December 19, 2014

Week In Review

By Chris Helsel

Sony Drops "The Interview" Following North Korean Hack; U.S. Vows To Respond

In late November, anonymous hackers calling themselves the Guardians of Peace conducted a massive cyberattack on Sony's computers, resulting in the release of thousands of private email exchanges and Social Security numbers, and crippling the studio's computer systems. The hacking was a direct response to the Sony's comedy "The Interview," which depicts the assassination of North Korean leader Kim Jong-Un by two bumbling American journalists.

Following the hacking, Sony Pictures Entertainment received a terror threat from the hackers, who vowed to strike at "the very times and places" where the film would be shown in theaters. The threat also called upon Sony to "Remember the 11th of September 2001." The nation's four largest theater chains soon dropped the film, leaving Sony virtually no choice but to cancel its release.

Earlier today, the FBI officially linked the hacking to the North Korean government. Despite the isolated nation's history of making false threats against the U.S., Sony decided to play it safe and pull the $44 million film. Sony, as well as the cinema chains, feared that they would be liable in the event that an attack took place during a showing of the film. One major cinema chain, Cinemark, has defended lawsuits stemming from the 2012 Aurora, Co. shootings by arguing that the incident was unforeseeable - an argument that clearly would fail in this case, following the public release of the explicit terrorist threats.

A new email sent by the hackers to Sony executives last night credited the studio for its "wise decision" to pull the film, and vowed to cease the cyberattack if Sony prevents the movie from ever being released in any form - including online, DVD, or video. The hackers further demanded that Sony somehow remove the full movie or any trailers from any website hosting them immediately. Essentially, the North Koreans have taken Sony's data security hostage in exchange for erasing any evidence that "The Interview" ever existed.

President Obama responded to the crisis today, declaring, "We cannot have a society in which some dictator someplace can start imposing censorship here." He said that he thinks Sony "made a mistake" in pulling the film, and vowed that the U.S. will respond to the North Koreans "in a place and manner and time that we choose."

FIFA Chief Ethics Investigator Resigns in Protest

Michael J. Garcia, an American attorney responsible for a recently concluded two-year investigation into alleged corruption in the bidding process for the 2018 and 2022 World Cups, has resigned from his post as chief ethics investigator for soccer's world governing body, FIFA.

In 2010, the FIFA Executive Committee awarded the 2018 and 2022 World Cup tournaments to Russia and Qatar, respectively, amid considerable controversy. Almost immediately, allegations of bribery and vote trading surfaced, and numerous FIFA dignitaries resigned or were forced out of office in shame. In 2012, FIFA president Sepp Blatter initiated broad anti-corruption reforms, including the appointment of Mr. Garcia as chairman of the investigative branch of the FIFA Ethics Committee.

Over the next two years, Mr. Garcia traveled to all bidding countries (with the exception of Russia, which refused him entry due to his part in prosecuting a Russian arms smuggler) and conducted a thorough investigation of the World Cup bidding process. Mr. Garcia, a former U.S. Attorney for the Southern District of N.Y., sent his 450-page report to FIFA in September, but FIFA Ethics Committee adjudication chamber Chairman Hans-Joachim Eckert announced that the FIFA rules prohibited the report from being released publicly. Instead, Mr. Eckert prepared a 42-page summary that, according to Mr. Garcia, contained "numerous materially incomplete and erroneous representations of the facts and conclusions."

Members of the FIFA Executive Committee, which will ultimately decide whether Russia and Qatar retain their rights to host the upcoming World Cups, have only read Mr. Eckert's summary. This summary concluded that although Russian officials had destroyed their computer systems, and multiple FIFA Executive Committee members had been accused of accepting bribes from Qatari officials, both Russia and Qatar were cleared of any wrongdoing during the World Cup bidding process.

Mr. Garcia filed an internal appeal to rebut Mr. Eckert's claim that any rules violations by World Cup bidding countries were "very limited in scope," but the appeal was denied on Monday. Mr. Garcia, along with numerous Executive Committee members and observers around the world, has called for the public release of the full report. The Executive Committee meets in Morocco this week, and could amend FIFA's ethics code to make part of the report public - this measure is not expected to pass, however.

Yesterday, following his unsuccessful appeal, Mr. Garcia resigned. He declared that Mr. Eckert's limited and inaccurate summary caused him to "lose confidence in the independence" of Mr. Eckert. Mr. Garcia's resignation statement further charged that his investigation had uncovered "serious and wide-ranging issues" regarding the bidding and selection process for the upcoming World Cups that were omitted from Mr. Eckert's summary. Mr. Garcia also took special care to criticize FIFA's "lack of leadership," and posit that the scandal-plagued organization was incapable of reforming itself from within.

Apple Wins iTunes Software Update Antitrust Suit

A California federal jury determined this week that Apple iTunes software updates issued between 2006 and 2009 were in fact used to improve aging products and offer enhanced security from hackers - and not to secure a monopoly over the digital music market. The class action plaintiffs alleged that the updates were actually intended to block any songs downloaded from Apple's competitors by utilizing a copyright management system to force consumers to purchase iPods, rather than less expensive music players, in violation of antitrust law.

Apple argued, successfully, that the blocking of competitors' songs was merely a side effect of the necessary safety precautions. These security enhancements were necessary, argued the late Steve Jobs and other Apple executives, to protect iTunes music from hackers, which ensured that Apple did not violate its contracts with music labels by allowing the labels' music to be illegally accessed.

Additionally, Apple's attorneys repeatedly reminded the jury that the plaintiffs could not produce any actual iPod customers claiming they were harmed; and in an embarrassing moment, two named plaintiffs were dropped on the eve of trial after it was discovered neither of them had purchased an iPod in the relevant time period.

Fighters File Antitrust Suit Against UFC, Seek Class Certification

Mixed martial arts (MMA) fighters have brought a federal antitrust action against Ultimate Fighting Championship (UFC), alleging monopolistic behavior and wage suppression. According to the suit, the UFC has achieved a monopoly in the MMA arena by buying up rival circuits and including unlawfully restrictive language in its contracts with fighters, promoters and venues. This anticompetitive behavior, the suit alleges, has allowed the UFC to control 90% of "all revenue generated by MMA events" in the U.S. and abroad. The plaintiffs contend that UFC fighters "are paid a fraction of what they would earn in a competitive marketplace" and the company holds the exclusive rights to fighters' names and likenesses in perpetuity, even beyond a fighter's death.

The suit, which seeks class action status to include all fighters who have ever fought in or had their identities used to publicize a UFC-promoted bout, was filed in San Jose by fighters Nate Quarry, Cung Le, and Jon Fitch against UFC and its parent company, Zuffa LLC. At a news conference, attorneys for the plaintiffs did not reveal the damages sought or what changes they would make to the current system.

Eight Years After His Death, James Brown's Estate Still in Dispute

Legendary singer James Brown, the "Godfather of Soul," died in 2006 at age 73. Mr. Brown's will called for the creation of a trust to provide scholarships for needy children in South Carolina and Georgia. Nearly eight years later, due to a highly contentious probate battle, the trust has not yet distributed a cent.

Mr. Brown signed his will in 2000 and explained the scholarship fund's purpose on an audiotape recorded contemporaneously. The will left $2 million in scholarships for his seven grandchildren, and divided his personal property, worth another $2 million or so, between his six recognized children. The bulk of the estate was left to the scholarship trust. The will also called for the disinheritance of any heir who challenged it.

That no-contest clause did not stop numerous heirs from challenging the will, however. Following his death, several of Mr. Brown's children filed suit, alleging that the singer had been improperly influenced by lawyers and managers who stood to gain from the creation of the charitable trust. They allege that Mr. Brown, who had a history of drug problems, was in diminished mental state and therefore did not create a valid will.

Today, the estate remains mired in lawsuits with no end in sight. Mr. Brown's appointed executors have all resigned, replaced by two South Carolina estate lawyers by order of the state district court. The state attorney general stepped in in 2008, proposing a settlement with the family and seeking to include Mr. Brown's most recent wife, whom he left out of the will. The settlement called for the removal of the court-appointed executors, one of whom has been accused of grossly overstating the estate's value in order to earn a higher fee.

The settlement never materialized, though, as it was tossed out by the South Carolina Supreme Court last year. The court found no evidence that Mr. Brown had been unduly influenced and chastised the attorney general's attempts to "dismember" the carefully-crafted estate plan and resurrect it "in a form that grossly distorts his intent." The court ordered the district court to appoint a new panel to oversee the estate. Eighteen months later, that panel does not yet exist.

Proponents of the proposed settlement argued that it represented a win-win scenario that resolved the "labyrinth created by the entangling lawsuits filed by everybody against everybody." On the other hand, critics contend that Mr. Brown's intentions were clear, and simply disregarding a testator's wishes would set a dangerous precedent.

NFL Lineman Released Following Sexual Assault Accusation, After Receiving Team Support Following Earlier Domestic Abuse Arrest

The San Francisco 49ers released starting defensive end Ray McDonald from his contract on Wednesday after learning of his involvement in an alleged sexual assault.

Earlier this year, McDonald had been arrested on suspicion of domestic violence against his fiancée. At the time, amid the NFL domestic violence scandal (Ray Rice, Adrian Peterson, Greg Hardy, etc.), the 49ers stood behind McDonald and allowed him to remain on the active roster as the legal process played itself out. Last month, the Santa Clara Country district attorney's office announced that it lacked sufficient evidence to charge McDonald, and the player remained with the team.

Now, however, the 49ers have cut ties with McDonald before he has even been arrested, let alone charged. On Tuesday morning, a woman - who was not McDonald's fiancée - arrived at a Santa Clara hospital and reported a possible sexual assault from the previous night. A preliminary investigation found McDonald to be the main suspect, and the 49ers announced his release on Wednesday. The differences in how the club handled McDonald's two brushes with the law - and the fact that the 49ers were eliminated from playoff contention this past weekend - has struck some observers as dubious.

McDonald and a teammate also broke up a fight at a bar this month. 49ers General Manager Trent Baalke addressed the team's decision, stating, "While this organization has a strong belief in due process and has demonstrated that over time, Ray has demonstrated a pattern of poor decision-making that has led to multiple distractions for the organization and this football team that really can no longer be tolerated."

The obvious question, then, is whether the club truly believed McDonald was innocent of the earlier domestic violence accusation - otherwise, what constitutes a "pattern of poor decision-making"?

"All of it adds up...I'll leave it at that," said Baalke.

