v. Bd. of Regents of the Univ. of Okla., 468 U.S. 85, 98 (1984))); Coll. Athletic Placement Serv., Inc. v. NCAA, No. 74-1144, 1974 WL 998, at *3 (D.N.J. Aug. 22, 1974) (reaching the same conclusion regarding “unreasonable” restraints of trade). 42. See Law, 134 F.3d at 1016 (describing this two-step test); cf. Marc Edelman, Are Commissioner Suspensions Really Any Different from Illegal Group Boycotts? Analyzing Whether the NFL Personal Conduct Policy Illegally Restrains Trade, 58 CATH. U. L. REV. 631, 640 (2009) (describing a similar three-part test involving threshold issues, an analysis of competitive effects, and finally the analysis of preemption and other non-competition-based affirmative defenses). 43. Primetime 24 Joint Venture v. Nat’l Broad. Co., 219 F.3d 92, 103 (2d Cir. 2000) (quoting Capital Imaging Assocs. v. Mohawk Valley Med. Assocs., 996 F.2d 537, 542 (2d Cir. 1993)); see also Sherman Act §1, 15 U.S.C. § 1 (2006) (requiring that, to be illegal, the contract, combination, or conspiracy must be “in restraint of trade or commerce among the several States”); Denver Rockets v. All-Pro Mgmt., Inc., 325 F. Supp. 1049, 1062 (C.D. Cal. 1971) (“Before a concerted refusal to deal can be illegal under Section 1 of the Sherman Act, two threshold elements must be present: (1) there must be some effect on ‘trade or commerce among the several States’, and (2) there must be sufficient agreement to constitute a ‘contract, combination . . . or conspiracy.’”). 44. See Edelman, supra note 42, at 646 (explaining that the court will find a net anticompetitive effect “where the anticompetitive effects of a particular agreement are greater than their pro-competitive benefits”); see also Banks v. NCAA, 746 F. Supp. 850, 858 (N.D. Ind. 1990) (“Whether a particular arrangement violates the Sherman Act depends upon the arrangement’s effect upon competition in the relevant marketplace.”).

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B. Threshold Requirements In assessing the threshold requirements of an antitrust challenge, a court will often consider each requirement separately.45 To determine whether a restraint involves the first threshold requirement—“concerted action between two legally distinct economic entities”46—a court will consider whether there is evidence of an agreement, either written or implied, between entities that lack a common objective.47 This requirement compels plaintiffs to show the presence of an agreement that “deprives the marketplace of independent centers of decisionmaking . . . and thus of actual and potential competition.”48 Similarly, to ascertain whether a restraint affects the other threshold requirement—“trade or commerce among the several States”49—a court will determine whether the restraint involves “the exchange or buying and selling of commodities especially on a large scale involving transportation from place to place.”50 Under a modern

45. See generally Edelman, supra note 42, at 642 (explaining that a reviewing court begins “its analysis by determining whether [the] two threshold issues are met”). 46. Primetime, 219 F.3d at 103 (quoting Capital Imaging Assocs., 996 F.2d at 542). 47. See Am. Needle, Inc. v. NFL, 130 S. Ct. 2201, 2212 (2010) (“The relevant inquiry, therefore, is whether there is a ‘contract, combination . . . or conspiracy’ amongst ‘separate economic actors pursuing separate economic interests’ . . . .” (quoting Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 773 (1984))); see also Agnew v. NCAA, 683 F.3d 328, 335 (7th Cir. 2012) (finding that “[t]here is no question that all NCAA member schools have agreed to abide by the Bylaws,” so “the first showing of an agreement or contract is therefore not at issue in this case”); Hairston v. Pac. 10 Conference, 101 F.3d 1315, 1319 (9th Cir. 1996) (finding that an agreement among all of the colleges in the Pac-10 conference “fulfills the ‘contract, combination, and conspiracy’ prong” (quoting NCAA v. Bd. of Regents of the Univ. of Okla., 468 U.S. 85, 99 (1984))). 48. American Needle, 130 S. Ct. at 2212. 49. Sherman Act §1, 15 U.S.C. § 1 (2006). 50. Webster’s Third Int’l Dictionary 456 (3d ed. 1986); see also Agnew, 683 F.3d at 338 (finding a commercial transaction to occur between a student-athlete and his college where “the student-athlete uses his athletic abilities on behalf of the university in exchange for an athletic or academic education, room, and board”); Bassett v. NCAA, 528 F.3d 426, 433 (6th Cir. 2008) (finding a rule inhibiting NCAA member schools from hiring coaches that had been previously sanctioned by the NCAA to be “anti-commercial”); Worldwide Basketball & Sport Tours, Inc. v. NCAA, 388 F.3d 955, 959 (6th Cir. 2004) (implying that certain trade-association rules may be deemed noncommercial if they are not based on business motives); Hairston, 101 F.3d at 1319 (agreeing with the parties that the “agreement affects interstate commerce”).

240 Case Western Reserve Law Review·Volume 64 ·Issue 1·2013 Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act view, the actual amount of interstate activity, as compared to intrastate activity, is irrelevant so long as “it is not insubstantial.”51 Thus, “almost every activity from which [an] actor anticipates economic gain” will be found to affect interstate commerce.52 C. Competitive Effects Analysis Presuming that both threshold requirements are met, a court will next review the restraint’s competitive effects by applying one of three sanctioned tests: (1) per se, (2) rule of reason, or (3) quick-look. On one end of the spectrum, if a restraint is “so nefarious” that there is high probability that it lacks any redeeming value, a court will apply the per se test.53 The per se test presumes that a restraint suppresses competition without engaging in any further inquiry.54 Thus, a court will declare the restraint to be illegal unless a special antitrust exemption applies.55 On the other end of the spectrum, if a court, upon first impression, believes that a restraint is likely to have some competitive benefit, it will instead apply the rule of reason test.56 The rule of

51. Hennessey v. NCAA, 564 F.2d 1136, 1150 (5th Cir. 1977) (citing United States v. Yellow Cab Co., 332 U.S. 218, 225–26 (1947)). 52. IA Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 260b, at 250 (2d ed. 2000). 53. Marc Edelman, Upon Further Review: Will the NFL’s Trademark Licensing Practices Survive Full Antitrust Scrutiny? The Remand of American Needle v. Nat’l Football League, 16 STAN. J.L. BUS. & FIN. 183, 197 (2011); see also State Oil Co. v. Khan, 522 U.S. 3, 10 (1997) (“Some types of restraints . . . have such predictable and pernicious anticompetitive effect, and such limited potential for procompetitive benefit, that they are deemed unlawful per se.”); Geneva Pharms. Tech. Corp. v. Barr Labs, Inc., 386 F.3d 485, 506 (2d Cir. 2004) (explaining that conduct is per se illegal if it falls within “the narrow range of behavior that is considered so plainly anti-competitive and so lacking in redeeming pro-competitive value that it is ‘presumed illegal without any further examination’” (quoting Broad. Music, Inc. v. CBS, 441 U.S. 1, 8 (1979))). 54. See Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1108 (7th Cir. 1984) (“It is only when the plaintiff adequately states a per se violation of § 1 of the Sherman Act that an allegation of anticompetitive effects is not required.”). 55. Cf. Marc Edelman & Brian Doyle, Antitrust and “Free Movement” Risks of Expanding U.S. Professional Sports Leagues into Europe, 29 NW. J. INT’L L. & BUS. 403, 415 (2009) (“In the context of professional sports . . . the two most applicable defenses or exemptions to Section 1 of the Sherman Act are the statutory labor exemption and the non- statutory labor exemption.”). 56. See Edelman, supra note 53, at 198 (noting that the rule of reason test is applied when courts believe an arrangement is likely to have redeeming benefits).

241 Case Western Reserve Law Review·Volume 64 ·Issue 1·2013 Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act reason test “distinguishes between restraints with anticompetitive effect that are harmful to the consumer and restraints stimulating competition that are in the consumer’s best interest.”57 It requires investigating every aspect of a restraint, including whether the parties to the restraint had the power to control any relevant market (“market power”), whether the restraint encourages or suppresses competition, and whether the restraint caused the marketplace “antitrust harm.”58 Finally, in the third set of circumstances, a court may elect to perform an “abbreviated or quick-look rule of reason analysis.”59 Under this third test, a court will probe into certain aspects of a restraint while relying on its initial presumptions about others.60 Most courts that apply the quick-look test do so in favor of the plaintiff based on a preliminary finding of anticompetitive effects, relieving the burden of establishing market power and shifting the burden to the defendant to provide justification.61 Nevertheless, two recent antitrust

57. Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 886 (2007). 58. See Edelman, supra note 53, at 198–99; see also Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 768 (1984) (describing the rule of reason as “an inquiry into market power and market structure”); Worldwide Basketball & Sport Tours, Inc. v. NCAA, 388 F.3d 955, 959 (6th Cir. 2004) (explaining that “[u]nder the rule of reason analysis, the plaintiff bears the burden of establishing that the conduct complained of produces significant anticompetitive effects within the relevant product and geographic markets” (quoting NHL Players’ Ass’n v. Plymouth Whalers Hockey Club, 325 F.3d 712, 718 (6th Cir. 2003))); cf. Banks v. NCAA, 977 F.2d 1081, 1087–88 (7th Cir. 1991) (noting that, with respect to the requirement of showing antitrust harm, “[t]he purpose of the Sherman Act is to rectify the injury to consumers caused by diminished competition” and “not only an injury to [one]self” (quoting Car Carriers, 745 F.2d at 1107–08)). 59. See Cal. Dental Ass’n v. FTC, 526 U.S. 756, 757 (1999) (defining the abbreviated or “quick look” rule of reason test as one that should be used “when an observer with even a rudimentary understanding of economics could conclude that the arrangements in question have an anticompetitive effect on customers and markets”); see also Edelman, supra note 53, at 197 (“In the middle of the spectrum, where an arrangement seems less nefarious, a court may instead apply the ‘quick look’ test . . . .”). 60. See Major League Baseball Props., Inc. v. Salvino, Inc., 542 F.3d 290, 294 (2d Cir. 2008) (upholding the district court’s finding that a quick- look analysis—which could have relieved the evidentiary burden for establishing the issues of market power and actual adverse effect on competition—did not apply). 61. See NCAA v. Bd. of Regents of the Univ. of Okla., 468 U.S. 85, 109–13 (1984) (holding that while market power was evident as a matter of fact without extensive analysis, as a matter of law, no such market analysis was required because the anticompetitive effects were clearly

242 Case Western Reserve Law Review·Volume 64 ·Issue 1·2013 Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act decisions have found that courts may also adopt the quick-look test in favor of defendants if the alleged restraint is “essential if the product is to be available at all.”62

III. Analyzing the NCAA’s No-Pay Rules Under Section 1 of the Sherman Act

There are two formidable ways by which a plaintiff could challenge the NCAA’s no-pay rules under section 1 of the Sherman Act. The first is to contend that the no-pay rules represent a form of wage fixing that harms not only the market for student-athlete services but also the quality of college sports’ on-field product. The second is to argue that the NCAA rules constitute an illegal group boycott of those colleges that would otherwise compete in a free market to recruit student-athletes. Under both legal theories, courts would likely review the NCAA’s no-pay rules under the full rule of reason test because NCAA members “share an interest in making the entire league successful and profitable” and thus collectively benefit from cooperating on “the production and scheduling of games.”63 Under the wage-fixing theory, student-athletes would be the ideal plaintiffs to challenge the NCAA’s restraints; meanwhile, under the group-boycott theory, the ideal plaintiff would be an NCAA member.

demonstrated and thus required “some competitive justification” from the defendant); see also Law v. NCAA, 902 F. Supp. 1394, 1405 (D. Kan. 1995) (“[B]ecause adverse effects on competition are apparent, the court does not require proof of market power, and instead moves directly to an analysis of the defendant’s proffered competitive justifications for the restraint.”), aff’d, 134 F.3d 1010 (10th Cir. 1998). 62. Laumann v. NHL, 907 F. Supp. 2d 465, 479 (S.D.N.Y. 2012) (quoting Am. Needle, Inc. v. NFL, 130 S. Ct. 2201 (2010); Agnew v. NCAA, 683 F.3d 328, 341 (7th Cir. 2012) (explaining that certain joint venture conduct that is necessary for the joint venture to exist in the first place is “presumptively procompetitive”). 63. American Needle, 130 S. Ct. 2201, 2216 (2010); see also Texaco, Inc. v. Dagher, 547 U.S. 1, 1, 5 (2006) (“It is not per se illegal under § 1 of the Sherman Act for a lawful, economically integrated joint venture to set the prices at which it sells its products.”); Justice v. NCAA, 577 F. Supp. 356, 380 (D. Ariz. 1983) (noting that “[a] clear trend has emerged in recent years under which courts have been extremely reluctant to subject the rules and regulations of sports organizations to the group boycott per se analysis”). But see Bd. of Regents, 468 U.S. at 108 (1984) (applying the quick-look test to review of the NCAA’s television broadcast practices).

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A. Challenging the NCAA’s No-Pay Rules As Illegal Wage-Fixing Restraints The argument that the NCAA’s no-pay rules constitute illegal wage fixing is best supported by precedent from the Supreme Court and the Tenth Circuit. As cases in these courts explain, wage fixing involves any agreement by two or more employers to set the compensation rate of workers at a pre-specified amount.64 Generally, courts find wage fixing to be illegal not only because it harms workers but also because it injures the competitive marketplace by driving workers away from their current line of employment and into another field where their work product is less valuable to society.65 Furthermore, courts generally recognize that an agreement to fix employee wages outside the scope of a collective bargaining agreement illegally “restrain[s] mobility on the part of employees who would otherwise have the opportunity, in a competitive market for services, to transfer to higher paid opportunities [that otherwise would be] offered by others.”66 Applying these well-established principles, the Tenth Circuit held in Law v. NCAA67 that the NCAA’s attempt to cap assistant coaches’ salaries was illegal because it depressed coaches’ compensation without promoting any legitimate antitrust goal.68 The court concluded that it was irrelevant whether the NCAA salary restraint opened up coaching opportunities for newer coaches because this rationale related entirely to social preferences that are divorced from

64. John H. Johnson, Jess David & Paul A. Torelli, Empirical Evidence and Class Certification in Labor Market Antitrust Cases, 25 ANTITRUST 60, 63 (2010). 65. See, e.g., Brown v. Pro Football, Inc., 50 F.3d 1041, 1061–62 (D.C. Cir. 1995) (explaining that “[a]thletic prowess is, of course, a unique and highly specialized resource, of precisely the genre vulnerable to monopsony manipulation” and if sports “team owners join together to suppress the price of athletic services through monopsony practices, most athletes will not be able to switch profitably to other lines of work,” thus creating a “labor market for professional athletes’ services . . . where there is real potential for anticompetitive monopsonistic practices”); cf. Michael G. Langan, Comment, Why a Fixed Salary for Developmental Squad Players Does Not Hurt the Game: Defending the Decision Not to Argue Consumer Injury in Brown v. Pro Football, 5 GEO. MASON L. REV. 559, 560 (1997) (discussing an argument by Penn State Law School sports and antitrust law professor Stephen F. Ross that explains why a wage-fixing restraint in the context of a sports injury can lead to widespread consumer harm). 66. See Cordova v. Bache & Co., 321 F. Supp. 600, 606–07 (S.D.N.Y. 1970). 67. 134 F.3d 1010 (10th Cir. 1998). 68. Id. at 1020.

244 Case Western Reserve Law Review·Volume 64 ·Issue 1·2013 Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act the notion of an open, competitive marketplace.69 Likewise, the court rejected the argument that a salary cap was beneficial to the free market because it would cut all NCAA members’ costs: “cost-cutting by itself is not a valid procompetitive justification” and “[i]f it were, any group of competing buyers [would then be allowed to] agree on maximum prices.”70 There is, of course, one important distinction between the court’s holding in Law and a theoretical antitrust challenge posited against the NCAA’s student-athlete no-pay rules: unlike assistant coaches, student-athletes have not traditionally been defined as employees, so the collective determination of their pay has not traditionally been construed as wage fixing.71 Nevertheless, any empirical observation of student-athletes’ daily activities shows that student-athletes are closely akin in practice to traditional workers.72 For example, “a self- study performed by the NCAA in 2011” found that “Division I [college] football players [devoted] an average of 43.3 hours per week to their sport”—more time than they spent on academic activities, and more than a typical U.S. worker spends on his profession.73 In addition, student-athletes seem to meet the Internal Revenue Service’s multifactor test for employment because NCAA coaching staffs exercise year-round behavioral controls over student-athletes and impose strict limits on their outside financial activities.74 Furthermore, in the context of workers’ compensation law, at least

69. Id. at 1021–22 (“While opening up coaching positions for younger people may have social value apart from its affect [sic] on competition, we may not consider such values unless they impact upon competition.”). 70. Id. at 1022 (explaining further that setting maximum prices generally “reduces the incentive among suppliers to improve their products” in the context of college basketball coaches, and it would similarly create “less incentive to improve their performance if their salaries are capped”). Also, the court rejected the argument that the cap on certain coaches’ salaries was needed to maintain competitive balance among teams because, “[w]hile the REC [Restricted Earnings Coach] Rule [would] equalize the salaries paid to entry-level Division I coaches, it is not clear the REC Rule [would] equalize the experience level of such coaches” nor level the cost structure overall of operating college sport. Id. at 1024. 71. See generally Robert A. McCormick & Amy Christian McCormick, The Myth of the Student-Athlete: The College Athlete As Employee, 81 WASH. L. REV. 71, 129 (2006) (highlighting the argument made by some that student-athletes cannot be victims of wage fixing because they are not employees). 72. Id. 73. Michael H. LeRoy, An Invisible Union for an Invisible Labor Market: College Football and the Union Substitution Effect, 2012 WIS. L. REV. 1077, 1099 (2012). 74. Id. at 1094–95.

245 Case Western Reserve Law Review·Volume 64 ·Issue 1·2013 Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act one court has issued an award to a student-athlete—thus treating him as a de facto employee.75 All of these factors combine to significantly rebut the longstanding advanced by the NCAA that student- athletes are foremost students and not workers. Indeed, there is even some evidence that this legal fiction was created by the NCAA for the specific purpose of trying to avoid antitrust scrutiny.76 Thus, it would be the most bizarre of loopholes to allow the NCAA to evade antitrust scrutiny simply by applying a dubious label to their business practices.77 B. Challenging the NCAA’s No-Pay Rules As an Illegal Group Boycott There is also a strong argument that the NCAA’s no-pay rules constitute an illegal group boycott against colleges that would otherwise seek to pay their student-athletes.78 In contrast to the wage- fixing argument, the group-boycott argument is strongest if brought by an NCAA member, given the well-established precedent that members of private associations have antitrust standing to sue their associations.79

75. See id. at 1103 (citing Univ. of Denver v. Nemeth, 257 P.2d 423 (Colo. 1953)) (holding that a student-athlete’s award of worker’s compensation benefits was proper because the injuries to his back sustained during football practice arose out of and in the course of employment). 76. See McCormick & McCormick, supra note 71, at 74 (arguing that the NCAA self-coined the term “student-athlete” to perpetuate a myth of amateurism and “obtain the astonishing pecuniary gain and related benefits of the athletes’ talents, time, and energy”). 77. See generally Am. Needle, Inc. v. NFL, 130 S. Ct. 2201, 2213 (2010) (“An ongoing § 1 violation cannot evade § 1 scrutiny simply by giving the ongoing violation a name and label.”). 78. Cf. Edelman, supra note 5, at 871 (“[R]ules limiting student-athlete wages operate as a restraint of trade on a relevant commercial market.”). 79. The added challenge for a student-athlete bringing a group boycott claim against the NCAA is based on the issue of standing—the requirement that a plaintiff suffer a loss or prospective loss that is related to one’s business or property. In Justice v. NCAA, the District of Arizona found that a group of college football players could not state an antitrust claim against the NCAA for its rendering of the University of Arizona ineligible for postseason competition because “there are simply too many factors other than the NCAA sanctions and the alleged injury for [the court] to find that a proximate relationship exists.” Justice v. NCAA, 577 F. Supp. 356, 378 (D. Ariz. 1983). But a similar group boycott claim would not be nearly as difficult if brought by an NCAA member because the threat of sanction by the NCAA would cause a nearly certain loss of sports-related revenues. See, e.g., NCAA v. Bd. of Regents of the Univ. of Okla., 468 U.S. 85 (1984) (finding for the plaintiffs in a group boycott claim brought by two members of the NCAA).

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1. The Seminal Case: NCAA v. Board of Regents The case most directly on point for finding the NCAA’s no-pay rules to function as an illegal group boycott is the Supreme Court’s 1984 decision, NCAA v. Board of Regents of the University of Oklahoma.80 There, the Court held that limiting the number of games that an NCAA member may broadcast on television violated section 1 of the Sherman Act because it “eliminate[d] competitors from the [broadcast television] market.”81 The Court further implied that any attempt to ban an NCAA member for refusing to comply with its television bylaws was tantamount to an illegal group boycott because it prevented NCAA membership for those colleges seeking to compete in the free market for broadcast revenues.82 The litigation in Board of Regents was long and complex, lasting for more than three years. At the district court level, the court held that the NCAA’s television bylaws represented an illegal restraint on output, and that the NCAA, in its allocation of television rights, illegally “maintain[ed] mechanisms for punishing cartel members who [sought] to stray from these production quotas.”83 The Tenth Circuit affirmed, concurring that “[t]he television plan at issue . . . restrict[ed] the plaintiffs’ revenues, market share, and output,”84 and further noting that “the television [plan’s] . . . threat of expulsion and boycott [are] sanctions which clearly have anticompetitive

80. 468 U.S. 85 (1984). 81. Id. at 108. Along those same lines, the Supreme Court found that the NCAA television policy had no offsetting procompetitive benefit because it neither increased the output of televised games nor reduced the price of televised games. Id. at 113. 82. See id. at 106 (explaining that “as a practical matter all member institutions need NCAA approval” to function). 83. See Bd. of Regents of the Univ. of Okla. v. NCAA, 546 F. Supp. 1276, 1301 (W.D. Okla. 1982), aff’d in part, remanded in part, 707 F.2d 1147 (10th Cir. 1983), aff’d, 468 U.S. 85 (1984). Furthermore, the district court found each of the other elements required under a full rule of reason analysis were also met. It concluded that the Universities of Oklahoma and Georgia suffered “antitrust harm” because they were able to show the likelihood of lost revenues due to the television broadcast restraints. See id. at 1301–02 (concluding that such injuries are “direct and substantial, and not indirect or derivative of injury alleged to have been suffered by the public at large”). Meanwhile, it held that the NCAA exercised “market power” in both a relevant market for college football television broadcasts and the competition in college sports because, “[a]s a practical matter, membership in the NCAA is a prerequisite for institutions wishing to sponsor a major, well-rounded athletic program.” See id. at 1288. 84. Bd. of Regents of the Univ. of Okla. v. NCAA, 707 F.2d 1147, 1151 (10th Cir. 1983).

247 Case Western Reserve Law Review·Volume 64 ·Issue 1·2013 Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act potential.”85 Thus, even if the NCAA restraint had not affected output, the appellate court still would have found the threat of expelling noncomplying members to require careful scrutiny under a full rule of reason analysis.86 Thereafter, the Supreme Court similarly ruled that the NCAA’s television plan was illegal because it “eliminates competitors from the market, since only those broadcasters able to bid on television rights covering the entire NCAA can compete.”87 In addition, the Court explained that “when there is an agreement in terms of price or output, ‘no elaborate industry analysis is needed to demonstrate the anticompetitive characteristics of such agreement.’”88 2. Other Instructive Supreme Court Opinions Although the Supreme Court’s ruling in Board of Regents focused mostly on output restraints, several other Supreme Court decisions unrelated to college sports touch more directly on the conclusion that trade associations may not serve as “extra-judicial .”89 For instance, in Fashion Originators Guild of America v. Federal Trade Commission,90 the Supreme Court affirmed a Federal Trade Commission that enjoined members of a fashion trade association from combining “among themselves to combat and . . . destroy all competition from the sale of garments which are copies of their ‘original creators.’”91 In finding the trade association’s self-governance to be illegal, the Court explained that members of a trade association may not collectively agree to boycott other members for failing to follow association rules, nor may they issue “heavy fines”

85. Id. at 1161 (finding that plaintiffs’ claim of an output restraint was per se illegal, and their group boycott claim was subject to the full rule of reason inquiry). 86. See id. 87. NCAA v. Bd. of Regents of the Univ. of Okla., 468 U.S. 85, 108 (1984). Although the Supreme Court believed the restraint could not be deemed illegal under a mere per se test, it found the district court sufficiently analyzed the restraint under its “quick look” review. Id. 88. Id. at 109 (quoting Nat’l Soc’y of Prof’l Eng’rs v. United States, 435 U.S. 679, 692 (1978)). 89. Fashion Originators’ Guild of Am., Inc. v. FTC, 312 U.S. 457, 465 (1941) (discussing how such internal self-governance impermissibly “trenches upon the power of the national legislature and violates the statute” (quoting Addyston Pipe & Steel Co. v. United States, 175 U.S. 211, 242 (1899))). 90. 312 U.S. 457 (1941). 91. Id. at 461.

