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April 13, 2009

Social Media Offers Good News/Bad News for Lawyers

By Lisa Fantino

Social networking sites like Facebook, MySpace, Friendster, and more recently Twitter, are blazing a new frontier in cyberspace and forging new ground for entertainment lawyers. That's good and bad news. The bad news is that Facebook alone has 175-million users across the globe who are clueless about copyright law and were simply outraged because they thought Big Brother was watching them. The good news is that creates a pool of hundreds of millions of new problems for entertainment lawyers to solve.

Facebook CEO Mark Zuckerberg is no dummy; after all, he created the fastest growing communications network in a downward global economy. And the Harvard educated billionaire would presumably have highly-paid and skilled Internet lawyers advising him; yet, that doesn't seem to be the case. Oh, they have coached Zuckerberg big-time since the brouhaha over content started on thewww.msnbc.msn.com/id/21134540/vp/29427147#29427147" target="_blank"> Today Show , but Facebook should never have been in this mess from the get-go.

Often what I find is that transactional lawyers and corporate counsel who draft "policy" and Net guidelines are not skilled at issue-spotting when it comes to potential pools of litigation and that's music to the ears of entertainment and Internet litigators.

The laundry list of issues, as I humbly see it, starts this way and grows:

1. Content ownership:
Zuckerberg has side-stepped the issue, stating on the Today Show, "If you sign up for the site and then you decide that you want to take that information down, then none of that information will be shared with anyone going forward." OK, it won't be shared with your former Facebook "friends" but where does it go? In the absence of a formal waiver or transfer to the contrary, the copyright rests with the content's creator (www.copyright.gov/title17/92chap2.html" target="_blank">See: §§201, 204 of the U.S. Copyright Law ); however, does Facebook have any license rights, and if so, what are they, or what should they be?

If the Facebook user is inherently granting a license to Facebook by virtue of its registration and subscription for an account, then when exactly does that grant of rights terminate? §203(3)-(4) of the U.S. Copyright Law states the parameters for termination of the grant and it's not clear that a Facebook subscriber can immediately terminate that license by withdrawing the content and/or deleting an individual account.

I'll address the implications of using third-party applications via Facebook in a follow-up blog next month.

2. Digital archives:
While Facebook is not serving as either editor or publisher of content, the information does reside on its servers and it would be illogical to think that it will not keep a digital archive for a respectable amount of time. Without such a corporate policy, would Facebook not then open itself to possible issues of spoliation of evidence, even in the absence of any legal duty to do so? While it is true that most courts have been reluctant to allow such third-party spoliation claims (www.law.cornell.edu/nyctap/search/display.html?terms=basil&url=/nyctap/I04_0025.htm target="_blank">See: MetLife Auto & Home v. Joe Basil Chevrolet, Inc., 303 A.D.2d 30 (N.Y. App. Div. 2002), aff'd 2004 1 N.Y.3d 478, 775 N.Y.S.2d 754 (2004) ), corporate counsel should be aware that Facebook, MySpace, Twitter, and the like may face direct charges in a lawsuit where spoliation would be based on very fact-specific information. Therefore, it is likely that these social networks will archive content for a respectable amount of time, as it would be financially imprudent for them not to do so, since paying for digital storage now could save millions in claims and legal fees at some future date.

3. Corporate Governance:
Facebook is soliciting comments from its users regarding corporate policy and has stated that it will re-visit its privacy and content policies after this "open door discussion" period ends on March 29th. The users of Facebook and MySpace are not shareholders; therefore, is Facebook just downright insane to allow its "friends" to even remotely suggest what would be the best use of its servers? Maybe, just maybe each Facebook "friend" should cough up the $240-million that Microsoft did for a 1.6% share in Facebook; at least that would make each of them a minority shareholder! If this doesn't stop them from tweeting all about then maybe Facebook users should invest $9.99 at Godaddy.com and buy their own domain. Then no one could tell them what to do; how to do it; or what to say. Then, any and all lawsuits that fly at them through cyberspace could be borne by them as well.

In the end, as ladylitigator.wordpress.com target="_blank">Lady Litigator sees it, the entire universe of social networking is a potential goldmine for us lawyers.