NCAA Women's Hockey Coach Fired for Making Too Much Money, Mulls Title IX Lawsuit

University of Minnesota-Duluth women's hockey coach Shannon Miller, who has won five national championships in her 16 years at the school, has been informed that she and her assistant coaches will not be returning next season. Ms. Miller earns $207,000 per year, making her the highest-paid women's hockey coach in the country. The next-highest paid coach earns $164,000.

The school points to its $6 million budget deficit, and the fact that women's hockey - unlike men's hockey - is a financial burden on the public institution. The men's coach at the school earns $265,000, which is about average for Division I men's hockey coaches, and the university spent $533,322 on the men's team last year, compared to $259,590 on the women's team. However, the university justifies this discrepancy by pointing out that the men's hockey program "pays for itself," while the women's squad costs the school (and therefore the state) money every year.

While she has not officially announced that she will bring a legal action, Ms. Miller said that she and her staff plan to finish out the season and that she has retained an attorney who specializes in Title IX and gender-equity cases.

Ms. Miller says that she was open to discussing a pay cut in light of the school's budget challenges, but was shocked to learn that she was being let go. School officials suggested that she retire, and she refused. She informed her team - who is in the midst of a successful season, winning 12 of their previous 13 games and ranking #6 nationally - of the school's decision last Friday, just before the commencement of final exams.

December 12, 2014

Week in Review

By Chris Helsel

NFL Announces New Player Conduct Policy, Stronger Penalties for Domestic Violence

On Wednesday, National Football League (NFL, League) Commissioner Roger Goodell announced sweeping changes to the NFL's personal conduct policy, which include strong penalties for any League employees involved in domestic violence. The commissioner told reporters that a new conduct committee would oversee the policy and make changes when necessary, relying on the advice of outside experts. Importantly, the League will no longer rely primarily on the criminal justice system in determining when and how to penalize players. Instead, NFL investigators themselves will determine when fines and/or suspensions are to be issued.

This action comes in the wake of numerous headline-grabbing scandals involving domestic abuse by NFL players, and the League's inconsistent and, some say, insensitive handling of them.

Perhaps the most surprising change to the policy is the role of the commissioner himself. Previously, as outlined in the 2011 Collective Bargaining Agreement (CBA), the commissioner had the sole power to determine discipline under the player conduct policy, as well as to hear any appeal. Under the new policy, the commissioner will cede disciplinary authority to a new special counsel whom he will appoint. However, the commissioner retains the authority to hear any appeal. The new policy is effective immediately.

The players' union (NFLPA) has expressed concerns that the new policy was not collectively bargained, but rather enacted by the League office unilaterally. The NFLPA further said in a statement that it had not even "been offered the professional courtesy" of seeing the NFL's new policy prior to its enactment.

To the contrary, League officials contend that the NFLPA was involved in the process throughout, and that the NFL sought opinions from lawyers, law enforcement experts, women's groups and advocates for victims of domestic violence, as well as the union. Further, the League contends that under its bylaws and the CBA, the personal conduct policy falls under League control and does not need to be collectively bargained. According to NFL general counsel Jeff Pash, "The union knows and has repeatedly recognized that this is something that the commissioner can do."

Judge Upholds Beast(ies)'s Victory Over Monster

A federal judge has refused to void a $1.7 million jury verdict awarded to the Beastie Boys in June against Monster Beverage Corp., over the energy drink company's unauthorized use of the group's music in a promotional video. The video in question was a four-minute "megamix" promoting Monster energy drinks and included excerpts from five Beastie Boys songs, without permission.

Judge Paul Engelpayer of the Southern District of New York ruled that there was "ample basis" to believe the video could confuse viewers into believing incorrectly that the Beastie Boys endorsed Monster drinks, and that jurors could infer Monster intended to deceive viewers and benefit from apparent association with the Brooklyn-based Rock and Roll Hall of Fame hip-hop group.

Monster, which conceded before trial that it was liable for copyright infringement, argued that the amount awarded was excessive and "shocked the conscience." The judge disagreed, and Monster has indicated that it intends to appeal the ruling.

Oscar-Winning Actress Forbidden From Selling Oscar To Benefit Charity

Actress Joan Fontaine, who died last year at age 96, bequeathed the entirety of the proceeds from the sale of her estate to the Society for the Prevention of Cruelty to Animals Monterey County (SPCA). The estate includes her 1941 Oscar for Best Actress, which she won for her portrayal of a timid wife in Alfred Hitchcock's Suspicion, alongside Cary Grant. Fontaine was the only actor to win an Oscar in a film directed by Hitchcock, and was the youngest-ever Best Actress winner at the time of her award. The Oscar was expected to fetch between $200,000 and $300,000 at Christie's in New York.

However, since 1950, the Academy of Motion Picture Arts and Sciences has required Oscar winners, their heirs or estates not to sell an Oscar without first offering it back to the Academy for $1. Academy representatives assert that this rule applies to Fontaine's 1941 Oscar, and have vowed to sue if the sale goes forward. Representatives of the estate have removed the Oscar from the estate sale, declaring, "We feel that to fight this promised legal suit against the estate (and SPCA), everyone except the lawyers would lose."

The Academy explained its rule in a statement: "The Academy, its members and the many film artists and craftspeople who've won Academy Awards believe strongly that Oscars should be won, not purchased."

Fortunately for the SPCA, the Fontaine estate also includes her $3 million Carmel mansion, along with the contents of the property including fine art, silver and furniture - all of which will be sold at auction to benefit the charity.

Oklahoma Judge Declines to Don Referee's Stripes

An Oklahoma state court judge has dismissed an action brought by the Oklahoma City public school district that sought to have a high school football game wholly or partially replayed following an egregious mistake by a referee.

On November 28th, rural Locust Grove High School defeated Frederick A. Douglass High School of Oklahoma City in a state quarterfinal matchup by the score of 25-20. With shortly over a minute remaining, Douglass appeared to take the lead with a 58-yard touchdown pass. However, during the play a Douglass coach accidentally interfered with a referee, drawing a penalty flag. The foul, which was correctly called, should have resulted in a 5-yard penalty assessed on the extra point or ensuing kickoff. Instead, the referees disallowed the touchdown, and Locust Grove won the game, ending Douglass's season.

Following the game, the Oklahoma Secondary Schools Activities Association apologized for the referees' error, calling it "inexcusable." Despite the obvious error, the Association denied Douglass's request to restore the touchdown or replay the game in whole or part, citing league rules which prohibit protests of a referee's call.

The Oklahoma City school district sued, and Judge Bernard M. Jones II issued a temporary restraining order, preventing Locust Grove from playing its scheduled semifinal game until the case was resolved. The case quickly gained national attention, with former University of Oklahoma and Dallas Cowboys coach Barry Switzer publicly declaring that the game should be replayed.

On Thursday, Judge Jones denied the request to replay the game. While he acknowledged that the referees' error "could be considered by many as a tragedy," he concluded that judicial intervention would be improper because both teams agreed to be bound by state activities association rules. He noted that there was no precedent allowing a court to order the replay of a high school game, and expressed concern that a "slippery slope of solving athletic contests in court instead of on campus will inevitably usher in a new era of robed referees and meritless litigation due to disagreement with or disdain for decisions of gaming officials."

The Oklahoma City public school district has indicated that it will not appeal.

Senators Warn NFL to Drop Blackout Rule, or Risk Losing Antitrust Exemption

Since the 1970s, the NFL has employed a rule which bars the broadcast of its games in a local market if that team has failed to sell out its stadium that week. Originally intended to boost ticket sales, the rule has long outlived its usefulness, say U.S. senators from both parties. According to lawmakers, because NFL games now routinely sell out, and only smaller markets like Buffalo and Cincinnati are potentially affected, the rule unfairly benefits the NFL at the expense of the League's loyal fans.

While the Federal Communications Commission voted last year to discontinue enforcement of the NFL's blackout policy, the blackouts continue because the rule is written into the League's private contracts with broadcast and cable companies. As a result, Senators Richard Blumenthal (D-Conn.) and John McCain (R-Ariz.) have proposed a bill that would revoke the League's lucrative antitrust exemption if the blackout rule is not removed.

Lawyers for the NFL argue that the rule is necessary for League to maintain "the complex business and legal structure that allows the NFL to be the only professional sports league that offers all of its regular-season games to viewers at no charge" through over-the-air broadcasts. While games are rarely actually blacked out, many local markets have been saved in recent years by local businesses purchasing hundreds of tickets at the last minute to ensure the game reached the airwaves.

The NFL contends that revoking the blackout rule would likely cause game broadcasts to migrate from free broadcast TV to pay TV, such as cable and satellite. It further argues that the blackout rule distinguishes the NFL from other programming by virtually guaranteeing a mass audience at a fixed time. Without such an assurance, they say, advertisers may not be willing to spend as much money to sponsor NFL games.

The aforementioned antitrust exemption, which the senators have threatened to revoke, allows the League to "pool" the rights of all 32 teams to conclude exclusive broadcast contracts with national providers. The enacting legislation, which was passed in 1961, recognizes that professional sports teams, while competitors on the field, are in fact interdependent partners in a business sense.

The antitrust exemption was previously challenged in 2006 by Senator Arlen Specter (D-Penn.) following the launch of NFL Network, a cable network available only in a limited number of homes. However, Senator Specter's proposed legislation failed to pass, largely because games aired nationally on NFL Network were simultaneously shown on broadcast television in the markets of participating teams.

Buffalo Bills Cheerleaders' Wage Theft Lawsuit Persists

Five former Buffalo Bills cheerleaders sued the team in April, alleging flagrant violation of minimum wage laws after the women completed hundreds of hours of uncompensated work. The cheerleaders are not paid a salary and receive only occasional tips and appearance fees - yet are required to pay $650 out of pocket for their uniforms. They further allege that they are not reimbursed for travel and other expenses, and are subjected to "degrading sexual comments and inappropriate touching" at promotional events.

The club classifies the cheerleaders, known as the Buffalo Jills, as independent contractors in an effort to avoid paying the state's $8 per hour minimum wage. However, the suit alleges that the team exercised complete control over the women, dictating everything from the uniforms to the dance moves to the color of their hair and how they handled their menstrual cycle. NFL Commissioner Roger Goodell wrote in an affidavit that he had no knowledge of the Jills' "selection, training, compensation and/or pay practices." The contract that laid out the cheerleaders' terms of employment, however, contained the commissioner's signature. League attorneys assert the signature was affixed by stamp, and the Bills maintain that the Jills are neither League nor team employees.