248 Case Western Reserve Law Review·Volume 64 ·Issue 1·2013 Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act on those competitors that are unwilling to go along with the majority’s view.92 Similarly, in Anderson v. Shipowners’ Association of Pacific Coast,93 the Supreme Court held it was illegal for a trade association that owned and operated almost all of the American merchant vessels along the Pacific Coast to “surrender[ ] . . . freedom of action in the matter of employing seamen and agree[ ] to abide by the will of the associations.”94 There, the Court presumed that any combination among competitors to govern the terms of employment for an entire industry violated the Sherman Act.95 The guiding principles of both Fashion Originators and Anderson further call into doubt the NCAA’s attempt to impose a self- regulatory regime that mandates members not pay their student- athletes. This is because, much like the earlier self-governance regimes that the Supreme Court rejected as illegal, the NCAA controls nearly all of the businesses in its trade—making a member’s ban from the association a significant hardship.96 In addition, as one district court opinion has explained, “it is clear from the evidence that an institution which withdraws or is expelled from the NCAA could no longer operate a fully-rounded intercollegiate athletic program.”97 Because “[n]on-member institutions could not compete in the prestigious NCAA championship events . . . [t]hey would therefore be unable to recruit quality athletes into their programs.”98 Thus, “[a]s a practical matter, membership in the NCAA is a prerequisite for institutions wishing to sponsor a major, well-rounded athletic program.”99 Another line of Supreme Court decisions outlaws trade associations from enforcing “absolute ban[s] on competitive bidding”—an additional aspect of the NCAA’s group boycott.100 For

92. Id. at 463–65. 93. 272 U.S. 359 (1926). 94. Id. at 364–65. 95. See id. at 362–65. 96. See generally Jeffrey L. Kessler, Tournament Has Become March Monopoly Madness, N.Y. Times, Mar. 28, 2004, at 9 (comparing the NCAA’s control of the college basketball market to “a 7-foot center playing in a fixed game in which no one else is allowed to be taller than 6 feet”). 97. Bd. of Regents of the Univ. of Okla. v. NCAA, 546 F. Supp. 1276, 1288 (W.D. Okla. 1982), aff’d in part, remanded in part, 707 F.2d 1147 (10th Cir. 1983), aff’d, 468 U.S. 85 (1984). 98. Id. 99. Id. (emphasis added). 100. Nat’l Soc’y of Prof’l Eng’rs v. United States, 435 U.S. 679, 692–93 (1978) (adopting the district court’s finding that such a ban “‘impedes

249 Case Western Reserve Law Review·Volume 64 ·Issue 1·2013 Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act example, in National Society of Professional Engineers v. United States,101 the Supreme Court nullified an engineering trade association’s canon of ethics that prevented members from securing contracts by offering a lower price than their competitors for a given job.102 Noting that “[t]he Sherman Act reflects a legislative judgment that ultimately competition will produce not only lower prices, but also better goods and services,” the Court explained that any attempts to prevent companies from competing on the attribute of price was unreasonable.103 Moreover, the Court found it entirely irrelevant that the engineering firms were still able to compete on other factors given that only one important factor (price) had been removed.104 This conclusion, expressed so cogently by the Supreme Court in Professional Engineers, would lead to the same inevitable conclusion regarding the NCAA’s principle of amateurism: that it is illegal because it prevents its members from engaging in competitive “bidding” to recruit student-athletes.105 Furthermore, the fact that Professional Engineers involved the selling of services—compared to the NCAA’s no-pay rules, which affect the purchase of services— makes no difference under the law because, from an economic perspective, monopoly and monopsony markets lead to similar risks of consumer harm.106

the ordinary give and take of the market place’ and . . . deprives . . . customer[s] of ‘the ability to utilize and compare prices in selecting engineering services’” (quoting 404 F. Supp. 457, 460 (D.D.C. 1975))). 101. 435 U.S. 679 (1978). 102. Id. at 692–93. 103. Id. at 695. 104. See id. at 684, 693 (noting that the society’s preference to have customers hire engineers on the basis of background and reputation, not price, was nothing more than restraint in violation of § 1). 105. Id. (rejecting the canon of ethics prohibiting competitive bidding because it was not justified under the Sherman Act). 106. See Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 549 U.S. 312, 321 (2007) (“The kinship between monopoly and monopsony suggests that similar legal standards should apply to claims of monopolization and to claims of monopsonization.”); see also Brown v. Pro Football, Inc., 50 F.3d 1041, 1061–62 (D.C. Cir. 1995) (discussing the harms of wage fixing in a monopsony market as being much the same as price fixing in a monopoly market); cf. Leroy, supra note 73, at 1087 (explaining that “[w]hile monopoly controls pricing by limiting competition to sell a product or a service, a monopsony controls pricing by limiting purchasing competition”).

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IV. Why Lower Court Decisions Finding the NCAA’s Eligibility Rules to Be Noncommercial Are Either Inapposite or Wrongly Decided

Despite the favorable Supreme Court and Tenth Circuit precedent discussed in Part III, not all of today’s case law clearly supports finding the NCAA’s no-pay rules illegal. Indeed, eight lower courts within the First, Third, and Sixth Circuits have contrarily held that the NCAA’s “eligibility” rules are exempt from antitrust scrutiny because these rules do not affect “trade or commerce” and thus fail to meet one of the threshold requirements for antitrust scrutiny.107 These decisions, however, rely on inaccurate factual presumptions about the NCAA and outdated interpretations of antitrust law that have since been rejected by the Supreme Court. Thus, although these decisions survive as a deviant strain of precedent within three federal circuits, they cannot survive the Supreme Court’s current antitrust jurisprudence. A. A Brief Discussion of the Eight Lower Court Decisions Finding the NCAA Eligibility Rules to Be Noncommercial The first lower court to hold the NCAA’s eligibility rules noncommercial and thus exempt from antitrust scrutiny was the District of New Jersey in its 1974 ruling, College Athletic Placement Service, Inc. v. NCAA.108 There, the plaintiff—a company that helped young athletes find college scholarships—brought suit to enjoin the NCAA from enforcing an amateurism bylaw that prevented student- athletes from paying companies that assisted with the finding of scholarship opportunities.109 Without ruling directly on the competitive merits, the court held that the legal challenge presented in the case did not come within the purview of the Sherman Act because it served merely to “preserv[e] the educational standards in its member institutions.”110 The court relied primarily on an earlier decision from the First Circuit—Marjorie Webster Junior College, Inc. v. Middle States Association of Colleges111—which held that a college’s failure to obtain accreditation from a nonprofit association

107. Sherman Act §§ 1–7, 15 U.S.C. §§ 1–7 (2006). Specifically, “[e]very contract, combination in form of trust or otherwise, or conspiracy, in restraint of trade or commerce . . . is declared illegal.” Id. at § 3 (emphasis added). 108. No. 74-1144, 1974 WL 998 (D.N.J. Aug. 22, 1974). 109. Id. at *1. 110. Id. at *4. 111. 432 F.2d 650 (1st Cir. 1970).

251 Case Western Reserve Law Review·Volume 64 ·Issue 1·2013 Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act did not give rise to antitrust harm because “denial of accreditation [was] not tantamount to exclusion . . . from operating successfully.”112 The following year, the District of Massachusetts decided a similar case, Jones v. NCAA,113 also citing Marjorie Webster to support finding an NCAA bylaw exempt from antitrust scrutiny.114 The dispute in Jones related to whether the NCAA could deem a college hockey player ineligible for competition based on the player’s previous receipt of an athletic stipend.115 The court concluded that the plaintiff could not challenge the NCAA’s rule banning such a player because the plaintiff did not show how “the actions of the [NCAA] in setting eligibility guidelines ha[d] any nexus to commercial or business activities in which the defendant might engage.”116 In addition, the court noted that even if the claim was not barred on noncommercial grounds, the NCAA still did not act with sufficient “scienter” to violate antitrust law.117 Thereafter in Gaines v. NCAA,118 the Middle District of Tennessee similarly held that a plaintiff wishing to return to college football after entering the NFL draft could not bring an antitrust challenge against the NCAA.119 The Gaines decision was reached six years after the Supreme Court ruled favorably for the plaintiffs in Board of Regents.120 Nevertheless, the court differentiated the case by noting a legal difference “between the NCAA’s efforts to restrict the

112. Id. at 656. Nevertheless, the proposition relied on in Marjorie Webster Junior College was decidedly different from that in College Athletic Placement Service, as the latter restraint did far more than just cause the plaintiffs to suffer social stigma; it entirely precluded the plaintiffs from maintaining their business relationships. See Coll. Athletic Placement Serv., 1974 WL 998, at *2 (describing a letter from the NCAA to the College Athletic Placement Service indicating the intent to declare any student-athlete ineligible based on their parents’ decision to contract with the College Athletic Placement Service). 113. 392 F. Supp. 295 (D. Mass. 1975). 114. Id. at 303. 115. See id. at 296–98. 116. Id. at 303. 117. Id. at 304. 118. 746 F. Supp. 738 (M.D. Tenn. 1990). 119. Id. at 740 (discussing Vanderbilt University football player Bradford L. Gaines’s challenge to an NCAA bylaw that revokes an athlete’s amateur status when he enters a professional draft or enters into an agreement with an agent to negotiate a professional contract). Perhaps due to poor lawyering, Gaines’s antitrust challenge to the NCAA bylaws was brought exclusively under section 2 of the Sherman Act, which relates to monopolization, rather than under section 1 of the Sherman Act, which relates to collusion. See id. at 741. 120. Id.; NCAA v. Bd. of Regents of the Univ. of Okla., 468 U.S. 85 (1984).

252 Case Western Reserve Law Review·Volume 64 ·Issue 1·2013 Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act televising of college football games and the NCAA’s efforts to maintain a discernible line between amateurism and professionalism.”121 Thus, the court adopted a bifurcated test to determine whether NCAA conduct affects interstate commerce, placing “business rules” (such as the television policy) on one side of an imaginary line and “eligibility rules” (such as those related to amateurism) on the other side.122 Then in 1998, the Third Circuit formally adopted Gaines’s bifurcated test for NCAA commerciality in another case, Smith v. NCAA.123 Smith involved a plaintiff’s challenge to an NCAA bylaw that prohibited a student-athlete from participating in intercollegiate athletics while attending a graduate school different from the one where she attended college.124 Citing College Athletic Placement Services, Jones, and Gaines, the court found this particular bylaw immune from competitive scrutiny because “many district courts have [already] held that the Sherman Act does not apply to the NCAA’s promulgation and enforcement of eligibility requirements.”125 After Smith, “[t]he parade marched on” with two other Third Circuit rulings that found the NCAA’s eligibility rules to be noncommercial and thus exempt from review.126 In Bowers v. NCAA,127 the District of New Jersey held that the NCAA bylaws that determine academic eligibility lie outside the Sherman Act’s reach because Third Circuit precedent indicated that those bylaws are “not

121. Gaines, 746 F. Supp. at 743. The court further proclaimed that, even though the Supreme Court never explicitly stated in Board of Regents that eligibility rules were noncommercial, its limited citation to Jones v. NCAA was reason enough for courts to continue treating Jones as good law. Id. (“Although the U.S. Supreme Court did not state that eligibility rules were not subject to antitrust scrutiny, it cited a case with approval, Jones v. NCAA, . . . which stated exactly that.”) (citation omitted). 122. See id. at 747 (“The Supreme Court distinguished the NCAA television restrictions, which it invalidated under § 1, from ‘most of the regulatory controls of the NCAA [which] are justifiable means of fostering competition among amateur teams and therefore procompetitive because they enhance public interest in intercollegiate athletics.’” (alteration in original) (citing Bd. of Regents, 468 U.S. at 117 (1984))). 123. Smith v. NCAA, 139 F.3d 180, 185 (3d Cir. 1998) (agreeing with the Gaines court and others “that the eligibility rules are not related to the NCAA’s commercial or business activities”), vacated and remanded on different grounds, 525 U.S. 459 (1999). 124. Id. at 183. 125. Id. at 185. 126. Flood v. Kuhn, 407 U.S. 258, 278 (1972). 127. 9 F. Supp. 2d 460 (D.N.J. 1998).

253 Case Western Reserve Law Review·Volume 64 ·Issue 1·2013 Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act related to the NCAA’s commercial or business activities.”128 Likewise, the Eastern District of Pennsylvania held in Pocono Invitational Sports Camps v. NCAA129 that an NCAA bylaw allowing Division I coaches to evaluate high school basketball players only at certified camps did not violate antitrust law because “[t]he plaintiff [did not] show that the challenged restraint involved ‘trade or commerce.’”130 Finally and most recently in Bassett v. NCAA,131 the Sixth Circuit followed the Third Circuit’s lead when it adopted a bifurcated test for evaluating whether NCAA conduct is sufficiently commercial to fall within the scope of the Sherman Act.132 The dispute in Bassett specifically involved the of an NCAA mandate requiring that any college wishing to hire a coach who previously engaged in recruiting violations to first receive permission from the NCAA Committee on Infractions.133 Ultimately, the court found the rule was noncommercial, even though the court acknowledged that the NCAA itself was a commercial actor.134 The court proceeded to describe the NCAA coaching restraint as “anti-commercial” because, if not for the rule, any NCAA member that wanted to hire a coach who had engaged in previous NCAA recruiting infractions could obtain “a decided competitive advantage in recruiting and retaining highly prized student athletes.”135 B. Why Each of These Eight Cases Was Wrongly Decided In a vacuum, each of these eight decisions seems to present a strong basis for finding the NCAA’s no-pay rules to be noncommercial (or, as Bassett would argue, anti-commercial) and thus valid under section 1 of the Sherman Act. Nevertheless, each of these decisions suffers from at least one, if not multiple, defects in its analysis. The first major defect with the above decisions arises from the premise first adopted in College Athletic Placement Service that the NCAA is noncommercial based on its status as an association

128. Id. at 497 (quoting Smith, 139 F.3d at 185–86) (internal quotation marks omitted). 129. 317 F. Supp. 2d 569 (E.D. Penn. 2004). 130. Id. at 580. 131. 528 F.3d 426 (6th Cir. 2008). 132. See id. at 435 (noting that the restraint alleged in the case involved the group boycott of Bassett arising from NCAA-imposed sanctions). 133. Id. at 429. 134. See id. at 433. 135. See id.

254 Case Western Reserve Law Review·Volume 64 ·Issue 1·2013 Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act involved in higher education.136 However, at the time College Athletic Placement Service was decided, this issue was not well settled.137 Indeed, it was not until the very next year that the Supreme Court held in Goldfarb v. Virginia State Bar138 that “[t]he nature of an occupation, standing alone, does not provide sanctuary from the Sherman Act.”139 Thus, the Court’s decision in Goldfarb implicitly overruled College Athletic Placement Service by confirming that “the exchange of [a] service for money is [always] ‘commerce’ in the most common usage of that word”—even if the service involved a learned profession.140 Thereafter in Board of Regents, the Supreme Court identified the NCAA’s restraint on television broadcasts as being commercial without even addressing the issue, seemingly bringing further closure to any argument that these associations involved in higher education are innately noncommercial.141 Another notable defect with many of these rulings is that they cite Jones v. NCAA142—a case in which the court not only ruled in favor of the NCAA based on the rejected educational exception but also based on the NCAA’s purported lack of “scienter.”143 Nevertheless, the Supreme Court has never found lack of “scienter” to be a factor precluding an antitrust inquiry on the merits. To the contrary, the Supreme Court has long endorsed the principle that “[n]either the fact that [a] conspiracy may be intended to promote the

136. Coll. Athletic Placement Serv., Inc. v. NCAA, No. 74-1144, 1974 WL 998, at *4 (D.N.J. Aug. 22, 1974). 137. Cf. id. at *5 (“It is possible to conceive of restrictions on eligibility for accreditation that could have little other than a commercial motive; and as such, antitrust policy would presumably be applicable.”). 138. 421 U.S. 773 (1975). 139. Id. at 787 (citing Associated Press v. United States, 326 U.S. 1, 7 (1945)). 140. Id.; see also Hennessey v. NCAA, 564 F.2d 1136, 1148–49 (5th Cir. 1997) (explaining that a close reading of Goldfarb negates the finding that the NCAA is somehow exempt from antitrust law under a special educational exception). As one appellate court has since explained, although Goldfarb specifically rejected the claim that lawyers were exempt from antitrust law as a special “learned profession,” the Court’s holding would logically extend to the other purported learned professions in which profits are made, such as college sports. Id. at 1149 n.14 (citing Goldfarb, 421 U.S. at 788). 141. See NCAA v. Bd. of Regents of the Univ. of Okla., 468 U.S. 85, 102 (1984). 142. 392 F. Supp. 295 (D. Mass. 1975). 143. See id. at 303–04.

255 Case Western Reserve Law Review·Volume 64 ·Issue 1·2013 Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act public welfare, or that of the industry . . . is sufficient [grounds] to avoid the penalties of the Sherman Act.”144 A third defect with many of these cases is that they interpret the threshold issue of “interstate commerce” based on a particular bylaw rather than the NCAA’s overall business activities. However, the Supreme Court explained in McLain v. Real Estate Board of New Orleans, Inc.145 that the only thing a plaintiff must demonstrate to meet the threshold issue of “interstate commerce” is a “substantial effect on interstate commerce generated by [a defendant’s general business activities].”146 Thus, the bylaw-specific evaluation of the NCAA’s conduct has been flatly rejected.147 Moreover, from a factual perspective, many of these cases rely on faulty presumptions about the NCAA. For example, many of the aforementioned decisions imply that college athletics operate just like other educational programs.148 But contrary to all other educational programs, “intercollegiate athletics in its management is clearly business, and big business at that.”149 For example, in 2010, a twelve- team athletic conference collected more than $1 billion in athletic receipts.150 That same year, CBS paid more than $750 million to

144. Am. Med. Ass’n v. United States, 130 F.2d 233, 249 (D.C. Cir. 1942) (citations omitted), aff’d, 317 U.S. 519 (1943); see also Nat’l Soc’y of Prof’l Eng’rs v. United States, 435 U.S. 679, 695–96 (1978). 145. 444 U.S. 232 (1980). 146. See id. at 242–43 (holding with regard to “respondents’ brokerage activity” and rejecting the contention that the plaintiffs were required to make a “more particularized showing” as to “the alleged conspiracy to fix commission rates, or . . . other aspects of respondents’ activity”) While the disputed issue in McLain primarily related to the “interstate” aspect rather than the “commerce” aspect of “interstate commerce,” the inquiry was nevertheless performed together, leading to the logical result that the court intended a review of both components in the gestalt rather than based on just a single bylaw. See id. 147. Id. (“If establishing jurisdiction required a showing that the unlawful conduct itself had an effect on interstate commerce, jurisdiction would be defeated by a demonstration that the alleged restraint failed to have its intended anticompetitive effect. This is not the rule of our cases.”). 148. See, e.g., Jones v. NCAA, 392 F. Supp. 295, 303–04 (D. Mass. 1977) (describing intercollegiate hockey as an educational program in a major university). 149. Hennessey v. NCAA, 564 F.2d 1136, 1150 (5th Cir. 1977); see also Bd. of Regents of the Univ. of Okla. v. NCAA, 546 F. Supp. 1276, 1288–89 (W.D. Okla. 1982) (“[I]t is cavil to suggest that college football, or indeed higher education itself, is not a business.”), aff’d in part, remanded in part, 707 F.2d 1147 (10th Cir. 1983), aff’d, 468 U.S. 85 (1984). 150. See Branch, supra note 35, at 82 (explaining that in 2010, the “football- crazed” Southeastern Conference became the first college athletic conference to collect more than $1 billion in revenues, and the Big Ten Conference trailed closely behind at $905 million).

256 Case Western Reserve Law Review·Volume 64 ·Issue 1·2013 Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act purchase the television broadcast rights to the NCAA men’s basketball tournament.151 Meanwhile, an increasing number of college athletic departments receive millions of dollars per year from selling their stadium advertising rights, selling advertising space on players’ equipment, and using players’ names in licensed videogames.152 All of these factors clearly indicate that college athletics has become “big business” and, by all accounts, a commercial actor.153 Finally, also as a factual matter, many of the rulings that have found the NCAA to be noncommercial turn for support to language in the NCAA’s own bylaws denoting the association’s purported amateur status. However, any reliance on the NCAA’s own bylaws leads to a misleading result. As the Supreme Court has previously noted, “[a]n ongoing § 1 violation cannot evade § 1 scrutiny simply by giving the ongoing violation a name and label.”154 If the opposite were true, all trade associations would simply define their activities as amateurism as a way to circumvent the antitrust laws.

V. Why Lower Court Decisions Holding the NCAA Eligibility Rules to Be Procompetitive Are Similarly Misguided

In addition to the aforementioned cases, four lower court decisions have upheld NCAA rules related to eligibility under the rule of reason based on their purported procompetitive benefits.155 And much like the eight lower court decisions that found the NCAA to be

151. Id. at 93. 152. See id. at 86, 94 (discussing several of these types of agreements, including a $10.6 million deal between Auburn University and Under Armour); see also Edelman, supra note 19 (discussing the payment of royalties from the videogame maker Electronic Arts to the NCAA for use of the NCAA names, marks, and perhaps even player identities in their game). 153. Hennessey, 564 F.2d at 1150 (“[The NCAA and its members] are significantly involved in interstate commerce in the conduct of the athletic programs.”). 154. Am. Needle, Inc. v. NFL, 130 S. Ct. 2201, 2213 (2010). 155. A number of other cases not discussed in this section have also found NCAA rules to survive the rule of reason based on the plaintiff’s failure to meet his burden with respect to showing either market power or antitrust harm. See, e.g., Warrior Sports, Inc. v. NCAA, 623 F.3d 281 (6th Cir. 2010) (holding that a rule changing the acceptable size of the heads of lacrosse sticks did not unreasonably restrain trade or commerce in violation of the Sherman Act); Tanaka v. Univ. of S. Cal., 252 F.3d 1059 (9th Cir. 2001) (holding that a rule that discouraged a student- athlete from transferring colleges within a single conference did not have significant anticompetitive effects within any relevant antitrust market).

257 Case Western Reserve Law Review·Volume 64 ·Issue 1·2013 Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act noncommercial, each of these four additional decisions suffers from one or more legal defects. A. Cases Finding the NCAA Eligibility Rules Are Procompetitive The first decision to find an NCAA eligibility rule, although commercial, to be procompetitive was the Fifth Circuit’s 1977 ruling in Hennessey v. NCAA.156 There, the court held that a challenge to the NCAA’s limit on the number of coaches per team “come[s] close, but fall[s] short” under a rule of reason analysis.157 In finding the limit on coaches to be procompetitive, the court explained that the rule had a reasonable “motive” of assisting colleges with less funding to “preserve and foster competition” on equal terms.158 Thus, the court expressed fear that if it did not uphold the NCAA’s bylaw, a war of attrition would ensue, resulting in some colleges devoting all of their resources to college athletics.159 Six years later in Justice v. NCAA,160 the District of Arizona upheld an NCAA bylaw that had disqualified the University of Arizona football team from competing in postseason play after its players accepted prohibited benefits such as free transportation and lodging.161 In upholding the team’s ban from postseason play, the Justice court explained that the NCAA postseason eligibility rules were procompetitive because they “have been shown to lack an anticompetitive purpose and to be directly related to the NCAA objectives of preserving amateurism and promoting fair competition.”162 In addition, the court noted that “NCAA regulations designed to preserve amateurism and fair competition have previously been upheld as reasonable restraints [of trade] under the rule of reason”—citing Hennessey, Jones, and even Athletic Placement Service, Inc.163 Thereafter, the Fifth Circuit held in its 1988 decision McCormack v. NCAA164 that a college football player’s challenge to the NCAA death penalty failed under the rule of reason.165 In rejecting the

156. 564 F.2d 1136 (5th Cir. 1977). 157. Id. at 1154. 158. Id. at 1153. 159. Id. (“Financial pressures upon many members, not merely to ‘catch up’, but to ‘keep up’, were beginning to threaten both the competitive, and amateur, nature of the programs . . . .”). 160. 577 F. Supp. 356 (D. Ariz. 1983). 161. See id. at 383. 162. Id. at 382. 163. Id. 164. 845 F.2d 1338 (5th Cir. 1988). 165. Id. at 1344.

