October 9, 2014

Week in Review

By Martha Nimmer

NFL Tackles HGH

Three weeks after the National Football League (NFL, League) and its players agreed to a new drug testing policy, the League announced on its website that player testing for human growth hormone (HGH) would begin on Monday. In a letter to players that explained the new examination practice, the NFL Players Association president Eric Winston wrote, "[e]ach week of the season, five players on eight teams will be tested. No testing will occur on game days." Winston emphasized that players would have the right to challenge "any aspect of the science behind the H.G.H./isoforms test in an appeal of a positive test." This provision of the new testing policy comes after three years of negotiations between the NFL and the Players Association. Player appeals of positive HGH test results will be heard by third-party arbitrators selected by the players' union and the League.



Twitter has filed a lawsuit against the U.S. Department of Justice (DOJ), claiming violations of the First Amendment. Twitter says that DOJ restrictions on what Twitter may reveal regarding federal search requests impinge on free speech rights. According to The Hill, companies subject to a Foreign Intelligence Surveillance Act (FISA) order or national security letter may not "disclose the exact number of government demands about user information they receive as either Foreign Intelligence Surveillance Act (FISA) orders or national security letters." Currently, companies may only disclose the "broad number" of information requests they receive, in ranges of 1,000.

The popular social network emphasized in its complaint that it believes it has a right to tell the public what kind information the company releases to federal officials. "It's our belief that we are entitled under the First Amendment to respond to our users' concerns and to the statements of U.S. government officials by providing information about the scope of U.S. government surveillance -- including what types of legal process have not been received," wrote Ben Lee, the head of Twitter's legal department. "We should be free to do this in a meaningful way, rather than in broad, inexact ranges." An agreement reached in January between the DOJ and five major tech companies relaxed somewhat the restrictions on what those companies could say to the public. Twitter, however, is not satisfied: the company is "going even further in its call to detail exactly how many orders it receives -- including zero, if that is the case."

Civil liberties advocates have come out in support of Twitter's pushback against the federal government. "If these laws prohibit Twitter from disclosing basic information about government surveillance, then these laws violate the First Amendment," said American Civil Liberties Union deputy legal director Jameel Jaffer. "We hope that other technology companies will now follow Twitter's lead." As is to be expected, however, government officials caution that these secretive data collection programs are vital to the nation's fight against terrorism.

Given Twitter's deep pockets and Americans' growing uneasiness with the federal government's data dragnet, this battle over free speech and Internet privacy is far from over.


When How is a Four-Letter Word

Dov Seidman, author of How: Why How We Do Anything Means Everything, is "in the business of helping companies create more ethical cultures." Greek yogurt maker Chobani is also in the business of creating cultures, albeit of a different, dairy-based kind. Both Seidman and Chobani also have an interest in a simple, three-letter word: How.

Chobani, founded in 2005 by a Turkish immigrant, recently revised its marketing campaign and launched an ambitious new effort earlier this year that focuses on the quality of Chobani yogurt and the way it is produced. To highlight this process, the company uses the phrase "How Matters" in its marketing materials and packaging. Seidman also uses "How Matters" in some of the promotional materials for his book and management company. Chobani, Seidman claims, has stolen his "How."

Now, Seidman says he is fighting back and working to reclaim "How," suing the yogurt manufacturer and its advertising agency, Droga5. Seidman has even asked a federal court to order Chobani to halt its "How Matters" campaign, because it "represents an infringement on his trademark for the word how," writes The New York Times. In response to Seidman's lawsuit, Chobani and Droga5 have launched their own legal battle, denying that they had ever heard of Seidman or his company, and even petitioned the court for cancellation of Seidman's trademark for "How," calling it too broad. Chobani has also filed its own trademark application for the phrase "How Matters." Seidman, however, does not appear intimidated, commenting "this is not principally a legal fight. It's a moral fight -- it's a 'How' fight."

Let the trademark battle begin.


Tax Triumph for Artists

The U.S. Tax Court ruled last week that individuals who classify themselves on their tax returns as artists, but who make little or no money from the pursuit, can still identify themselves as artists for tax purposes. At first blush, this decision may not sound particularly significant, but in reality, "the heart of the case touches on a situation familiar to many thousands of artists . . . who earn a living as teachers or studio assistants or stagehands while pursuing creative careers that they hope will flourish and someday be able to pay the bills."

The case decided last week involved New York painter and printmaker Susan Crile, whom the IRS accused of underpaying taxes from 2004 to 2009. Some of Crile's works hang in the Met and the Guggenheim, and have focused on topics such as prisoner abuse at Abu Ghraib. According to court papers, Crile earned less than $700,000 from 1971 through 2013 from the sale of her works; "like many artists, she wrote off expenses from her work, like supplies, travel and meals, on her taxes." To supplement the income made from the sale of her art, she worked as a professor at Hunter College, where she began working part time in 1983 and became a tenured professor in 1994.

The IRS based its accusation against Crile on a number of factors. The agency argued that Crile could not rightly be classified as an artist because her work as a painter and printmaker was "an activity not engaged in for profit;" the IRS also argued that she "could not claim tax deductions in excess of the income she made from her art." Additionally, in a claim that The New York Times saw "alarmed many in the art world," the IRS stated that Crile's claim that she was both an artist and a college professor was "artificial," and that she "made art primarily to keep her job as a teacher." Essentially, attorneys for the IRS were arguing that, at least for tax purposes, Crile should be classified as a teacher, and that any "art-related expenses should have been filed not as business expenses but as unreimbursed employee expenses." Judge Albert G. Lauber was not convinced, however, writing that the artist had "met her burden of proving that in carrying on her activity as an artist, she had an actual and honest objective of making a profit" and thus should be considered a professional artist for purposes of the tax code.


October 8, 2014

Center for Art Law Case Updates

The following case selection first appeared in this week's Center for Art Law newsletter:

William Roger Dean v. James Cameron et al. (S.D.N.Y. Sept. 17, 2014) -- J. Furman granted a motion to dismiss a copyright suit brought by artist William Roger Dean, ruling in favor of Hollywood defendants. Plaintiff claimed that the defendants, through their work on the blockbuster 2009 feature film Avatar, infringed on his copyright to 14 of his original works. The court noted that within the meaning of copyright law, using "good eyes and common sense," and considering the work as a whole, no substantial similarity exists between Avatar and the protectable elements of Dean's copyrighted works.

U.S. v. Twenty-Nine Pre-Columbian and Colonial Artifacts From Peru (S.D.Fla., Sept. 11, 2014) -- Last September, defendant, Peruvian national Jean Combe Fritz, filed a motion to dismiss US government's forfeiture of cultural property claims on the grounds that i) the court lacked subject matter jurisdiction, ii) Fritz was denied due process, and iii) plaintiffs failed to state a cause of action. A year later, on September 11, 2014, J. Lenard of the United States District Court, Southern District of Florida, denied the motion noting that none of the three grounds were merited.