The squad's subcontractor, Stejon Productions, disagrees. The company's attorney, Dennis Vacco, said, "The Bills control everything...(they) have a long history of wanting their cake and eating it too."

New York State Supreme Court Justice Timothy Drury has denied the club's motions to dismiss, holding that the team set the terms and approved contracts for the Jills. "These facts are further indication of the control the Bills exercised over the Jills," he wrote. The judge is now considering whether the NFL should be brought into the litigation, because the League office signed off on the contracts.

Amidst the pending litigation, the Bills disbanded the Jills for the 2014 season. A recent settlement between the Oakland Raiders and their former cheerleaders in a similar case (the Raiders agreed to pay minimum wage and overtime) sparked hope that the Bills and Jills may come to terms, but as of this writing the two sides have been unsuccessful in attempting to schedule a mediation session. The case is due back in court next week, and no trial date has been set.

December 10, 2014

Oral Argument in Authors Guild v. Google, 13-4829-cv, U.S. Court of Appeals for the Second Circuit, December 3, 2014

By Robert J. Bernstein

Robert J. Bernstein practices law in New York City in The Law Office of Robert J. Bernstein. He is a frequent author and lecturer on copyright law and litigation, an Honorary Trustee and past President of the Copyright Society of the U.S.A., a member of the Copyright and Literary Property Committee of the New York City Bar Association, and formerly served as Chairman of the Copyright Law Committee of the American Intellectual Property Law Association and as a member of its Board of Directors. Mr. Bernstein has been co-author of the New York Law Journal bi-monthly "Copyright Law" column for 28 years.

For those of you who could not attend last Wednesday's oral argument in Authors Guild v. Google and do not want to await the transcript/CD, or who have neither the time nor inclination to read or listen to the recording of the 75 minute proceeding, here is a summary of how the argument unfolded in chronological order:

Disclaimer: Your author represents as co-counsel, along with fellow co-counsel Peter Jaszi and lead counsel Daniel F. Goldstein, the National Federation of the Blind and four print-disabled individuals (collectively, the "NFB") in the case of Authors Guild, et al. v. Hathitrust, et al., 902 F. Supp.2d 445 (S.D.N.Y. 2012), affirmed 755 F.3d 87 (2014) ("HathiTrust"). In HathiTrust, although Google was not a party and its liability/fair use was not adjudicated, the Second Circuit held that the digitization by Google of the entire contents of several major university libraries for the purpose of enabling university students and scholars to conduct research, in particular searching for books containing the searched terms without displaying any text from the books, constituted a transformative fair use. The NFB had intervened in the district court proceedings in order to obtain full access to the digitized collections for print-disabled students and scholars under both the fair use doctrine and the Americans with Disabilities Act ("ADA"). The Second Circuit rejected the argument that such full text reading of the digitized text was a transformative use, viewing reading as reading whether via print or digitized text-to-speech software. Nevertheless, applying general fair use principles, and relying in part on the U.S. Supreme Court discussion of fair use for blind individuals in Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 455 n.40 (1984), as well as Congressional recognition in the ADA of the public policy benefits of equal access for those with disabilities, the Second Circuit held that the NFB uses constitute fair use. The Second Circuit remanded certain issues relating to preservation uses to the district court, where the case now resides. The remanded issues do not impact the Second Circuit holding with respect to the NFB.

Comment on Disclaimer: Your author recognizes, both as a lawyer and legal commentator, the obligations to disclose any connection that could reasonably be considered to influence the contents of a published writing. However, the readers should also keep in mind that, in this posting, the author will be attempting to report on the unfolding of the oral argument as it happened, in real time, without editorializing. The transcript/CD will appear in due course, so the readers will be able to judge for themselves whether my attempt to report objectively has succeeded.


The Panel: The Second Circuit panel hearing the appeal consisted of the Honorable José A. Cabranes, the Honorable Pierre N. Leval, and the Honorable Barrington D. Parker. Judge Cabranes, as the only active judge on the panel, would normally have presided, but as he was appearing via video from his chambers in Connecticut, the longest-serving senior appellate judge present, Judge Leval, presided. This may be viewed as fitting in view of the fact that Judge Leval introduced the concept of "transformative use" into the fair use lexicon in his 1990 Harvard Law Review article, "Toward A Fair Use Standard," 103 Harv. L. Rev. 1105, which the Supreme Court adopted four years later in its still-governing, but pre-digitization era, fair use decision in Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569 (1994).

This same panel had also considered the earlier appeal of the class certification issue in Author's Guild v. Google (hereafter the case will be referred to as "Google," and non-italicized "Google" will refer to the defendant-appellee). In its Order remanding the case to the district court for a determination of the fair use defense, the panel, per curiam, directed the Clerk of the Court to assign any subsequent appeal of the case to the same panel. 721 F.3d 132 (2d Cir. 2013).

Two members of the panel, Judges Cabranes and Parker, were also members of the Second Circuit panel that decided HathiTrust, wherein, in an opinion by the Honorable Barrington D. Parker, the court held, inter alia, that the digitization of the entire contents of the university libraries for the purpose of search and without displaying any text constitutes a transformative fair use.

Prior Proceedings: The long-and-winding road leading to Courtroom 1703 of the Thurgood Marshall U.S. Courthouse is beyond the scope of this report. The only issue before the Court concerned the appeal of the grant of summary judgment to Google on its fair use defense. In his summary judgment opinion, the Honorable Denny Chin (who retained the case in the district court after his appointment to the Second Circuit) held that Google's digitization of the university libraries collections, and its own use of that corpus for purposes of enabling users of Google Books to search the database for books containing the searched terms (search function) and for reading "snippets" displayed on the Google Books website (display function), both constitute fair uses; and that Google's provision to the university libraries of copies of the digitized databases from each library's own collection, alleged by the Authors Guild to infringement the distribution right, also constitutes a fair use because it enabled the libraries to engage in the fair uses approved by the Second Circuit in Hathitrust. Google, ___ F.Supp.2d ___ , 2013 WL 6017130 (S.D.N.Y. Nov. 14, 2013).

Further Background: Readers interested in articles summarizing the decisions referred to above may find the following New York Law Journal (NYLJ) "Copyright Law" columns of interest: R. Bernstein and R. Clarida, "Fair Uses of Hathitrust Digital Library," June 18, 2014, p. 3; R. Bernstein and R. Clarida, "Google Granted Summary Judgment on Fair Use Defense," NYLJ, December 20, 2013, p.3; and D. Goldberg and R. Bernstein, "The Supreme Court Balances the Act," NYLJ, March 18, 1994, p. 3.


Judge Leval prefaced the proceedings by stating that due to the complexity and importance of the issues presented, the Court would disregard the 15-minute posted limits and instead allow each side 30 minutes, with the possibility of additional time if needed. As it turned out, the total time elapsed was close to 75 minutes. No other cases were on the docket at this 2:00 p.m. sitting.

The author will now report on the arguments, questions, comments and rebuttals as they unfolded chronologically. The names of the participants are boldfaced to indicate who is speaking. Quotation marks are only used when I am reasonably confident that I was able to capture the actual words in my notes Generally, but with many exceptions, each new paragraph starts when a different speaker enters the dialogue.

For Appellant the Authors Guild (Paul M. Smith, Jenner & Block, LLP [arguing]; and Edward R. Rosenthal, Frankfurt Kurnit Klein & Selz, PC):

Mr. Smith opened with the necessary acknowledgment that HathiTrust is the law of the Second Circuit, while reserving the right to challenge the holding in other circumstance (referring, sub silentio, to the possibility of a request for Supreme Court review). He then immediately introduced the reasons why the Authors Guild ("AG") contended that Google's uses were qualitatively different from those in HathiTrust, and why those differences mandated a holding of infringement rather than fair use. He stated that Google's uses are "quintessentially commercial," engaged in by a for-profit company to preserve its key asset - maximizing visits to its website in order to increase advertising revenues.

Judge Leval commented that, in his view, notwithstanding a distinction between commercial and noncommercial uses, classic holdings of fair use have involved commercial uses (that is, the user was at least significantly motivated by potential profit), and that he "would be surprised if [AG] win[s] on that basis."

Mr. Smith rejoined by stating that this case was different due to the enormity of the commercial use, leading Judge Leval to ask whether his proferred distinction was between "big profits" and "little profits," followed by this query: "If Google does not cause any harm" to the copyrighted works, what difference does it make how much profit it derives from the use?

Mr. Smith then turned to what he argued is the second determinative difference from the uses in HathiTrust: Google displays text (referred to as "snippets" to indicate their brevity), whereas no text was displayed in the libraries' uses. He stated that such displays harm an existing and emerging market to license books for digitization and related uses, which he characterized as "derivative uses" [referring to the copyright holder's exclusive right to create derivative works based on the copyrighted work]. Here, he cited a 1992 decision by then-district-court Judge Leval holding that photocopying of scientific articles by Texaco scientists was not a fair use. American Geophysical Union v. Texaco, Inc., 802 F.Supp. 1 (S.D.N.Y. 1992), aff'd, 60 F.3d 913 (2d Cir. 1994).

Judge Leval stated that he did not consider his opinion in Texaco to be of guidance here due to "big differences" between Texaco's and Google's uses, noting that, in Texaco, 80 in-house scientists made multiple copies of entire articles in order to have convenient access to them rather than purchasing additional journal subscriptions. In reply, Mr. Smith asserted that the test applied in Texaco - whether the use is one for which a license exists or is likely to emerge - is relevant to the emerging digitization marketplace.

Judge Leval responded that whether a market for the use is likely to emerge "is not a very useful test" with respect to transformative works because, no matter how transformative the use, someone at some price would be willing to license it to avoid the cost of litigation. Mr. Smith averred that a distinction should be made between uses that a copyright owner might never license, such as parody or criticism, and uses that the owner would be prepared to license for the right price, a proposition as to which Judge Leval asked if Mr. Smith had any case authority.

Mr. Smith also argued that it should be a policy decision for Congress whether "new derivative uses," which, in his view, include digitization, should be free of a license.

At this point, Judge Leval introduced two issues that he stated were of concern to him: (i) what limitations, if any, are there on what the libraries can do with the digitized collections provided to them by Google; and (ii) what vulnerabilities do libraries have to hacking and piracy? In this regard, Judge Leval asked: Even if we decide that Google's use is fair use, "if the upshot is the multiplication of copies and greater potential for hacking," how does that impact the analysis? He further asked whether this could be a particular concern with respect to "hot properties", such as a new Harry Potter book.