Hey, wanna be my Facebook fan">www.facebook.com/pages/Mamaroneck-NY/Lady-Litigator-The-Law-Office-of-Lisa-Fantino/50052159868" target="_blank">Facebook fan ? LOL

Lisa Fantino is an award-winning journalist turned attorney with a general and entertainment practice in Mamaroneck, NY. www.lisafantino.com" TARGET="_blank">Law Office of Lisa M. Fantino

April 14, 2009

Welcome from EASL's Vice Chair

It is profoundly gratifying to be serving as Vice-Chair – and soon to be Chair – at such an exciting time in our Section’s history. The launching of the Section’s Blog by our versatile Journal Editor and former Chair Elissa D. Hecker is the latest of our significant initiatives to serve our members. No doubt, the EASL Blog will set the standard for expert blogging on a diverse range of topics in the entertainment, arts and sports law fields. In no time, you’ll be opening the page with your morning coffee, or en route to court or a meeting, to check on the latest developments. Just another benefit to being an EASL member. I look forward to our venture into the Blogosphere!

Judith B. Prowda
Vice-Chair

Video Game Music Composers--Reserve Your Performance Rights

Written by Christine A. Pepe

Rock Band®, Guitar Hero®, Dance Dance Revolution® (DDR), Stubbs the Zombie®--these are just a few examples of video games in which music has increasingly become a focal point, or at the least, an important element. As a side note, for those indie-rock fans, the Stubbs the Zombie soundtrack is quite good, featuring classic covers performed by bands such as Rogue Wave, Death Cab for Cutie, The Raveonettes, The Flaming Lips, and last but not least, The Dandy Warhols. I highly recommend it.

Now, there was a time when video game music was simplistic, rudimentary if you will. Think Pac-Man®, Ms. Pac-Man®, Donkey Kong®, Donkey Kong Junior® and Galaga®. It is probably difficult to imagine a use of these trademark video game songs in a context other than the games themselves. So it isn't surprising that, beginning decades ago, a practice developed whereby the music composers for these games typically relinquished all of their rights (including their performance rights) to the game developer and producer in exchange for an upfront payment. Once the physical copy of the game was sold, no more fees went to the music composers.

That was then. Now, because video games are being delivered by entities other than developers and on transmission-based platforms such as the Internet, there is no reason that composers of music for video games should sign away their rights. Take for instance, X-Box--it is now fully integrated with the Internet and allows users to stream games (instead of just purchase the physical product in the store). Internet-based services that now offer streaming of video games are causing the music contained in such games to be publicly performed. The providers of these video game services typically have or should have a license from ASCAP (and possibly other public performance right organizations). ASCAP is actively licensing such online video game services. If a game songwriter or composer member of ASCAP has reserved his or her right to collect the writer's share of the performance royalty, that writer or composer is now in a position to receive recurring royalties. In fact, game developers who register as publisher members of ASCAP would also be eligible to collect public performance royalties when their games are delivered via online services licensed by ASCAP.

ASCAP encourages its members who work in the video game industry to adopt the model that has developed in the film and television industries. In the film and T.V. worlds, the reality is that a producer needs to hold all rights in order to distribute the ultimate work. Therefore, film/T.V. songwriters and composers are required to give up their ownership rights in the musical work typically through a "Work for Hire" agreement, which is the industry standard. Nonetheless, in this industry, the composers and songwriters routinely negotiate a contractual provision allowing them to receive performance royalties, which can be a significant revenue source.

Similarly, songwriters and composers in the video game industry may reserve the right to receive performance royalties and should not simply consider the upfront payment, but also the potential use of the music (i.e., in television, film and commercial contexts) and the potential for recurring performance royalties in the future. Sample contractual language that would reserve the performance right would be as follows: "Composer shall be entitled to collect the 'writers share' of public performance royalties (as that term is commonly used in the music industry) directly from a public performance society that makes a separate distribution of said royalties to composers and publishers."

For more information about how ASCAP is leading the call for performance royalties in new media video games, please contact Shawn LeMone in ASCAP's Los Angeles Membership office at slemone@ascap.com, and check out the Game Audio Network Guild (GANG) at http://www.audiogang.org.

Written by Christine A. Pepe, Director Legal Affairs at The American Society of Composers, Authors and Publishers. ASCAP is a performing rights organization that protects the rights of its members by, among other functions, licensing and distributing royalties for the public performances of their copyrighted musical works. If you have any questions, feel free to contact Christine at cpepe@ascap.com.