258 Case Western Reserve Law Review·Volume 64 ·Issue 1·2013 Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act football player’s challenge, the court differentiated its holding from that of Board of Regents by quoting that case for the proposition that, unlike rules that govern television broadcast markets, rules that determine who is eligible to compete in college football games “enhance public interest in intercollegiate athletics” and support an “academic tradition” that lies at the core of the unique character of college athletics.166 The court further quoted Board of Regents for the proposition that “[i]t is reasonable to assume that most of the regulatory controls of the NCAA are justifiable means of fostering competition,” and that one of the NCAA rules that can be viewed as procompetitive is “athletes must get paid.”167 Finally, the Seventh Circuit held in Banks v. NCAA168 that the NCAA bylaws that prevent student-athletes from exploring professional opportunities were procompetitive based on the same Board of Regents language that was cited by McCormack.169 Banks further described the plaintiff’s antitrust claim as “absurd” because, in the court’s opinion, “the NCAA does not exist as a minor league training ground for future NFL players but rather to provide an opportunity for competition among amateur students pursuing a collegiate education.”170 B. Why Each of These Four Cases Was Wrongly Decided Much like the eight decisions that found the NCAA to be noncommercial, these four decisions finding NCAA eligibility rules to be procompetitive are easily rebutted based on their substantial analytical errors. For example, the very first decision to find an NCAA eligibility rule to be procompetitive, Hennessey v. NCAA,171 ruled in this manner primarily because the NCAA rule kept member costs down.172 But this holding contradicts longstanding antitrust doctrine embedded within many Supreme Court decisions. Indeed, as

166. Id. 167. Id. (quoting NCAA v. Bd. of Regents of the Univ. of Okla., 468 U.S. 85, 102 (1984)). 168. 977 F.2d 1081 (7th Cir. 1992). 169. Id. at 1089. 170. See id. at 1089–90. In this vein, the appellate court noted that “[t]he no- draft rule has no more impact on the market for college football players than other NCAA eligibility requirements such as grades, semester hours carried, or requiring a high school diploma.” See id. at 1087–88. 171. 564 F.2d 1136 (5th Cir. 1977). 172. Id. at 1153 (“[The NCAA bylaw] was . . . intended to be an ‘economy measure’. . . . by curtailing . . . potentially monopolistic practices by the more powerful [schools] . . . and to reorient the programs into their traditional role as amateur sports operating as part of the educational process.”).

259 Case Western Reserve Law Review·Volume 64 ·Issue 1·2013 Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act far back as the 1897 decision United States v. Trans-Missouri Freight Association,173 the Supreme Court has held that keeping costs down is not a relevant procompetitive benefit under a rule of reason inquiry.174 Meanwhile, the Court explained in United States v. Socony-Vacuum Oil Co.175 that if businesses were allowed to restrain trade simply as a way of saving money, “the Sherman Act would . . . be emasculated” because this defense would apply to most, if not all, combinations.176 Another defect with the Hennessey decision is that, much like Jones, Hennessey focused extensively on the NCAA’s “motive” of allowing colleges, irrespective of their athletic funding, to compete on equal terms.177 Although such analysis at one time may have been within the bounds of an acceptable rule of reason inquiry, the Supreme Court clarified in Professional Engineers that any proper rule of reason analysis must turn on the competitive significance of the restraint rather than whether the restraint is “in the interest of the members of [the] industry.”178 Thus, even a positive, noneconomic motive can no longer save an otherwise illegal restraint. The court’s analysis in Justice made the similar error of relying on social benefits rather than procompetitive effects.179 There, the plaintiffs on appeal suggested that recognizing such benefits

173. 166 U.S. 290 (1897). 174. Id. at 304, 341 (applying the Sherman Act to a railroad price-fixing agreement—which defendants claimed benefited “patrons of the railway line . . . and the public at large”—and stating that an agreement’s “violation of law [cannot] be made valid by allegation of good intention or of desire to simply maintain reasonable rates”). Furthermore, the court held that intent is not an element that requires proof in an antitrust case. Id. (“[T]he intent alleged . . . is not necessary to be proved. The question is one of law in regard to the meaning and effect of the agreement itself, namely: Does the agreement restrain trade or commerce in any way so as to be a violation of the act?”); see also Arizona v. Maricopa Cnty. Med. Soc’y, 457 U.S. 332, 350 n.22 (1982) (citing Trans-Missouri for the proposition that “in the first price-fixing case arising under the Sherman Act, the Court was required to pass on the sufficiency of the defendants’ plea that they had established rates that were actually beneficial to the consumers”). 175. 310 U.S. 150 (1940). 176. Id. at 221. 177. Hennessey v. NCAA, 564 F.2d 1136, 1153 (5th Cir. 1977). 178. Nat’l Soc’y of Prof’l Eng’rs v. United States, 435 U.S. 679, 692 (1978). 179. See Justice v. NCAA, 577 F. Supp. 356, 382 (D. Ariz. 1983) (“The sanctions imposed by the NCAA in this case are reasonably related to the legitimate goals of preserving amateurism and promoting fair competition . . . .”); see also Hennessey, 564 F.2d at 1153 (noting that the NCAA “is endowed with certain benefits to society”).

260 Case Western Reserve Law Review·Volume 64 ·Issue 1·2013 Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act contradicted the Supreme Court’s ruling in Professional Engineers.180 Nevertheless, the court in Justice discarded these concerns with a mere footnote, stating that “[t]he plaintiffs’ contention is belied by a number of cases decided subsequent to Professional Engineers which have upheld comparable self-regulatory actions of sports organizations under the rule of reason.”181 The court never even analyzed the four cases cited in support of its conclusion—each of which was arguably inapposite to both Professional Engineers and the case at hand.182

180. See Justice, 577 F. Supp. at 382 n.17 (“The plaintiffs argue that the rationale of Hennessey and Jones is no longer applicable in light of National Society of Professional Engineers v. United States and that the NCAA cannot justify actions which exclude a competition by assessing a ‘social’ purpose such as promoting amateurism or ‘fair competition’ under the rule of reason.” (citation omitted)). 181. See id. Upon review of these four cases, there is a strong argument that three of them do not support a trade association’s right to self-regulate on the basis of purely social benefits, notwithstanding a limited carve- out for safety and industry-wide liability mentioned by a footnote in Professional Engineers. 435 U.S. at 696 n.22. Far from a purely social benefit, the first case upheld a rule based on the market’s ability to respond. Gunter Harz Sports, Inc. v. U.S.T.A., 665 F.2d 222, 223 (8th Cir. 1981) (upholding a tennis association’s rule that allowed only single-strung rackets in competition, recognizing that competition rules pertaining to the type of eligible playing equipment do not cause “antitrust harm” in the conventional sense because all equipment manufacturers can alter their product to conform with the association’s equipment rules); accord Warrior Sports, Inc. v. NCAA, 623 F.3d 281, 285 (6th Cir. 2010) (upholding a lacrosse league’s equipment rules for a similar reason). The second case fits squarely within the safety-industry liability exception mentioned in Professional Engineers. Neeld v. NHL, 594 F.2d 1297, 1300 (9th Cir. 1979) (upholding an NHL bylaw that precluded a player with just one eye from competition because the primary purpose of the rule was safety and avoiding league-wide liability); Professional Engineers, 435 U.S. at 696 n.22; see also Edelman, supra note 42, at 653 (explaining how the Professional Engineers carve-out applies to Neeld). The third case can be interpreted as applying the safety-industry liability exception to horses. See Cooney v. Am. Horse Shows Ass’n, 496 F. Supp. 424, 427, 430–32 (S.D.N.Y. 1980) (upholding a bylaw that subjects a trainer to possible suspension based on the presence of drugs in a horse for which the trainer was responsible). Cooney may constitute a ruling based implicitly on the safety-liability standard (as applied to horses) because the court stated that the trainer, “more than anyone else, was in a position to know exactly who administered the drug.” Id. at 433. The fourth case presents a far closer call because the plaintiff failed to present “a patently anticompetitive purpose” behind the World Boxing Association’s suspension rule. See Brenner v. World Boxing Council, 675 F.2d 445, 456 (2d Cir. 1981). 182. Justice, 577 F. Supp. at 382 n.17.

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McCormack presented a very different type of problem for the courts, as the factual background in that case was somewhat bizarre.183 The party most directly harmed by the NCAA’s death penalty sanction—Southern Methodist University—had previously agreed to accept the sanction and thus was not a party to the case.184 Meanwhile, the original plaintiff was merely an alumnus of the school and his claim was rejected due to lack of standing.185 As a result, the court was left to grapple with the claims of the football player plaintiffs, who were initially joined to the case by McCormack solely as a way to try to preserve his standing.186 In addressing the football players’ claims, the McCormack court properly turned to Board of Regents as the most appropriate precedent.187 However—perhaps troubled by the bizarre posture of the case—the court gerrymandered the language in Board of Regents to rule in favor of the NCAA.188 For example, the language quoted by McCormack to support its finding that the NCAA’s death-penalty sanction was procompetitive actually came from a section of Board of Regents that explained why NCAA conduct should be reviewed under the full rule of reason rather than the per se test.189 Even more troublesome, the exact language from that case actually states that the NCAA’s amateurism rules should be analyzed under the full rule of reason by a court because they “can be viewed as procompetitive.”190 By using the word “can” rather than “must” and using it in the context of determining the proper test for reviewing NCAA conduct, it is not clear that the Board of Regents court concluded the NCAA’s no-pay rules were procompetitive.191 Thus, the

183. See McCormack v. NCAA, 845 F.2d 1338, 1340 (5th Cir. 1998) (noting the plaintiffs’ allegations that the NCAA’s actions “deprived [alumni] and others of ‘their right to associate together in support of the University by attendance at the football games of the University,’ while the football players have been ‘forced to discontinue their athlete- academic duties’ at SMU and the cheerleaders have lost the opportunity to lead cheers at football games”). 184. See id. at 1341 (explaining that Southern Methodist University did not appeal the NCAA’s decision). 185. Id. 186. See id. at 1340 (noting that McCormack amended his complaint to include football players after the first complaint was dismissed for failure to state a claim for which relief could be granted). 187. Id. at 1343. 188. Id. at 1344. 189. Id. at 1343–44. 190. NCAA v. Bd. of Regents of the Univ. of Okla., 468 U.S. 85, 102 (1984) (emphasis added). 191. Id. (emphasis added).

262 Case Western Reserve Law Review·Volume 64 ·Issue 1·2013 Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act actual language in Board of Regents never truly supported McCormack’s conclusion.192 Finally, the Seventh Circuit’s decision in Banks likewise misconstrued the language in Board of Regents to reach a conclusion starkly different from the Supreme Court’s inference in that case.193 This error was pointed out by Judge Joel Flaum in a vigorous dissent, in which he concluded that “the market at issue here is the college football labor market” and “[i]f the no-draft rule were scuttled, colleges that promised their athletes the opportunity to test the waters in the NFL draft . . . would be more attractive to athletes than colleges that declined to offer the same opportunity.”194 Thereafter, Justice Harry Blackmun, in reviewing a bench memorandum assessing whether to grant certiorari in Banks, opined by hand on his memo that “CA7 got this one dead wrong.”195 Nevertheless, the Supreme Court ultimately declined certiorari— preventing Justice Blackmun from coining an opinion that would have potentially overturned Banks and its progeny.196

VI. Why Closer Game Scores Cannot Save the NCAA No-Pay Rules but May Support Preserving Such Rules on a Conference-by-Conference Basis

Finally, even beyond the above decisions that have granted unusually broad deference to the NCAA rules, numerous other sources, including law review articles and newspaper editorials, argue in favor of the NCAA no-pay rules for yet another reason—they improve the quality of college sports contests by keeping game scores

192. Id.; see also McCormack v. NCAA, 845 F.2d 1338, 1344 (5th Cir. 1998). 193. See Banks v. NCAA, 977 F.2d 1081, 1089 (7th Cir. 1992) (quoting and subsequently misapplying the following language from Board of Regents: “most of the regulatory controls of the NCAA [are] a justifiable means of fostering competition among the amateur athletic teams and therefore are procompetitive because they enhance public interest in intercollegiate athletics” (quoting Board of Regents, 468 U.S. at 104)). 194. Id. at 1081, 1095 (Flaum, J., dissenting). 195. See Preliminary Memorandum to Justice Blackmun on Banks v. Nat’l Collegiate Athletic Ass’n (May 14, 1993), available at http://epstein.usc.edu/research/blackmunMemos/1992/92Memo-pdf/92- 1466.pdf; see also Geoffrey Rapp, Banks v. NCAA Cert Pool Memo: “Seventh Circuit Dead Wrong,” SPORTS LAW BLOG, (Sept. 28, 2007, 1:04 PM), http://sports-law.blogspot.com/2007/09/banks-v-ncaa-cert- pool-memo-seventh.html (describing Supreme Court bench memo on Banks petition with Justice Blackmun’s handwritten comments). 196. See Banks, 508 U.S. at 908.

263 Case Western Reserve Law Review·Volume 64 ·Issue 1·2013 Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act closer together.197 Currently, antitrust law is in flux as to whether equalizing on-field competition serves as a relevant procompetitive benefit. On the one hand, past decisions such as Smith v. Pro Football, Inc.198 and Mackey v. NFL199 have held that closer scores can never offset an otherwise anticompetitive labor restraint.200 But on the other hand, dictum in the Supreme Court’s recent American Needle, Inc. v. NFL201 decision notes that “‘the interest in maintaining competitive balance’ among ‘athletic teams is legitimate and important.’”202 Without going into the competitive merits of a restraint that helps to equalize game results (a topic perhaps worthy of an entirely separate article), that argument does little to save the NCAA’s no- pay rules because there are other, less restrictive ways that colleges can level the sports playing field short of imposing a national, industry-wide bar on student-athlete compensation. For example, colleges could just as easily implement salary caps at the conference level rather than at the league level.203 Given that most college sporting events are played by teams from within a single conference, a conference-wide salary cap would have much the same effect of

197. See LeRoy, supra note 73, at 1093 (explaining that labor restraints on college sports markets have procompetitive effects by “spreading, and preserving in place, the supply of talented players and making games more interesting”); see also David Brooks, The Amateur Ideal, N.Y. TIMES, Sept. 23, 2011, at A35 (commenting that no-pay rules force an “obsessively competitive group, to pay homage to academic pursuits” and that “college basketball is more thrilling than pro basketball because the game is still animated by amateur passions, not coldly calculating professional interests”). 198. 593 F.2d 1173 (D.C. Cir. 1978). 199. 543 F.2d 606 (8th Cir. 1976). 200. See Smith, 593 F.2d at 1186 (finding the NFL draft’s “alleged[ ] ‘procompetitive’ . . . effect on the playing field” to be “nil”); Mackey, 543 F.2d at 621 (“[T]he possibility of resulting decline in the quality of play would not justify the Rozelle Rule.”). 201. 130 S. Ct. 2201 (2010). 202. Id. at 2217 (quoting NCAA v. Bd. of Regents of the Univ. of Okla., 468 U.S. 85, 117 (1984)). 203. See Daniel A. Rascher & Andrew D. Schwarz, Neither Reasonable nor Necessary: “Amateurism” in Big-Time College Sports, Antitrust, Spring 2010, at 51, 54–55 (2000) (arguing that a reasonable alternative under antitrust law would be to “devolve power from the NCAA to the various collegiate conferences” and allow the conferences to compete against one another for student-athletes). See generally James V. Koch, The Economic Realities of Amateur Sports Organization, 61 IND. L.J. 9, 22 (1985) (discussing how the NCAA has already made a “clear attempt to group together members who have similar revenues, costs, and output characteristics”).

264 Case Western Reserve Law Review·Volume 64 ·Issue 1·2013 Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act equalizing game scores without having the same ubiquitous, anticompetitive effect on college sports labor markets as do the NCAA’s current no-pay rules.204 Indeed, rules governing student-athlete pay at the conference level, as a matter of antitrust law, would likely be far less restrictive to student-athletes, colleges, and consumers because individual conferences lack sufficient “market power” within any relevant market to illegally restrain trade.205 Thus, each individual sports conference represents just a small share of the overall college sports marketplace.206 Furthermore, as a practical matter, conference-wide salary caps on student-athlete pay are unlikely to lead to a ubiquitous ban on student-athlete compensation. This is because some conferences would likely opt to allow student-athletes to receive money as a means to compete most effectively for student-athlete labor on an inter- conference basis.207 Meanwhile, other conferences might opt to allow student-athlete pay after recognizing that taking the moral high ground may make some consumers more interested in purchasing

204. See generally Eric Thieme, Note, You Can’t Win ’Em All: How the NCAA’s Dominance of the College Basketball Postseason Reveals There Will Never Be an NCAA Football Playoff, 40 IND. L. REV. 453 (2007) (discussing how the distribution of revenue evenly to conferences by the BCS promotes parity in those conferences). 205. See Tanaka v. Univ. of S. Cal., 252 F.3d 1059, 1063 (9th Cir. 2001) (finding the market for college athletes’ labor to be “national in scope”); see also Brown Shoe Co. v. United States, 370 U.S. 294, 325 (1962) (explaining that a relevant market is defined by “the interchangeability of use or the cross-elasticity of demand between the product and substitutes for it”); Worldwide Basketball & Sport Tours, Inc. v. NCAA, 388 F.3d 955, 958–59 (6th Cir. 2004) (explaining that a “relevant market encompasses notions of geography as well as product use, quality and description” and that “reasonable interchangeability” is the standard for determining the limits of a given relevant market) (citations omitted); cf. Hairston v. Pac. 10 Conference, 101 F.3d 1315, 1319–20 (9th Cir. 1996) (finding that the enforcement of a rule created at the conference level that prevents colleges from paying their athletes was permissible under the rule of reason). 206. See Tanaka, 252 F.3d at 1063–64 (suggesting that an athlete unhappy with the Pacific 10 Conference’s rules against intra-conference transfers should simply join a college team that participates in a different conference); cf. Marc Edelman, Does the NBA Still Have “Market Power?” Exploring the Antitrust Implications of an Increasingly Global Market for Men’s Basketball Player Labor, 41 Rutgers L.J. 549, 583– 84 (calling into doubt whether the court’s holding in Tanaka makes sense from a workers’ rights perspective given that it required a student- athlete to move away from her home market to avoid the effects of a collusive agreement). 207. See generally Tanaka, 252 F.3d at 1064 (noting that athletic conferences “compete in the recruiting of student-athletes”).

265 Case Western Reserve Law Review·Volume 64 ·Issue 1·2013 Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act game tickets, apparel, and other paraphernalia from those particular conferences.208

Conclusion

Over the past century, NCAA members have enjoyed immense profits by enforcing a principle of amateurism that keeps the revenues of college athletics away from student-athletes.209 But even though this principle of amateurism has become well embedded in the NCAA’s identity, it does not comport with traditional principles of antitrust law and free trade. To the contrary, the NCAA’s principle of amateurism likely violates section 1 of the Sherman Act by artificially prohibiting student-athlete pay and by eliminating from the college sports marketplace those colleges that wish to recruit top student- athletes. Although eight lower courts have found the NCAA’s eligibility rules to be noncommercial and thus exempt from the Sherman Act, each of these decisions is wrongly decided. Many of these decisions ignore Supreme Court precedent explaining that competitive restraints in educational markets are to be viewed identically to competitive restraints in all other markets. Meanwhile, many other decisions disregard persuasive factual evidence indicating that college sports today have become a multibillion-dollar enterprise that engages in “interstate commerce.” Furthermore, four lower courts have held that the NCAA eligibility rules survive under the rule of reason inquiry based on these rules’ purported procompetitive benefits. Nevertheless, these decisions are similarly flawed. Most of these decisions that find NCAA eligibility rules to be procompetitive focus on the rules’ , impact on member costs, and social policy goals—all factors that the Supreme Court has found to be irrelevant to a proper antitrust analysis. Moreover, some of these rulings have been expressly called into doubt by Judge Blackmun’s handwritten comments in Banks—leaving open the possibility that the Supreme Court does not agree with that case’s outcome. Of course, a proper antitrust analysis does not necessarily prohibit all agreements among colleges with respect to student-athlete

208. See N. Pac. Ry. Co. v. United States, 356 U.S. 1, 4 (1958) (“[The Sherman Act] rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest materials progress . . . .”). 209. See Edelman, supra note 5, at 864–65 (noting that the wealth generated by college athletics remains in the hands of a select few administrators, athletic directors, and coaches because student-athletes are prevented from profiting based upon their athletic abilities).

266 Case Western Reserve Law Review·Volume 64 ·Issue 1·2013 Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act compensation. But a proper analysis would certainly prohibit those agreements where the parties agreeing to the restraint have “market power.” Thus, as a practical matter, overturning the NCAA no-pay rules would simply shift governance of student-athlete compensation to the discretion of individual athletic conferences. Such a shift would be advantageous to student-athletes, colleges, and consumers. For all of these reasons, it is likely a mere matter of time before a court enjoins the NCAA’s enforcement of its principle of amateurism. Until then, the NCAA has a choice—it can either proactively rewrite its rulebook in a manner that complies with the spirit of U.S. antitrust law, or it can wait until a court mandates such changes. Either way, however, it seems inevitable that the NCAA’s longstanding practice of profiting from the work product of student- athletes is about to change. Simply stated, antitrust law does not permit the NCAA to impose rules that ubiquitously prevent student- athlete pay.

267 Brooklyn Law Review

Volume 81 | Issue 2 Article 10

2016 Student-Athletes vs. NCAA: Preserving Amateurism in College Sports Amidst the Fight for Player Compensation Audrey C. Sheetz

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Recommended Citation Audrey C. Sheetz, Student-Athletes vs. NCAA: Preserving Amateurism in College Sports Amidst the Fight for Player Compensation, 81 Brook. L. Rev. (2016). Available at: http://brooklynworks.brooklaw.edu/blr/vol81/iss2/10

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268 Student-Athletes vs. NCAA

PRESERVING AMATEURISM IN COLLEGE SPORTS AMIDST THE FIGHT FOR PLAYER COMPENSATION

“I do believe that the name, image, likeness for an individual is a fundamental right—that any individual controls his or her name, image and likeness—and I don’t believe that a student-athlete who accepts a grant-in-aid simply waives that right to his or her name, image, likeness.”1

INTRODUCTION

Student-athletes have a few new opponents on their schedule. They are fighting their own regulatory board, the National Collegiate Athletic Association (NCAA), athletic conferences, broadcasters, and licensing entities. The NCAA’s mission is to be “an integral part of the educational program” and to maintain the amateur status of student-athletes.2 Amateurism, which is codified in the NCAA’s bylaws, values the distinction between professional and student athletes and is the crux of the NCAA’s argument for maintaining regulations prohibiting the compensation of student-athletes.3 In line with these values, the NCAA regulates the amateur nature of college athletics to ensure that education is a principal priority.4 Recently, however, the controversy surrounding the amateur status of college athletes has resulted in challenges under antitrust law to the NCAA’s regulations prohibiting compensation of student-athletes. The

1 Steve Berkowitz, Oliver Luck Brings Own Perspective to NCAA on O’Bannon Name and Likeness Issue, USA TODAY (Jan. 16, 2015, 6:05 PM), http://www.usatoday.com/ story/sports/college/2015/01/16/ncaa-convention-oliver-luck-obannon-name-and-likeness- court-case/21873331/ [http://perma.cc/H8DL-Z95C] (quoting Oliver Luck, NCAA Executive Vice President for Regulatory Affairs). 2 NCAA, 2013-14 NCAA DIVISION IMANUAL 1 (2013), http://fordhamsports.com/ custompages/compliance/forms/CoachCompliance/2013-14%20NCAA%20Manual.pdf [http:// perma.cc/HT58-V46E]. 3 Id. at 4. 4 Amateurism, NCAA, http://www.ncaa.org/amateurism [http://perma.cc/9PFP- EA3T] (last visited Mar. 4, 2016).

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NCAA is now being confronted with something it has not faced in years: a viable challenge to its amateurism regulations. While student-athletes are the backbone of the $11 billion college sports industry, they never receive any of this revenue.5 In 2008, Ed O’Bannon, a former All-American basketball player for the UCLA Bruins, saw an avatar of himself in a video game.6 This virtual player not only physically resembled O’Bannon, it wore a UCLA jersey, which depicted his number, 31.7 Like all college athletes, O’Bannon waived the right to receive compensation for the use of his “name, image, or likeness” when he joined the NCAA, and therefore he was never compensated for their use in this video game.8 Soon after, in 2009, O’Bannon brought an antitrust class action lawsuit against the NCAA, challenging the Association’s regulations that restrict compensation for the use of Division I athletes’ names, images, and likenesses in media, other footage, and merchandise.9 Around the same time, Sam Keller, a former starting quarterback at Arizona State and Nebraska Universities, filed a similar lawsuit against the NCAA, Electronic Arts (EA), a video game developer, and the Collegiate Licensing Company (CLC), the entity that licenses the NCAA’s trademarks.10 These cases were initially consolidated, but after EA and CLC settled claims for damages, the cases were deconsolidated,11 and O’Bannon continued to seek an injunction to enjoin the NCAA from enforcing regulations that prevent Division I football and men’s basketball student-athletes from receiving

5 Marc Edelman, A Short Treatise on Amateurism and Antitrust Law: Why the NCAA’s No-Pay Rules Violate Section 1 of the Sherman Act, 64 CASE W. RES. L. REV. 61, 63 (2013); see also NCAA, REVENUES &EXPENSES: NCAA DIVISION IINTERCOLLEGIATE ATHLETICS PROGRAMS REPORT 2004-2011, at 31-32, 39 (2012). The NCAA prohibits student-athletes from receiving compensation outside of permitted scholarships. See 2013-14 NCAA DIVISION IMANUAL, supra note 2, at 191-214. 6 O’Bannon v. NCAA, Nos. 14-16601, 14-17068, 2015 WL 5712106, at *3 (9th Cir. Sept. 30, 2015). 7 Id. 8 Id. 9 Class Action Complaint at 2-5, O’Bannon v. NCAA, No. CV 09 3329 (N.D. Cal. July 21, 2009), ECF No. 1 [hereinafter O’Bannon Complaint]. 10 See, e.g., In re NCAA Student-Athlete Name and Likeness Licensing Litig., 724 F.3d 1268 (9th Cir. 2013). 11 The NCAA awarded a $20 million settlement “to certain Division I men’s basketball and Division I Bowl Subdivision football student-athletes who attended” specific schools for their names, images, and likenesses used in college-themed basketball and football video games produced by EA. NCAA Reaches Settlement in EA Video Game Lawsuit, NCAA (June 9, 2014, 10:53 AM), http://www.ncaa.org/about/resources/media- center/press-releases/ncaa-reaches-settlement-ea-video-game-lawsuit [http://perma.cc/4AZ2- LTYD].