Rather than respond commenting immediately on these concerns, Mr. Smith initially directed his response to their predicate ("even if we decide Google's use is fair"). Thus, Mr. Smith argued that Google's use was not fair, inter alia, because, in providing copies of the digitized collections to the libraries, Google was using those copies as "currency" - a form of barter in lieu of monetary compensate in exchange for Google's access to and use of the books for digitization. Judge Leval stated that he "was not following" that point.

Mr. Smith than turned to another reason why he contends that Judge Leval's predicate ("assuming that we find fair use") to his stated concerns was faulty, arguing that in evaluating fair use, only the conduct and purpose of the initial user/defendant is relevant, but not those of downstream users or third parties (such as, in Mr. Smith's characterization, the libraries). For that reason, he contended, Google should not be entitled to rely on the fair use holding in HathiTrust to justify its own use.

Mr. Smith then addressed Judge Leval's stated concern about the vulnerability of digitized collections within library databases to hacking and piracy - arguing that in Google's agreement with the Stanford Library (which is not part of the consortium of university libraries constituting Hathitrust and was not a party in HathiTrust), students are not restricted from simultaneously reading entire texts online).

Judge Leval asked: "Is it Google's responsibility to be sure that Stanford's use is fair?" To which Mr. Smith replied: "Google assumed responsibility" for the library uses of the digital databases it provided to them. Judge Leval asked: "What do you mean?," and Mr. Smith responded: "If Google tries to ride on the libraries' uses," they should be responsible for the consequences.

Judge Parker then turned to a different issue, asking: "Are there any provisions in the documents that restrict the contours of what Google is doing? What keeps them from changing?"

Mr. Smith stated that nothing in the arrangements would prevent Google from expanding or otherwise changing its practices, and posited a multiplier effect: "What if everyone could do this? Isn't this a policy decision for Congress?"

Judge Leval observed that displaying 8 pages rather than snippets would be a different case, and Judge Parker posed his own rhetorical question: "You aren't seriously suggesting that we wait for Congress to Act?"

At which point Mr. Smith changed direction to focus on the "limited" remedies the AG was seeking. He articulated a bifurcated approach to Google's past and future conduct. He assured the court that AG was only seeking monetary damages for past alleged infringements, and was not requesting that the already existing database be undone. As to future digitization and related uses, AG seeks the imposition of a licensing requirement, but not injunctive relief.

Judge Leval then asked whether the present arrangements preclude digitization of a hot new book. Mr. Smith replied that most new books are already licensed in Google's Partners Program with publishers, which led Judge Leval to ask: "Are you saying that hot new books aren't part of the case?"]. Mr. Smith then clarified his position by responding that, "on the contrary," because not all publishers are part of Google's Partners Program and because authors can opt out of Google Books, many hot new books could be affected.

Judge Parker then asked: "What precisely is the mechanism" for an author to opt out? Mr. Smith stated that when an author opts out, the work is no longer displayed in snippets, but he understood that the work would still remain in the database, and may (he was not certain) still be available for search.

Mr. Smith then turned to AG's argument that the display of snippets itself causes harm, explaining, by way of example, that certain types of books are often referred to only for limited purposes and discrete information, and that snippet display could satisfy those readers' needs, resulting in the loss of a sale. Yet Judge Leval observed that dictionaries, for example, were excluded from snippet use. Mr. Smith rejoined by stating that other types of books, for example history books, may be used for short bits of information that could be obtained by viewing a series of snippets rather than purchase.

Mr. Smith then turned to an evidentiary point, contending that Judge Chin articulated no evidentiary basis for his rejection of the AG's argument that snippet displays cause market harm. [Questions of the proper allocation of burden of proof on this point were not addressed in any detail at the argument, but merely averted to].

Judge Cabranes posed a procedural question concerning the reasons why certain portions of the appendix were redacted. Mr. Smith referred to the protective order entered in the district court which required confidential treatment, but in response to further queries by Judge Cabranes and Leval, the parties agreed to advise the court whether there was any portion of the redacted materials which the parties still requested be redacted from any published opinion.

At this point, Google's counsel presented his case.

For the Appellee Google, (Seth P. Waxman, Wilmer Cutler, Pickering, Hale and Dorr LLP [arguing]; and Joseph C. Gratz, Durie, Tangri LLP):

Mr. Waxman commenced by enumerating what he characterized as three fundamental points: (i) Google's and the libraries' uses "quintessentially" promote progress in the arts in furtherance of copyright's constitutional purpose; (ii) all of these uses are products of a collaboration between Google and the libraries which allow each to engage in transformational uses that neither one could accomplish alone; and (iii) there is no evidence in the record of any market harm to authors.

Judge Leval immediately asked whether, even if there is no evidence of harm to any particular books, there is harm to a market for licensing digitization rights? In response, Mr. Waxman made two points: (i) HathiTrust, which is Second Circuit law, rejected that argument; and (ii) in any event, there is no evidence that any such market exists or is emerging.

Judge Leval then asked about record evidence of licensing digitization rights in Europe, to which Mr. Waxman replied: the European licenses grant the right to reproduce and display the entire book which is a materially different type of market.

Judge Parker asked how much Google has spent on the project, to which Mr. Waxman replied, over $120,000,000. In further colloquy it was stated that there is nothing in the record demonstrating the extent to which Google may have derived profits (direct or indirect) from the uses.

Judge Cabranes then asked a series of questions about the commerciality (or not) of the uses: "Is this only a charitable enterprise by Google? Is it solely designed for eleemosynary purposes?" "Is any part of the Google project for profit?" Judge Leval supplemented this inquiry by asking whether advertising is displayed in connection with the uses?

In response, Mr. Waxman noted that no ads are displayed on pages responding to search requests or on pages displaying snippets, and that Google makes no money from referring sales to third parties.

Judge Parker asked: "What keeps Google from changing the way it operates," such as by lengthening its display of text? Mr. Waxman replied that [presumably significant] changes would have to be evaluated separately under the fair use factors.

In further response, Mr. Waxman argued that if Google derives profit from the use, it would not distinguish this case from numerous fair use cases. He continued: "If Google didn't expect to make some return on this, it may never have engaged in this incredibly transformative use."

Judge Parker noted that in the class certification appeal, Google argued that fair use must be evaluated as to each individual book, but that on this appeal Google argues that fair use may be considered as to the entire corpus of digitized works, suggesting an apparent inconsistency between these two positions. Mr. Waxman replied that there was no inconsistency because in the class certification appeal Google did argue that the entire Google Book Project should be found to be fair use, but that, if the court did not conclude fair use as to the entire project, then questions of infringement would have to be evaluated one book at a time.

On the subject of the libraries' uses, Mr. Waxman noted that Google's agreements with each library required that any use by the library be consistent with copyright law. Judge Leval queried whether, even if the libraries complied with copyright law, weren't the digital copies stored on the libraries' databases vulnerable to hacking and the resulting infringing conduct of others?

In response, Mr. Waxman noted again that HathiTrust is Second Circuit law and that it determined that AG's security concerns did not make the uses unfair. Judge Leval stated that the finding in HathiTrust was merely that, on the record there, the possibility of a security breach was speculative.

Mr. Waxman replied that there is no evidence in the Google record to support AG's security risk argument. He asserted that there is no record of any instance of hacking into the libraries' digitized collections in the years since they were created. He further argued that there is good reason for a record devoid of hacking into the library corpus - digital copies of more recent and commercially popular books are already available on the Internet through, for example, Amazon. He asserted that, in contrast to Google's agreements with HathiTrust member libraries, the standard Amazon contract with publishers does not require Amazon to take security measures.

Judge Leval then asked: Are you saying that digital copies are more easily available elsewhere than from within the libraries' digital corpus? Mr. Waxman replied that, as a matter of policy, Google does not digitize books for search and snippet display until two years after their initial publication, which further reduces any possible substitutive effect.

Returning to a point raised earlier by Judge Parker, Judge Leval asked whether that policy could change? Mr. Waxman did not, at that point, address the possibility of change, but instead emphasized that the point of the Google Books is to allow users to find books, "and nothing else."

Judge Leval then asked: "Is the two-year blackout in the record as a characteristic that the court can base its fair use analysis on," and, if so, requested a record cite. Judge Leval later repeated this query, and Mr. Waxman undertook to reply "anon" (the archaic form of "soon").

Judge Leval then returned to his question regarding the impact of Google's agreement with Stanford, which contains no restrictions on the Stanford library's full text display of digital copies which could be read by students simultaneously. Mr. Waxman replied that under that agreement, Stanford is still obligated to only make such uses as are consistent with copyright law, and, in any event, even if Stanford were to breach its agreement with Google, that would not render Google's own use unfair.

Mr. Waxman then focused on the "copy-shop" cases relied on by AG, in which commercial copy shops created and sold coursepacks to students. He argued that this use was the polar opposite of Google's transformative use because the copy shops packaged and sold the coursepacks to students as substitutes for their purchase.

Judge Cabranes then stated: "Let us follow the dollars (even if ultimately it may not matter)". Toward that end, he engaged in an extended colloquy with Mr. Waxman that ended with this stipulation: Mr. Waxman: "I will stipulate, arguendo, that Google had [has] a profit motive because [the Google Books Project] would bring more eyes to Google." However, he qualified this stipulation in two ways, stating that (i) there is no evidence in the record that Google provided digital copies to the libraries to avoid paying for access to the libraries' hard copies; and (ii) that, on its most fundamental level, Google and the libraries were engaged in a collaborative project designed to make millions of books available for search by the public. With respect to the latter point, Mr. Waxman quoted from the agreement between Google and the University of Michigan which is prefaced with a statement of their joint purpose.

The Authors Guild Rebuttal (by Mr. Smith):

In a brief rebuttal argument, Mr. Smith made the following points:

(i) this case was decided by the district court on summary judgment, and therefore a holding of fair use cannot be based on any genuinely disputed material facts;

(ii) Google has the burden of proof on its fair use defense, and therefore, where proof is absent or insufficient, inferences must be taken in AG's favor;

(iii) the court should weigh in the balance the allegedly anti-competitive conduct of Google in allegedly using the digitization of library collections to maintain and increase its dominant market position in book digitization vis-à-vis Amazon and others; and

(iv) it would be inappropriate to impose on AG an impossible burden of proving that the display of particular snippets led to lost sales of particular books.