Your Albany Top Ten List

By Bennett Liebman

Many entertainment, arts, and sports law practitioners in New York look at Albany as some sort of foreign land. It’s almost like the old Saul Steinberg New Yorker “View of the World” cover. This time, instead of looking west, we look north with entertainment and arts civilization ending at the Bronx –Westchester border. There might be dots in the picture for outposts like Woodstock, Saratoga Springs, or Caramoor, but basically any locale north of New York City would be deemed a cultural wasteland. How can a town with arcane ways and less than 100,000 people determine the entertainment and arts policies governing the nation’s – if not the world’s - entertainment and arts hub? It’s like Sparta exercising artistic dominion over Athens, or if the Philistines had defeated the Israelites.

One of the major legislative issues has already been resolved. That is the sales tax on admissions issue. Governor Paterson in his budget had initially proposed to extend the sales tax to various amusement charges. He anticipated that this action, when fully implemented, would have increased state revenues by $70 million. The budget plan extended the State’s 4% sales tax and any applicable local sales tax to admission charges. Thus, per the State Budget division, there would have been a sales tax imposed “for admission to horse racing tracks, boxing and wrestling events, live dramatic and musical arts performances, circuses, motion picture theaters (whether or not to see a movie), and places where patrons will participate in a sport such as a swimming, bowling, tennis, etc.”

The provision was adamantly opposed by Broadway theaters, ski resorts, and bowling alleys. The New York Times even wrote an editorial against its application to Broadway stating “An entertainment tax should certainly stay in that mix, especially when it comes to thriving businesses like movies, sports events, concerts and dog shows. When it comes to Broadway, only a smaller levy makes sense -- and even that should be short term.” The Governor withdrew this proposal and a host of so-called “nuisance” taxes on March 11 and replaced them in his budget with federal stimulus funds.

Without trying to decipher Albany’s ways, this is an attempt to develop a top ten list of the initiatives in Albany that are likely in 2009 to affect the arts, entertainment, and sports fields. It’s where the netherworld meets the entertainment world.

10. Mixed Martial Arts Legalization – This recession seems to be the most likely time for an attempt to legalize mixed martial arts competition. It may be the fastest growing sport in the nation, and its proponents are likely to claim that he sports’ legalization will have a significant positive economic effect on New York.

9. Video Lottery Terminals at Racetracks – Video lottery terminals are instant lottery tickets that are dispensed in a manner that makes them indistinguishable from slot machines. They are now at all the State’s harness racing tracks. Negotiations with an ostensible winning bidder to bring VLT’s to Aqueduct Racetrack in Queens failed this month. Current state law prevents VLT’s from being used at Belmont Park on the Nassau-Queens border. Will VLT’s be expanded to include Belmont, which could bring in hundreds of millions of dollars to the State? Will the negotiations over Aqueduct be resolved? Will efforts be made to expand the definition of a lottery to include electronic table games and/or traditional slot machines? What composer Frank Loesser in Guys and Dolls might have called the “oldest established permanent floating gambling debate” will certainly continue in Albany.

8. Baseball and Brodsky- Powerful and outspoken Assemblyman Richard Brodsky of Westchester County has been engaged in a running war with New York Yankee president Randy Levine over the financing of Yankee Stadium. Brodsky has challenged the financing as corporate welfare for the richest team in baseball. He has called on the IRS to review the stadium deals of both the Yankees and Mets. The Yankees through Levine have accused Brodsky of political grandstanding. The issue becomes what the end game for each of the participants is and what impact there will be on the sports teams and the taxpayers of New York.

7. Stimulus money – It may not be a legislative issue, but a major issue facing the entertainment industries will be whether they can access federal stimulus moneys. For example, will there be federal stimulus money available to help construct Bruce Ratner’s Atlantic Yards project which is supposed to house the stadium for the relocated New Jersey Nets? Will there be stimulus funds for Broadway theaters or for arts projects?

6. The OTB’s – With the horse racing industry seeming to crater in New York State and in the nation, what will become of the six regional OTB’s in New York State. The commercial racetracks all have video lottery terminals. The New York Racing Association has considerable State support and is on the verge of having VLT’s. But the OTB’s – which are six separate public benefit corporations – have little backup. There is a State task force that is supposed to report on the overall issue, but issues of privatization, consolidation, and shared services have proven difficult in the past to deal with.