270 2016] STUDENT-ATHLETES VS. NCAA compensation for use of their names, images, or likenesses.12 The plaintiffs alleged that the NCAA exploited current and former athletes in order to obtain revenue from media rights for televised games, DVD sales, jersey sales, video games, corporate advertising, photographs, action figures, trading cards, posters, rebroadcasts of classic games, and more.13 The complaint further alleged that by requiring student-athletes to release their rights to compensation, the NCAA violated antitrust laws by using its bylaws to financially benefit from the names, images, and likenesses of eighteen-year-old student-athletes.14 On August 8, 2014, the U.S. District Court for the Northern District of California issued an injunction prohibiting the NCAA’s strict ban on the compensation of collegiate student- athletes.15 Judge Wilken opined that while this case focused on athletic competition, “it is principally about the rules governing competition in a different arena—namely, the marketplace.”16 In light of these concerns, the court held that NCAA regulations precluding student-athletes from receiving a share of revenue from their own names, images, and likenesses violated the antitrust laws, specifically section 1 of the Sherman Act.17 As a remedy for this violation, the district court held that the NCAA must allow its member institutions to offer scholarships to cover the full cost of attendance and up to $5,000 per year in deferred compensation, which would be held in a trust for student-athletes until after they leave the institution.18 The NCAA appealed this decision to the U.S. Court of Appeals for the Ninth Circuit based on defenses of amateurism and First Amendment protection of live television broadcasts.19 The Ninth Circuit agreed with much of Judge Wilken’s analysis and unanimously upheld the finding that the NCAA violated the Sherman Act by limiting compensation to student-athletes.20 The three-judge panel also affirmed the district court’s holding that the NCAA must allow schools to offer scholarships that

12 O’Bannon Complaint, supra note 9, at 2-5, 8. 13 Id. at 37-58. 14 Id. at 5. 15 O’Bannon v. NCAA, 7 F. Supp. 3d 955, 963 (N.D. Cal. 2014). 16 Id. at 962. 17 Id. at 1007-08; see also 15 U.S.C. § 1 (2012). 18 O’Bannon, 7 F. Supp. 3d at 1008. 19 Jon Solomon, O’Bannon Plaintiffs Won’t Appeal Judge’s NCAA Ruling, CBSSPORTS.COM (Sept. 8, 2014, 12:33 PM), http://www.cbssports.com/collegefootball/writer/ jon-solomon/24701112/obannon-plaintiffs-wont-appeal-judges-ncaa-ruling [http://perma.cc/ AF9G-L2NB]. 20 O’Bannon v. NCAA, Nos. 14-16601, 14-17068, 2015 WL 5712106, at *1 (9th Cir. Sept. 30, 2015); see also 15 U.S.C. § 1 (2012).

271 BROOKLYN LAW REVIEW [Vol. 81:2 cover the full cost of attendance. But the Ninth Circuit disagreed with the district court’s holding regarding the trust and found it was clearly erroneous to uphold the trust as a substantially less restrictive alternative to the NCAA’s amateur-status regulation.21 As O’Bannon continues, so too does an era of litigation surrounding the NCAA.22 Plaintiffs continue to challenge the regulations promulgated by the NCAA and the athletic conferences, arguing that the Ninth Circuit erred in not permitting additional cash compensation.23 In light of the O’Bannon litigation, this note argues that while the creation of a trust was not a viable remedy under antitrust law, the NCAA itself should permit this model of regulated, minimal compensation. Ultimately, maintaining amateurism in college athletics does not preclude minimal compensation of student-athletes. By adopting a trust model, the NCAA would avoid the need for reorganization among conferences, broadcasters, and third parties in order to manage the emerging rights of student-athletes. Furthermore, by analyzing the compensatory alternatives to the NCAA’s current regulations, this note suggests that amateurism, while hanging by a thread, is still a necessary, significant, and most importantly, maintainable part of college athletics. Part I of this note discusses the NCAA’s past and present practices in balancing amateurism and the compensation of student-athletes, specifically with respect to the student-athletes’ names, images, and likenesses. Part II briefly describes the O’Bannon litigation and the NCAA’s amateurism defense. It also examines current NCAA regulations and their interaction with antitrust law. Part III analyzes the implications O’Bannon is likely to have on amateurism as the foundation of college sports and addresses how the Ninth Circuit’s decision may affect the

21 O’Bannon, 2015 WL 5712106, at *1, *22. The NCAA changed its regulations to permit full cost-of-attendance scholarships after its annual convention in January 2015. Michelle Brutlag Hosick, Autonomy Schools Adopt Cost of Attendance Scholarships, NCAA (Jan. 18, 2015, 6:58 AM), http://www.ncaa.org/about/resources/media-center/autonomy- schools-adopt-cost-attendance-scholarships [http://perma.cc/M7EB-5V7G]. 22 Two weeks following the Ninth Circuit decision, plaintiffs asked the court for an en banc rehearing of the case, in which an eleven-member panel of Ninth Circuit judges would review the majority decision of the three-member panel. See Plaintiffs-Appellees’ Petition for Rehearing En Banc, NCAA v. O’Bannon, Nos. 14-16601, 14-17068 (9th Cir. Oct. 14, 2015), ECF No. 106-1. However, this request was subsequently denied by the court. See Order, NCAA v. O’Bannon, Nos. 14-16601, 14-17068 (9th Cir. Dec 16, 2015), ECF No. 116. Both parties have indicated an interest in petitioning the Supreme Court for certiorari, in which case they have until March 14, 2016, to file an appeal. See Jon Solomon, Judges Deny O’Bannon Petition to Rehear Appeal vs. NCAA, CBSSPORTS.COM (Dec. 16, 2015, 1:54 PM), http://www.cbssports.com/collegefootball/writer/jon-solomon/25416207/judges-deny-obannon -petition-to-rehear-appeal-vs-ncaa- [http://perma.cc/6CG8-YXV3]. 23 See infra Part II.

272 2016] STUDENT-ATHLETES VS. NCAA

NCAA’s future as a regulatory body. Part IV argues that while implementing a trust at the order of the district court in O’Bannon was erroneous, the NCAA itself should adopt this type of compensatory structure. Ultimately, this trust model will allow for minimal compensation of student-athletes while still preserving amateurism as the cornerstone of college athletics and distinguishing them from professional sports. Significantly, both the court and consumers in the college sports market have made it clear that they prefer to keep a divide between collegiate and professional sports.24 While the obvious way to uphold the unique and independent nature of college athletics is to keep the players on an unpaid, amateur level, this may no longer be a viable solution. In order to maintain student-athletes’ amateur status while simultaneously complying with antitrust law, this note argues that the NCAA should develop a more hands-off regulatory approach that best serves student-athletes by allowing schools to enter into a revenue sharing system similar to the model used by the International Olympic Committee.

I. OVERVIEW OF NCAA BYLAWS AND COMPLIANCE REQUIREMENTS

A. History of the NCAA’s Regulation of Amateurism

Intercollegiate athletics as we know it began on November 6, 1869, when Rutgers played Princeton in what was the first intercollegiate football game in American history.25 As the popularity of college football spread rapidly, so did the issues surrounding the game. Due to the nature of the sport, players often suffered serious injuries and were even killed during games.26 In 1905, President Theodore Roosevelt held a conference to address the issues in collegiate football.27 That same year, 62 colleges gathered to form the Intercollegiate Athletic Association and develop a uniform set of regulations to address the safety concerns in college football.28 Five years later, the group changed

24 See, e.g.,O’Bannon v. NCAA, 7 F. Supp. 3d 955, 975, 1008-09 (N.D. Cal. 2014). 25 Allen Barra, The First Down, Ever,WALL ST. J. (Nov. 7, 2009, 12:01 AM), http://www.wsj.com/articles/SB10001424052748703932904574511921170497590 [http:// perma.cc/2RWR-9925]. 26 O’Bannon, 2015 WL 5712106, at *1. 27 Dan Treadway, Why Does the NCAA Exist?,HUFFINGTON POST (Aug. 6, 2013, 1:39 PM), http://www.huffingtonpost.com/daniel-treadway/johnny-manziel-ncaa-eligibility_b _3020985.html [http://perma.cc/8FQQ-HFNB]. 28 O’Bannon, 2015 WL 5712106, at *1-2.

273 BROOKLYN LAW REVIEW [Vol. 81:2 its name to the National Collegiate Athletic Association and required that all participants be amateurs.29 In the 1930s and 1940s, as commercialization efforts attracted increased public attention to college sports, it was not uncommon for alumni to provide tuition for athletes attending their alma mater.30 But because participation in the NCAA was voluntary at this time, the Association lacked the authority to enforce the amateurism requirement on its member institutions.31 Although many universities banned these “pay- for-play” practices on their own,32 a 1929 study found that 81 of 112 schools provided some type of improper compensation to student-athletes.33 As public interest in intercollegiate athletics increased, the NCAA gained control over college athletics and developed regulations to balance the commercialization of the industry with the values of higher education.34 In 1948, it implemented the “Sanity Code,” which prohibited schools from providing student-athletes with any financial aid based on athletic ability or aid not available to all students.35 In 1956, the NCAA developed new regulations and amended its bylaws to allow schools to award athletic scholarships to student-athletes.36 Because this new structure permitted universities to distribute financial aid without consideration of need or academic achievement, monetary inducements became a way for schools to target athletes.37 Therefore, in order to balance the competing values of commercialization and amateurism, the NCAA gained better control over its member institutions by establishing enforcement authority over the amateurism provisions.38 It did so through regulations that addressed student-athlete eligibility, limited financial inducements, penalized improper payments, and removed all pay-for-play

29 Id. at *1. 30 Jonathan Strom, Putting Our Trust in the National Collegiate Athletic Association (NCAA): How Creating Trusts for Student-Athletes Can Save the NCAA from Itself, 6 EST.PLAN.&COMMUNITY PROP. L.J. 423, 426 (2014). 31 See Daniel E. Lazaroff, The NCAA in Its Second Century: Defender of Amateurism or Antitrust Recidivist?, 86 OR. L. REV. 329, 332 (2007). 32 Strom, supra note 30, at 426. 33 O’Bannon, 2015 WL 5712106, at *2. 34 Rodney K. Smith, A Brief History of the National Collegiate Athletic Association’s Role in Regulating Intercollegiate Athletics, 11 MARQ.SPORTS L. REV. 9, 13-15 (2000). 35 Gary T. Brown, NCAA Answers Call to Reform: The ‘Sanity Code’ Leads Association Down Path to Enforcement Program, NCAA (Nov. 22, 1999), http://fs.ncaa.org/ Docs/NCAANewsArchive/1999/19991122/active/3624n24.html [http://perma.cc/KQA6-AUPP]. 36 See Lazaroff, supra note 31, at 333-34. 37 Id. at 334. 38 Smith, supra note 34, at 13-15.

274 2016] STUDENT-ATHLETES VS. NCAA models from the system.39 This current—and far more regulatory—structure of the NCAA is made evident by the 420 pages of the Division I Manual.40

B. Amateurism and Compensation in the Modern NCAA

Today, the NCAA has approximately 1,200 member institutions and regulates 24 sports.41 The member institutions are organized into Divisions I, II, and III.42 Division I, which is at issue in the current litigation, consists of about 350 schools with the largest athletic programs that are each required to sponsor at least 14 varsity teams.43 As the regulatory body for college athletics, the NCAA has a mission to “initiate, stimulate and improve intercollegiate athletics programs for student- athletes.”44 The NCAA strives to distinguish collegiate athletics from sports of a professional nature by focusing on the amateur nature of the participants. Amateurism, codified by section 12 of the NCAA’s bylaws, states that college athletics are “designed to be an integral part of the educational program,” and therefore it is necessary to “maintain[] a clear line of demarcation between college athletics and professional sports.”45 In line with these values, the NCAA prohibits student-athletes from receiving compensation in order to protect them from “exploitation by professional and commercial enterprises.”46 Section 12.1.2 indicates that a college-athlete will lose amateur status if he or she

(a) [u]ses his or her athletics skill (directly or indirectly) for pay in any form in that sport; (b) [a]ccepts a promise of pay even if such pay is to be received following completion of intercollegiate athletics participation; (c) [s] a contract or commitment of any kind to play professional athletics, regardless of its legal enforceability or any consideration

39 Strom, supra note 30, at 428; see also Lazaroff, supra note 31, at 334 (discussing revised regulations, which included “‘capping’ financial inducements, limiting transfers, and penalizing ‘under-the-table payments’”). 40 See generally NCAA, 2015-16 NCAA DIVISION IMANUAL 1 (2015), http://www.ncaapublications.com/productdownloads/D116.pdf [http://perma.cc/WCX6- EUR7] (laying out all of the NCAA’s regulations of its member institutions, conferences, coaches, and student-athletes). 41 Id. at 406; Membership, NCAA, http://www.ncaa.org/about/who-we-are/ membership [http://perma.cc/JHP9-BYHG] (last visited Mar. 4, 2016). 42 O’Bannon v. NCAA, Nos. 14-16601, 14-17068, 2015 WL 5712106, at *2 (9th Cir. Sept. 30, 2015). 43 Id. Note that the O’Bannon litigation involves only NCAA regulations for Division I athletics. Id. 44 2013-14 NCAA DIVISION IMANUAL, supra note 2, at 1. 45 Id. at 57. 46 Id. at 4.

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received . . . ; (d) [r]eceives, directly or indirectly, a salary, reimbursement of expenses or any other form of financial assistance from a professional sports organization based on athletics skill or participation, except as permitted by NCAA rules and regulations; (e) [c]ompetes on any professional athletics team . . . even if no pay or remuneration for expenses was received . . . .; (f) [a]fter initial full-time collegiate enrollment, enters into a professional draft . . . . [; or] (g) [e]nters into an agreement with an agent.47 Amateurism is not only an issue at the forefront of the O’Bannon litigation—it is the NCAA’s basis for maintaining their current regulations, which restrict the compensation of student- athletes.48 There are very limited instances in which a student- athlete may receive compensation.49 The NCAA codifies the distinction between college athletics and professional sports in Article 12 of its bylaws, which requires student-athletes to be amateurs in their respective sports in order to participate in NCAA-sponsored events.50 Student-athletes are not eligible to participate in a sport if they have ever taken pay or the promise of pay for competing in that sport.51 More specifically, players are not eligible if they have ever accepted money, transportation, or other benefits from an agent, including having an agent market their athletic ability or reputation in that sport.52 Recent criticism of Article 12 attacks the founding principle of amateurism,53 but the NCAA maintains its position, stating that the amateur nature of the NCAA is “crucial to preserving an academic environment in which acquiring a quality education is the first priority.”54 While member universities may provide scholarships to student-athletes, the NCAA requires that these scholarships follow the same procedures as those awarded to non-student- athletes.55 Whereas Article 15 previously indicated that student- athletes may receive a scholarship of no more than a “grant-in-

47 Id. at 59. 48 See generally O’Bannon Complaint, supra note 9 (stating that the NCAA’s defense to the antitrust claims in O’Bannon rests on the values of amateurism in college athletics). 49 See 2013-14 NCAA DIVISION IMANUAL, supra note 2, at 191-214. 50 Id. at 57. 51 Id. at 59. 52 Id. at 66. 53 See, e.g., Steve Wieberg, Despite Criticism, NCAA Takes Firm Stance on Professionalism, USA TODAY (Jan. 4, 2011, 1:41 AM), http://usatoday30.usatoday.com/ sports/college/2011-01-03-ncaa-professionalism_N.htm [http://perma.cc/5BKV-ZSRX]. 54 Amateurism, supra note 4. 55 See 2013-14 NCAA DIVISION 1 MANUAL, supra note 2, at 57; infra Section III.A.

276 2016] STUDENT-ATHLETES VS. NCAA aid,”56 the NCAA’s amended bylaws permit schools to give scholarships up to the full cost of attendance, “an amount calculated by an institutional financial aid office, using federal regulations, that includes the total cost of tuition and fees, room and board, books and supplies, transportation, and other expenses related to attendance at the institution.”57 The bylaws also explain that an athlete may lose his or her eligibility to compete as a Division I athlete by receiving “financial aid other than that permitted by the Association” or through involvement with professional teams.58 Because these regulations prevent student-athletes from receiving any form of compensation, net profits from the college sports industry go directly to the schools, athletic conferences, and the NCAA. Since the NCAA and its member institutions sell and license products using the names, images, and likeness of current and former student-athletes, the organizations receive 100% of the royalties.59 This means that student-athletes are precluded from receiving compensation for any video games, rebroadcasts of classic games, DVDs of games, photographs, and replica jerseys that use their name, image, or likeness.60 Furthermore, Collegiate Licensing Company, the NCAA’s primary licensing partner, owns nearly 85% of the college licensing market, which nets over $4 billion in retail sales.61 One of the NCAA’s core reasons for promoting amateurism regulations is to prevent the exploitation of student-athletes “by professional and commercial enterprises.”62 Yet it appears that the NCAA may be exploiting the very people that it claims to be protecting. In addition to its bylaws, the NCAA requires all Division I athletes to sign Form 08-3a, which requires student-athletes to waive their rights to the commercial use of their name, image, and likeness in perpetuity.63 The form specifically states, “You

56 “A full grant-in-aid is financial aid that consists of tuition and fees, room and board, and required course-related books.” 2013-14 NCAA DIVISION 1 MANUAL, supra note 2, at 193. 57 See id. at 192. The NCAA changed its regulations to permit full cost-of- attendance scholarships after its annual convention in January 2015. Hosick, supra note 21; see also infra Section II.B (discussing the reasons for this change to the NCAA regulations). 58 Id. at 191. 59 O’Bannon Complaint, supra note 9, at 4. 60 William D. Holthaus Jr., Ed O’Bannon v. NCAA: Do Former NCAA Athletes Have a Case Against the NCAA for Its Use of Their Likenesses?, 55 ST.LOUIS U. L.J. 369, 371-72 (2010). 61 Id. at 372-73. 62 2013-14 NCAA DIVISION 1 MANUAL, supra note 2, at 4. 63 NCAA, FORM 08-3A,ACADEMIC YEAR 2010-11: NCAA STUDENT-ATHLETE STATEMENT-DIVISION I, at 4 (2008), http://www.liberty.edu/media/1912/compliance/newf

277 BROOKLYN LAW REVIEW [Vol. 81:2 authorize the NCAA [or a third party acting on behalf of the NCAA] to use your name or picture to generally promote NCAA championships or other NCAA events, activities or programs.”64 This means that a student-athlete must permit the NCAA and the student’s respective university to use or sell the student- athlete’s name, image, or likeness to any third party while agreeing that the student will never receive any compensation for the use of their personal image, including after they graduate and are no longer subject to the NCAA’s regulations. While Article 12 only allows for the use of names, images, and likenesses of players affiliated with a university for limited promotional reasons, the plaintiffs in O’Bannon alleged that both the NCAA and its member institutions interpreted the language broadly in order to enter into self-profiting licensing agreements.65

II. O’BANNON V. NCAA:MAKING A CASE FOR THE STUDENT- ATHLETE

Ed O’Bannon, along with 19 other former and current Division I football and men’s basketball players, brought claims against the NCAA and its partner, the Collegiate Licensing Company, a for-profit corporation66 that oversees all of the licensing and rights distribution for the NCAA.67 The complaint alleged that the NCAA’s regulations forcing student-athletes to release the rights to their names, images, and likenesses without compensation violate section 1 of the Sherman Antitrust Act, which prohibits “[e]very contract, combination . . . or conspiracy, in restraint of trade or commerce.”68 With respect to the class seeking damages, the complaint further alleged that the NCAA unreasonably restrained trade and commercially exploited former student-athletes by continuing to sell products using their images well after they graduated.69 ormsdec2010/currentflames/compliance/SA%20Statement%20Form.pdf [http://perma.cc/3 ZFQ-T8G7]. 64 Id. 65 O’Bannon Complaint, supra note 9, at 3-7. 66 Id. at 3; About CLC,COLLEGIATE LICENSING CO., http://www.clc.com/About- CLC.aspx [http://perma.cc/2EXJ-9JBD] (last visited Mar. 4, 2016). 67 Id. 68 See NCAA v. Bd. of Regents of the Univ. of Okla., 468 U.S. 85, 86, 98 (1984) (noting that in determining the reasonability of restraints on trade, courts will apply a “rule of reason” test). 69 15 U.S.C. § 1 (2012). The complaint sought unspecified damages from the NCAA and its partners for profits accrued from selling the following: media rights for televising games, DVD and On-Demand sales and rentals, video clip sales to corporate advertisers, photos, action figures, trading cards, posters, video games, rebroadcasts of classic games, jerseys, and other apparel. See O’Bannon Complaint, supra note 9, at 37-58.

278 2016] STUDENT-ATHLETES VS. NCAA

O’Bannon specifically pointed to Form 08-3a70 as the method for how the NCAA obtained ownership of these rights, and noted that the signatories were coerced and uninformed and in some cases, the forms were even signed by minors.71 Since failure to sign this form renders a student-athlete ineligible to participate in NCAA athletics, plaintiffs submitted that this put unfair pressure on young students to relinquish their licensing rights not only while they were in college, but for the rest of their lives.72 Plaintiffs asserted that the NCAA’s prohibition of compensation for student-athletes for the use of their names, images, and likenesses was an unlawful restraint of trade under the Sherman Act.73 In response, the NCAA argued that its restrictions on compensation are justifiable “because they are necessary to preserve its tradition of amateurism, maintain competitive balance .. . , promote . . . academics and athletics, and increase the total output of its product.”74 Thirty years ago, the Supreme Court upheld amateurism as a viable defense to antitrust challenges to the NCAA’s regulations.75 The Supreme Court’s decision in favor of the NCAA specifically stated that amateurism was precisely what made college sports unique.76 In its opinion, which resolved a dispute over the NCAA’s licensing agreements with broadcast networks, the Court took note of the importance of upholding the NCAA’s amateurism requirements.

The identification of [college football] with an academic tradition differentiates [it] from and makes it more popular than professional sports to which it might otherwise be comparable, such as, for example, minor league baseball. In order to preserve the character and quality of the “product,” athletes must not be paid, must be required to attend class, and the like. And the integrity of the “product” cannot be preserved except by mutual agreement; if an institution adopted such

70 See supra Section I.B (discussing Form 08-3a of the NCAA Manual). 71 O’Bannon Complaint, supra note 9, at 4-5. 72 Id. at 6 (alleging that Form 08-3a is designed to force student-athletes to release all licensing rights in order for the NCAA to avoid future compensation to former players). 73 Id. 74 O’Bannon v. NCAA, 7 F. Supp. 3d 955, 973 (N.D. Cal. 2014). 75 NCAA v. Bd. of Regents of the Univ. of Okla., 468 U.S. 85 (1984); Brian Welch, Comment, Unconscionable Amateurism: How the NCAA Violates Antitrust by Forcing Athletes to Sign Away Their Image Rights, 44 J. MARSHALL L. REV. 533, 541 (2011); see also Banks v. NCAA, 746 F. Supp. 850, 862-63 (N.D. Ind. 1990); Gaines v. NCAA, 746 F. Supp. 738, 744-45 (M.D. Tenn. 1990). 76 NCAA, 468 U.S. at 101-11.

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restrictions unilaterally, its effectiveness as a competitor on the playing field might soon be destroyed.77 Here, the Supreme Court used a “rule of reason” test to weigh the NCAA’s restraint of trade against the need for amateurism regulations in light of an alleged antitrust violation.78 This three- step test established the following requirements: (1) the plaintiff’s showing that the restraint produces substantial “adverse, anticompetitive effects within the relevant product and geographic markets”; (2) the defendant’s demonstration that the restraint promotes “a sufficiently pro-competitive objective”; and (3) the plaintiff’s proof that the restraint is not “reasonably necessary to achieve the stated objective.”79 In this final step, the plaintiff may suggest less restrictive alternatives by showing that the same “objectives can be achieved in a substantially less restrictive manner.”80 Under this third prong, suggesting that current regulations were not necessary to maintain amateurism, O’Bannon proposed three alternatives to the current regulations: (1) “allow schools to award stipends derived from . . . licensing revenue[ ] to student-athletes”; (2) “allow schools to deposit a share of licensing revenue into a trust fund for student- athletes . . . [to] be paid after the student-athlete[] graduate[s]” or leaves school permanently; and (3) “permit student-athletes to receive limited compensation for third-party endorsements” approved by their respective schools.81 O’Bannon refrained from attacking amateurism as a core value of the NCAA and instead offered reform that would contribute to a more equitable bargaining relationship between the NCAA and student-athletes.82

A. O’Bannon in the District Court

Prior to O’Bannon, antitrust claims against the NCAA had not been successful, as courts followed the Supreme Court’s lead and deferred to the amateurism justification in favor of the NCAA’s trade restrictions.83 Thirty years later, however, the U.S. District Court for the Northern District of California broke this

77 Id. at 101-02. 78 Id. at 120 (acknowledging that the NCAA should be given deference in maintaining the unique amateur nature of collegiate athletics). 79 Scherling-Plough Corp. v. FTC, 402 F.3d 1056, 1065 (11th Cir. 2005). 80 O’Bannon v. NCAA, 7 F. Supp. 3d 955, 985 (N.D. Cal. 2014) (quoting Tanaka v. Univ. of S. Cal., 252 F.3d 1059, 1063 (9th Cir. 2001)). 81 Id. at 982. 82 Welch, supra note 75, at 555-56. 83 Id. at 538-40.