Franco Fasoli (A.K.A. "Jaz") v. Voltage Pictures, LLC, 1:14-cv-06206 (N.D.Il. 2014) -- Plaintiff visual artists "Jaz," "Ever," and "Other" filed a copyright infringement claim alleging that multiple identified and unidentified Hollywood defendants blatantly misappropriated the artist's collaborative mural, protected under Argentina's copyright law, by creating an "infringing work" on the set of the now released film The Zero Theorem, which was filmed in Romania in 2012. Plaintiffs seek relief in the form of a preliminary and permanent injunction, impoundment and disposition of infringing articles, an order of accounting of gains and profits, and monetary damages. Plaintiffs are represented by Foley & Lardner LLP.

Estate of James A. Elkins v. Commissioner of Internal Revenue (5th Cir., Sept. 15, 2014) -- The Estate of James A. Elkins brought legal action against the Commissioner of Internal Revenue after the IRS refused to allow any discount against the Decedent's fractional ownership interest in 64 pieces of art work which he co-owned with his three adult children. Three expert witnesses for the Estate testified that application of the "willing buyer/willing seller" test would produce prices for the Decedent's undivided interests that would be substantially lower than the fair market value of his pro-rata shares, and thus a buyer would expect a fractional-ownership discount which should be considered in assessing value for tax purposes. In 2013, the Tax Court agreed that some discount should apply, and proposed it to be 10%. On 15 September, 2014, the Fifth Circuit affirmed the finding that a discount should apply to the fractional ownership interests, but rejected the baseless 10% discount applied by the Tax Court in favor of the higher discount percentages provided by the Estate.

Marguerite Hoffman vs. L&M Arts, et. al, 3:10-CV-0953-D (N.D. Tex 2014) -- When Marguerite Hoffman quietly sold her Rothko she 'bargained for confidentiality' because the painting was promised to the Dallas Museum of Art. Shortly thereafter the painting turned up for a public auction and Hoffman sued the dealer and the subsequent buyer for not keeping her sale secret, per terms of the sales agreement. (http://frontburner.wpengine.netdna-cdn.com/wp-content/uploads/2014/09/Order-Dismissing-Claim-Against-DM-SC-With-Prejudice.pdf?utm_source=Center+for+Art+Law+General+List&utm_campaign=f2a104a2e9-RSS_EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_022731d685-f2a104a2e9-346773625) On 4 September 2014, Texas district court dismissed Hoffman's claim against the buyer and ruled that she can only recover benefit-of-the bargain damages from the seller. https://casetext.com/case/hoffman-v-l-m-arts?utm_source=Center%20for%20Art%20Law%20General%20List&utm_campaign=f2a104a2e9-RSS_EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_022731d685-f2a104a2e9-346773625

The Center for Art Law strives to create a coherent community for all those interested in law and the arts. Positioned as a centralized resource for art and cultural heritage law, it serves as a portal to connect artists and students, academics and legal practitioners, collectors and dealers, government officials and others in the field. In addition to the weekly newsletter (http://cardozo.us2.list-manage.com/subscribe?u=78692bfa901c588ea1fe5e801&id=022731d685), the Center for Art Law subscribers receive updates about art and law-related topics through its popular art law blog (http://itsartlaw.com/blog/)and calendar of events (http://itsartlaw.com/events/). The Center for Art Law welcomes inquiries and announcements from firms, universities and student organizations about recent publications, pending cases, upcoming events, current research and job and externship opportunities. To contact the Center for Art Law, visit our website at: www.itsartlaw.com or write to itsartlaw@gmail.com.


By Steve Gordon

The author would like to thank his associate, Anjana Puri, and law intern, Teronse Miller II, for their research assistance.

Federal copyright law applies to sound recordings but only to those produced on or after February 15, 1972. (Sound Recording Act of 1971, Pub. L. No. 140, 85 Stat. 39). Those older recordings are protected by individual states' statutes or common law. A recent spate of lawsuits has raised the issue of whether Pandora's Internet radio service and Sirius XM's satellite service have the right to play sound recordings produced prior to February 15, 1972, without permission from and without paying the owners of the copyrights in those recordings or the artists performing in those recordings. Pandora and Sirius argue that since federal law does not apply to such recordings, the Digital Performance Right in Sound Recordings Act of 1995 (DPRA), which created a right of public performance for sound recording when transmitted digitally, does not apply to pre-1972 recordings and that therefore they do not need permission from the owners of the copyrights in such sound recordings or the artists who performed on them.

Pre-1972 recordings include some of the most commercially successful records of all time, including those featuring the Beatles, the Rolling Stones, Elvis and Sinatra, as well some of the greatest Motown recordings by artists such as Diana Ross and the Supremes, the Temptations, and many others. According to a recent article in Billboard, pre-1972 recordings account for about 5% of plays at Pandora and 15% at Sirius XM ("SoundExchange Launches Campaign for Royalties on Pre-1972 Recordings" by Glenn Peoples, 5/29/14). Therefore, this is an important issue for both Pandora and Sirius. But a federal trial court decision in one of these cases, i.e., Flo & Eddie Inc. v. Sirius XM Radio Inc., et al. (Case No. CV 13-5693 PSG (CD Cal, Sept 22, 2014)), has even broader implications and potential impact than whether these digital streaming services have to pay for pre-1972 recordings. To understand those implications, it's necessary to provide some background.

A Brief History of Copyright and Public Performance Rights for Recorded Music

In 1897 the federal copyright law was amended to protect public performance rights in musical compositions. (http://www.copyright.gov/circs/circ1a.html). This meant that venues at which songs were publicly performed had to acquire licenses to perform musical compositions. There were no such things as sound recordings at the time. In 1914, a group of prominent writers (including Irving Berlin) and their music publishers came together to form the American Society of Composers, Authors and Publishers (ASCAP) to collect royalties from places that played their songs at nightclubs, taverns and bars. Monies generated by the public performance of songs received a major boost when commercial radio emerged in the 1920's. ASCAP started offering its blanket license to radio stations for the right to play any musical composition in its repertoire. However, by the 1930's the radio stations felt they were paying too much money and created a public rights organization (PRO) of their own, Broadcast Music, Inc. (BMI), to compete against ASCAP. Later, another PRO emerged in the U.S. to collect public performance royalties on behalf of contemporary classical composers, SESAC (which originally stood for Society of European Stage Authors and Composers).