At this point in the rebuttal, Judge Cabranes interjected with this question: "What is the decree of court that you are seeking from us?" He observed that, in its brief, AG's requests broad relief, but that, in the oral argument, it appears that AG is seeking less.

In response, Mr. Smith repeated the remedies he outlined during his main argument, while elaborating by citation to the Supreme Court opinion in eBay, Inc. v. Mercexhange, L.L.C., 547 U.S. 388 (2006). [There, the court held that before issuing injunctive relief, a court must make findings of fact on four separate factors, rather than merely apply presumptions. For an excellent discussion of the impact of eBay in fair use cases, see R. Dannay, "Copyright Injunctions and Fair Use: Enter eBay -- Four-Factor Fatigue or Four-Factor Freedom?" 37th Annual Brace Memorial Lecture, Journal of the Copyright Society of the U.S.A.,Vol. 55, No. 4 (Summer 2008), p. 449-468)].

Summarizing, Mr. Smith stated that in light of (i) eBay; (ii) the passage of time; and (iii) the value of the database, "we do not request an injunction but monetization and licensing for future scanning."

Judge Cabranes then asked: "Do you think the case could be resolved by a sum certain?" Mr. Smith replied; "Yes," suggesting that the numbers could be worked out with the aid of expert testimony and computer software, and proffering the example of the recent settlement between Viacom, et al. and YouTube, in which he represented the plaintiffs against Google's YouTube subsidiary.

Judge Cabranes asked whether discovery is over, to which Mr. Smith replied "yes."

As a final point, Mr. Smith revisited the alleged risk of a security breach, citing by way of example the massive hacking of the JSTOR database of scholarly articles and journals by a proponent of the "research-must-be-free" point of view.

Judge Leval then declared the case submitted for resolution by the panel and adjourned the proceedings.

December 5, 2014

Week in Review

By Chris Helsel

German Collector Seeks Return of Art Looted by East German Police; New York Collector Sues to Retain Ownership

It appears that the Nazis were not the only German authorities guilty of stealing precious works of art.

A New York family has brought suit in German court, asking a judge to affirm its rightful ownership of a still life masterpiece allegedly stolen in 1982 by East German police. The painting, a 1705 still life by the Dutch artist Adriaen Coorte depicting four chestnuts, is one of approximately 2,000 that were stolen from Dresden art collector Helmuth Meissner in a police raid ordered by government authorities. Prior to the commencement of litigation, attorneys representing the Meissners had sought to resolve the situation amicably. When negotiations broke down, attorneys representing the late June D. Weldon, a New York philanthropist, filed suit in Munich, claiming the painting was purchased in good faith and that no evidence definitively established Mr. Meissner's ownership claim. Further, the suit alleges, even if the painting were taken from Mr. Meissner, its seizure was the lawful action of the government in power at the time.

The East German police force, known as the Stasi, reportedly seized more than 200,000 objects from collectors between 1973 and 1989 as part of a broad government effort to secure Western currency through the sale of art. The program aimed to bolster the Soviet-backed Communist state's sluggish economy by re-selling the art through brokers in Western Europe because the East German currency, the Mark, held little value in foreign trade. At the time, East German authorities declared that numerous art collectors were "dealers" who had not paid the required taxes on their art. The seizures were therefore done under the supposed color of law as sham tax forfeiture proceedings.

German officials are now discussing whether to add Stasi-confiscated items to the country's Lost Art Internet Database alongside the infamous Nazi-looted art.

Records indicate that the seized still life was shipped to Amsterdam in 1988, where it was sold to a Swiss gallery. It was then re-sold to American collector Henry H. Weldon (June D. Weldon's husband). Despite the exacting paper trail left by East German authorities and a 1982 photograph taken during the raid showing the painting hanging on Mr. Meissner's wall, Mrs. Weldon's representatives insist that Mr. Meissner has no right to the piece.

NFL Running Back Ray Rice Wins Appeal of Domestic Violence Suspension, Eligible to Return Immediately

Ray Rice, formerly of the Baltimore Ravens, has successfully appealed his NFL-imposed indefinite suspension. The suspension, which stemmed from a highly publicized domestic violence altercation with his then-fiancée, had been increased from two games to indefinite following the public release of video footage of the incident. Following NFL Commissioner Roger Goodell's decision to increase the suspension (which coincided with the Ravens' decision to terminate his employment contract), Rice and his legal team appealed, claiming that the commissioner had acted arbitrarily in enforcing the league's personal conduct policy.

Rice and his then-fiancée (now wife), Janay Palmer, met with the commissioner in June, following Rice's indictment on charges of third-degree aggravated assault. Charges were ultimately dropped after Rice was accepted into a pretrial diversion program. According to Commissioner Goodell, Rice was not entirely forthcoming at this disciplinary hearing, and the details of the incident were unclear. When security footage of Rice punching Ms. Palmer in the face inside an Atlantic City casino elevator surfaced, the commissioner drastically increased the suspension, alleging that Rice's version of events at the disciplinary hearing was inconsistent with what appeared on the video.

Rice, however, alleged that he confessed to striking his fiancée in the face, and was entirely truthful at the meeting. The league office, Rice argued, knew full well what had transpired, and overreacted to the public outcry following the video's release by imposing the indefinite suspension. Therefore, Rice argued, he was improperly punished twice for the same act or conduct, without any new substantive evidence. Rice has also filed a grievance against the Ravens for the improper termination of his contract.

Under the 2011 NFL Collective Bargaining Agreement, the commissioner has the sole power to determine discipline under the player conduct policy, as well as to hear any appeal. Here, however, because the commissioner was directly involved in the proceedings and therefore an essential witness, the league and players' union agreed to name a third party neutral arbitrator to hear the appeal.

That neutral arbitrator, former Southern District of N.Y. Judge Barbara S. Jones, released her ruling last Friday. She concluded that the union had carried its burden of showing that Rice did not mislead the commissioner at the disciplinary hearing, and that the commissioner had therefore acted arbitrarily by imposing a second suspension based on the same incident and same known facts. As a result, Rice's indefinite suspension was vacated, and he is free to sign with any NFL team.

Importantly, Judge Jones did not rule that the indefinite suspension was too severe of a punishment - only that the commissioner had overstepped his bounds by disciplining a player twice based on the same conduct and same known facts. In fact, she noted that had the commissioner simply suspended Rice indefinitely from the outset, an arbitrator would have been "hard pressed" to overturn it. According to Judge Jones: "[A]ny failure on the part of the League to understand the level of violence was not due to Rice's description of the event but to the inadequacy of words to convey the seriousness of domestic violence. That the League did not realize the severity of the conduct without a visual record also speaks to their admitted failure in the past to sanction this type of conduct more severely."

Questions abound as to what NFL executives knew, and when. Commissioner Goodell has insisted that he had not seen the elevator video prior to its release, nor knew of its contents. Judge Jones' opinion indicates that she was convinced the commissioner had not seen the video. Former F.B.I. director Robert S. Mueller III is currently in the midst of an independent, NFL-ordered investigation of the league's handling of the matter.

Lincoln Center Decides That Perpetuity Has Its Limits

In 1973, music philanthropist Avery Fisher gave $10.5 million to Lincoln Center for the repair of Philharmonic Hall, with the stipulation that his name would attach to the building in perpetuity. Recent developments, however, have left observers reaching for their dictionaries.

Lincoln Center agreed last month to pay Mr. Fisher's descendants $15 million for permission to expunge his name from the building, in hopes of luring a much larger donor willing to subsidize a proposed $500 million renovation.

"Perpetuity is usually a matter of negotiation now," said Mr. Fisher's attorney, William D. Zabel.

This development raises the ethical dilemma of whether donors should accept a time limit on naming rights, in an effort to be even more charitable. Billionaire businessman and philanthropist David H. Koch, who recently gave $100 million to the New York State Theater and $65 million to the Metropolitan Museum of Art, agreed that his name could be removed after a set number of years with his family retaining the right of first refusal. "A naming opportunity should be a defined length of time to allow the institution to regenerate itself with another round of major fund-raising," Mr. Koch said.

EU Law Says Reproducing Eiffel Tower Night Photos Illegal - Light Display Constitutes "Art Work"

Paris' Eiffel Tower, one of the world's most iconic monuments, is visited and photographed by millions of tourists every year. However, it turns out that an obscure EU copyright law prohibits the reproduction - which includes sharing on social media - of photos of the tower taken at night. The tower, built in 1889, falls within the public domain, so photographs taken during the day are unprotected by copyright. At night, though, the tower's impressive light display constitutes artwork under EU law, and therefore usage of any images of it requires the permission of the Eiffel Tower's operating company, Société d'Exploitation de la Tour Eiffel.

A 2001 EU Information Society directive says that photographs of architectural works in public spaces can be taken and shared free of charge, at any time. The clause is optional, however, and countries including Italy, Belgium and France declined to transpose it into national law. Therefore, sharing photographs of the Eiffel Tower at night without permission can lead to a fine. The Eiffel Tower website states: "Daytime views from the Eiffel Tower are rights-free. However, its various illuminations are subject to author's rights as well as brand rights."

Any readers planning to visit the Roman Coliseum, Trevi Fountain, Leaning Tower of Pisa, or (especially) Eiffel Tower over the holidays, take note.

November 28, 2014

Week in Review

By Chris Helsel

Apple E-Books Antitrust Settlement Approved

Late last week, a federal judge in Manhattan approved a highly unusual settlement in which Apple has agreed to pay $400 million to as many as 23 million e-book consumers, in the form of cash and e-book credits.

In 2012, the U.S. Department of Justice and 33 states brought a civil antitrust action against Apple and five leading publishers, alleging that the defendants had conspired to raise e-book prices by restraining retail price competition. The government alleged that in 2010, as the tech giant prepared to introduce the iPad, Apple CEO Steve Jobs persuaded the publishers to switch to the so-called agency model, which let publishers - rather than retailers - set e-book prices. Apple, the suit alleged, was keenly aware of the publishers' growing frustration with market leader Amazon's steeply discounted e-book prices. The company used this knowledge, as well as the contingent opportunity to sell books through Apple's new e-book retail outlet, iBookstore, as leverage to pressure the publishers into artificially inflating e-book prices across the board.