280 2016] STUDENT-ATHLETES VS. NCAA trend, holding in O’Bannon that the NCAA was in violation of the Sherman Act and entering an injunction requiring reform to the Association’s regulations.84 In applying the rule of reason test used by the Supreme Court in Board of Regents, the district court determined that the NCAA’s restraint on compensation violated antitrust law because it did not reasonably support a procompetitive purpose.85 It first found that in a “college education market,” NCAA compensation regulations have a significant anticompetitive effect because they fix the price that schools pay to secure college athletes’ services.86 Next, the court individually addressed each of the NCAA’s justifications for its restriction on compensation of student- athletes87 and acknowledged that the NCAA’s rules serve two procompetitive purposes—the promotion of amateurism and the integration of academics with athletics—because both increase consumer demand for college sports.88 In the third step of the analysis, the court determined whether there were any “substantially less restrictive alternatives” to the NCAA’s current rules.89 Consistent with its findings that there existed less restrictive alternatives, the court issued an injunction against the NCAA requiring that it permit member schools to offer student- athletes scholarships equal to the full cost of attendance.90 Additionally, the district court adopted one of O’Bannon’s suggested alternatives, which would permit schools to hold payments in trust for student-athletes.91 The court held that member schools could set aside $5,000 per academic year in deferred compensation that would be distributed after a student- athlete’s graduation.92 This was the first time a federal court found that the NCAA’s amateurism regulations violated antitrust laws, let alone issued an injunction requiring changes to the bylaws.93 The district court suggested that holding a limited amount of money in a trust until after student-athletes have left school

84 O’Bannon, 7 F. Supp. 3d at 1007-08. 85 Id. at 985 (citing American Needle, Inc. v. Nat’l Football League, 560 U.S. 183, 203 (2010)) (stating that “[t]he Supreme Court . . . specifically held that concerted actions undertaken by joint ventures should be analyzed under the rule of reason”). 86 Id. at 973. 87 Id. at 1000-04. 88 Id. at 999-1003. 89 Id. at 1005. 90 Id. at 1007-08. 91 Id. at 1008. 92 Id. 93 O’Bannon v. NCAA, Nos. 14-16601, 14-17068, 2015 WL 5712106, at *1 (9th Cir. Sept. 30, 2015).

281 BROOKLYN LAW REVIEW [Vol. 81:2 would compensate them for the use of their names, images, and likenesses while still “integrating academics and athletics.”94 According to Judge Wilken, the NCAA did not provide enough evidence that paying players would affect the procompetitive balance of the market.95 Most significantly, the district court noted that while amateurism could justify limited restrictions on student-athlete compensation, it could not justify the particular restrictions on receiving compensation for the use of those student-athletes’ names, images, and likenesses.96 Furthermore, the district court found that O’Bannon presented “ample evidence . .. to show that the college sports industry has changed substantially in the thirty years since Board of Regents was decided.”97 And therefore, the values served by upholding amateurism “do not justify the rigid prohibition on compensating . . . [for] the use of [players’] names, images and likenesses.”98 Ultimately, the district court determined that the NCAA’s blanket restraints on compensation violated antitrust law and held that less restrictive alternatives were available. The court issued an injunction requiring the NCAA to alter its regulations in two ways: first, to permit its member institutions to issue scholarships up to full cost of attendance, and second, to allow its members to hold a maximum of $5,000 annually in a trust for each student-athlete.

B. O’Bannon in the Ninth Circuit

The NCAA appealed to the Ninth Circuit Court of Appeals, noting that it would continue to fight to preserve the current NCAA model.99 After an expedited review,100 the court issued an opinion on September 30, 2015.101 In this long-

94 O’Bannon, 7 F. Supp. 3d at 1008. 95 Id. at 1003. 96 Id. at 1001. 97 Id. at 999-1000. 98 Id. at 1001. 99 See Steve Berkowitz, Oliver Luck Brings Own Perspective to NCAA on O’Bannon Name and Likeness Issue, USA TODAY SPORTS (Jan. 16, 2015, 6:05 PM), http://www.usatoday.com/story/sports/college/2015/01/16/ncaa-convention-oliver-luck-obann on-name-and-likeness-court-case/21873331/ [http://perma.cc/Z2ZR-3KZ8]. 100 The district court’s injunction was scheduled to take effect on August 1, 2015. The parties filed a joint motion for an expedited motion schedule, in which the NCAA contended that the NCAA and its members would be “forced to make fundamental changes to the administration of collegiate athletics and to their relationships with student athletes.” Joint Motion to Revise Briefing Schedule at 1-2,O’Bannon v. NCAA, No.14-16601 (9th Cir. Sept. 19, 2014), ECF No. 7. 101 See O’Bannon v. NCAA, Nos. 14-16601, 14-17068, 2015 WL 5712106, at *1 (9th Cir. Sept. 30, 2015).

282 2016] STUDENT-ATHLETES VS. NCAA anticipated ruling, the three judge panel affirmed the district court’s injunction and required the NCAA to allow its member schools to give student-athletes scholarships up to the full cost of attendance because, the court stated, the regulations had “significant anticompetitive effects.”102 The Ninth Circuit also held, however, that the district court’s remedy of allowing student-athletes to receive compensation in the form of a trust was erroneous, and the court struck it down as a less restrictive alternative.103 The Ninth Circuit agreed with the district court in holding that NCAA rules are subject to antitrust scrutiny and must be tested within the “crucible of the Rule of Reason.”104 In applying the same three-part rule of reason analysis, the Ninth Circuit concluded, in line with the district court, that while under the first step of the analysis, the NCAA’s compensation regulations have anticompetitive effects by precluding student-athletes from receiving compensation, they serve two procompetitive purposes under the second step: (1) preserving the NCAA by promoting amateurism and (2) “integrating academics with athletics.”105 The appellate decision found Judge Wilken’s analysis of college athletics consistent with the Supreme Court’s in Board of Regents, in that there is “an academic tradition [that] differentiates [it] from and makes it more popular than professional sports to which it might otherwise be comparable.”106 The Ninth Circuit emphasized, though, that not every NCAA regulation that restricts the market is “necessary to preserving the ‘character’ of college sports.”107 Thus, the panel moved to the third step of the analysis and looked to reasonable and “substantially less restrictive” alternatives to the NCAA’s compensation regulations.108 The Ninth Circuit upheld setting a grant-in-aid cap at the full cost of attendance, as it is a substantially less restrictive alternative to the trust model that still accomplishes the NCAA’s two procompetitive purposes.109 Ultimately, even before the panel issued its opinion upholding this part of the injunction, the NCAA amended its

102 Id. at *1, *21. 103 Id. at *1. 104 Id. at *26. 105 Id. at *21. 106 Id. at *22 (citing NCAA v. Bd. of Regents of the Univ. of Okla., 468 U.S. 85, 101-02 (1984)). 107 Id. 108 Id. 109 Id. at *22-23.

283 BROOKLYN LAW REVIEW [Vol. 81:2 regulations allowing its members to fund student-athletes’ full cost of attendance.110 The district court upheld the trust as a less restrictive alternative, stating that a “modest payment” of $5,000 a year would not undermine the NCAA’s legitimate goal of protecting and preserving amateurism.111 However, prior to the Ninth Circuit decision, some argued that the $5,000 cap was an arbitrary award not in line with the court’s opinion and would ultimately be overruled by the Ninth Circuit.112 The Ninth Circuit indeed disagreed vehemently with the district court, concluding that there was not sufficient evidence to support the finding that giving student-athletes minimal compensation would be “as effective in preserving amateurism as not paying them” at all.113 In what may be the most influential part of the decision, the court suggested there might be a slippery slope in permitting compensation of student-athletes for purely athletic endeavors and feared this type of compensation would turn college athletics into the “minor league[s].”114

The difference between offering student-athletes education-related compensation and offering them cash sums untethered to educational expenses is not minor; it is a quantum leap. Once that line is crossed, we see no basis for returning to a rule of amateurism and no defined stopping point . . . . At that point the NCAA will have surrendered its amateurism principles entirely and transitioned from its “particular brand of football” to minor league status.115 Both the district court and the Ninth Circuit concluded that the NCAA needed to reform its practices; however, neither court felt it necessary to do away with amateurism. Both decisions included strong dicta supporting the value of amateurism in college athletics. Judge Wilken herself conceded that there are limits to the district court’s decision and that amateurism “might justify a restriction on large payments to student-athletes while in school.”116 There are significant tensions still at play between the values of education and amateurism and the goals of compensating college athletes. However, by upholding both values

110 The NCAA changed its regulations to permit full cost-of-attendance scholarships after its annual convention in January 2015. Hosick, supra note 21. 111 O’Bannon v. NCAA, 7 F. Supp. 3d 955, 1008 (N.D. Cal. 2014). 112 See, e.g., Michael McCann, Next Steps in O’Bannon Case: Both NCAA and the Plaintiffs Could Appeal,SPORTS ILLUSTRATED (Aug. 11, 2014), http://www.si.com/college- football/2014/08/11/obannon-ncaa-case-appeal-next-steps [http://perma.cc/C85R-Z4R5]. 113 O’Bannon, 2015 WL 5712106, at *25. 114 Id. at *26 (citing NCAA, 468 U.S. at 101-02 (footnote omitted)). 115 Id. 116 O’Bannon, 7 F. Supp. 3d at 1001.

284 2016] STUDENT-ATHLETES VS. NCAA in its decisions, perhaps the court left room for the NCAA to adopt a model that incorporates both compensation and amateurism.

C. The Future of Amateurism and O’Bannon

Prior to the Ninth Circuit’s decision, commentators suggested that O’Bannon would open the gate to a flood of future litigation surrounding student-athletes’ compensation.117 The appellate decision does not preclude a similar outcome for other litigation, especially as O’Bannon remains ongoing. Two weeks after the Ninth Circuit handed down its opinion, plaintiffs filed a petition seeking an en banc rehearing in which an eleven-member panel of Ninth Circuit judges would review the case.118 In this petition, the plaintiffs maintained that the majority erroneously reversed the implementation of the $5,000 trust and “treated amateurism as an all-or-nothing proposition—that paying college athletes even a dollar would necessarily dampen enthusiasm among fans.”119 They further requested that the district court decision be upheld, particularly portions finding that “with ample support from the NCAA’s own witnesses, consumer interest in college sports is driven almost entirely by school loyalty and geography—and not by the restraint [on compensation].”120 The Ninth Circuit panel subsequently denied the plaintiffs’ request for an en banc rehearing.121 In past comments, both parties have indicated an interest in petitioning the Supreme Court for certiorari, in which case they have until March 14, 2016, to file an appeal.122 Ultimately, however, the Ninth Circuit decision does not preclude the implementation of a trust, as it simply held that based on the record, the trust was beyond the scope of the judiciary as a viable remedy under antitrust law. In the event that the Supreme Court grants certiorari, in order to enjoin the NCAA to permit a trust, plaintiffs would need to develop a record with substantial evidence that a trust would be a viable remedy.123 Alternatively, and more practically, the NCAA may of its own volition choose to implement this trust as a part of its own regulatory structure.

117 See, e.g., McCann, supra note 112. 118 Plaintiffs-Appellees’ Petition for Rehearing En Banc, supra note 22. 119 Id. at 14. 120 Id. 121 See Order, NCAA v. O’Bannon, Nos. 14-16601, 14-17068 (9th Cir. Dec 16, 2015), ECF No. 116. 122 See Solomon, supra note 22. 123 See O’Bannon v. NCAA, Nos. 14-16601, 14-17068, 2015 WL 5712106, at *26-30 (9th Cir. Sept. 30, 2015) (Thomas, C.J., concurring and dissenting in part).

285 BROOKLYN LAW REVIEW [Vol. 81:2

Since the Supreme Court has not heard a case on the issue of amateurism since Board of Regents some 30 years ago, the Supreme Court may not be an unrealistic next stop for O’Bannon v. NCAA given the recent flood of litigation. And while the Supreme Court only grants certiorari to less than one percent of the petitions it receives,124 it may consider O’Bannon to be of high enough social importance to warrant review, given the growing concerns about compensation of student-athletes and public scrutiny of NCAA practices. The injunction affirmed by the Ninth Circuit prohibits the NCAA from preventing its member schools from offering Division I football and men’s basketball recruits scholarships for the full cost of attendance. Since the NCAA amended its regulations at the January convention, member schools started distributing the cost-of-attendance stipend to student-athletes.125 A federally calculated number, the full cost of attendance takes into account the location of the school and the cost of living.126 In addition to the grant-in-aid scholarships, it is meant to help students on financial aid cover expenses outside of tuition, such as “school supplies, two trips home per year, [and] food.”127 Since it is the first year the stipend is available for student-athletes, schools now bear the burden of determining how to implement and distribute it. Because the full cost-of attendance varies between schools, coaches and athletic departments have argued that schools with larger stipends will have a competitive edge when it comes to recruiting.128 With recruitment letters going out to high school juniors for the 2017 recruit class as early as fall of 2015, athletic departments quickly faced the challenge of determining how to distribute this stipend.129 Athletic departments, which often project their financial planning for the next three to five years, had to make immediate decisions involving new forms of student-

124 Supreme Court Procedures, U.S. COURTS, http://www.uscourts.gov/about-federal- courts/educational-resources/about-educational-outreach/activity-resources/supreme-1 [http://perma.cc/6YHJ-P8ZE] (last visited Mar. 4, 2016). 125 Audrey Snyder, Cost of Attendance Stipends Give Scholarship Student-Athletes a Little Financial Freedom,PITT.POST GAZETTE (Sept. 1, 2015), http://www.post- gazette.com/sports/college/2015/09/01/Cost-of-attendance-stipends-give-scholarship-student- athletes-a-little-financial-freedom/stories/201508310052 [http://perma.cc/BRR2-HLVX]. 126 Id. 127 Id. 128 Id. 129 Jon Solomon, NCAA: ‘Critical’ for O’Bannon Appeal to be Decided by August 2015, CBSSPORTS.COM (Sept. 19, 2014, 5:43 PM), http://www.cbssports.com/collegefootball/ writer/jon-solomon/24716564/ncaa-critical-for-obannon-appeal-to-be-decided-by-august-2015 [http://perma.cc/FE46-59Y9].

286 2016] STUDENT-ATHLETES VS. NCAA athlete compensation.130 The University of Pittsburgh set aside $1.1 million to cover the $3,296 annual cost of attendance stipend for its student-athletes.131 At West Virginia University, the stipend is one of the lowest in the Big 12 Conference, at $2,700 per student-athlete.132 This will cost the athletic department an additional $600,000 annually.133 Conversely, Pennsylvania State University has one of the highest stipends in the NCAA, at $4,700, costing the school $1.75 million this year.134 This is a number that the football department now displays proudly to its recruits, perhaps using it to its competitive advantage.135 This increase in compensation not only affected the football team; the Division I school made it a priority to distribute the stipend to all 31 of its athletic programs.136 According to Sandy Barbour, Pennsylvania State’s athletic director, the stipend is a priority so students have “access to resources and educational opportunities.”137 Ultimately, the court’s reasoning holds true when applied by this athletic director. Here, as the court suggested it would, the stipend functions as a less restrictive alternative that preserves both the values of amateurism and the integration of academics with athletics. Prior to the Ninth Circuit decision, many universities began the process of implementing a budget for the $5,000 trust. The University of Texas developed a plan to allocate $6 million of its annual budget to pay football and men’s basketball players through a trust.138 Ultimately these funds can be reallocated for stipends, but in light of a potential Supreme Court decision in O’Bannon, member schools should consider the possibility of eventually compensating student-athletes via a trust. While the district court’s ruling did not require schools to compensate student-athletes,139 in order to remain competitive in the recruitment market, the top athletic schools would understandably want to create trusts to compensate athletes for the use of their

130 Id. 131 Snyder, supra note 125. 132 Id. 133 Id. 134 Id. 135 Id. 136 Id. 137 Id. 138 Wescott Eberts, Texas Planning to Begin Paying Players $10,000 to Comply with NCAA Ruling, SB NATION (Oct. 22, 2014, 3:56 PM), http://www.burntorangenation.com/2014/10/22/7041617/texas-longhorn-steve-patterson- paying-players-obannon-ruling [http://perma.cc/NE3X-XPJM]. 139 See, e.g.,O’Bannon v. NCAA, 7 F. Supp. 3d 955, 975, 1008-09 (N.D. Cal. 2014).

287 BROOKLYN LAW REVIEW [Vol. 81:2 names, images, and likenesses in the event that compensation through a trust is reinstated as a legal option for Division I schools. Because student-athletes do not currently receive any portion of the revenue that schools derive from the use of student- athletes’ names, images, and likenesses, it would seem logical that most collegiate sports programs are extremely profitable. But according to the NCAA, in 2010, only 22 of 228 Division I athletic departments reported seeing profits.140 Research presented by the O’Bannon plaintiffs, however, suggests that the NCAA and its member institutions have misconstrued these numbers and that ultimately, 90% of athletic departments return a profit.141 Either way, this further establishes that perhaps O’Bannon is not a one- size-fits-all remedy for NCAA reform. Arguably, every Division I school operates differently due to variations in size, athletic success, and most significantly, budget restrictions. Additionally, if a school does not sell the names, images, and likenesses of its student-athletes, the school will not be able to offer any compensation through a trust. This supports the NCAA’s argument that it maintains a competitive balance between its member schools by promoting amateurism.142 Some argue, however, that Division I football and men’s basketball already lack a competitive balance, which has not resulted in a lack of consumer interest or spending in the industry.143 Ultimately, schools must be “prepared either way for whatever hand gets dealt.”144

140 Libby Sander, 22 Elite College Sports Programs Turned a Profit in 2010, but Gaps Remain, NCAA Reports Says,CHRON.HIGHER EDUC. (June 15, 2011), http://chronicle.com/article/22-Elite-College-Sports/127921/ [http://perma.cc/Z9UM-A6XH]; see also Steve Berkowitz & Jodi Upton, Athletic Departments See Surge Financially in Down Economy, USA TODAY (June 16, 2011), http://usatoday30.usatoday.com/ sports/college/2011-06-15-athletic-departments-increase-money_n.htm [http://perma.cc/ K6VQ-BCKG]. The NCAA considers an athletic department to be financially self-sufficient when the school generates revenue from media contracts, ticket sales, and donations that together exceed the department’s total expenses. In 2010, there were 22 self-sufficient schools, an increase from the 14 in 2009. Oregon, Alabama, Penn State, and Michigan earned the top five profits. Berkowitz & Upton, supra. 141 See Declaration of Daniel A. Rascher in Support of Motion By Antitrust Plaintiffs for Class Certification at 73, In re NCAA Student Athlete Name & Likeness Licensing Litig., No. 4:09-cv-1967-CW (N.D. Cal. Apr. 24, 2013), ECF No. 748-4 [hereinafter Rascher Declaration]; see also Strom, supra note 30, at 446. In 2011, Dr. Rasher examined data from 66 member schools and found that more than 90% of the schools turned a profit. Another study suggested that 70% of universities in major conferences made a profit. Yet because many universities account for merchandise sales and other sports-related revenues in nonathletic departments, these significant revenues are not reflected in the NCAA’s accounting. Id. 142 Marc Edelman, The Future of Amateurism After Antitrust Scrutiny: Why a Win for the Plaintiffs in the NCAA Student-Athlete Name & Likeness Licensing Litigation Will Not Lead to the Demise of College Sports, 92 OR. L. REV. 1019, 1040 (2014). 143 Id. at 1042 (“For example, between 1950 and 2005, just five college football teams have accounted for a quarter of all top eight finishers . . . [and] just four men’s

288 2016] STUDENT-ATHLETES VS. NCAA

III. ONGOING LITIGATION AGAINST THE NCAA

In light of the injunction in O’Bannon, many other current and former Division I student-athletes are seizing the opportunity to challenge the NCAA’s regulations restricting the compensation of student-athletes. Not only have cases that were filed prior to O’Bannon been allowed to proceed despite the injunction, but new lawsuits against the NCAA also continue to be filed.145 These claims are indicative of the significant social importance attached to the compensation of student-athletes, which in turn may eventually result in review by the Supreme Court.

A. The Grant-in-Aid Cap

In March 2014, Shawne Alston, a former West Virginia University running back, filed a class action lawsuit on behalf of current and former football players in five of the top athletic conferences in the NCAA: the Big 12, Big Ten, Pac-12, ACC, and SEC.146 Martin Jenkins, a former defensive back for Clemson University, and two current Wisconsin athletes filed a class action stating that financial aid awards and potential compensation should be determined by an open market and not regulated by the NCAA.147 These cases were consolidated in In re National College Athletic Association Grant-in-Aid Cap Antitrust Litigation,148 to be tried before Judge Claudia Wilken, who presided over O’Bannon v. NCAA.149 Plaintiffs are seeking an injunction that would prohibit the NCAA and five of the top athletic conferences from adopting any limitations on the amount of compensation that may be paid to student-athletes while in school.150 This class action complaint argues that the NCAA cannot limit financial aid to tuition, room

Division I college basketball teams represented nearly a quarter of all Final Four appearances . . ..”). 144 Solomon, supra note 125. 145 See Alston v. NCAA et al., No. 14-cv-01011 (N.D. Cal. Mar. 5, 2014); Jenkins et al. v. NCAA, No. 33-cv-0001, (D.N.J. Mar. 17, 2014); In re Nat’l Collegiate Athletic Ass’n Grant-in-Aid Cap Antitrust Litig., No. 2541, 2014 U.S. Dist. LEXIS 115122 (N.D. Cal. July 11, 2014). 146 See Complaint, Alston v. NCAA et al., No. 14-cv-01011 (N.D. Cal. Mar. 5, 2014), ECF No. 1. 147 See Complaint, Jenkins et al. v. NCAA, No. 33-cv-0001, (D.N.J. Mar. 17, 2014), ECF No. 7689. 148 Consolidated Complaint at 1-2, In re Nat’l Collegiate Athletic Ass’n Grant- in-Aid Cap Antitrust Litig., No. 2541, 2014 U.S. Dist. LEXIS 115122 (N.D. Cal. July 11, 2014), ECF No. 61. 149 Id. 150 Id. at 4.

289 BROOKLYN LAW REVIEW [Vol. 81:2 and board, and books, while excluding incidentals.151 The plaintiffs argue that former athletes should be awarded damages for incidentals like travel and other costs associated with being student-athletes.152 The complaint further alleges that there is a disparity between the allowable grant-in-aid cap and the actual cost of attendance, resulting in student-athletes receiving a few thousand dollars less each year than they would in a competitive market.153 The complaint states that denying players the benefits of economic assistance has imposed significant hardships on these athletes as their lives are much different from the average student.154 Student-athletes (1) “have much less time and ability to earn money through part-time jobs than do other students”; (2) “are more likely to come from low-income households”; and (3) “are more likely to incur substantial travel costs to attend school.”155 While the O’Bannon decision was tailored specifically to the compensation for players’ licensing rights, it paved the way for suits like Grant-in-Aid to continue attacking the NCAA’s restrictions on student compensation and promoting the need for more significant reform. Judge Wilken did not grant the NCAA’s motion to dismiss and noted the differences between Grant-in-Aid and O’Bannon.156 Most significantly, this class of plaintiffs contains female student-athletes, which have yet to be included in prior class-action suits.157

B. Broadcast Rights

Litigation surrounding the NCAA’s compensation restrictions has expanded to include a variety of defendants. Eleven current and former Football Bowl Subdivision and Division I men’s basketball players are challenging the licensing and use of student-athletes’ names, images, and likenesses in advertisements and broadcasts, as well as restrictions on student- athletes’ compensation for such use.158 The plaintiffs seek to recover damages from three classes of defendants—the major

151 Id. 152 Id. at 6. 153 Id. 154 Id. 155 Id. 156 Jon Solomon, Judge Allows Scholarship Cases to Continue vs. NCAA, Conferences, CBSSPORTS.COM (Oct. 9, 2014, 6:36 PM), http://www.cbssports.com/ collegefootball/writer/jon-solomon/24746025/judge-allows-ncaa-scholarship-cases-to-continue [http://perma.cc/2MFL-NDTS]. 157 Id. 158 Complaint at 1-5, Marshall et al. v. ESPN Inc. et al., 14-cv-01945 (M.D. Tenn. Oct. 3, 2014), ECF No. 1 [hereinafter Marshall Complaint].