In the 1930's through the 1950's, the record business emerged as a significant sector in the U.S. entertainment industry. Led by a myriad of mostly small independent labels such as Sun Records (Elvis Presley), Atlantic (Ray Charles), Stax (Otis Redding) and Mercury (Sarah Vaughan), these labels were led by entrepreneurs who constantly tried to get local radio stations to play their records. Often they would actually offer cash (and other forms of "consideration") to DJs or station managers to play their tracks. The practice was known as "payola." Following hearings exposing these practices in the late 1950's, Congress made it illegal for any radio station to receive consideration for broadcasting particular records unless it disclosed that fact along with the identity of the person furnishing such consideration. (47 U.S.C. § 317 (1960)). Despite the law against payola, as recently as 2005 the record companies have been caught trying to bribe radio stations to play their records. Former New York State Attorney General Eliot Spitzer prosecuted payola-related crimes in New York and settled out of court with Sony BMG Music Entertainment (now Sony Music) in July 2005, Warner Music Group in November 2005 and Universal Music Group in May 2006. The three majors agreed to pay $10 million, $5 million, and $12 million respectively in fines. Spitzer's office found that the companies had used a broad array of illegal "pay for play" tactics to secure airplay for its music, including bribing programmers with laptop computers, luxury hotel stays and even free tickets to Yankee games.

Nonetheless, starting in 1999, as income from recorded music has plummeted, the recording industry, led by the majors, has been lobbying hard to change the federal copyright law to make radio pay them for playing their records. The latest incarnation of this effort was the introduction in September 2013 of the Free Market Royalty Act (HR 3219). Like the earlier failed Performance Rights Act, this Act would require AM/FM broadcasters to pay performers and copyright owners. As hard as record industry has tried however, the broadcasting community, led by the National Association of Broadcasters (NAB), has pushed back by lobbying effectively against a general right of public performance in sound recordings. (However, as discussed below, the record companies were successful in persuading Congress in 1995 to create an exclusive public performance right for digital transmissions of sound recordings).

In 1971, as mentioned above, Congress passed the Sound Recording Act, making any recordings fixed on or after February 15, 1972 subject to the protection of the Copyright Act - but this statute specifically provided that the federal copyright law would not protect public performance rights for sound recordings, thereby allowing broadcasters to continue to pay nothing to the labels. The legislation was basically a compromise between the recording industry, which wanted to create uniform federal protection against physical piracy rather than continue to fight against it in each state, and the broadcast community, which did not feel that it should have to pay the labels for playing their records and thereby promote record sales. Then in 1976 Congress overhauled the old 1909 Copyright Act to conform to international standards, including changing the term of protection from a 28 year term with a renewal term of another 28 years, to 50 years after the death of a creator or 70 years for corporate works (these periods were later extended 20 years each). Once again, however, the broadcast community was able to persuade Congress to maintain the carve-out of public performance rights for sound recordings. The 1976 Act also included another provision that the recording industry did not favor. Congress included a right to terminate grants of copyright after 35 years. The reasoning for this right of termination was that since young creators would often sell or assign their copyrights for little money at the beginning of their careers, they or their families should have the right to recapture those copyrights. Yet if this provision applied to recordings made before the implementation of the Act on January 1, 1978, any record older than 35 years would be subject to possible termination by artists. Therefore, instead of asking Congress to apply the new Copyright Act to records made before 1972, the industry urged that records continue to be protected by state law. Consequently, the Act specifically provided that pre-1972 sound recordings would remain subject to state or common law copyright.

As discussed above, the recording industry has been thus far unsuccessful in trying to obtain public performance rights under federal law, but in 1995 it did manage to obtain exclusive digital public performance rights. The DPRA granted owners of a copyright in sound recordings an exclusive right "to perform the copyrighted work publicly by means of a digital audio transmission." The DPRA was enacted because the recording industry was able to persuade Congress that digital technology would threaten its business by allowing people to make perfect copies from digital transmission thus displacing record sales. They only significant opposition was a little company based in Horsham, Pennsylvania, called Music Choice. In the next several years, the Internet started to take off and new services such as AOL and Yahoo! were successful in getting a compulsory license through Congress as part of the Digital Millennium Copyright Act (DMCA) of 1998. This meant that non-interactive digital streaming services could use any recording without permission, provided that they qualified for licenses. The two major qualifications were that the services were non-interactive and that they paid the required royalty rate. Both Sirius XM and Pandora operate under that regime today. They pay SoundExhange, a not-for-profit that collects royalties from statutorily covered services and redistributes the monies to record companies and artists on a 50-50 basis. Yet both Sirius XM and Pandora take the position that they are not legally required to pay for pre-1972 recordings, because neither the DPRA nor DMCA apply to such recordings.

The Current Pre-1972 Cases

There are at the current time six cases questioning Sirius XM or Pandora's position that they do not have to ask for permission or pay for pre-1972 recordings. There are now four lawsuits brought by Flo and Eddie Inc., a corporation created in 1971 that is owned and exclusively controlled by Howard Kaylan and Mark Volman, two of the founding members of the music group "The Turtles." Flo and Eddie Inc. started three lawsuits against Sirius XM in California, Florida and New York, and filed another one earlier this week against Pandora in California. We discuss the recent decision in favor of Flo and Eddie Inc. in California, below. The recording industry lead by Capitol, a wholly owned label of Universal Music, is suing Sirius XM in California and Pandora in New York. All of these suits raise the issue of whether digital music services must ask permission to play pre-1972 recordings. (SoundExchange has also brought a separate suit against Sirius XM, but the issue in that case is not whether Sirius XM can deduct monies for pre-1972 sound recordings but how much it should be allowed to deduct).

The issue presented in these six cases is immensely important because it has implications that go far beyond just whether Pandora and Sirius XM should be paying for pre-1972 records. The reason is that the state law statutes and most of the case law applying to sound recordings predate the digital era. For instance, in both Capitol and Flo and Eddie Inc.'s case against Sirius XM in California, the plaintiffs argue that a 1982 amendment to California's Civil Code provides statutory protection for pre-1972 recordings. Therefore, if this statute is found to protect digital public performances of sound recordings, it would necessarily protect all public performances of sound recordings. Such a finding would implicate many other businesses at which sound recordings are publicly performed (including not only terrestrial radio, broadcast TV and cable), but also any other physical place such as every bar restaurant and nightclub in the United States, as well as any other physical venue that plays music publicly (amusement parks, bowling alleys and stadiums). Indeed, if a court were to rule in favor of the record business in these cases, that decision could radically change the landscape of music licensing in the United States.

Judge Gutierrez's decision

Yet that's exactly what Judge Gutierrez decided in Flo and Eddie Inc.'s lawsuit against Sirius XM in California. The judge declared: "The Court finds that copyright ownership of a sound recording under § 980(a)(2) includes the exclusive right to publicly perform that recording. See Cal. Civ. Code §980(a)(2). Accordingly, the Court GRANTS summary judgment on copyright infringement in violation of §980(a)(2) in favor of Flo & Eddie." Flo & Eddie Inc. v. Sirius XM Radio Inc., et al. (Case No. CV 13-5693 PSG (CD Cal, Sept 22, 2014)).