The publishers quickly settled for $166 million, which was distributed in the form of store credit to consumers who had overpaid for e-book purchases with Apple's leading e-book retail competitor, Amazon, following the universal price hike. Following trial, the court held last year that Apple was complicit in the conspiracy. In her opinion, Judge Denise L. Cote conceded that Apple had "seized the moment and brilliantly played its hand" - though in doing so, it had unlawfully conspired with the publishers, in violation of the Sherman Act.

A damages trial was set for August of this year, but in June Apple agreed to settle for $400 million (plus $50 million to the attorneys). That settlement, approved last week, is subject to change pending the outcome of Apple's appeal, which is scheduled for December 15th. If the judgment is overturned and the case returns to district court, Apple has agreed to pay $50 million to consumers and $20 million to the attorneys.

Swiss Museum Accepts Nazi-Era Art Trove, Vows to Return Any Looted Pieces to Heirs of Rightful Owners

After deliberating for six months, a Swiss museum has announced it will accept the bequest of an enormous art trove amassed by one of Hitler's art dealers. The collection, which includes masterpieces by Monet, Matisse and Renoir, was left to the Kunstmuseum Bern by Cornelius Gurlitt, the Nazi-era dealer's son, shortly before he died in May. Much of the immense collection, with an estimated valued in the hundreds of millions of dollars, was accumulated by Gurlitt's father, Hildebrand, who was commissioned by the Fuhrer to purchase pieces for a proposed museum in Linz, Austria (Hitler's hometown).

The Swiss museum declared that before it takes possession of the collection, a team of experts will analyze each work to determine whether it was improperly looted or bought from Jewish owners under duress during the Nazi era. Any improperly obtained works are to be promptly returned to the heirs of the rightful owners, at the expense of the German government. If no owner can be identified, the looted works will be put on public display in Germany, in the hopes that potential claimants will eventually come forward. In a further effort to identify potential claimants, this week the museum made ledgers kept by Hildebrand Gurlitt from 1937 to 1941 publicly available on a German government website.

Of the collection's 1,280 pieces, 240 are believed to have been obtained improperly. Mr. Gurlitt stashed another 238 works at a vacation home in Salzburg, which have yet to be scrutinized.

Christoph Schäublin, president of the museum's Board of Trustees, stressed that the decision to accept the trove was immensely difficult, given the origins of much of the collection. He said at a news conference on Monday that the museum would adhere to the 1998 Washington Conference Principles on Nazi-Confiscated Art, which govern the investigation and return of art obtained under Hitler before and during the Second World War. Schäublin vowed to work with German officials to ensure that all looted art contained within the collection is returned to its rightful owners, and described the museum's undertaking as an "exceptionally complex responsibility."

Since the end of World War II, the handling of looted art has been a highly contentious issue in Europe and around the world. It is estimated that up to 20% of Europe's great art was obtained by Hitler's agents during his time in power, and that tens of thousands of pieces are still outstanding. Observers hope that the Kunstmuseum Bern's openness in handling the Gurlitt bequest, and its willingness to work with German authorities, will set a new standard for dealing with future discoveries of Nazi-era looted art. According to Christopher A. Marinello, director of Art Recovery International, the handling of the Gurlitt trove "could be a game changer for the way cultural institutions handle this in the future."

For NJ, All Bets Are Off (Again)

For the second time in two years, a federal judge has curbed New Jersey lawmakers' attempts to legalize sports betting in the state. Judge Michael Shipp of the District Court of New Jersey issued a permanent injunction late last week, declaring that New Jersey's latest effort - the 2014 Sports Wagering Law - violated a federal statute, the Professional and Amateur Sports Protection Act of 1992 (PASPA), which prohibits state-sponsored sports betting everywhere except Nevada, Delaware, Montana and Oregon.

The issue dates back to 2011, when voters approved a ballot measure supporting a bill passed by the state legislature amending the state constitution and authorizing the legislature to enact laws to allow sports betting. Governor Chris Christie signed the bill into law in 2012. The federal government, NCAA and the four major sports leagues filed suit to block the legislation, arguing that it violated PASPA, and that legalized sports gambling would irreparably harm the leagues by damaging fans' perception of the integrity of their games. New Jersey responded that PASPA violated the 10th Amendment anti-commandeering principle by compelling state officials to enforce a federal law. The state argued that PASPA violated equal sovereignty by allowing sports wagering in some states, but not others. (It should be noted that at the time PASPA was enacted, New Jersey was offered the opportunity to legalize sports betting, but declined to do so).

Judge Shipp granted summary judgment to the leagues, finding that the New Jersey law was preempted by the federal statute, and that Congress had the power under the Commerce Clause to enact PASPA. He also rejected the anti-commandeering and equal sovereignty claims. On appeal, the Third Circuit upheld the decision, but noted that states are free to repeal sports betting laws and decide "the contours of the prohibition." The U.S. Supreme Court denied certiorari.

In response, in October 2014 New Jersey enacted new legislation, once again attempting to legalize sports wagering. State lawmakers reasoned that while PASPA banned states from licensing and regulating sports betting, nothing required them to actively prohibit it. Therefore, they concluded, a state should be free to decriminalize sports betting, so long as the government did not directly regulate it. The 2014 Sports Wagering Law partially repealed the state's existing ban on sports betting, but restricted the activity to casinos and racetracks. This, they believed, comported with the Third Circuit's language allowing states to decide "the contours of the prohibition."

Once again, the NCAA and the leagues sued in federal court to block the legislation. They argued that the appellate court's "contours" language meant only that the state could determine the proper penalties related to sports betting, and that setting parameters like limiting the wagering to only casinos amounts to regulation. The leagues did concede, however, that federal law would allow a state to lift its ban on sports betting entirely - but not to determine where and when bets could be made, or to impose age restrictions.

Judge Shipp agreed with the petitioners, and granted summary judgment. Immediately, state officials declared that they planned to appeal once again. It now appears that the outcome of this saga will be determined by the Third Circuit's clarification of what exactly it meant by saying a state can decide the contours of the prohibition.

Unsurprisingly, legislators around the country are following this case closely. To date, Virginia, West Virginia, Kansas and Georgia have already publicly supported New Jersey's efforts. Should Governor Christie prevail, expect a wave of sports betting decriminalization to follow. Stay tuned.

November 26, 2014

Match-Fixing and Corruption in Professional Tennis

By Cecilia Ehresman

The Tennis Integrity Unit (the "TIU") was established in 2008 by the Association of Tennis Professionals, the Women's Tennis Association, the International Tennis Federation, and the Grand Slam Committee. (Richard H. McLaren. Symposium: Doping in Sports: Legal and Ethical Issues: Corruption: Its Impact on Fair Play. 19 Marq. Sports L. Rev. 15, (2008)). It was created in response to the highly and negatively publicized investigation of Nikolay Davydenko, ranked fourth in the world, for allegedly fixing his August 2, 2007 match at the Prokom Open against Martin Arguello, ranked 87th. Id. Since its creation, the TIU has established and enforced a uniform regulatory structure for anti-corruption, the Tennis Anti-Corruption Code (the "Code"). This Code is used to handle match-fixing allegations across the sport. However, in the past three years, only nine players have been found guilty of match-fixing across the sport. ( All of those players were low-ranking, with the only prominent player ever to be linked to match-fixing being Davydenko. Id.

Many argue that the TIU has solely sanctioned low-ranking players because it is only they who participate in match-fixing. This assertion is supported by the financial situation of such players (low-ranking players' tournament checks often do not cover the costs of their participation, causing them to have thousands of dollars in out-of-pocket costs per tournament), which explains why match-fixing is appealing to them. However, recent findings and events suggest that this might be a false assertion. A 2014 study, written by Ryan Rodenberg, an assistant professor of Sports Law at Florida State University, and Elihu Geustel, an Indiana-based professional tennis gambler, utilized two predictive models to track the betting market price against the "correct" price. ( The 'correct' price was measured using data from previous matches in order to analyze each players' odds of winning the present match. Id. Under this model, betting patterns for a match were labeled suspect if there was a 16% to 29% difference between the market's and the model's price, since such a deviation could only be the result of an approximate $100,000 swing in wagering before the match even started. Id. Based on these measures, the study found that at least three matches at Wimbledon, this year alone, illustrated suspicious betting patterns which warranted an investigation. Id. This was also true of at least one match at the 2012 London Olympics and several opening-round matches at the 2011 French Open and 2012 Australian Open. Id. Yet none of these matches were ever investigated by the TIU.

Furthermore, in 2013 and 2010 respectively, a veteran sports corruption investigator (the "Investigator") and a Florida-based lawyer who represented the banned Italian players in 2000 (the "Lawyer") came forward to assert that the TIU continually targets low-ranking players for match-fixing, while purposefully allowing big-name players to slide under the radar. ( The Investigator was further quoted stating that as many as a dozen top-50 tennis players, including several who are included in the top 10, have been privately warned about their involvement in suspicious matches rather than being formally investigated. Id. Some of these suspicious matches included matches played at Wimbledon in 2013. Id.

These recent allegations should raise suspicion concerning the recent April 14, 2014 arrest of six men, four of whom were Southern Star players, and none of whom ranked above the top 200, for allegedly conspiring to fix several national and international matches. ( The information which led the TIU to investigate these men was never released, but Australian police did come forward to state that a number of bets were placed on tennis matches where the outcome seemed to be predetermined by at least one of the players. Id. The Australian police then reassured the public that none of these fixings related to the big-matches on the ATP World Tour at the Australian Open. Id.

In light of the recent allegations directed at the TIU and the way in which this most recent arrest was handled, one should ask why the TIU would refrain from going after big-name players. Would it be to ensure the integrity of the "big money" matches? According to the Lawyer, it is because going after "low-hanging fruit" does not jeopardize the TIU's "bottom line." ( In other words, by covering up the names of the top players who partake in gambling and match-fixing, the TIU insures income for the sport as a whole. Id. Tennis, like most professional sports, generates much of its income from fans and sponsors. Id. For this reason, it is in the sport's best interest to sanction lower ranking players to show that its anti-corruption system is working, as opposed to sanctioning big-named players, which would result in negative media attention and the loss of fans and sponsorships (as it did when Davydenko was accused of match-fixing in 2008). Id. Moreover, such negative attention would likely injure sports gambling companies who, for tennis alone, generated a total of $58 billion in gross profit in 2012. (

If the TIU is in fact only targeting low-ranking players while allowing higher-ranking players to slide under the radar, one must question if the TIU is "smart" for doing so. In other words, does this method best balance the integrity of the sport with fan happiness? Similar to what occurs in Major League Baseball (MLB), Article V of the Code ensures player confidentiality throughout an investigation. (; However, MLB superstars have been convicted of crimes. For example, Alex Rodriguez was convicted in 2014 of using steroids, and the Chicago White Sox were even convicted of fixing the World Series in 1919. (; So why would the TIU be afraid of going after big-named players when the MLB does it quite frequently regarding equally serious allegations? Again, perhaps it is to protect the sport as a whole from scandal in order to ensure tennis' financial stability. However, the TIU must recognize that such a method can only be a short-term fix. Allegations of corruption within the TIU itself are already becoming more frequent. Thus, if these allegations are true, it is only a matter of time before the truth is exposed. For this reason, if it is not doing so already, it is best for the TIU to equally target all players. While this may hurt sponsorship in the short-term, it will ensure that the public does not lose faith in the sport. As Warwich Barlett, chief executive officer of Isle of Man, a U.K. based Global Betting and Gambling Consultants firm, stated: "credibility is everything in sports...[and] people don't want to be on roulette if the wheel is rigged."