5. Ticket Resales – Major issues have sprung up nationwide over the resale practices of companies offering concert tickets. There have been incidents in the United States and Canada where concert ticket go up for sale at Ticketmaster, are quickly sold out, and then reappear at high prices on Tickets.now, a reseller of tickets owned by Ticketmaster. This has become an issue that attorney generals and legislators are likely to review. If there are going to be probes of resalers, it is also likely that these investigations will look at fees and service charges of the ticketing companies. The proposed merger between Ticketmaster and Live Nation is also likely to be subject to legislative criticism.

4. Museum Art Sales – With endowments shrinking due to the massive losses of the stock market, some museums have resorted to selling portions of their collections to pay their operating costs. This is a practice that has been frowned on by much of the museum world, which does not believe that works of art should be used to monetize museum collections.
To accomplish this goal, the omnipresent Assemblyman Brodsky has introduced A. 6959 which would create rules for deaccessioning items in a museum's collection and which would regulate the use of funds received from deaccessioned items. Museums would be required to adopt a binding collection management policy and a mission statement. Items can only be deaccessioned if certain criteria have been met, and “any museum disposing of an item must make a good faith effort to sell or transfer such item to another museum in New York state.” Proceeds derived from the deaccessioning items from a museum’s collection may not be used for normal operating expenses. It remains to be seen if this legislation will be regarded as overly burdensome by much of the museum community and encounter significant resistance.


3. Broadway Generally – With a slew of 13 play closings on Broadway in January and a depressed market in general, the Broadway theaters are looking to Albany for some measure of relief. In the best of all possible worlds, they would like to see some Broadway theater credit much in the same manner as the film production credit. Budgeteers in Albany might tend to view the Broadway stage as a captive industry. Unlike the film industry, it cannot pick up and move to a different state or province. Thus, they may be unlikely to find money for Broadway when Albany is already under fiscal stress. Will there be other measures such as Assemblyman Brodsky’s bill A. 5062 which would authorize the State Power Authority to provide electricity to Broadway and off-Broadway theaters, or will Broadway be fortunate to thank its lucky stars that the sales tax on admissions was not extended to Broadway shows?

2. The Film Credit – In last year’s budget, Governor Paterson and the legislature passed a film production credit which granted film and TV companies get a 30% tax break on production costs for shows shot in New York. This credit has proven so popular that its funds have been depleted, and there may not be enough money in the upcoming budget to continue to supply the credit. Governor Paterson in his budget did not propose to increase funding for the credit. Because of the uncertainty over whether the credit will continue, at least one television show, Fringe, has announced it will leave New York for Vancouver, and others are considering leaving as well. Both the studios and the labor unions have lined up in support of full funding for the credit and making the credit permanent. The AFL- CIO is in support of this tax break stating, "As the legislature debates the 2009 budget, it is imperative to give this program certainty for thousands of workers. ... We are losing jobs right now. Good-paying union jobs with benefits are leaving New York.”

This is a big ticket lobbying number. In 2009, Steiner Studios in Brooklyn reported over $125,000 in lobbying expenses on this issue last year. The Motion Picture Association of America, which was involved in other issues as well, reported over $235,000 in lobbying expenses in New York in 2008. Again, this is an issue where we may see some resolution when the State budget is passed. If the budget does not address this issue, it is likely to be around throughout the session.

1. The Dead Celebrities Bill- This is the issue which flared up at the conclusion of the 2008 legislative session involving the privacy and publicity rights of the estates of deceased celebrities. A huge publicity effort was mounted in Albany last June to obtain legislation similar to California’s Dead Celebrities Bill which was passed in 2007.Much of the lobbying effort was fueled by the estate of Marilyn Monroe. The Monroe estate (Marilyn Monroe LLC) reported $120,000 in lobbying expenses last year to pass this legislation. Numerous other groups were concerned about this issue as well including the Association of the Bar, the Broadcasters Association, the Broadway League, McGraw-Hill, the Motion Picture Association, the Screen Actors Guild, and the Cable TV Association. Another huge fight seems a sure thing in 2009. It is Albany’s answer to the Battle of the Network Stars, and it’s a sure thing that this battle of the dead celebrity stars will be more entertaining than most of the films and television shows that the dead celebrities starred in.