It's clear that, if upheld, this decision would mean that both Pandora and Sirius XM would have to seek permission and pay for pre-1972 recordings. However, would nightclubs, bars, restaurants as well as radio stations have to seek permission to play and pay performance royalties for pre-1972 records? On its face, yes. The judge based his ruling on the wording of the statute which reads in relevant part: "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 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." Cal. Civ. Code § 980(a)(2). Judge Gutierrez emphasized that there is nothing in the statutory language what would preclude performance rights in pre-1972 sound recordings. He wrote in relevant part: "...the Court infers that the legislature did not intend to further limit ownership rights, otherwise it would have indicated that intent explicitly."

Judge Gutierrez concluded: "that copyright ownership of a sound recording under § 980(a)(2) includes the exclusive right to publicly perform that recording." This interpretation of California law would make the exclusive right of public performance in sound recordings apply to any public performance of a pre-1972 recording, whether on a digital service or otherwise, including performances in terrestrial radio or television broadcasts, nightclubs, restaurants, bars and any other public places. In other words, they would all have to seek permission from the copyright owner of each pre-1972 recording - usually the record company. (Unlike the Turtles, most commercially successful artists do not retain rights in their records). The owners of such recordings could then charge any amount they wished, or deny permission altogether.

On October 6th, Sirius XM announced that it would appeal Judge Gutierrez's ruling. In the meantime, all the other lawsuits against it and Pandora are ongoing.


In May 2014, proposed legislation favored by the major labels titled "Respecting Senior Performers as Essential Cultural Treasures" or the RESPECT Act, was introduced into the House of Representatives. The bill proposes an amendment to the federal copyright law that would specifically require non-interactive digital radio services to pay royalties for pre-1972 recordings "in the same manner as they pay royalties for sound recordings protected by federal copyright that are fixed after such date." This would mean that services that are currently paying SoundExchange to play post-1972 recordings, including Sirius XM and Pandora and other smaller Internet radio stations, such as Songza and iHeart Radio, would have to pay SoundExchange to play pre-1972 recordings. That money would then flow to the labels and the artists on 50-50 basis after SoundExchange took a modest administrative fee.

The RESPECT Act would also provide a remedy under which performance royalties for the transmission of such recordings may be recovered in a civil action in federal court if a digital music service failed to make such payments. However, it would prohibit an infringement action against a transmitting entity from being brought under a state law if the appropriate royalty was paid under this Act, thus prohibiting lawsuits such as the current ones against Sirius XM and Pandora.

Finally, the RESPECT Act would not confer federal copyright protection to pre-1972 recordings, which would continue to be protected under applicable state laws notwithstanding the payment of royalties under federal statutory licensing requirements. Thus, the termination right would not be available for pre-1972 recordings.

Possible Outcomes and Conclusion

If Judge Gutierrez's decision is upheld on appeal, it is possible to imagine a plethora of lawsuits against radio and TV stations subject to California law, as well as bars, restaurants and other venues for playing pre-1972 sound recordings without permission. For this reason, followers of "judicial realism" may reasonably speculate that the Ninth Circuit will find a way to disagree with the district court's statutory construction.

In a 2011 report, the Copyright Office opined that pre-1972 sound recordings should be federalized except that the termination provisions of the Copyright Act should not apply. This opinion is in basic agreement with the RESPECT Act - both would require Internet radio to pay for pre-1972 sound recordings while avoiding the termination provisions of the 1976 Act.

If the RESPECT Act is passed, the need for any lawsuits against Pandora and Sirius XM would be eliminated. Further, since the RESPECT Act states that digital services would pay royalties for pre-1972 recordings "in the same manner" as they pay royalties for later recordings, SoundExchange would receive those monies and this would mean that 50% would go directly to the artists. That would be a good thing.

Kirby/Marvel Settle - Law Surrounding "Work for Hire" Remains Unsettled

By Jacob Reiser

Last week, the Estate of Jack Kirby (the Kirby Estate) and Marvel Entertainment (Marvel) announced a settlement agreement, bringing to resolution a lawsuit that had been ongoing since 2009. The settlement came only days before the United States Supreme Court was scheduled to decide whether to accept the Kirby Estate's Petition for Writ of Certiorari (the Petition) and was a shock to those following the progress of the case. The settlement brings an end to the Kirby dispute but leaves in place bad precedent for independent contractors who want to reclaim copyrights to work they sold prior to 1978, the effective date when the Copyright Act of 1976 took effect.
Although the settlement renders the Petition moot, it is still worth discussing the issues it raised because many of those issues will likely be challenged again soon.

The Amazing Jack Kirby and The Quest To Reclaim His Works

If you are a comic book fan, you have probably heard of Jack Kirby; but if you're a human being living on planet Earth, you have definitely heard of the characters he helped create. Jack Kirby was a legendary comic book artist who played a major role in creating such enduring and popular superhero characters as Spiderman, Thor, Ironman, Hulk, The X-Men, Captain America, The Avengers and The Fantastic Four (the characters). The characters have dominated pop culture and the box office in the past decade, with no signs of slowing down, and grossed enormous sums of money for Marvel and its parent, The Walt Disney Company.

The case began when the Kirby Estate served various Marvel entities with Termination Notices, purporting to exercise its statutory termination rights under Section 304(c)(2) of the Copyright Act of 1976, for over 262 works created by Jack Kirby and published by Marvel between 1958 and 1963. The Copyright Act of 1976 grants an author, or the children of a deceased author, the right to recover an author's copyrights granted or transferred to another party by statutorily terminating the prior grant or transfer. However, this termination right does not apply to works made for hire.

In response to the Termination Notice, Marvel immediately filed suit and moved for Summary Judgment, seeking a declaration that the Kirby Estate had no termination rights because the characters were created as works made for hire, and thus never belonged to Kirby. The District Court ruled in favor of Marvel and found that the works at issue were made for hire, because they were made at Marvel's "instance and expense." Therefore, the court ruled that the Kirby Estate could not wrest back ownership of the characters because Marvel was considered under law as the statutory author. In August 2013, the Second Circuit Court of Appeals affirmed the lower court's ruling. The Kirby Estate then petitioned the Supreme Court for Certiorari. Although the Court was scheduled to hold a conference on September 29th to decide whether to hear the case, the case was settled several days before.

The Dastardly "Instance and Expense Test"

To understand the significance of the issues disputed in this case, it is necessary to briefly summarize the history of work made for hire under the Copyright Act of 1909.

Under present copyright law, the Copyright Act of 1976, an author is deemed to hold the copyright for his or her work by default unless the parties expressly agree in a written instrument that the work shall be considered a work made for hire. Yet under the old Copyright Act of 1909, the rights of a commissioned artist were less clear. Regarding works made for hire, the 1909 Act stated simply: "[t]he word author shall include an employer in the case of works made for hire" but the statute fails to define the phrase "works made for hire".