290 2016] STUDENT-ATHLETES VS. NCAA television networks, licensing companies, and college athletic conferences—that were allegedly unjustly enriched by using the names, images, and likenesses of student-athletes in advertisements and broadcasts without their consent.159 Along with other alleged violations of privacy rights, the Lanham Act, and tort law, the plaintiffs in Marshall v. ESPN made an antitrust claim parallel to that in O’Bannon. While O’Bannon claimed that the NCAA created an unreasonable restraint on trade, Marshall brought an antitrust claim against three different groups of broadcast defendants, alleging that broadcasts of collegiate games violated the use of players’ names, images, and likenesses.160 Since Marshall asserts a violation of section 1 of the Sherman Act,161 the court will apply a rule of reason analysis. As in O’Bannon, the burden of proof now rests with the defendants to provide a justification for their departure from a free market system.

C. Student-Athletes as Employees and the Right to Unionize

The College Athletes Players Association and Kain Colter, a former Northwestern University quarterback, brought a suit regarding the restrictions on the unionization of student- athletes at Northwestern University. Plaintiffs argued that football players on a scholarship should be granted the right to seek bargaining status and hold elections in favor of unionization.162 In March 2014, the Chicago National Labor Relations Board agreed that the players had the right to unionize. However, when the National Labor Relations Board (NLRB) granted Northwestern’s request for review, it subsequently declined to assert jurisdiction.163 By statute, the NLRB does not have jurisdiction over state-run schools, which account for 108 of the 125 Football Bowl Subdivision teams.164 Since the NCAA and the conferences have substantial control over the majority of the teams, the NLRB held that asserting

159 Id. 160 See supra Section I.B; Marshall Complaint, supra note 158, at 1-5. 161 Marshall Complaint, supra note 158, at 1-5, 34. 162 Northwestern University’s Brief to the Regional Director at 1-2, No. 13-RC- 121359 (N.L.R.B. July 3, 2014). 163 Press Release, Nat’l Labor Relations Bd. Office of Public Affairs, Board Unanimously Decides to Decline Jurisdiction in Northwestern Case (Aug. 17, 2015), https://www.nlrb.gov/news-outreach/news-story/board-unanimously-decides-decline-jur isdiction-northwestern-case [http://perma.cc/AQM8-VEBU]. 164 Northwestern Univ. and Coll. Athletes Players Ass’n, 362 NLRB 167 (2015), 2015 WL 4882656.

291 BROOKLYN LAW REVIEW [Vol. 81:2 jurisdiction over a single team “would not promote stability in labor relations” across the league.165 Ultimately, this narrowly focused decision does not preclude reconsideration of the unionization issue in the future. As they receive additional compensation, student-athletes develop a growing economic relationship with their university. The school compensates players in the form of a grant-in-aid and in turn is able to govern and control the players’ daily activities with regard to NCAA athletic competitions.166 If universities begin to establish trusts to compensate players for the use of their names, images, and likenesses, student-athletes will have an even stronger argument for a bargaining collective.

IV. IMPLEMENTING CHANGES TO THE NCAA MODEL

While the NCAA implemented changes to its regulatory structure at its annual convention,167 as litigation continues, there is a need for additional reform to whether and how student- athletes are compensated. In light of the Ninth Circuit’s conclusion that the NCAA regulations violate antitrust law, there is now an opportunity to develop a new, more effective model of compensation for student-athletes. While there are multiple proposed methods for more complete compensation, such as paying players directly for their performance and/or licensing rights, a model needs to be adopted that offers student-athletes the proper protection from exploitation while still maintaining amateurism in college athletics. In amending its bylaws, the NCAA only scratched the surface of the issue of how to balance player compensation with the values of amateurism in college athletics. By allowing additional player compensation in the form of full cost-of- attendance stipends, the NCAA may have avoided a complete regulatory overhaul; however, there are several more functional alternatives to the current NCAA model. In order to comply with the antitrust laws and best serve student-athletes, the most effective solution is ultimately a combination of both a trust system and a revenue sharing model.168

165 Id. 166 Northwestern University’s Brief, supra note 162, at 2-3, 74. 167 Hosick, supra note 21. 168 See infra Section IV.B.

292 2016] STUDENT-ATHLETES VS. NCAA

A. International Olympic Committee Trust Model

The most practical model for reform further develops the trust fund proposed by the plaintiffs in O’Bannon and accepted by the Northern District of California. Although the Ninth Circuit held that the creation of a trust capped at $5,000 was an erroneous remedy, the NCAA has the ability to implement a similar compensatory structure through its bylaws. Ultimately, the most functional trust for both the NCAA and its member schools is one that mirrors that of the International Olympic Committee (IOC), the governing organization for the Olympics and all of its member institutions. The IOC developed a trust system, very similar to that proposed in O’Bannon, which has a distribution scheme that would be valuable to college athletes.169 Under O’Bannon, student-athletes are unable to access the funds in their trust until after they graduate or otherwise leave school.170 But under the IOC, revenue from athletes’ endorsements is held in a trust that is accessible to them both during and after competition.171 During competition, only necessary expenses, such as food and incidentals related to competition, may be paid from the trust; after a competition season, however, athletes may personally withdraw the remaining funds.172 Permitting students to access their trusts only for necessary expenses prior to graduation would allow them to finance expenses that may not be covered by tuition and the full cost-of-attendance stipend. Currently, the NCAA prohibits compensating student- athletes with “funds, awards or benefits not permitted by the governing legislation of the Association for participation in athletics.”173 Creation of a trust would involve both the NCAA and its member institutions contributing a percentage of revenue from merchandise, video games, and television network contracts that use the names, images, and likeness of players to the trusts set up for student-athletes.174 This is a practical compensatory structure that would allow the NCAA, universities, and conferences to regulate the trust while the student-athletes are in school. Furthermore, implementing a spend thrift provision that prohibits student-athletes from accessing the trust without the

169 Leslie E. Wong, Comment, Our Blood, Our Sweat, Their Profit: Ed O’Bannon Takes on the NCAA for Infringing on the Former Student-Athlete’s Right of Publicity, 42 TEX.TECH. L. REV. 1069, 1104-05 (2010). 170 O’Bannon v. NCAA, 7 F. Supp. 3d 955, 982 (N.D. Cal. 2014). 171 Wong, supra note 169, at 1105. 172 Id. 173 2013-14 NCAA DIVISION 1 MANUAL, supra note 2, at 58. 174 Strom, supra note 30, at 438.

293 BROOKLYN LAW REVIEW [Vol. 81:2 approval of a trustee—either the NCAA, a conference, or university—would provide a safeguard against unnecessary use of the funds prior to graduation.175 As a trustee, the NCAA could maintain control over this additional compensation and ensure that it is used in a way that promotes amateurism and integrates academics with athletics. For example, the NCAA could create academic incentives by reducing access to trusts for poor academic standing.176 Ultimately, a trust model, based on that of the IOC, is an ideal reform for collegiate athletics, as it will allow the NCAA to maintain enough control to ensure that the values of amateurism are maintained. Furthermore, the benefits of a trust system could eventually be applied to a greater population of student-athletes outside of men’s Division I revenue sports, including for female athletes and those who play nonrevenue sports.177

B. Revenue Sharing and Complete Education Models

As an alternative, schools may implement a revenue sharing system that allows student-athletes to collect a percentage of the revenue accumulated by their university from the use of their names, images, and likenesses, in addition to their athletic scholarship.178 Advocates of this model further suggest that the NCAA could promote the values of education by awarding bonuses for outstanding academic performance.179 Furthermore, if the NCAA revised its amateurism regulations that restrict compensation for student-athletes to allow them to receive a portion of the proceeds generated through personal endorsements or by their team, revenue sharing would allow student-athletes to further their own financial and professional gain.180 While it is important to allow student- athletes to participate in an open and competitive market when it comes to licensing the rights to their names, images, and likenesses, it is imperative that doing so does not detract from the value of higher education. Arguably, giving student-athletes huge amounts of compensation from third parties would detract from the principle of integrating academics and athletics. Therefore, combining a revenue sharing system with the distribution method

175 Id. 176 Id. at 442. 177 Wong, supra note 169, at 1105. 178 Id. at 1103. 179 Id. at 1104. 180 Id. at 1105.

294 2016] STUDENT-ATHLETES VS. NCAA of the IOC trust would allow the NCAA to comply with the Sherman Act while continuing to apply the ideals of amateurism. Ultimately, the NCAA could allow student-athletes to be compensated for the use of their names, images, and likenesses via the revenue sharing model and could ensure that student- athletes would not have access to the trust until after their collegiate tenure. Although some commentators argue for a departure from the commercialization of the college sports industry to a focus solely on its educational atmosphere, that is highly improbable.181 College athletics have become a true industry. Fans identify with their school and athletic conferences. They purchase memorabilia and pay significant amounts of money to attend games. Consumers have grown to expect and appreciate the jerseys, DVDs, and video games that use the images and names of the players. The demand for this merchandise continues to grow, and removing the commercialized aspect of the industry would prove completely impractical.182 While implementation of a trust would be the most beneficial model for compensating student-athletes, there are two specific issues that would need to be addressed to ensure its success. First, the trust would have to comply with Title IX requirements and apply equally to all athletes. Second, the NCAA would have to ensure that all of its member institutions have the financial stability to establish a trust. Title IX, which was enacted in 1972, requires gender equality in educational programs.183 It does not, however, expressly address the equality of payment of student-athletes, as this was not an issue at the time of its enactment.184 To determine compliance with Title IX, 10 factors are examined to ensure that male and female student-athletes are afforded equal opportunities,185 including, among others, “whether the selection of

181 Id. at 1102. 182 Id. 183 45 C.F.R. § 86.41(a) (2015). 184 History of Title IX,TITLE IX.INFO, http://www.titleix.info/history/history- overview.aspx [http://perma.cc/XUF5-6ZBG] (last visited Mar. 4, 2016); Josephine Potuto et al., What’s in a Name? The Collegiate Mark, The Collegiate Model, and the Treatment of Student-Athletes, 92 OR. L. REV. 879, 938-39 (2014). 185 45 C.F.R. § 86.41(c) (2015). The 10 factors considered are the following: 1. Whether the selection of sports and levels of competition effectively accommodate the interests and abilities of members of both sexes; 2. The provision of equipment and supplies; 3. Scheduling of games and practice time;

295 BROOKLYN LAW REVIEW [Vol. 81:2 sports and levels of competition effectively accommodate the interests and abilities of members of both sexes” and the assignment and compensation of coaches and tutors.186 Equal implementation of the proposed trust model would alleviate concerns that compensating student-athletes would be discriminatory towards women’s college athletics. While women’s Division I sports may not receive as much publicity or media attention as men’s sports, under this proposal, member institutions would still be required to implement trusts for all student-athletes. Each student-athlete would be required to receive the same percentage of merchandise sales related to their name, image, and likeness.187 Between merchandise, ticket sales, and broadcast deals, extremely large sums of money are spent on the college sports industry each year; however, the top five conferences and schools receive the majority of this money.188 In order for the trust model to be successful, it would need to be implemented across all Division I member institutions. Arguably, the biggest roadblock to a trust system would be the financial burden on member institutions, particularly public schools. But thanks to extensive research throughout the duration of the O’Bannon litigation, a report filed on behalf of the plaintiffs indicated that these numbers are a drastic misrepresentation due to convenient accounting by member institutions.189 After adjusting for accounting inaccuracies, the report indicated that 70% of the athletic departments make an annual profit.190 Unfortunately, that still leaves 30% of the NCAA’s member schools that may not have the ability to implement additional compensation for their student-athletes.

4. Travel and per diem allowance; 5. Opportunity to receive coaching and academic tutoring; 6. Assignment and compensation of coaches and tutors; 7. Provision of locker rooms, practice and competitive facilities; 8. Provision of medical and training facilities and services; 9. Provision of housing and dining facilities and services; 10. Publicity.

186 Id. § 86.41(c)(1). 187 Strom, supra note 30, at 448. 188 Id. at 446-54. 189 See Rascher Declaration, supra note 141, at 73; Strom, supra note 30, at 446. 190 Strom, supra note 30, at 447.

296 2016] STUDENT-ATHLETES VS. NCAA

Ultimately, the purpose of a trust is to compensate student-athletes only from the profits made by their respective school and athletic conference. Therefore, when a school or athletic conference chooses to sell merchandise using the names, images, and likeness of its student-athletes, they would then accrue profits that could be distributed into the trusts of the respective student-athletes. From 2012 to 2013, the retail marketplace for licensed college merchandise was estimated at $4.62 billion.191 The royalties from these sales were returned to the member institutions, indicating that the majority of college athletics departments do in fact make a significant return profit.192 There is no indication that implementation of a trust to share these royalties with student-athletes would financially destroy athletics departments.

CONCLUSION

Although O’Bannon’s ultimate impact on the NCAA is still unknown, it did not hold the death sentence for amateurism that many anticipated it would. It is, however, indicative of the need for a drastic change to the NCAA and its relationship with athletic conferences, universities, and student-athletes. In the words of Mike Krzyzewski, coach for Duke University’s men’s basketball team, on the need for change in the NCAA, “Many times when you lose, it’s the greatest opportunity to improve. You have this unique opportunity to make dramatic change that you probably couldn’t make when things seem to be going right.”193 Even though the court in O’Bannon rejected amateurism as a justification for prohibiting any compensation for student- athletes, the decision was quite narrow in its application. Litigation surrounding compensation of student-athletes is indicative of the need for a change in the governance of the NCAA, rather than for a complete change of the entire college sports industry. While player compensation has been at the forefront of issues surrounding college athletics, student-athletes deserve more than just compensation; they deserve the stability and protection from exploitation that the NCAA’s regulations help to provide. The O’Bannon litigation and judicial intervention triggered the

191 Id. 192 Id. 193 Coach K Backs NCAA Changes, ESPN.COM (Oct. 3, 2013, 11:22 AM), http://espn.go.com/mens-college-basketball/story/_/id/9762424/duke-coach-mike-krzyzewski- says-ncaa-needs-new-definition-amateurism-report-says [http://perma.cc/MTY8-3G5N].

297 BROOKLYN LAW REVIEW [Vol. 81:2 necessary action from the NCAA to take regulatory reform into its own hands. The NCAA was compelled to update its practices or else face paying damages to a large, injured class of former student-athletes. The NCAA will best serve student-athletes by continuing to reexamine its own regulatory structure and creating a revenue sharing system distributed via a trust model similar to that of the IOC. By implementing this reform and providing the full cost of attendance in conjunction with deferred compensation in a trust, the NCAA will promote adequate compensation of student-athletes while simultaneously maintaining the core values of amateurism. Perhaps, with some restructuring, it is possible to have the best of both worlds.

Audrey C. Sheetz†

† J.D. Candidate, Brooklyn Law School, 2016; B.A., American University, 2011. Thank you to the editors and staff of the Brooklyn Law Review for their dedication and hard work, especially Lillian Smith, Michael Piacentini, and Nina Vershuta for their invaluable insight and feedback throughout this process. Also a special thank you to my family and friends for their unconditional support.

298 The Antitrust Laws

Congress passed the first antitrust law, the Sherman Act, in 1890 as a "comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade." In 1914, Congress passed two additional antitrust laws: the Federal Trade Commission Act, which created the FTC, and the Clayton Act. With some revisions, these are the three core federal antitrust laws still in effect today.

The antitrust laws proscribe unlawful mergers and business practices in general terms, leaving courts to decide which ones are illegal based on the facts of each case. Courts have applied the antitrust laws to changing markets, from a time of horse and buggies to the present digital age. Yet for over 100 years, the antitrust laws have had the same basic objective: to protect the process of competition for the benefit of consumers, making sure there are strong incentives for businesses to operate efficiently, keep prices down, and keep quality up. Here is an overview of the three core federal antitrust laws. The Sherman Act outlaws "every contract, combination, or conspiracy in restraint of trade," and any "monopolization, attempted monopolization, or conspiracy or combination to monopolize." Long ago, the Supreme Court decided that the Sherman Act does not prohibit every restraint of trade, only those that are unreasonable. For instance, in some sense, an agreement between two individuals to form a partnership restrains trade, but may not do so unreasonably, and thus may be lawful under the antitrust laws. On the other hand, certain acts are considered so harmful to competition that they are almost always illegal. These include plain arrangements among competing individuals or businesses to fix prices, divide markets, or rig bids. These acts are "per se" violations of the Sherman Act; in other words, no defense or justification is allowed.

The penalties for violating the Sherman Act can be severe. Although most enforcement actions are civil, the Sherman Act is also a , and individuals and businesses that violate it may be prosecuted by the Department of Justice. Criminal prosecutions are typically limited to intentional and clear violations such as when competitors fix prices or rig bids. The Sherman Act imposes criminal penalties of up to $100 million for a corporation and $1 million for an individual, along with up to 10 years in prison. Under federal law, the maximum fine may be increased to twice the amount the conspirators gained from the illegal acts or twice the money lost by the victims of the , if either of those amounts is over $100 million.

The Federal Trade Commission Act bans "unfair methods of competition" and "unfair or deceptive acts or practices." The Supreme Court has said that all violations of the Sherman Act also violate the FTC Act. Thus, although the FTC does not technically enforce the Sherman Act, it can bring cases under the FTC Act against the same kinds of activities that violate the Sherman Act. The FTC Act also reaches other practices that harm competition, but that may not fit neatly into categories of conduct formally prohibited by the Sherman Act. Only the FTC brings cases under the FTC Act.

299 The Clayton Act addresses specific practices that the Sherman Act does not clearly prohibit, such as mergers and interlocking directorates (that is, the same person making business decisions for competing companies). Section 7 of the Clayton Act prohibits mergers and acquisitions where the effect "may be substantially to lessen competition, or to tend to create a monopoly." As amended by the Robinson-Patman Act of 1936, the Clayton Act also bans certain discriminatory prices, services, and allowances in dealings between merchants. The Clayton Act was amended again in 1976 by the Hart-Scott-Rodino Antitrust Improvements Act to require companies planning large mergers or acquisitions to notify the government of their plans in advance. The Clayton Act also authorizes private parties to sue for triple damages when they have been harmed by conduct that violates either the Sherman or Clayton Act and to obtain a court order prohibiting the anticompetitive practice in the future.

In addition to these federal statutes, most states have antitrust laws that are enforced by state attorneys general or private plaintiffs. Many of these statutes are based on the federal antitrust laws.

300 The Sherman Antitrust Act

Effective: June 22, 2004 15 U.S.C.A. § 1

§ 1. Trusts, etc., in restraint of trade illegal; penalty

Currentness

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $100,000,000 if a corporation, or, if any other person, $1,000,000, or by imprisonment not exceeding 10 years, or by both said punishments, in the discretion of the court.

§ 2. Monopolizing trade a felony; penalty

Currentness

Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $100,000,000 if a corporation, or, if any other person, $1,000,000, or by imprisonment not exceeding 10 years, or by both said punishments, in the discretion of the court.

301 BYLAWS, ARTICLE 12 Amateurism and Athletics Eligibility

12.01 General Principles.

12.01.1 Eligibility for Intercollegiate Athletics. Only an amateur student-athlete is eligible for intercollegiate athletics participation in a particular sport.

12.01.2 Clear Line of Demarcation. Member institutions' athletics programs are designed to be an integral part of the educational program. The student-athlete is considered an integral part of the student body, thus maintaining a clear line of demarcation between college athletics and professional sports.

12.01.3 "Individual" vs. "Student-Athlete." NCAA amateur status may be lost as a result of activities prior to enrollment in college. If NCAA rules specify that an "individual" may or may not participate in certain activities, this term refers to a person prior to and after enrollment in a member institution. If NCAA rules specify a "student-athlete," the legislation applies only to that person's activities after enrollment.

12.01.4 Permissible Grant-in-Aid. A grant-in-aid administered by an educational institution is not considered to be pay or the promise of pay for athletics skill, provided it does not exceed the financial aid limitations set by the Association’s membership.

12.02 Definitions and Applications.

12.02.1 Agent. [A] An agent is any individual who, directly or indirectly: (Adopted: 1/14/12) (a) Represents or attempts to represent an individual for the purpose of marketing his or her athletics ability or reputation for financial gain; or (b) Seeks to obtain any type of financial gain or benefit from securing a prospective student-athlete's enrollment at an educational institution or from a student-athlete's potential earnings as a professional athlete.

12.02.1.1 Application. [A] An agent may include, but is not limited to, a certified contract advisor, financial advisor, marketing representative, brand manager or anyone who is employed or associated with such persons. (Adopted: 1/14/12)

12.02.2 Actual and Necessary Expenses. Actual and necessary expenses are limited to: (Adopted: 1/19/13 effective 8/1/13) (a) Meals; (b) Lodging;

302 (c) Apparel, equipment and supplies; (d) Coaching and instruction; (e) Health/medical insurance; (f) Transportation (expenses to and from practice and competition, cost of transportation from home to training/practice site at the beginning of the season/preparation for an event and from training/practice/event site to home at the end of season/event); (g) Medical treatment and physical therapy; (h) Facility usage; (i) Entry fees; and (j) Other reasonable expenses.

12.02.2.1 Application Unless otherwise permitted by the NCAA constitution or bylaws, actual and necessary expenses may be provided only if such expenses are for competition on a team or in a specific event or for practice that is directly related to such competition. The value of such expenses must be commensurate with the fair market value of similar goods and services in the locality in which the expenses are provided and must not be excessive in nature. Actual and necessary expenses shall not include the expenses or fees of anyone other than the individual who participates as a member of the team or in a specific event. (Adopted: 1/19/13 effective 8/1/13)

12.02.3 Calculation of Actual and Necessary Expenses -- Individual Sports. In individual sports, the calculation of an individual's actual and necessary expenses shall be based on expenses incurred during each calendar year (January -- December), rather than on an event-by-event basis. (Adopted: 1/19/13 effective 8/1/13)

12.02.4 Individual. An individual, for purposes of this bylaw, is any person of any age without reference to enrollment in an educational institution or status as a student-athlete.

12.02.5 Intercollegiate Competition. Intercollegiate competition is considered to have occurred when a student-athlete in either a two-year or a four-year collegiate institution does any of the following: (Revised: 1/10/91, 1/16/93, 1/11/94, 1/10/95, 1/9/06) (a) Represents the institution in any contest against outside competition, regardless of how the competition is classified (e.g., scrimmage, exhibition or joint practice session with another institution's team) or whether the student is enrolled in a minimum full-time program of studies; (b) Competes in the uniform of the institution, or, during the academic year, uses any apparel (excluding apparel no longer used by the institution) received from the institution that includes institutional identification; or (c) Competes and receives expenses (e.g., transportation, meals, room or entry fees) from the institution for the competition.

303 12.02.5.1 Exempted Events. Participation in events listed in Bylaw 16.8.1.2 is exempted from the application of this legislation. (Revised: 1/10/92)

12.02.5.2 Participation on an Institution's Club Team. Participation on a collegiate institution's club team is exempted from the application of this legislation, provided the institution did not sponsor the sport on the varsity intercollegiate level at the time of participation. (Adopted: 6/24/09)

12.02.6 Limited Benefit -- Prior to Initial Full-Time Enrollment at an NCAA Institution -- Expenses from a Permissible Source. Prior to initial full-time enrollment at an NCAA institution, if an individual receives expenses from a permissible source (e.g., event sponsor, club team) that exceed his or her actual and necessary expenses by $300 or less, the eligibility of the individual shall not be affected. (Adopted: 1/19/13 effective 8/1/13)

12.02.7 Limited Benefit -- Enrolled Student-Athlete -- Expenses from a Permissible Source. If a student-athlete engages in permissible outside competition and receives expenses from a permissible source (e.g., event sponsor, club team) that exceed his or her actual and necessary expenses by $300 or less, the eligibility of the student-athlete shall not be affected and the institution is not required to submit a self-report of the infraction. (Adopted: 1/19/13 effective 8/1/13)

12.02.8 Organized Competition. Athletics competition shall be considered organized if any of the following conditions exists: (Adopted: 7/31/14) (a) Competition is scheduled and publicized in advance; (b) Official score is kept; (c) Individual or team standings are maintained; (d) Official timer or game officials are used; (e) Admission is charged; (f) Teams are regularly formed or team rosters are predetermined; (g) Team uniforms are used; (h) A team is privately or commercially sponsored; or (i) The competition is either directly or indirectly sponsored, promoted or administered by an individual, an organization or any other agency.

12.02.9 Pay. Pay is the receipt of funds, awards or benefits not permitted by the governing legislation of the Association for participation in athletics.

12.02.10 Professional Athlete. A professional athlete is one who receives any kind of payment, directly or indirectly, for athletics participation except as permitted by the governing legislation of the Association.