November 25, 2014

More Myths About Hiring Independent Contractors

By Kristine Sova

In a prior post titled Top Myths About Hiring Independent Contractors, we identified three common misconceptions about the use of independent contractors. The absence of clear-cut rules about the kinds of workers who are and aren't appropriately classified as independent contractors continues to result in the misclassification of independent contractors by employers. Here, we identify three more common misconceptions about classifying workers as independent contractors that almost always lead to liability for employers.

Myth #4: There are some workers who are always independent contractors.

IT professionals and web designers are always independent contractors, right? Wrong. While more often than not there are probably certain types of workers at a certain type of startup who are more likely to be independent contractors, there is no one type of worker that will always be an independent contractor. In all cases, determining whether a worker is an employee or independent contractor is a fact-and-circumstances inquiry.

Myth #5: Commission-only workers are independent contractors.

How a worker is compensated is just one factor that is considered when determining whether a worker is an employee or an independent contractor. This includes commission-only payments, which in New York, can be used to compensate employees, not just independent contractors. (If you operate a New York business with commissioned employees, be aware that the New York Labor Law requires employers to have written employment agreements with their commissioned employees. The law is also specific as to what terms must be included in those employment agreements.)

Myth #6: Probationary, temporary, or seasonal workers are independent contractors.

Some businesses hire probationary, temporary, or seasonal workers and classify them as independent contractors, reasoning that because the relationship will be short-lived, the worker need not be placed on payroll. The length of the relationship is not grounds alone to treat a worker as an independent contractor. Rather, the whole relationship must be considered. Further, if a short-term worker is performing work substantially similar to the work performed by your business's employees, it's likely the short-term worker is also an employee.

These three misconceptions all involve clear-cut rules. As a whole, they serve as a reminder that there is no shortcut for determining whether a worker is an employee or independent contractor. Rather, how a particular worker should be classified requires a comprehensive inquiry unique to the worker and the business. If you'd like to learn more, please read Is Your Worker an Independent Contractor or Employee? (, which outlines the kinds of factors that are considered when determining whether a worker is an employee or independent contractor.

November 21, 2014

Week in Review

By Chris Helsel

Sirius XM Denied Summary Judgment in NY Copyright Dispute

Following a defeat in California federal court, Sirius XM (Sirius) has suffered yet another setback in its copyright dispute with "Happy Together" rockers, The Turtles. Flo & Eddie, Inc. (F&E), a corporation created and owned by two of The Turtles' founding members that owns all rights to the band's master recordings, has brought suits against Sirius in three states for copyright violation. This week, a federal judge in New York denied the satellite radio company's summary judgment motion. In so doing, the Southern District of New York ruled that while the Federal Copyright Act does not protect music recorded prior to 1972, New York state law does. The court concluded that "the New York Court of Appeals would recognize the exclusive right to public performance of a sound recording as one of the rights appurtenant to common law copyright in such a recording." Further, the court declined to distinguish between holders of copyrights in sound recordings and any other industry, holding that "common law copyright in sound recordings comes with the entire bundle of rights that holders of copyright in other works enjoy."

The court also ordered Sirius to show cause by December 5th why summary judgment should not be ordered in favor of F&E.

In addition to California and New York, F&E also has similar litigation pending against Sirius in the Southern District of Florida. A win for F&E in Florida could open the door to a flood of lawsuits brought against both digital and traditional AM/FM music providers for unauthorized use of pre-1972 music recordings.

NBA, NFL Brace for Challenges to Domestic Violence Suspensions

On Tuesday, following a hearing conducted the previous day via conference call, National Football League (NFL) commissioner Roger Goodell announced that Minnesota Vikings running back Adrian Peterson was suspended without pay for the remaining seven games of the 2014 season after his plea of no contest to misdemeanor reckless assault. Peterson was originally indicted on felony child abuse charges for assaulting his four-year-old son with a "switch" (a thin tree branch, essentially). Following his indictment, the league placed Peterson on the Commissioner's Exempt List, which prohibited him from games and team activities but allowed him to continue to be paid. The suspension does not require Peterson to pay back any money earned to this point.

In suspending Peterson, Commissioner Goodell cited three aggravating factors that led to the harsher punishment: the child's age, Peterson's use of a weapon, and his failure to show "meaningful remorse" for his conduct. At the time of his indictment, Peterson stated that he would not "eliminate whooping (his) kids" and defended his conduct in texts to the boy's mother. Goodell's letter to Peterson informing him of the suspension stated: "These comments raise the serious concern that you do not fully appreciate the seriousness of your conduct, or even worse, that you may feel free to engage in similar conduct in the future."

On Wednesday, the NFL Players Association NFLPA (players union) filed an appeal on Peterson's behalf. It is believed that the appeal will focus on the vast discrepancies between punishments handed down to different players for similar infractions, and allege that the NFL has engaged in ex post facto lawmaking by applying its newly-enacted domestic violence policy to Peterson, whose infractions occurred prior to the announcement of the new policy.

Under the 2011 Collective Bargaining Agreement, the commissioner has the sole power to determine discipline under the player conduct policy, as well as to hear any appeal. While this system has come under heavy criticism of late, it is the result of good faith, arms-length bargaining, as the league office has been quick to point out. Nevertheless, Peterson and the union have requested that Goodell recuse himself as the appeal officer and that a neutral arbitrator hear the appeal instead.

Meanwhile, two blocks west of NFL headquarters, National Basketball Association (NBA) brass entered the domestic violence discussion this week as well. Commissioner Adam Silver announced Wednesday that Charlotte Hornets forward Jeff Taylor was suspended without pay for 24 games after Taylor pleaded guilty in October to misdemeanor domestic violence assault and malicious destruction of hotel property. He received probation and must complete a domestic violence intervention program.

NBA bylaws give the commissioner broad power to discipline players for conduct policy violations, but differ from NFL rules in that a suspended player has the right to file an appeal directly to an independent arbitrator. The NBA players' union, the NBPA, has indicated that it is prepared to do exactly that.

Newly elected NBPA executive director Michele Roberts said on Thursday that the suspension is "excessive, without precedent and a violation of the Collective Bargaining Agreement." She noted that the NBA CBA calls for a minimum 10-game suspension in cases involving a violent felony conviction - and that Taylor's case was merely a misdemeanor, which could be dismissed following the 18-month probationary period. Roberts also noted that the decision to appeal has not yet been made, but the union stands behind Taylor in the event he decides to pursue that route.

It should be fascinating to follow these two concurrent cases in the coming months, as they highlight both the increased emphasis professional leagues are placing on the discipline of players involved in domestic disputes and the crucial differences in the disciplinary and appeals processes of the NFL and NBA.

Court Saves Detroit Institute of Arts' Irreplaceable Collection

U.S. Bankruptcy Court Judge Steven Rhodes' recent approval of the beleaguered city's bankruptcy restructuring plan ensures that the Detroit Institute of Arts (DIA) will not be forced to sell off its precious masterpieces to pay creditors. Under the "great bargain" approved by Judge Rhodes, the museum, which attached itself to the city in 1919, will now become a private charitable organization. The plan calls for a coalition of foundations, state government and the DIA to contribute the equivalent of $816 million over 20 years as a proxy for the value of the museum. The DIA itself will contribute $100 million. The funds will be distributed to pensioners in an effort to mitigate against the pension cuts included in the city's restructuring plan.

The judge, who declared that the DIA was "critical" to the future of the city, stopped short of declaring a sale of the museum's art to pay the city's creditors illegal, although he did hint that the DIA would "almost certainly" prevail if it sued to prevent such a sale. Previously, the Michigan attorney general had opined that a forced sale was unlawful because the DIA was held for the public benefit in a charitable trust.

In approving the bankruptcy restructuring plan, Rhodes said in his address from the bench: "The evidence unequivocally establishes that the DIA stands at the center of the city as an invaluable beacon of culture, education for both children and adults, personal journey, creative outlet, family experience, worldwide visitor attraction, civic pride and energy, neighborhood and community cohesion, regional cooperation, social service and economic development."

Thankfully, despite its bleak financial situation, Detroit was able to avoid resorting to the regrettable and irreversible measure of selling its finest museum's precious masterpieces. As George N'Namdi, founder of the N'Namdi Center for Contemporary Art in Detroit, so astutely noted, a forced sale of art would have sunk morale to a new low and "destroyed the image of the city in the eyes of the world...It would represent such a defeatist position to be in, and I don't think the city could have ever recovered from that."

Turtles 2, Sirius 0: Is Broadcast Radio Next?

By Steve Gordon

Last Friday, a New York federal court ruled that New York State law protects public performance rights in sound recordings. Although the defendant in the case was SiriusXM Satellite Radio, which is a digital service, the ruling would appear to apply to any radio station, nightclub, or any other venue that plays recorded music in New York.

The result is that radio stations may, for the first time in U.S. history, have to pay to play records, although the decision only applies to records produced prior to 1972. Records produced on or after February 15, 1972 are subject to federal law which explicitly states that sound recordings do not have performance rights except in respect of digital transmissions.

The New York federal court judge Colleen McMahon ruled: "In short, general principles of common law copyright dictate that public performance rights in pre-1972 sound recordings do exist." The judge based this conclusion on a series of New York court decisions that afforded public performance rights to holders of common law copyrights in works such as plays and films. She acknowledged that "the conspicuous lack of any jurisprudential history confirms that not paying royalties for public performances of sound recordings was an accepted fact of life in the broadcasting industry for the last century."