Initially, courts gave the word "employer" its common law meaning and ruled that only works made for an employer by a traditional employee were deemed works made for hire. However, the courts were soon faced with an issue - what about work made by freelancers for a commissioning party? How could the commissioning party feel secure in hiring a freelancer if the freelancer could turn around and sell the work to someone else? To solve this problem, the court, as articulated in Yardley v. Houghton Mifflin Co, 108 F.2d 28, 30 (2d Cir. 1939), created a default rule that, unless expressly stated otherwise, an independent contractor is deemed to have impliedly assigned his or her copyright to the commissioning party for the first copyright term (i.e. 28 years under the 1909 Act). To be clear - the independent contractor still owned the copyright. He or she was merely deemed to have assigned it to the commissioning party for the first copyright term. Accordingly, when the term expired 28 years later, the independent contractor was free to reclaim the copyright as his or her own.

However, the Second Circuit, in a string of cases beginning in 1972 with its decision in Picture Music, Inc. v. Bourne, Inc., 457 F.2d 1213, 1216 (2d Cir. 1972), retroactively re-interpreted the established work for hire precedent and created a new doctrine called the "instance and expense" test. Under the instance and expense test, a work is made at the hiring party's instance and expense when the employer induces the creation of the work and has the right to direct and supervise the manner in which the work is carried out. In practice, the instance and expense test creates what the Second Circuit called in Estate of Burne Hogarth v. Edgar Rice Burroughs, Inc., 342 F.3d 149, 166 (2d Cir. 2003), "an almost irrebuttable presumption that any person who paid an another to create a copyrightable work was the statutory 'author' under the work for hire doctrine."

The phrase "instance and expense" first appeared in a case called Brattleboro Pub. Co. v. Winmill Pub. Corp., 369 F.2d 565, 567 (2d Cir. 1966). In Brattleboro, in a short and otherwise unremarkable decision, the Court found an implied assignment of an independent contractor's advertisement to a publisher of a newspaper. In support of its conclusion, the Court reasoned that where an independent contractor is solicited by a commissioning party to execute a commission for pay, fairness demands a presumption that the hiring party desires to control the publication and the artist consents. The court termed this analysis "instance and expense."

Nowhere in the decision, however, did the Brattleboro Court grant ownership of the copyright to the hiring party or demonstrate an intention to depart from the implied assignment precedent. Yet the instance and expense analysis soon took on a life of its own.

In the 1972 case of Picture Music, the Second Circuit, formally recognized the instance and expense test as the only consideration in determining the ownership of an independent contractor's copyright. Citing a combination of Yardley and Brattleboro as support for its ruling, the court retroactively re-interpreted established precedent to imply that an automatic assignment of a copyright while retaining the right of renewal actually meant that the commissioned material is in fact work made for hire i.e. the property of the commissioning party, if it was made at the "instance and expense" of the commissioning party. Relying on its decision in Picture Music, the Court erroneously continued with this new analysis in a string of cases, thus entrenching the doctrine of instance and expense as the law.

The 2nd Circuit Thwarts The Supreme Court

The United States Supreme Court, in Cmty. for Creative Non-Violence v. Reid, 490 U.S. 730 (1989), criticized the Second Circuit's use of the instance and expense test to grant copyrights for work created by an independent contractor to a commissioning party. In dicta, the Court made the following three points: First, the instance and expense analysis gave a different meaning to the plain language of the word "employer" in the 1909 Act, which by its established common law meaning excludes independent contractor. Second, the factors used in the instance and expense test were vague, subjective and overbroad. Third, the instance and expense test was contrary to decades of established precedent in the Second Circuit. (The Petition filed by the Kirby Estate urging the Supreme Court to hear the Kirby case largely mirrored all three of these points.)

The Second Circuit, for its part, is well aware of its re-interpretation of the law and has admitted as much. In Hogarth, the Court engaged in a thorough discussion of the history of work for hire case law and conceded that Picture Music misconstrued Yardley and Brattleboro to re-interpret established precedent. Furthermore, the Court acknowledged the Supreme Court's criticisms, and that the "content of a Supreme Court opinion . . . permits us to reject a precedent of this Court without the need for in banc reconsideration." Still, in what can only be described as a bizarre decision, the Court declined to overrule Picture Music and other subsequent cases and dismissed the Supreme Court's criticisms as non-binding dictum and "an insufficient basis to warrant a panel's disregard of two clear holdings of this Court".

A Hero Must Rise

The Kirby case may have been settled, but we will almost certainly see the issue of an independent contractor's work for hire status challenged again. As those following news about the termination right provision are aware, the music industry has been deluged with Termination Notices in the past two years and issues like the exact nature of work for hire are almost inevitably lurking in the background. (See the EASL Blog entry on the topic http://nysbar.com/blogs/EASL/2011/10)

According to the Amici Curiae Brief by the Screen Actors Guild and other unions representing creative artists, over 200 of the songs on Rolling Stone's top 500 list of all time were released before 1978. As record labels' copyrights terms on those songs expire, the Brief argued, the artists who sold their rights will be unable to reclaim them under the so-called instance and expense test.

There is no way to know for sure if the Supreme Court might have picked up the Kirby case for review; but in the months leading up to scheduled conference on September 29th, there were growing signs it might indeed have done so. The Petition for Certiorari had received significant support from various artist organizations and unions and five Amicus Curiae briefs were filed by influential individuals, urging the Supreme Court to hear the case. Marvel, for its part, was sufficiently concerned by this possibility that it settled a case it had just won on Summary Judgment at the Second Circuit Court of Appeals.

For now, we must wait for another copyright crusader to bring the evil instance and expense doctrine to justice. However one can be sure, with the termination rights for many works just now becoming ripe, we likely won't have to wait too long.

October 7, 2014

Week in Review

By Martha Nimmer

Belcher's Brain Showed Signs of CTE

The brain of deceased Kansas City Chiefs linebacker Jovan Belcher displayed signs of chronic traumatic encephalopathy (CTE), according to a report obtained by ESPN. The report, prepared earlier this year by Dr. Piotr Kozlowski, says, "neurofibrillary tangles of tau protein," which is associated with CTE, were found in Belcher's brain. The tau protein appeared to be located in Belcher's hippocampus, "an area of the brain involved with memory, learning and emotion." Belcher shot and killed his girlfriend in December 2012 before he committed suicide in front of the team's practice facility.

Cheryl Shepherd, the mother of the former linebacker, initiated the process last year of exhuming her son's remains in order to have his brain studied. Attorneys for Belcher's young daughter, Zoe, then hired Dr. Kozlowski to examine and diagnose Belcher's brain. Lawyers for Zoe Belcher declined to explain why they released the diagnosis and doctor's findings almost a year after they were made; ESPN asked the legal term for copies of images of Belcher's brain "to send to another neuropathologist for independent analysis, but that request was denied."

If Belcher did, in fact, have CTE, Belcher's daughter and mother "would be eligible for up to $4 million under the proposed concussion settlement between the National Football League (NFL) and former players." Lawyers for Belcher's daughter have also filed a wrongful-death lawsuit against the Chiefs on her behalf, and Belcher's mother--through her own attorneys--has initiated an almost identical suit.