304 12.02.11 Professional Athletics Team. A professional team is any organized team that: (Revised: 4/25/02 effective 8/1/02, 8/8/02, 4/23/03, 4/24/04, 10/28/04) (a) Provides any of its players more than actual and necessary expenses for participation on the team, except as otherwise permitted by NCAA legislation. Actual and necessary expenses are limited to the items listed in Bylaw 12.02.2, provided the value of these items is commensurate with the fair market value in the locality of the player(s) and is not excessive in nature; or (b) Declares itself to be professional.

12.02.12 Religious Mission, Official. An official religious mission is one that is established by the religious organization of which the individual is a member and that results in the individual being unable to attend a collegiate institution during the period of the mission. (Revised: 1/9/06, 4/2/10)

12.02.13 Student-Athlete. A student-athlete is a student whose enrollment was solicited by a member of the athletics staff or other representative of athletics interests with a view toward the student's ultimate participation in the intercollegiate athletics program. Any other student becomes a student-athlete only when the student reports for an intercollegiate squad that is under the jurisdiction of the athletics department, as specified in Constitution 3.2.4.5. A student is not deemed a student-athlete solely on the basis of prior high school athletics participation.

12.02.14 Triathlon and Cross Country, Track and Field and Swimming. Triathlon and cross country are considered the same sport, triathlon and track and field are considered the same sport, and triathlon and swimming are considered the same sport for purposes of Bylaw 12. (Adopted: 1/18/14 effective 8/1/14)

12.02.15 Volleyball and Beach Volleyball. Volleyball and beach volleyball are considered the same sport for the purposes of Bylaws 12.1, 12.2 and 12.8.3.2. (Adopted: 8/26/10, Revised: 7/31/14)

12.1 General Regulations. An individual must comply with the following to retain amateur status. (See Bylaw 12.12 regarding the eligibility restoration process.)

12.1.1 Validity of Amateur Status. As a condition and obligation of membership, it is the responsibility of an institution to determine the validity of the information on which the amateur status of a prospective student-athlete (including two-year and four-year college transfers initially enrolling at an NCAA Division I institution) and student-athlete is based. (See Bylaw 14.01.3.) (Adopted: 1/9/06 effective 8/1/06 for all final certifications for student-athletes initially enrolling at a Division I or Division II institution on or after 8/1/07, Revised: 1/8/07, 4/30/07)

305 12.1.1.1 Amateurism Certification Process. An institution shall use an initial eligibility center approved by the Board of Governors to determine the validity of the information on which the amateur status of a student-athlete is based. (Adopted: 1/9/06 effective 8/1/06 for final certifications for student-athletes initially enrolling at a Division I or Division II institution on or after 8/1/07, Revised: 4/30/07, 10/30/14)

12.1.1.1.1 Scope. The certification of amateur status issued by the NCAA Eligibility Center is limited to activities that occur prior to a prospective student-athlete's request for final amateurism certification or his or her initial full-time enrollment at an NCAA Division I or II institution, whichever occurs earlier. (Adopted: 4/30/07)

12.1.1.1.2 Institutional Responsibilities.

12.1.1.1.2.1 Amateur Status After Certification. An institution is responsible for certifying the amateur status of a prospective student-athlete (including two-year and four-year college transfers initially enrolling at an NCAA Division I institution) from the time he or she requests that a final certification be issued by the NCAA Eligibility Center or from the time he or she initially enrolls as a full-time student at an NCAA Division I or II institution (whichever occurs earlier). (Adopted: 4/30/07)

12.1.1.1.2.2 Sharing Information and Reporting Discrepancies. If an institution receives additional information or otherwise has cause to believe that a prospective student-athlete's amateur status has been jeopardized, the institution is responsible for promptly notifying the NCAA Eligibility Center of such information. Further, an institution is responsible for promptly reporting to the NCAA Eligibility Center all discrepancies in information related to a student- athlete's amateurism certification. (Adopted: 4/30/07)

12.1.1.1.3 Eligibility for Practice or Competition. Prior to engaging in practice or competition, a student-athlete shall receive a final certification of amateur status based on activities that occur prior to his or her request for final certification or initial full-time enrollment at an NCAA Division I or II institution (whichever occurs earlier). (Adopted: 4/30/07)

12.1.1.1.3.1 Temporary Certification. If a prospective student-athlete reports for athletics participation before the student's amateur status has been certified, the student may practice, but not compete, for a maximum period of 45 days. After this period, the student shall have his or her amateur status certified to continue to practice or to compete. (Adopted: 1/9/06 effective 8/1/06 for all final certifications for student-athletes initially enrolling at a Division I or Division II institution on or after 8/1/07, Revised: 11/29/09)

12.1.1.1.3.2 Effect of Violations. A violation of Bylaw 12.1.1.1.3 or Bylaw 12.1.1.1.3.1 in which the student-athlete is subsequently certified without conditions shall be considered an institutional violation per Constitution 2.8.1 but shall not affect the student-athlete's eligibility. (Adopted: 10/29/15)

306 12.1.1.1.4 Eligibility for Practice After a Final Not-Certified Certification. After a final not- certified certification is rendered, a student-athlete may continue to engage in practice activities, provided the institution has submitted a notice of appeal. At the point in which all appeal opportunities have been exhausted and no eligibility has been granted, the student-athlete may no longer participate in practice activities. (Adopted: 3/21/07)

12.1.2 Amateur Status. An individual loses amateur status and thus shall not be eligible for intercollegiate competition in a particular sport if the individual: (Revised: 4/25/02 effective 8/1/02, 4/23/03 effective 8/1/03, 4/29/10 effective 8/1/10) (a) Uses his or her athletics skill (directly or indirectly) for pay in any form in that sport; (b) Accepts a promise of pay even if such pay is to be received following completion of intercollegiate athletics participation; (c) Signs a contract or commitment of any kind to play professional athletics, regardless of its legal enforceability or any consideration received, except as permitted in Bylaw 12.2.5.1; (d) Receives, directly or indirectly, a salary, reimbursement of expenses or any other form of financial assistance from a professional sports organization based on athletics skill or participation, except as permitted by NCAA rules and regulations; (e) Competes on any professional athletics team per Bylaw 12.02.11, even if no pay or remuneration for expenses was received, except as permitted in Bylaw 12.2.3.2.1; (f) After initial full-time collegiate enrollment, enters into a professional draft (see Bylaw 12.2.4); or (g) Enters into an agreement with an agent.

12.1.2.1 Prohibited Forms of Pay. "Pay," as used in Bylaw 12.1.2 above, includes, but is not limited to, the following:

12.1.2.1.1 Salary, Gratuity or Compensation. Any direct or indirect salary, gratuity or comparable compensation.

12.1.2.1.2 Division or Split of Surplus. Any division or split of surplus (bonuses, game receipts, etc.).

12.1.2.1.3 Educational Expenses. Educational expenses not permitted by the governing legislation of this Association (see Bylaw 15 regarding permissible financial aid to enrolled student-athletes).

12.1.2.1.3.1 Educational Expenses or Services -- Prior to Collegiate Enrollment. A prospective student-athlete may receive educational expenses or services (e.g., tuition, fees, room and board, books, tutoring, standardized test preparatory classes) prior to collegiate enrollment from any individual or entity other than an agent, professional sports team/organization, member institution

307 or a representative of an institution's athletics interests, provided the payment for such expenses or services is disbursed directly to the individual, organization or educational institution (e.g., high school, preparatory school) providing the educational expense or service. (Adopted: 4/25/02 effective 8/1/02, Revised: 1/14/08)

12.1.2.1.3.2 Educational Expenses From Outside Sports Team or Organization -- After Collegiate Enrollment. Educational expenses provided to an individual after initial collegiate enrollment by an outside sports team or organization that are based on any degree on the recipient's athletics ability [except for financial aid that is received from a team or organization that conducts a competitive sports program by an individual who is not a member of that team or organization (see Bylaw 15.2.6.3)], even if the funds are given to the institution to administer to the recipient. (Revised: 1/10/95, 4/25/02 effective 8/1/02, 1/15/11 effective 8/1/11, 8/18/11)

12.1.2.1.3.2.1 Educational Expenses -- Olympic Committee. A student-athlete may receive educational expenses awarded by the U.S. Olympic Committee (or for international student- athletes, expenses awarded by the equivalent organization of a foreign country) pursuant to the applicable conditions set forth in Bylaw 15.2.6.4. (Adopted: 4/15/97, Revised: 11/1/00, 4/25/02 effective 8/1/02)

12.1.2.1.3.2.2 Educational Expenses -- National Governing Body. A student-athlete may receive educational expenses awarded by a U.S. national governing body (or, for international student-athletes, expenses awarded by the equivalent organization of a foreign country) pursuant to the applicable conditions set forth in Bylaw 15.2.6.4. (Adopted: 10/28/97 effective 8/1/98, Revised: 11/1/00, 4/25/02 effective 8/1/02)

12.1.2.1.4 Expenses, Awards and Benefits. Excessive or improper expenses, awards and benefits.

12.1.2.1.4.1 Cash or Equivalent Award. Cash, or the equivalent thereof (e.g., trust fund), as an award for participation in competition at any time, even if such an award is permitted under the rules governing an amateur, noncollegiate event in which the individual is participating. An award or a cash prize that an individual could not receive under NCAA legislation may not be forwarded in the individual's name to a different individual or agency. (Revised: 4/25/02 effective 8/1/02)

12.1.2.1.4.1.1 Exception -- Prospective Student-Athlete's Educational Institution. A financial award may be provided to a prospective student-athlete's educational institution in conjunction with the prospective student-athlete being recognized as part of an awards program in which athletics participation, interests or ability is a criterion, but not the sole criterion, in the selection process. Such an award must also include nonathletics criteria, such as the prospective student- athlete's academic record and nonathletics extracurricular activities and may not be based on the prospective student-athlete's place finish or performance in a particular athletics event. In addition, it is permissible for an outside organization (other than a professional sports organization) to provide actual and necessary expenses for the prospective student-athlete (and the prospective student-athlete's parents or other relatives) to travel to a recognition event designed to recognize

308 the prospective student-athlete's accomplishments in conjunction with his or her selection as the recipient of a regional, national or international award. (Adopted: 10/28/99)

12.1.2.1.4.1.2 Operation Gold Grant. An individual (prospective student-athlete or student- athlete) may accept funds that are administered by the U.S. Olympic Committee pursuant to its Operation Gold program. (Adopted: 4/26/01 effective 8/1/01)

12.1.2.1.4.1.3 Incentive Programs for International Athletes. An international prospective student-athlete or international student-athlete may accept funds from his or her country’s national Olympic governing body (equivalent to the U.S. Olympic Committee) based on place finish in one event per year that is designated as the highest level of international competition for the year by the governing body. (Adopted: 1/17/15 effective 8/1/15)

12.1.2.1.4.2 Expenses/Awards Prohibited by Rules Governing Event. Expenses incurred or awards received by an individual that are prohibited by the rules governing an amateur, noncollegiate event in which the individual participates.

12.1.2.1.4.3 Expenses from an Outside Sponsor. An individual who participates in a sport as a member of a team may receive actual and necessary expenses for competition and practice held in preparation for such competition (directly related to the competition and conducted during a continuous time period preceding the competition) from an outside sponsor (e.g., team, neighbor, business) other than an agent or a representative of an institution's athletics interests (and, after initial full-time collegiate enrollment, other than a professional sports organization). An individual who participates in a sport as an individual (not a member of a team) may receive actual and necessary expenses associated with an athletics event and practice immediately preceding the event, from an outside sponsor (e.g., neighbor, business) other than an agent or a representative of an institution's athletics interests (and, after initial full-time collegiate enrollment, other than a professional sports organization). (Revised: 8/26/10, 1/19/13 effective 8/1/13, 11/7/13)

12.1.2.1.4.3.1 Expenses Prior to Full-Time Collegiate Enrollment -- Professional Sports Organization. Prior to full-time collegiate enrollment, an individual may accept up to actual and necessary expenses for competition and practice held in preparation for such competition from a professional sports organization that sponsors the event. (Adopted: 10/16/12)

12.1.2.1.4.3.2 Expenses/Benefits Related to Olympic Games. Members of an Olympic team may receive all nonmonetary benefits and awards provided to members of an Olympic team beyond actual and necessary expenses and any other item or service for which it can be demonstrated that the same benefit is available to all members of that nation's Olympic team or the specific sport Olympic team. (Adopted: 11/1/00, Revised: 1/19/13 effective 8/1/13)

12.1.2.1.4.4 Expenses for Parents/Legal Guardians of Participants in Athletics Competition. Expenses received by the parents or legal guardians of a participant in athletics competition from a nonprofessional organization sponsoring the competition in excess of actual

309 and necessary travel, room and board expenses, or any entertainment expenses, unless such expenses are made available to the parents or legal guardians of all participants in the competition. (Adopted: 1/16/93, Revised: 1/11/97)

12.1.2.1.4.4.1 Postseason Bowl Event. [FBS] On one occasion per year, a student-athlete may designate either additional individuals or substitutes (not to exceed a total of six individuals) to receive entertainment expenses related to an event organized by the nonprofessional sponsor of a postseason bowl game specifically for the parents or legal guardians of student-athletes participating in the postseason bowl. The additional individuals or substitutes designated by the student-athlete shall be subject to the review and approval of the institution's athletics director, or his or her designee. (Adopted: 4/29/04 effective 8/1/04)

12.1.2.1.5 Payment Based on Performance. Any payment conditioned on the individual's or team's place finish or performance or given on an incentive basis that exceeds actual and necessary expenses, or receipt of expenses in excess of the same reasonable amount for permissible expenses given to all individuals or team members involved in the competition. (Revised: 4/25/02 effective 8/1/02, 1/19/13 effective 8/1/13)

12.1.2.1.5.1 Operation Gold Grant. An individual (prospective student-athlete or student-athlete) may accept funds that are administered by the U.S. Olympic Committee pursuant to its Operation Gold program. (Adopted: 4/26/01)

12.1.2.1.5.2 Incentive Programs for International Athletes. An international prospective student-athlete or international student-athlete may accept funds from his or her country’s national Olympic governing body (equivalent to the U.S. Olympic Committee) based on place finish in one event per year that is designated as the highest level of international competition for the year by the governing body. (Adopted: 1/17/15 effective 8/1/15)

12.1.2.1.5.3 Awards Based on Performance in Outside Competition. An individual may receive an award (e.g., trophy, medal, saddle) based on place finish or performance in outside competition, subject to the applicable awards limits (see Bylaw 16.1). (Adopted: 8/26/10)

12.1.2.1.6 Preferential Treatment, Benefits or Services. Preferential treatment, benefits or services because of the individual's athletics reputation or skill or pay-back potential as a professional athlete, unless such treatment, benefits or services are specifically permitted under NCAA legislation. [R] (Revised: 1/11/94, 1/14/08)

12.1.2.1.7 Prize for Participation in Institution's Promotional Activity. Receipt of a prize for participation (involving the use of athletics ability) in a member institution's promotional activity that is inconsistent with the provisions of Bylaw 12.5 or approved official interpretations. (Revised: 11/1/07 effective 8/1/08)

310 12.1.2.2 Use of Overall Athletics Skill -- Effect on Eligibility. Participation for pay in competition that involves the use of overall athletics skill (e.g., "superstars" competition) constitutes a violation of the Association's amateur-status regulations; therefore, an individual participating for pay in such competition is ineligible for intercollegiate competition in all sports. (See Bylaw 12.5.2.3.3 for exception related to promotional contests.) (Revised: 4/25/02 effective 8/1/02)

12.1.2.3 Road Racing. "Road racing" is essentially the same as cross country or track and field competition and cannot be separated effectively from those sports for purposes of Bylaws 12.1, 12.2and 12.8.3.2. Therefore, a student-athlete who accepts pay in any form for participation in such a race is ineligible for intercollegiate cross country or track and field competition. (Revised: 4/25/02 effective 8/1/02)

12.1.2.4 Exceptions to Amateurism Rule.

12.1.2.4.1 Exception for Prize Money Based on Performance -- Sports Other Than Tennis. In sports other than tennis, an individual may accept prize money based on his or her place finish or performance in an athletics event. Such prize money may not exceed actual and necessary expenses and may be provided only by the sponsor of the event. The calculation of actual and necessary expenses shall not include the expenses or fees of anyone other than the individual (e.g., coach's fees or expenses, parent's expenses). (Adopted: 4/25/02 effective 8/1/02, Revised: 12/12/06 applicable to any expenses received by a prospective student-athlete on or after 8/23/06, 4/26/12, 1/19/13 effective 8/1/13)

12.1.2.4.2 Exception for Prize Money -- Tennis.

12.1.2.4.2.1 Prior to Full-Time Collegiate Enrollment. In tennis, prior to full-time collegiate enrollment, an individual may accept up to $10,000 per calendar year in prize money based on his or her place finish or performance in athletics events. Such prize money may be provided only by the sponsor of an event in which the individual participates. Once the individual has accepted $10,000 in prize money in a particular year, he or she may receive additional prize money on a per-event basis, provided such prize money does not exceed the individual's actual and necessary expenses for participation in the event. The calculation of actual and necessary expenses shall not include the expenses or fees of anyone other than the individual (e.g., coach's fees or expenses, parent's expenses). (Adopted: 4/26/12, Revised: 1/19/13 effective 8/1/13)

12.1.2.4.2.2 After Initial Full-Time Collegiate Enrollment. In tennis, after initial full-time collegiate enrollment, an individual may accept prize money based on his or her place finish or performance in an athletics event. Such prize money may not exceed actual and necessary expenses and may be provided only by the sponsor of the event. The calculation of actual and necessary expenses shall not include the expenses or fees of anyone other than the individual (e.g., coach's fees or expenses, parent's expenses). (Adopted: 1/19/13 effective 8/1/13)

311 12.1.2.4.3 Exception for Payment Based on Team Performance. An individual may accept payment from his or her amateur team or the sponsor of the event based on his or her team's place finish or performance, or given on an incentive basis (e.g., bonus), provided the combination of such payments and expenses provided to the individual does not exceed his or her actual and necessary expenses to participate on the team. The calculation of actual and necessary expenses shall not include the expenses or fees of anyone other than the individual (e.g., coach's fees or expenses, parent's expenses). (Adopted: 10/28/10, Revised: 1/19/13 effective 8/1/13)

12.1.2.4.4 Exception for Insurance Against Disabling Injury or Illness, or Loss of Value. [A] An individual may borrow against his or her future earnings potential from an established, accredited commercial lending institution exclusively for the purpose of purchasing insurance (with no cash surrender value) against a disabling injury or illness that would prevent the individual from pursuing a chosen career or for the purpose of purchasing loss-of-value insurance, provided a third party (including a representative of an institution's athletics interests) is not involved in arrangements for securing the loan. However, an institution's president or chancellor (or his or her designated representative from outside the department of athletics) may designate an institutional staff member (or staff members) (e.g., professional sports counseling panel) to assist a student- athlete with arrangements for securing the loan and insurance. The institution shall retain copies of all documents related to loan transactions and insurance policies, regardless of whether the institution is involved in the arrangements. (Revised: 1/16/93, 1/14/97 effective 8/1/97, 1/16/10, 1/17/15)

12.1.2.4.5 Exception for Institutional Fundraising Activities Involving the Athletics Ability of Student-Athletes. Institutional, charitable or educational promotions or fundraising activities that involve the use of athletics ability by student-athletes to obtain funds (e.g., "swim-a-thons") are permitted only if: (Revised: 5/11/05) (a) All money derived from the activity or project go directly to the member institution, member conference or the charitable, educational or nonprofit agency; (b) The student-athletes receive no compensation or prizes for their participation; and (c) The provisions of Bylaw 12.5.1 are satisfied.

12.1.2.4.6 Exception for USOC Elite Athlete Health Insurance Program. An individual may receive the comprehensive benefits of the USOC Elite Athlete Health Insurance Program. (Adopted: 1/10/90)

12.1.2.4.7 Exception for Training Expenses. An individual (prospective or enrolled student- athlete) may receive actual and necessary expenses [including grants, but not prize money, whereby the recipient has qualified for the grant based on his or her performance in a specific event(s)] to cover development training, coaching, facility usage, equipment, apparel, supplies, comprehensive health insurance, travel, room and board without jeopardizing the individual's eligibility for intercollegiate athletics, provided such expenses are approved and provided directly by the U.S. Olympic Committee (USOC), the appropriate national governing body in the sport (or,

312 for international student-athletes, the equivalent organization of that nation) or a governmental entity. (Adopted: 1/10/91, Revised: 4/27/00, 1/19/13 effective 8/1/13)

12.1.2.4.8 Exception for Benefits to Family Members -- National Team Competition. A commercial company (other than a professional sports organization) or members of the local community may provide actual and necessary expenses for an individual's family members to attend national team competition in which the individual will participate. In addition, an individual's family members may receive nonmonetary benefits provided to the family members of all national team members in conjunction with participation in national team competition. (See Bylaw 16.02.4.) (Adopted: 1/11/94, Revised: 1/19/13 effective 8/1/13)

12.1.2.4.9 Exception for Payment of NCAA Eligibility Center Fee. A high school booster club (as opposed to specific individuals) may pay the necessary fee for prospective student-athletes at that high school to be certified by the NCAA Eligibility Center, provided no particular prospective student-athlete is singled out because of his or her athletics ability or reputation. (Adopted: 1/11/94, Revised: 5/9/07)

12.1.2.4.10 Exception for Camp or Academy Sponsored by a Professional Sports Organization. An individual may receive actual and necessary expenses from a professional sports organization to attend an academy, camp or clinic, provided: (Adopted: 1/10/95, Revised: 11/1/01 effective 8/1/02) (a) No NCAA institution or conference owns or operates the academy, camp or clinic; (b) No camp participant is above the age of 15; (c) The professional sports organization provides to the participants nothing more than actual and necessary expenses to attend the camp or clinic and equipment/apparel necessary for participation; (d) Athletics ability or achievements may not be the sole criterion for selecting participants; and (e) Academy participants must be provided with academic services (e.g., tutoring).

12.1.2.4.11 Exception for Receipt of Free Equipment and Apparel Items by a Prospective Student-Athlete. It is permissible for prospective student-athletes (as opposed to student-athletes) to receive free equipment and apparel items for personal use from apparel or equipment manufacturers or distributors under the following circumstances: (Adopted: 1/11/97) (a) The apparel or equipment items are related to the prospective student-athlete's sport and are received directly from an apparel or equipment manufacturer or distributor; (b) The prospective student-athlete does not enter into an arrangement (e.g., open account) with an apparel or equipment manufacturer or distributor that permits the prospective student-athlete to select apparel and equipment items from a commercial establishment of the manufacturer or distributor; and

313 (c) A member institution's coach is not involved in any manner in identifying or assisting an apparel or equipment manufacturer or distributor in determining whether a prospective student-athlete is to receive any apparel or equipment items.

12.1.2.4.12 Expenses for Participation in Olympic Exhibitions. An individual may receive actual and necessary expenses from the U.S. Olympic Committee (USOC), national governing body or the nonprofessional organizations sponsoring the event to participate in Olympic tours or exhibitions involving Olympic team members and/or members of the national team, provided that if the individual is a student-athlete, he or she misses no class time, and the exhibition does not conflict with dates of institutional competition. (Adopted: 10/28/97 effective 8/1/98)

12.1.2.4.13 Commemorative Items for Student-Athletes Participating in Olympic Games, World University Games (Universiade), World University Championships, Pan American Games, World Championships and World Cup Events. It is permissible for student-athletes to receive commemorative items incidental to participation in the Olympic Games, World University Games (Universiade), World University Championships, Pan American Games, World Championships and World Cup events through the applicable national governing body. These benefits may include any and all apparel, leisure wear, footwear and other items that are provided to all athletes participating in the applicable event. (Adopted: 11/1/00 effective 8/1/01, Revised: 1/14/12)

12.1.2.4.14 Exception -- NCAA First-Team Program. A prospective student-athlete who is a participant in the NCAA First-Team Mentoring Program may receive actual and necessary expenses to attend the First-Team Program's annual educational conference and training seminar. (Adopted: 8/7/03)

12.1.3 Amateur Status if Professional in Another Sport. A professional athlete in one sport may represent a member institution in a different sport and may receive institutional financial assistance in the second sport. (Revised: 4/27/06 effective 8/1/06)

314 Government Enforcement and Corporate Compliance A Traveling Epidemic The NCAA Bribery Scandal

By Joseph M. Hanna

As large as this scandal Since its inception, the NCAA’s mission has rested on the may prove to be, the bedrock principle of amateurism. Although the principle aftereffect may be of amateurism remains central to our understanding of relatively minor— college athletics as well as to NCAA policies, recent events may signal the need for change in at some of the nation’s top programs tak- at least as it pertains college athletics. On September 26, 2017, ing cash bribes, managers and advisers cir- federal investigators in New York arrested cling blue-chip prospects like coyotes, and to the students. 10 high-profile individuals with signifi- employees of a global sportswear company cant connections to college athletics. Each funneling cash to families of high school of these arrests was made in connection recruits.” Reporters were quick to identify with three separate but related cases, all the “global athletic company,” or “Com- of which were publicized on this date; and pany-1,” at the center of the investigation all involved allegations of cash bribes and as Adidas. Kim declined to name any com- other that, if proved, will under- pany, school, or individual not charged, but mine the principles and policies that have he remarked that “the internet is an amaz- historically protected amateurism in col- ing thing.” lege sports. In these three previously sealed com- According to Acting U.S. Attorney Joon plaints, Manhattan federal prosecutors H. Kim in a press conference on Septem- charged Adidas marketing executive Jim ber 26, 2017, the arrests are connected Gatto, four NCAA coaches at top-tier with concerted efforts by the FBI and fed- schools, and five additional individuals eral prosecutors to investigate the “dark with participation in schemes to sway underbelly of college basketball.” He noted high school athletes to attend and play at that the previously covert investigation certain college schools. According to the remains ongoing as the FBI conducts addi- complaints, these schemes involved lur- tional interviews. Kim told reporters that ing young and skilled players to attend and “[t]he picture of college basketball painted play for Adidas-sponsored institutions in by the charges is not a pretty one—coaches exchange for compensation. Additionally,

■ Joseph M. Hanna is a partner with Goldberg Segalla LLP in Buffalo, New York. Mr. Hanna’s practice covers a wide range of litigation matters, and a substantial portion is dedicated to serving clients in the sports and entertainment industries. He is an active leader within the DRI Commercial Litigation Committee and also served DRI as chair of the 2016 Annual Meeting. Mr. Hanna is the founder of Bunkers in Baghdad, a charity supporting our troops with worldwide access to the game of golf.