However, she discarded that history by observing, "... acquiescence by participants in the recording industry in a status quo where recording artists and producers were not paid royalties while songwriters were does not show that they lacked an enforceable right under the common law - only that they failed to act on it."

MacMahon rejected Sirius' request to dismiss the lawsuit and held that unless Sirius raises any factual issues requiring a trial by December 5th, she will rule outright for the plaintiff, Flo & Eddie, Inc. (ie, The Turtles), "and proceed to an inquest on damages."

In late September, a California federal judge, Philip Gutierrez, ruled that California state law also protected public performance rights in pre-72 recordings. In both the New York and California cases, the plaintiff (Flow & Eddie, Inc.) and the defendant (Sirius XM) were the same. Flo & Eddie, Inc. is a company controlled by founding The Turtles members Howard Kaylan and Mark Volman, and controls that band's catalog of recordings, including the hit "Happy Together."

Unlike New York, California has a specific statute that directly addresses pre-1972 sound recordings. Section 980(a)(2) of the California Civil Code states: "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...."
Judge Gutierrez found "that copyright ownership of a sound recording under § 980(a)(2) includes the exclusive right to publicly perform that recording." His conclusion was largely based on the fact that neither the statute itself, nor the legislative history for Section 980(a)(2), specifically excluded public performance rights for sound recordings.

Judge McMahon's decision seems to encourage claims against terrestrial radio stations operating in both New York and California, given her observation that the historical absence of claims against radio stations for failing to pay for legacy recordings did not mean that the owners of those records do not have an "enforceable right." Indeed, she almost invites a claim against them by stating that such copyright owners do have an enforceable right that so far they have just "failed to act on." McMahon acknowledged that her decision could have far-reaching consequences, such as prompting other lawsuits or causing more states to change their copyright laws, but said "the broader policy problems are not for me to consider."

The natural first plaintiff against a terrestrial radio station would of course be Flo & Eddie, Inc. However, one can imagine more than a few class action litigators who may be thinking about bringing an action on behalf of a group of legacy artists against radio stations in New York and California, including networks such the ClearChannel.

Another possible consequence of these legal victories may be that the National Association of Broadasters (NAB) may finally be willing to compromise and agree to support legislation that would make terrestrial radio finally pay something for sound recordings.

As they say in the broadcast business, "Stay Tuned."

November 20, 2014

Pre-1972 Sound Recordings Could Kill the Radio Stars

By Barry Werbin and Sharon O'Shaughnessy
Herrick, Feinstein LLP

On the heels of the Central District of California's related September 2014 decision, Judge Colleen McMahon of the Southern District of New York, has denied Sirius' motion for summary judgment on Flo & Eddie, Inc.'s class action complaint alleging that Sirius XM Radio (Sirius) committed common law copyright infringement and engaged in unfair competition by publicly performing pre-1972 sound recordings of The Turtles, and by reproducing those recordings in aid of its performances. Flo & Eddie, Inc. v. Sirius XM Radio, Inc. (S.D.N.Y. Nov. 14, 2014). Absent Sirius convincing the court by December 5, 2014, that there are remaining issues of material fact that would require a trial, Judge McMahon will enter summary judgment in favor of Flo & Eddie as to copyright infringement liability and proceed to an inquest on damages.

Ultimate victories for Flo & Eddie, Inc., which owns the copyrights to The Turtles' master recordings, could be disastrous to Sirius, a subscription-based satellite and Internet radio services provider, which operates 24/7, devotes entire channels to pre-1972 sound recordings, and, like other streaming music providers, has never paid separate royalties to perform sound recordings. Damages could reach millions of dollars, and this sea of change after decades of status quo non-enforcement will surely result in copycat lawsuits that will turn the broadcast and streaming music industry on its head.

Sirius and other providers pay music license royalties covering the underlying musical compositions, but music is the only type of creative work that has two independent copyrights: (i) a copyright in the composition (lyrics and music) that generally is held by the composers of works or their music publishers; and (ii) a copyright in the sound recording, which is the medium in or on which a particular performance of a musical composition is fixed for posterity and for playback. As Judge McMahon explained, "In essence, a copyright in a sound recording is a copyright in the performance -- not in the work being performed."

While federal law has protected copyrights in musical compositions since 1831, Congress only made sound recordings eligible for federal statutory copyright protection in 1971. This protection operates prospectively and, consequently, recordings that were "fixed" (i.e., recorded) prior to February 15, 1972, are not eligible for federal copyright protection. As Congress did not adopt a federal copyright scheme for pre-1972 sound recordings, holders of sound recording copyrights seeking to exercise their rights must look to state common law to determine the copyright protections and remedies to which they are entitled.

Enter Flo & Eddie, Inc., a California corporation that is wholly owned by Mark Volman and Howard Kaylan. Volman and Kaylan were two of the original members of the 1960s rock group The Turtles, whose memorable hits include "Happy Together" and "It Ain't Me Babe." Flo & Eddie, Inc. acquired all rights to The Turtles master recordings. Sirius acknowledges that it "performs" sound recordings, including pre-1972 Turtles recordings owned by Flo & Eddie,Inc., by broadcasting them over its satellite radio network and streaming them over the Internet. To facilitate this service, Sirius makes multiple copies -- temporary, permanent, whole, and/or partial -- of pre-1972 The Turtles sound recordings during its broadcast process, performs the copies it makes, and does so without obtaining sound recording reproduction and performance licenses from Flo & Eddie, Inc.

Flo & Eddie, Inc. filed three class actions against Sirius in California, New York, and Florida, asserting state common law copyright infringement claims (as well as claims for unfair competition, conversion, and misappropriation) under the laws of the three respective states. Florida has yet to issue its ruling.

In the California action, Flo & Eddie, Inc. argued that Sirius was liable for two unauthorized uses of its sound recordings: (i) publicly performing Flo & Eddie, Inc.'s recordings by broadcasting and streaming the content to end consumers and to secondary delivery and broadcast partners; and (ii) reproducing Flo & Eddie's recordings in the process of operating its satellite and Internet services. Sirius argued that the bundle of rights that attaches to copyright ownership of a pre-1972 sound recording does not include the exclusive right to publicly perform the recording. Flo & Eddie,Inc., however, contended that an exclusive public performance right existed under California law.

Relying on California's copyright statute, Civil Code §980(a)(2), the California court agreed with Flo & Eddie, Inc. and, on September 22, 2014, granted its motion for summary judgment on its public performance-based claim. After first noting that the California legislature intended ownership of a sound recording to include all rights that can attach to intellectual property, save the singular exception for a "cover" of a recording, the court concluded that copyright ownership of a sound recording under §980(a)(2) necessarily includes the exclusive right to publicly perform the recording. The court also found in favor of Flo & Eddie, Inc. on its unfair competition, conversion and misappropriation claims.

As New York, unlike California, does not have a specific statute that protects a public performance right in pre-1972 sound recordings, Judge McMahon considered the following four issues under New York common law: (i) whether the owners of pre-1972 sound recordings possess an exclusive right to the public performance of those works and whether Sirius infringed Flo & Eddie, Inc.'s copyright; (ii) whether Sirius' broadcast of The Turtles recordings is protected by the "fair use" doctrine; (iii) whether upholding Flo & Eddie, Inc.'s claims would violate the Dormant Commerce Clause; and (iv) whether Flo & Eddie, Inc.'s claims were barred by laches.

In the New York action, Flo & Eddie, Inc. first argued that New York's common law copyright protection prohibited both the reproduction and public performance of The Turtles' pre-1972 sound recordings. Echoing the argument that it made in California, Sirius contended that New York common law copyrights in pre-1972 sound recordings do not afford an exclusive right of public performance. After first acknowledging that this was a question of first impression, Judge McMahon ultimately concluded that "the New York Court of Appeals would recognize the exclusive right to public performance of a sound recording as one of the rights appurtenant to common law copyright in such a recording." Judge McMahon reached this conclusion based upon a detailed examination of the background principles and history of New York copyright common law, which revealed that the common law typically protects against unauthorized performances and has provided "expansive" protection for artistic works that do not enjoy federal statutory copyright protection for at least 50 years. Sirius' argument -- that New York case law contains no discussion of public performance rights in sound recordings -- was unavailing. As the court ultimately concluded, "New York has always protected public performance rights in works other than sound recordings that enjoy the protection of common law copyright. Sirius suggests no reason why New York -- a state traditionally protective of performers and performance rights -- would treat sound recordings differently."

The court next determined that Sirius reproduced Flo & Eddie, Inc.'s copyrighted recordings without authorization by (i) reproducing The Turtles' recordings for its three main databases, associated backups and smaller on-site databases; and (ii) producing several temporary but complete copies of The Turtles' recordings for its play-out servers, caches and buffers. In response to Sirius' argument that it was not liable for infringement because it did not "distribute" The Turtles' recordings, Judge McMahon pointed out that "[t]o the extent that distribution is an element of common law copyright infringement, publicly performing sound recordings is an act of distribution. Otherwise, Sirius cannot explain how New York courts could have recognized infringement claims alleging that defendants publicly performed copyrighted works without authorization."

Judge McMahon also rejected Sirius' contention that its creation of multiple complete copies of Flo & Eddie, Inc.'s sound recordings could be considered "fair use." After noting that New York courts have not articulated the scope of New York's fair use doctrine, the court undertook a fair use analysis based on the Copyright Act standard and concluded that "Sirius makes non-transformative use of Flo and Eddie's recordings and does so for commercial gain. It is, therefore, 'common sense' that Flo and Eddie would suffer market harm when Sirius takes its property and exploits it, unchanged and for a profit." The court also held that Sirius engaged in unfair competition, Flo & Eddie, Inc.'s assertion of its common law copyright is not barred by the Dormant Commerce Clause, and Sirius cannot invoke the defense of laches.

These explosive rulings may have dire consequences for the broadcast radio industry -- especially streaming music platforms. While the California and New York decisions will be appealed, they raise a host of issues that underscore the uncertain future of the sound recording copyright landscape. For instance, if the decisions are not stayed pending appeal, will pre-1972 music disappear from the airwaves? Will litigating the existence of a public performance right on a state-by-state basis upend the entire broadcasting industry? What happens if the myriad of state laws end up conflicting in the Internet age? Will Congress step in, as many have started urging, and bring pre-1972 sound recordings under the fold of the federal Copyright Act? In the words of The Beatles, legislators need to "Come Together" and sort this out.

[The full SDNY decision can be accessed here:]