Updates in the Ray Rice Suspension

Ray Rice and wife Janay will meet with investigators from the NFL and the NFL Players Association (NFLPA), although dates for the meetings have yet to be determined. According to The Baltimore Sun, Rice and his wife will be interviewed separately by the investigators, including former FBI Director Robert Mueller.

Earlier this week, NFL Commissioner Roger Goodell appointed former District Judge Barbara S. Jones "as the hearing officer for Rice's appeal, with the NFL commissioner consulting with NFLPA executive director DeMaurice Smith on the choice." No hearing date, however, has yet been scheduled. As part of the appeal, the NFLPA attorneys for Rice are expected to argue that the former Ravens player was "punished twice" when he was initially suspended for two games for violating the NFL's personal conduct policy, and then later banned from the League. Rice's two punishments would thus run afoul of Article 46 of the Collective Bargaining Agreement, "which governs 'One Punishment' and states that a player cannot be punished more than once for a single offense." Observers also expect that Rice will argue that the "elevator video," which was released by celebrity gossip website TMZ, was edited.


Battle of the Books

Unhappy with Amazon's ongoing contract negotiations with Hachette Book Group (Hachette), an authors' group has asked the U.S. Department of Justice (DOJ) to investigate Amazon's business practices. According to the Wall Street Journal, Authors United plans to send a letter to William Baer, the head of the DOJ's antitrust division, making the investigation request. Douglas Preston, who organized the group, says he has the support of about 1,000 published authors, including Stephen King.

During the eretailer's talks with Hachette over book prices, Amazon is said to have "limited preorders of some Hachette titles, reduced discounts and delayed shipping times as a negotiating tactic." Authors United has called for an end to this practice, even taking an ad out in The New York Times in August. Amazon hopes to be able to sell most books for $9.99, a price that the company says brings in the most sales; Hachette, however, argues that it should able to price its books as it chooses.

In its letter, the authors group plans to argue that Amazon has "amassed too much power" in the book sales sector, and was using this power at the expense of Hachette's published authors. Barry Lynn, who is drafting the letter for the group, said in an interview that he is also planning to allege that "[t]here is a case that Amazon is in violation of the law. Their actions to manipulate behavior [by Hachette] are exactly the reason these laws were created."


SoCal Art Gallery Owner Gets the Slammer

The owner of a California art gallery who stalked and tried to extort $300,000 from art world professionals has been sentenced to five years in federal prison. Jason White pleaded guilty in March to two federal counts of stalking, according to the U.S. Attorney's Office.

White was arrested in February of this year following a six-month month stalking and extortion scheme against former customers and business associates. According to prosecutors, "White posted derogatory information about his former associates on websites he had created, and then used threatening emails to demand hundreds of thousands of dollars in exchange for taking the websites down." White is also said to have repeatedly sent harassing text messages and emails to his victims, and when his extortion demands were not met, he threatened the victims' families, including their children.


They're Kind of a Big Deal

The National Basketball Association (NBA) has renewed network deals with TNT and ESPN through the 2024-2025 season. In exchange, it will receive $24 billion over those nine years. The NBA plans to announce this agreement today, according to The New York Times. This new network deal is the first for NBA commissioner Adam Silver.

The deals with TNT and ESPN mean even bigger money for the NBA: in fact, they "represent a near-tripling of the annual average rights fees that ESPN and TNT have been paying in contracts," writes The New York Times. Under this new contract, average yearly payments to the NBA will increase to $2.66 billion per year, up from the current yearly rate of around $930 million.

The NFL also inked a highly lucrative deal just last week. Under that agreement, DirecTV will pay the league $1.5 billion a year for eight years "to retain its [DirecTV's] rights to carry NFL Sunday Ticket, a satellite package of out-of-market games," until 2022. With the DirecTV contract in place, the NFL will take now take in a total $6.5 billion to $7 billion a year in rights fees from its TV partners.


October 2, 2014

Fine Art Committee Program Report

By Judith Prowda, Chair, EASL Fine Arts Committee

Are brick and mortar art galleries becoming the loss leaders in an art world, potentially spiraling beyond viable limits? With more than 90 art fairs now defining the rhythm of globalized art business, how have relationships amongst artists, gallerists, and collectors been altered?

A panel comprised of gallerists and attorneys recently explored and critiqued the impacts and challenges - legal, ethical and business - of the rise of art fairs.

This program, which was organized by EASL's Fine Arts Committee and held at Sotheby's Institute of Art on May 27th, was part of an ongoing initiative to create dialogue amongst lawyers, artists and emerging and established art professionals working in the primary or secondary markets.

Moderator: Judith B. Prowda, Chair, Committee on Fine Arts, NYSBA Entertainment, Arts and Sports Law (EASL) Section, Attorney and Faculty at Sotheby's Institute of Art


Edward Winkleman, Gallerist

Elizabeth Dee, Gallerist

Richard M. Lehun, Attorney at Stropheus Art Law

Nicholas M. O'Donnell, Litigation Partner at Sullivan & Worcester LLP

We have prepared audio-visual recordings and transcripts in two Parts.

Part I: Gallerists Edward Winkleman and Elizabeth Dee, available at https://stropheus.com/blog/2014/08/13/nyc-art-fairs/

Part II: Attorneys Richard M. Lehun and Nicholas M. O'Donnell , available at https://stropheus.com/blog/2014/09/10/rise-nyc-art-fairs-nysba-event-part-2-2/

September 24, 2014

Hiring Your First Worker? Read On.

By Kristine Sova

Whether you're working with independent contractors or hiring your first employee, building a business team brings with it a whole new area for compliance: labor and employment law.

Labor and employment laws cover everything from payroll and workers compensation to workplace posters to preventing discrimination and harassment in the workplace.

Unfortunately, there is no single government agency that oversees or enforces labor and employment laws, which in turn means there isn't a central government source for the small or new employer to turn to for purposes of determining which laws do or do not apply to them. Further complicating matters for the small or new employer is the fact that different laws apply to employers of different sizes. The magic number is not the same, and it's not always a "high" number like 15 or 20. Many of the laws, particularly at the state or city level, apply to employers with only a single employee.

While these factors don't make it easy for young businesses to achieve compliance with labor and employment laws, the unfortunate truth is that difficulty is not a defense to a claim that a business violated the law. Here, we offer three early markers to assist young NYC businesses in identifying when they should be active in their labor and employment law compliance efforts.

Marker Number 1: Before you hire your first worker.

Once you've decided to hire your first worker (as either an employee or independent contractor), you should be talking to a labor and employment lawyer. A number of New York State labor laws, predominantly affecting wages, apply to employers with only one employee, as do a number of payroll obligations, such as tax withholding, wage reporting, and unemployment insurance contributions. The federal Immigration Reform and Control Act, which requires employers to verify the eligibility of their employees to work in the U.S., and the NYC Earned Sick Time Act, which mandates providing sick time to employees, also apply to employers with only one employee.
While these same laws and obligations don't apply to independent contractors, too often independent contractors are misclassified and are really employees. A check-in with counsel before hiring any worker can help ensure that a young business wards off the many problems attendant with misclassification, and otherwise assist with compliance with the applicable laws.