60 ■ For The Defense ■ February 2018 315 the students were induced to hire particu- The most important part is that you… federal investigation. Since then, Adidas lar agents and financial advisers once they don’t say nothing to anybody… don’t terminated its personal services agreement entered the NBA. share with your sisters, don’t share with Pitino in light of his removal. The complaint against Gatto, the Adi- with any of the teammates, that’s very While Pitino was not named directly in das head of global sports marketing for important cause this is a violation… the complaints and maintains his inno- basketball, accuses him of paying the fam- of rules, but this is how the NBA play- cence, the key recruit at the heart of these ilies of two sought-after high school play- ers get it done, they get early relation- federal charges is believed to be freshman ers six-figure amounts as encouragement ships, and they form partnerships, they forward Brian Bowen, a five-star recruit to the players to sign with two univer- form trust[.] to Louisville. While unnamed in the com- sities partnered with Adidas. The com- As alluded to above, one particu- plaint doesn’t name either institution. lar undercover cooperator was crucial in However, the University of Louisville has assisting with these investigations, which confirmed its involvement in the inves- began back in 2015. This witness has since While not technically tigation, while a reference in the com- been identified as Louis Martin Blazer, a plaint to “a private research university in Pittsburgh-based former financial investor a party in any of these Florida with 16,000 students and 15 var- who was previously charged with siphon- sity sports” points to the University of ing over $2 million of client money into prosecutions, the NCAA Miami, which has offered no comment to music and movie ventures without autho- date. Along with Gatto, Merl Code—affil- rization. Blazer was further accused of is finding itself right in the iated with Adidas’ high school and college compensating NCAA athletes to encour- basketball programs, and Jonathan Brad age them to hire Blazer once they became middle of the entire fiasco. Augustine—director of an Adidas-spon- professionals. Blazer ultimately reached a sored high school basketball program, plea deal, admitting to five federal crim- As a result, NCAA President were also charged. inal charges. In exchange, Blazer worked With regard to the four coaches secretly with federal authorities through- Mark Emmert remarked that involved, the complaint indicates that out their probe, being referred to in the they accepted bribes from financial advis- complaints as “Cooperating Witness-1,” all of these charges brought ers in exchange for persuading players to or “CW-1.” Under this cooperation agree- send their business to those same advi- ment, the prosecutors have agreed to vouch by the federal government sors upon entering the NBA. The coaches for Blazer’s assistance in front of his sen- charged included Oklahoma State assis- tencing judge. are deeply disturbing, noting tant Lamont Evans, Auburn assistant Chuck Person, USC assistant Tony Bland, Fallout that “[c]oaches hold a and University of Arizona’s assistant While not technically a party in any of Emanuel “Book” Richardson. Accord- these prosecutions, the NCAA is find- unique position of trust with ing to the pertinent complaint, Evans, ing itself right in the middle of the entire Bland, and Richardson allegedly partici- fiasco. As a result, NCAA President Mark student athletes and their pated in honest services fraud and brib- Emmert remarked that all of these charges ery affecting the federally funded colleges. brought by the federal government are families and these bribery These three coaches, facing a combined 11 deeply disturbing, noting that “[c]oaches charges in all, are being accused of accept- hold a unique position of trust with student allegations, if true, suggest ing cash in exchange for pushing promis- athletes and their families and these brib- ing young athletes eventually to hire either ery allegations, if true, suggest an extraor- an extraordinary and the sports agency athlete recruiter Chris- dinary and despicable breach of trust.” tian Dawkins, the investment advisor Since these complaints were publicized, despicable breach of trust.” Munish Sood, or an unnamed cooperator. one heavily Adidas-supported school has Meanwhile, Chuck Person is being already made headlines. Not only was the accused of accepting $91,500 in exchange University of Louisville one of the key plaints, media reports indicate that a Lou- for persuading the athletes to hire the schools referred to in the complaints, it had isville assistant coach planned on sending unnamed cooperator and clothing store already found itself under NCAA scrutiny Bowen’s family a $100,000 payment in owner Rashan Michel, who dealt in as a result of a 2015 sex scandal and had exchange for attending and playing for “bespoke suits” for the athletes. Among partially suspended head basketball coach Louisville. Pending this investigation, his six total charges, Person also allegedly Rick Pitino for the upcoming season. Next, Bowen has been suspended indefinitely. gifted $18,500 to the families of two ath- on October 16, 2017, the University of Lou- Along with Louisville and Miami, Adi- letes. In the complaint, Person was quoted isville Athletics Association officially voted das also sits in the FBI’s crosshairs. Since as telling one player, to fire Pitino “with just cause” amid this the announcement, Adidas has placed

For The Defense ■ February 2018 ■ 61 316 Government Enforcement and Corporate Compliance

James Gatto on leave and opened its own ers were to receive a salary to play college lege programs. As an initial reaction to investigation into his actions. Meanwhile, athletics, what’s to stop them from earning these federal criminal charges, the NCAA it remains to be seen exactly how Adidas this “dirty” money, too? announced on October 11, 2017, that it will rise from the dark cloud of this scan- As large as this scandal may prove to be, would form a special Commission on Col- dal. While the possibility certainly exists the aftereffect may be relatively minor— lege Basketball, chaired by former U.S. for involved schools to separate them- at least as it pertains to the students. All Secretary of State Condoleezza Rice, to selves from the partnership immediately, options are currently on the table, and we investigate the influence of shoe compa- this would likely result in either buyouts could see some form of pay-to-play imple- nies, sports agents, and the NBA on college or a costly legal battle, neither of which mented, giving players the rights to their basketball. This new commission is sched- name, image, and likeness while in college. uled to convene in November and deliver We could also see the NCAA working with its findings in April 2018. the NBA to allow students to forgo the one The focus of this commission is three- If you step back and look year of school requirement and enter the fold. First, it will find ways to promote NBA straight out of high school. how students and their families can obtain at the forest around the If you step back and look at the for- legitimate financial and career plan- est around the single burning tree, pay- ning advice without running afoul of the single burning tree, pay- to-play quickly reveals itself as a poor fix. NCAA’s regulations, including the inter- If an economics student cheats to pass a play among shoe and apparel companies to-play quickly reveals chemistry exam, is the reasonable solu- along with agents and other advisors. Sec- tion to give up the answers? Or is it better ond, it will delve into the NCAA’s relation- itself as a poor fix. If an to ask whether the economics major really ship with the NBA, mainly discussing the needed to take the class in the first place? “one and done” college enrollment rule economics student cheats While this reasoning obviously runs afoul currently imposed. Finally, it will evalu- of the principle that athletes deserve to ate how the NCAA’s enforcement program to pass a chemistry exam, earn a “proper” education while playing attempts to avoid this type of corruption their sport, one must question whether in the first place. is the reasonable solution the value of the mandated single year in Based on the results of this commission, college meets the standard so often cited perhaps the most telling outcome of the to give up the answers? to justify the rule. For these reasons, if entire ordeal will be how the NCAA han- any sweeping change is seen throughout dles similar violations in the future. Hypo- college athletics as it relates to the stu- thetically, if the discretion of the NCAA would presumably be the economically dents, giving them their name, image, were removed and a more severe punish- savvy option. The more realistic outcome and likeness rights, as well as eliminat- ment were the standard, such as a multi- is that the schools will sincerely take into ing the one year of school rule, seems the year or even life ban, hopefully the clearly consideration whether to extend partner- better answer than essentially paying off established, more detrimental penalty for ships beyond the expiration of their current the problem. such nefarious actions would significantly deals. Whether this separation ultimately However, these hypothetical solutions deter future involvement in shady dealings takes place will likely depend on two key do nothing for the affected players who similar to those currently alleged in Acting unknowns: how quickly and convincingly stand to lose their NCAA eligibility, and U.S. Attorney Kim’s charges. At the same Adidas is able to separate itself from one more importantly, who could face charges time, it also took an FBI probe to uncover seemingly bad egg, and how much finan- of bribery or conspiracy, or both. Student the extensive corruption that allegedly has cial incentive it can offer in future spon- athletes, such as Bowen, whose involve- taken place, which raises yet another ques- sorship agreements. ment are established could in theory be tion: Would the NCAA even be capable looking at charges similar to the ones that of monitoring and bringing these “black Amateurism Aftereffect the current defendants are dealing with, market” transactions to a screeching halt? The popular narrative that is likely to cir- although their full cooperation with the While there are many routes that this culate throughout this fallout is that the FBI could help skirt this path. So far, pros- epidemic can travel, the one certainty seems investigation signals the end of amateur- ecutors have not alluded to charging any to be that any change will be an incremen- ism in college athletics as we know it. The young athletes involved, and it remains tal rather than immediate. Changes in the rationale makes sense. After all, were a pay- to be seen how this portion of the fallout NCAA are on the horizon, and this may be to-play system in place already, the players will develop. an opportunity to reconsider the princi- would not have sought the under-the-table ples of college athletics. These new allega- cash that the allegedly devious individu- NCAA Reaction and Outlook tions will keep the amateurism discussion als involved were ostensibly hemorrhag- There remains the central issue of what relevant, but it is unlikely that any drastic ing. However, this leaves an opening for to do about the deeply involved, cor- changes to the NCAA model will happen in an obvious counterquestion: Even if play- rupt individuals throughout these col- the near future.

62 ■ For The Defense ■ February 2018 317 For more information on this topic please see:

Legal Impact NCAA Basketball Scandal: https://www.si.com/college-basketball/2017/09/29/10-pressing-questions-answers-college- basketball-recruiting-scandal-corruption

OBannon Ruling Stands NY Times: https://www.nytimes.com/2016/10/04/sports/ncaa-obannon-case-ruling-supreme-court.html

FBI Investigation NCAA Basketball Scandal: https://www.si.com/college-basketball/2017/09/29/what-we-know-about-each-school-fbi- investigation

318 For Outside Counsel: Thoughts from an In-House Client

Vol. 11 No. 7

Mitchell S.Y. Cohen, CEP America, LLC / MedAmerica, Inc., Emeryville, California

Author Like many in-house healthcare attorneys, the legal issues in my practice cover a wide spectrum. includes its own discrete areas of expertise, such as the Stark law1 and Medicare reimbursement, but also subjects that are often considered disciplines unto themselves, like antitrust and employment law. An in-house attorney often encounters multiple areas of law in any given day. Frankly, this craziness and breadth of my practice is what I love about being a general counsel in healthcare. Of course, to do my job, I often need help from outside counsel.

In litigation matters, I have generally been on the defense side of cases, but in one matter several years ago I found myself as the in-house attorney managing a very large plaintiff’s case. As we headed to trial, the court decided my client’s trial would be the benchmark for the other plaintiffs who would go later, including two related class actions. In addition to the litigation attorney I had hired, I found that I also had to work with several plaintiffs’ class action attorneys. Candidly, one of the lead class action attorneys confessed he had not ever had a lawyer as a client and wondered what I wanted or needed from him as my outside counsel. Here is what I shared with him and would share with any outside attorney I hire:

1. Be honest about your expertise. I am hiring a lawyer or a law firm because I do not have the expertise or capacity (or both) to address a legal matter. I need to know if you have the expertise to help me and who will do the work. If I am hiring you for your expertise but you plan to hand off my work to an associate, I want to know in advance. If the issue is beyond your ability to help me effectively and efficiently, please let me know.

I value people who honestly assess their expertise. In fact, I once asked an immigration attorney referred to me if she could assist on a specialized issue related to physician recruitment. She told me straight out that I needed someone else and provided me with several possible references. At a later date, when I found a matter where this attorney had the right expertise, I knew I wanted to hire her. She had already established her credibility.

2. Communicate effectively. We are both busy attorneys, so it is essential that we respect each other’s time. You and I should agree in advance on the scope of work – what the client needs and wants. No in-house attorney wants to receive a lengthy memo (and the related bill for $15,000) when an e-mail or phone call would have sufficed. In litigation matters, it is generally impossible for me to review a motion for summary judgment the day before it must be filed. Preferably, we have discussed the strategy behind the motion well before you write the brief. Likewise, I understand I need to review documents promptly and respond to your questions because you also have deadlines to meet and other clients’ work to do.

Effective communication is critical to providing excellent service. One aspect of that is simply responsiveness. One of the biggest frustrations for each of us is the outside counsel or in-house client who does not return messages. Responsiveness builds trust between counsel, even if the response is a simple acknowledgement of the other person’s call and a commitment to call or write back soon. I recently fired an outside attorney who, although very expert in his field, repeatedly promised to send me documents the next day but was always days late (and without explanation). My assumption is that if you promise something, you will deliver or call me as soon as you know a deadline is unrealistic. And I try to hold myself to the same rules. 319 3. Partner with me. Ultimately, the relationship between counsel is a partnership, which means we are direct and honest with each other on all aspects of representation of our common client. There should be candor and no surprises. It is important that in-house counsel knows of both good and bad news early so that he or she can prepare the company for whatever is coming. In litigation matters, for example, I want to know both the best case we can make and the best case that can be made by the opposing side. Ultimately, we owe our client the duty to provide an honest assessment of a case, including the upside and the risks.

Fee arrangements and budgeting for specific matters is another area where outside and in-house counsel have to work together. Providing sound legal advice to the client is paramount, but law departments must also manage budgets, and legal fees are an important factor in in-house counsel’s decision on who to hire for a given matter. In my experience, most outside counsel are sensitive to budgetary constraints of in-house law departments. Occasionally, however, I am surprised by bills for research or other work I did not know about or hours for an associate that are unrealistic, given the scope or significance of the matter. In-house counsel often manage fees by setting a specific budget for a matter or using billing guidelines. Unfortunately, I have been surprised at times to discover that the lawyer at the firm I hired is not monitoring the budget or following our billing guidelines, leaving me to ask why fees and costs are higher than we projected.

Managing a legal matter well requires both expertise and the appropriate use of resources. As partners, in-house and outside counsel each has to be responsible for monitoring fees and costs. When a legal bill seems wrong or too high, I will contact the billing attorney directly to discuss the matter. The attorney should be able to explain the charges on the bill or, at a minimum, commit to reviewing it closely and getting back to me. Although the conversation about bills is probably one of the least fun for both in-house and outside counsel, it can also be productive because it reinforces our need to collaborate in defining a project, managing fees and costs, and providing the best advice to our client.

Sometimes I am asked how I select outside counsel. Relationships matter, and I will generally select an attorney (or firm) that I know and respect for his or her expertise and integrity. Ideally, outside counsel knows my client well enough that I do not have to reeducate the attorney on the nature of my company’s business and key business clients. My organization is growing, so I also find myself having to identify outside counsel in new states or with expertise that I have not had to seek before. Because the community of health law attorneys is relatively small, I generally find new outside counsel by asking other healthcare attorneys for recommendations. Ultimately, I look for outside attorneys and firms who bring expertise and efficiency and will genuinely partner with me to provide excellent service to our clients.

We had a great outcome in the case where I had to collaborate with class action counsel. The result did not come without challenges, but a large part of the success was due to the commitment of my outside counsel (the attorney I had hired) to partner with me and class counsel in coordinating our efforts at trial. She was direct and honest with each of us about the case and remained focused with me on achieving the best result.

It is collaboration like this among counsel that serves the needs of our mutual client and what an in-house counsel is looking for.

***

1 The Stark law refers to the federal statute prohibiting physician self-referrals. See 42 U.S.C. § 1395nn.

320 Expert Analysis

Bridging The Gap Between Outside And Inside Counsel October 25, 2016, 11:19 AM EDT

Results of the International Association of Defense Counsel's recently published 2016 Inside/Outside Counsel Relationship Survey reveal a significant disconnect between inside and outside lawyers when it comes to perceptions of their own effectiveness versus the perceptions of their counterparts on the other side of the fence.

In the survey, respondents were asked to rate themselves and their counterparts on a variety of metrics, such as responsiveness, expertise and ability to collaborate with each other. The results showed inside counsel rate their outside counsel significantly lower in almost all categories compared to how outside counsel rated themselves. Similarly, in every category, outside counsel rate inside counsel significantly lower than inside counsel rate themselves.

The most negative ratings and comments from survey respondents centered on billing, budgets and alternative fee arrangements. The primary complaints from both in-house and outside attorneys centered on aspects of billing and compensation. One outside counsel respondent suggested that in-house counsel should “eliminate budget requirements when a case is new and remove absurd billing guidelines.” Comparatively, an in-house attorney complained that outside counsel “put multiple partners on the same matter; exceed budgets; do not offer fee arrangements that are linked to value.”

321 Encouragingly, however, there were key areas of agreement between in-house and outside attorneys. For example, in-house and outside counsel agreed on what the other did best and worst. Both sides agreed that outside lawyers contribute helpful expertise, and that the best traits of in-house attorneys are their responsiveness to questions, feedback and authorization requests. They also agreed that outside counsel perform worst with regard to providing timely and realistic budgets and offering discounted fees or alternative fees when requested. Both groups also gave in-house counsel their lowest marks in any category for not paying bills on time.

The Siemens Perspective

The IADC relationship survey results are not a surprise to Siemens. Long before the IADC relationship survey was executed, Siemens recognized the importance of continually improving collaboration between in-house and outside attorneys. As a result, Siemens began conducting annual feedback sessions with outside counsel who have significant relationships with the company.

Siemens initiated the process by surveying its own in-house counsel regarding outside counsel performance, and then developing metrics to express the findings. Siemens then summarized the information in a readily understood presentation format and invited outside counsel to attend face-to-face meetings in Washington, D.C., to share mutual feedback and engage in an open dialogue.

During the face-to-face meetings, outside counsel received detailed performance reviews and constructive comments regarding ways they could improve the services they provide to Siemens. Notably, the information exchange is not a one-way street. The Siemens in-house team recognizes the challenges that large organizations present to outside counsel, actively seeks feedback regarding the performance of in-house counsel, and solicits suggestions on improvements that Siemens itself can make to improve collaboration. Siemens has also taken the unique step of pairing each outside firm with a dedicated in-house relationship attorney tasked with being not just a “manager,” but an in-house “advocate” for the firm and designated point of contact for any issues that arise.

The annual performance review process also provides an opportunity for the company and its outside attorneys to discuss alternative fee arrangements. Like many companies eager to make legal costs more predictable, Siemens is increasingly interested in finding logical ways to obtain legal services that are not excessively tied to the billable hour. Each law firm is different, and an arrangement that might be productive for one law firm model might not be workable for the next. By conducting face-to-face meetings with its key law firms, Siemens has the opportunity to explore specific fee arrangements to specific types of work and specific law firms.

From Siemens’ perspective, the overall purpose of the feedback process is not to criticize, but rather to improve every aspect of the partnership that exists between in-house and outside attorneys and look for ways to create true “win-win” opportunities on every level — financial, professional and even personal — for the lawyers on both sides. Siemens’ goal is to achieve long-term, meaningful improvements that benefit both sides and create a stronger, more efficient relationship. While Siemens uses the opportunity to clearly express its expectations and objectives, it also gains valuable insights into improvements that could be employed by its own in-house team and its corporate entities.

The Outside Counsel Perspective

Ellis & Winters LLP is one law firm that went through the Siemens’ annual feedback review process in 2016. The process was both enlightening and encouraging. From an outside counsel perspective, it offered the opportunity to receive concrete, constructive commentary from an important client, and insight into the perspective of multiple in- house attorneys. Since it is the firm’s objective to be excellent in all aspects of its performance, the direct feedback was very meaningful. The Ellis & Winters attorneys in attendance left the face-to-face meetings in D.C. with a specific set of objectives in mind to maximize performance and improve on an already healthy relationship.

322 Moreover, the opportunity for Ellis & Winters attorneys to provide feedback to Siemens created a real sense of partnership in the process. Obviously, it is the mutual goal of the company and the firm to improve collaboration. That is made much easier by the creation of a dedicated opportunity to identify areas of improvement, and an invitation to share open conversation with the company on such improvements. That openness and willingness to listen has contributed to improved communications between Siemens and Ellis & Winters that both sides hope and expect will continue and help foster positive collaboration.

Bridging the Disconnect Between In-House and Outside Attorneys

The gap between the perspectives of many in-house and outside attorneys identified by the IADC’s 2016 Inside/Outside Counsel Relationship Survey merits the attention of all in-house and outside attorneys. While the Siemens annual feedback review process was not specifically created in response to the IADC survey, the Siemens process reflects an effort to address similar concerns and observations as those driving the IADC survey results.

Of course, the annual feedback review process employed by Siemens was crafted by in-house attorneys to address the company’s specific concerns and priorities. Since in-house counsel at other companies may well have differing concerns and varying priorities, the type of feedback system adopted by Siemens may not have application for every other company. It remains, however, an example of an effort to recognize the potential “disconnect” between in-house and outside attorneys, and to address it in a mutually constructive way. The results of the IADC relationship survey suggests that similarly candid efforts by other companies, tailored to their own needs and expectations, would be beneficial to both in-house and outside counsel.

—By Andrew S. Chamberlin, Ellis & Winters LLP, and Orlyn (Skip) Lockard, Siemens Corporation

Andrew Chamberlin is a partner in Ellis & Winters' Greensboro, North Carolina, office. He is a member of the board of directors of the International Association of Defense Counsel.

Skip Lockard is vice president and associate general counsel for litigation with Siemens Corporation. Previously, he was a partner with Alston & Bird LLP. He is a member of the International Association of Defense Counsel.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

323 Are In-House Lawyers Happy With Their Outside Counsel?

Corporate clients want practical legal advice, but law firms aren't giving it to them.

By Staci Zaretsky

Mar 28, 2017 at 2:17 PM

How happy are in-house lawyers these days? That’s the question that a survey conducted by In The House, an online association of 26,000 lawyers working for legal departments, sought to answer.

The results seem to be mixed. While in-house lawyers generally like their current jobs better than their old ones (many are Biglaw refugees), they could be made a little happier by the improved performance of their outside counsel. Law360 (sub. req.) has more information:

How pleased were the respondents with the work and service of their firms? Twenty-nine percent answered, “very satisfied” and 62.1 percent said “somewhat satisfied.” Only 8.5 percent were “dissatisfied” and a minuscule 0.9 percent said they were “very dissatisfied. Women were both more enthusiastic — 31.5 percent were “very satisfied” — and more critical — 10 percent were “dissatisfied.”

There is a second, more ominous view of the client-law firm relationship lurking in these results. Responses from seven out of 10 in-house lawyers suggest that there is room for improvement in law firm performance. This means that some firms are less secure in their relationships than they realize and need to increase their efforts to understand the needs of their clients and how clients want these needs to be met.

About 45 percent of respondents had cut ties with a law firm within the past two years, with the top five reasons for dismissal being that the firm was “too expensive,” “unresponsive,” did “bad work,” “didn’t understand our business,” or “worked inefficiently.” Perhaps some responses from in-house lawyers will be helpful in understanding how law firms can improve. Here are a few examples from the survey:

“They were non-responsive and overpriced; [I] can get over the latter if work is superb, but not meeting expectations and being overpriced means the end of the relationship.” “The advice was extremely conservative and not practical.” “They didn’t provide clear and concise guidance. We can’t use ‘what-ifs’ and hypos. We need actionable advice and strategy.” “Some outside lawyers are excellent partners who make my team and me better every day. Others go through the motions or put too much onus on me to project manage and cull out results and answers. Business acumen is a much underdeveloped muscle in the law firm world. I think this is also a big factor in why certain law firms can’t seem to crack the value billing, price-sensitive offering demanded by clients. They don’t fully understand what is being asked and what they need to deliver, and they spend time and effort needlessly (and expensively) on things that don’t really move the ball forward.”

Perhaps fewer law firms would be shown the door if lawyers truly listened to what their clients expected of them and then followed through on it. In-house lawyers are in search of practical advice from the lawyers they turn to in times of need, so much so that survey respondents repeatedly said that it was one of the things they’d change about law firms— aside from desperately wanting to kill off the billable hour, of course.

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