Marker Number 2: Before you hire your fourth employee.

NYC employers should talk to a labor and employment lawyer about further compliance measures before they hire their fourth employee. At four employees, more labor and employment laws apply, including the New York State Human Rights Law and the New York City Human Rights Law, both of which prohibit discrimination and harassment in the workplace, and also require accommodation of disabled and pregnant employees.

Marker Number 3: Before you hire your fifteenth employee.

NYC employers should talk to a labor and employment lawyer about additional compliance measures before they hire their fifteenth employee. At fifteen employees, federal anti-discrimination laws such as Title VII and the Americans with Disabilities Act apply. At twenty employees, still more laws will apply, including the federal Age Discrimination in Employment Act and two additional provisions of the New York State Labor Law requiring blood donation leave and bone marrow donation leave.

September 23, 2014

Long-Awaited NFL Drug Policy to be Put to the Test

By Alexandra Goldstein

Last week the National Football League (NFL, League) and NFL Players Association (NFLPA) unveiled a series of improvements to overhaul the League's performance enhancing substance and substance abuse policies, including the addition of human growth hormone (HGH) testing.

I. Performance Enhancing Substance Policy.

The new performance enhancing substance policy is the culmination of over three years of negotiations, which began just prior to the 2011 NFL season when the parties were negotiating a new collective bargaining agreement (CBA). At the time, the NFL pushed to implement HGH testing; the NFLPA countered that there was not a reliable test for HGH and any testing would therefore be premature. In order to ratify the CBA and move forward with the 2011 NFL season, the parties agreed to HGH testing in principle, tabling a discussion of specific methods. The final 2011 CBA codified the parties' intentions to collectively develop an HGH testing protocol over "several weeks," however once the CBA was signed, negotiations on HGH testing stalled.

The new policy ushers in changes in disciplinary procedures and appeals. A player's first violation of the policy will result in suspension without pay for up to six games. The length of the suspension will depend on the violation: a player will receive a two game suspension for the use of masking agents, such as diuretics; a four game suspension for testing positive for HGH or other banned substances; and a six game suspension in the event that the player attempts to tamper with the test. After a player's first violation, they are subject to escalating suspensions; a second violation will result in a player being suspended without pay for 10 games, and in the event of a third violation, a player will be banned from the League for a minimum of two years.

Previously, a player who tested positive during the off-season was subject to the same suspension lengths as in-season violations. Under the new policy, a player who violates the policy during the off-season will be referred to the League's substance abuse program. Due to the change to how off-season violations are handled, the NFL and NFLPA announced that three players who had previously been suspended for four games under the League's old performance enhancing substance policy had been reinstated. The suspensions of Wes Welker of the Denver Broncos, Orlando Scandrick of the Dallas Cowboys, and Stedman Bailey of the St. Louis Rams were retroactively shortened, which made them eligible to return to their teams and play in week three.

The League's new policy brings the NFL closer to being in-line with the existing Major League Baseball (MLB) and International Olympic Committee (IOC) HGH testing. The IOC began implementing HGH testing during the 2004 Athens Olympics. At the time, testing was limited to detecting HGH use within hours; in 2012, they implemented a new biomarker test capable of detecting HGH use within weeks. In January 2013, the MLB and MLB Players Association announced that they would begin random in-season HGH testing, as well as testing all players for baseline testosterone levels that could help identify changes indicative of HGH use. The NBA and NHL have yet to implement HGH testing, but both leagues have expressed interest in revising their drug policies to include HGH.

II. Substance Abuse Policy.

The NFL and NFLPA also announced updates to their substance abuse policy, which notably includes marijuana and alcohol use. While marijuana rules have been relaxed, the League is toughening-up on DUI offenses.

Under the new policy, the threshold for a positive marijuana test has been raised from 5 nanograms per milliliter (ng/ml) to 35 ng/ml. Despite more than doubling the threshold, 35 ng/ml still sits on the low-end of the spectrum for sports-based marijuana testing; the MLB rules only kick-in at 50 ng/ml and the IOC allows athletes to skate on anything below 150 ng/ml.

The new policy also adds two stages to the previous series of suspensions. Under the old substance abuse policy, a player was referred to the League's substances abuse program for his first violation of the marijuana policy, with subsequent violations receiving a four game fine, a four game suspension, and a one-year ban from the NFL. The new policy adds a two game fine before a four game fine, and a 10-game suspension will be levied before a player received a one-year banishment. Due to the implementation of additional stages, previously banned Cleveland Brown's wide-receiver, Josh Gordon, will receive a retroactive 10-game suspension, making him eligible for play beginning in week 11.

While marijuana rules have been relaxed, more stringent policies have been implemented for a DUI. A player's first offense will result in a two game suspension without pay, whereas a player will be suspended without pay for at least eight games for a second DUI. In either event, a player can be suspended for additional games, where there are extenuating circumstances, such as a death or the egregious nature of the DUI offense.

III. Impact.

Despite the lengthy negotiation period, fines and suspensions under the new policies will be implemented immediately. Under the performance enhancing substance abuse policy, HGH testing is set to begin as soon as the end of this month, though more likely during the first few weeks of October.

Reaction to the new policies has been mostly positive, with many seeing it as a long overdue response to broader attitudes about drug and alcohol use. The new policies also mark a shift in power - while under most circumstances, Commissioner Roger Goodell retained the exclusive power to hear appeals under the old policy, appeals will now be put before "third-party arbitrators jointly selected and retained by the NFL and NFLPA."

September 22, 2014

Week in Review

By Martha Nimmer

Unleash the Secret Weapon: McBrunch

First there was the McRib, and now, it appears that fast food giant McDonald's has its sights set on a new venture: brunch, or, "McBrunch," specifically. With fast food dining options increasing around the world, and with the move towards more health-conscious food choices becoming more popular at home, the world's largest restaurant chain seems eager to regain some its lost market share by launching "a new secret weapon," i.e. brunch. To that end, McDonald's has begun the process of securing a trademark for the term "McBrunch," according to documents filed this summer with the U.S. Patent and Trademark Office.

This move into the brunch market suggests that McDonald's intends to "expand its late-morning weekend menu in an effort to boost sales." A report released earlier this month by Fortune showed that the burger giant's global sales fell 3.7% in August, while sales decreased domestically by 2.8% during the same period. This change in the U.S. is due, in part, to new breakfast options being offered by Taco Bell and Starbucks.

Hopefully, McDonald's knows not to offer McEggs Benedict.


Return to Peru

Nine works of art by the 18th-century artist Miguel Cabrera will be returning to Peru this month, six years after having been stolen from a church in downtown Lima. Thieves in July 2008 made off with almost 80 paintings and other objects from La Casa de Ejercicios Espirituales in the Peruvian capital over the course of two separate burglaries. In October of that year, a man named Brian Bates "consigned [one of the Cabrera works] to an unspecified New York auction house." The FBI eventually seized the work, entitled "The Resurrection of Lazarus," on February 18th of this year. According to a separate forfeiture order, the remaining eight paintings were given to an auction house in Cedar Falls, Iowa. The individual who consigned the eight paintings denied "knowing that the works had been reported stolen, and the FBI seized them" in early 2009.

In a news conference announcing the works' repatriation to Peru, U.S. Attorney Preet Bharara said that no arrests had been made in connection with the stolen artwork, but noted that the investigation was ongoing.


Don't Mess With the Honey Badger

The man behind the YouTube sensation of 2011 has sued two T-shirt companies for using his trademarked phrase, "Honey Badger Don't Care," on their merchandise. Christopher Gordon, the creator of the viral video "The Crazy Nastyass Honey Badger," took old National Geographic footage of an African honey badger and dubbed the video with his own wacky, profanity-laced narration that described the animal's outlandish behavior. Gordon's video quickly went viral, and currently has more than 69 million views on YouTube. Seeking to capitalize on the wild popularity of the hit, Gordon copyrighted his video narration and trademarked the phrase "Honey Badger Don't Care" for merchandise, including T-shirts.

Now, the YouTube star is accusing companies Tanga.com and LOL Shirts of trademark and copyright infringement, trademark dilution and unfair competition. In a lawsuit filed in Los Angeles federal court, Gordon alleges that: "Defendants not only sold infringing merchandise, but strategically chose to advertise their infringing merchandise by using plaintiff's video, which was generating millions of views." The complaint goes on to state that "[d]efendants even provided a website link to plaintiff's video, right alongside their advertisements of infringing merchandise, causing customer confusion and ramping up unlawful sales in the process." Gordon claims that he asked representatives from the companies to stop producing and selling the merchandise, which they agreed to do "only after generating substantial sales" and "only after sales of the infringing merchandise began declining."


Where's the Warhol?

A Florida couple has sued a Scottsdale, Arizona-based art gallery for conversion and breach of fiduciary duty arising from the gallery's unauthorized sale of the couple's Andy Warhol painting. The painting, entitled "Red Shoes," depicts women's shoes sprinkled with diamond dust.

According to the complaint, filed in Maricopa County by Amy Koler and Stephen Meyer against American Fine Art Editions, Phillip Koss, Jacqueline Carroll and Jeff Dippold, the gallery was supposed to store the work for the couple while they relocated to Florida. The plaintiffs claim that Phillip Koss, who worked as a gallery manager at American Fine Art, and employee Jeff Dippold, "suggested that plaintiffs keep the Red Shoes piece at AFAE's gallery and an arrangement by which AFAE would agree to store and insure the piece through AFAE's business insurance in return for plaintiffs' agreement that AFAE could display the piece and use it to help market sales of other similar works." The complaint goes on to state that defendants Koss and Dippold knew from discussions with the plaintiffs that they did not want to sell the painting. Koler and Meyer claim that they even had to tell Koss and Dippold, on more than one occasion, that they wanted to keep the painting.

Eventually, the couple returned to the Scottsdale gallery and learned that "Red Shoes" had been sold. The defendants claimed that the sale had occurred months earlier, and refused to produce any paperwork from the sale or even discuss the price paid for the piece. One of the defendants offered to pay the plaintiffs $65,000--the amount the plaintiffs paid in 2005 for the work--but Koler and Meyer adamantly refused, saying the painting is worth a lot more today.

The plaintiffs are seeking the return of "Red Shoes", and damages for conversion, breach of contract, breach of fiduciary duty, negligence, fraud and unjust enrichment.


Center for Art Law Case Updates

The following case selection first appeared in this week's Center for Art Law newsletter:

• Statkun v. Klemens Gasser & Tanja Grunert, Inc, 13 Civ. 5570 (S.D.N.Y. Mar. 2014) -- J. Kaplan found VARA/Copyright Act Sec. 106A violation and awarded $3,500 statutory damages to the artist who's work was cut down to size by an art dealer.

• Matter of Richard L. Feigen & Company, 824996. (N.Y.T.C, July 22, 2014) -- J. Winnifred Maloney of the Division of Taxation denied art dealer Richard Feigen sales tax refund claim from 2011 seeking $215,626 on the sale of a forged Max Ernst painting "La Foret" that was sold in 2004. To recover the sales tax, the dealer should have claimed his refund within a three-year window after filing sales tax return, which closed in 2008. While the dealer argued he should have been able to avail himself of the statute of limitations contemplated by the CPLR 213, and thus have six years, the decision was based on Tax Law §1139(c), which stipulates that financial matters close sooner. The decision upheld earlier determinations of the Division of Taxation's Audit Division and the Bureau of Conciliation and Mediation Services. In other words, this ruling allows the US government to reap financial benefits from unfortunate sales of fake art; whether the risk is to be born exclusively by the dealer may yet be revisited on appeal. Attorney for Feigen, Malcolm Taub, partner at Davidoff Hutcher & Citron.

• Anders Karlsson v. John Leo Mangan III, Art Possible LLC, et al.,2:14-cv-04514-R-JPR (S.D.C.A, Jun. 11, 2014) -- Arizona Plaintiff is seeking damages from residents in New York, Florida, Colorado and California alleging multiple fraudulent schemes to sell fake artworks of famous artists together with fake authentication and provenance documents. Plaintiff is seeking, among other reliefs, compensatory damages, actual damages, punitive damages and attorney fees. Attorney representing Plaintiff is Meir Westreich.

• Sotheby's v. Kwok (UK, June 2014) -- Auction house sues a client for £3m for failure to pay for purchases. (http://www.telegraph.co.uk/culture/art/art-news/10932158/Sothebys-sues-art-sale-glamour-girl-for-3m-after-client-fails-to-pay.html?utm_source=Center+for+Art+Law+General+List&utm_campaign=d8c39e7b14-RSS_EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_022731d685-d8c39e7b14-346773625)

The Center for Art Law strives to create a coherent community for all those interested in law and the arts. Positioned as a centralized resource for art and cultural heritage law, it serves as a portal to connect artists and students, academics and legal practitioners, collectors and dealers, government officials and others in the field. In addition to the weekly newsletter (http://cardozo.us2.list-manage.com/subscribe?u=78692bfa901c588ea1fe5e801&id=022731d685), the Center for Art Law subscribers receive updates about art and law-related topics through its popular art law blog (http://itsartlaw.com/blog/)and calendar of events (http://itsartlaw.com/events/). The Center for Art Law welcomes inquiries and announcements from firms, universities and student organizations about recent publications, pending cases, upcoming events, current research and job and externship opportunities. To contact the Center for Art Law, visit our website at: www.itsartlaw.com or write to itsartlaw@gmail.com.