Bennett Liebman is the Executive Director of the Government Law Center of Albany Law School. He also serves on the board of directors of the New York Racing Association.

Welcome from EASL's Chair

Welcome to the EASL Blog! I am very excited about the launch of this excellent new resource!

The purpose of this blog is primarily to give a voice to our section and foster communication with both current and prospective EASL members. This blog is an opportunity to promote and reinforce our strong and timely programming, affordable CLE, and pro bono efforts. Previews of upcoming events and programs will help generate even more interest and participation. Post-panel comments and discussion forums will encourage sustained energy and interest in the discussion topics.

Additionally, the blog will offer timely summaries and analysis of legislation, litigation and judicial opinions and be a forum for discussion of current issues in our practice area. I am confident it will quickly become a go-to destination for both EASL members and the wider entertainment law community.

Our practice area probably has the most overlap with the world of blogging than most others, so it is especially meaningful to see our Section join with other NYSBA Sections who utilize Blogs as a tool to communicate with members and participate in discussions of legal issues in our industry. We are fortunate to have a Section that is comprised of diverse practitioners with a wide variety of specialties and I am confident the EASL Blog will reflect this diversity and offer a comprehensive survey of the practice of entertainment, arts and sports-related law with an eye always to the future of the business.

On behalf of the EASL Executive Committee I would like to thank EASL Blog Editor Elissa Hecker for all her hard work and dedication in the development of this new forum. Additional thanks to Barbara Beauchamp, web guru at NYSBA for her assistance on the technical side. All EASL members are invited to contribute to the EASL Blog and I encourage you to share your specialized experience, expertise and insight with your fellow members.

I look forward to seeing you all at EASL’s Spring Meeting on May 15th, 7:45am-11am, at the Yale Club, which will feature Stan Soocher who will discuss recent court rulings impacting transactions and litigation in the entertainment industry.

Ken Swezey is a partner with Cowan, DeBaets, Abrahams and Sheppard LLP
cdas.com.

April 15, 2009

Upcoming EASL Section Media Law Handbook

Coming in late 2009: Another EASL Section Handbook

Pre-Broadcast and Pre-Publication and Pre-Broadcast Review
A handbook for the casual practitioner focusing on issues in media law

Editors
Kathleen Conkey kathleen@conkeylaw.com
Elissa D. Hecker eheckeresq@yahoo.com
Pamela Jones pamelajonesesq@aol.com

The legal issues in the rapidly increasing field of media law multiply as cable stations, cell phone and internet companies, broadcasters, book publishers and film producers fight over both the need and space for content. As the volume of content grows, the need to review it for possible legal complications grows apace, and lawyers representing content providers in their corporate transactions need timely information in order to best assist their clients.

The Handbook will offer such lawyers a reference guide to help with basic themes and issues that pertain to practitioners in this field. It will also be a current statement of the law, with valuable cites to the most recent cases and a comprehensive index.

The topics to be covered will include:

• Pre-broadcast review
• Defamation
• The Invasion of Privacy Torts
• Hidden Camera and Wiretap Statutes
• Intrusion on Seclusion, including paparazzi statutes
• Publication of Private Facts
• Insurance Issues
• Rights and Clearances
• Other Newsgathering Torts
• Right of Publicity
• Copyright Infringement
• Trademark Infringement
• A Special Note on Minors
• Pranks, Challenges and Other Sensitive Subjects
• The Numerous Other Issues You Need to Be Able to Spot
• Forms and Sample Documents

Revenge Knock Out?

Can Joey Gamache Make the New York State Athletic Commission Pay for the Loss That Ended His Boxing Career?

By Paul Stuart Haberman, Esq.

On February 26, 2000, thousands in attendance at Madison Square Garden and millions of fans watching across the world on pay-per-view bore witness to the very best and very worst features of professional boxing as they watched junior welterweight sensation Arturo Gatti knock out fan favorite and one-time World Boxing Association super featherweight champion Joey Gamache in dramatic fashion in round two of their fight on the televised undercard of Oscar De La Hoya's bout with Derrell Coley. On the one hand, fans witnessed a knockout for the ages, a knockout so well put together, so crushing, and so final that it would be on the lips of boxing fans for years to come when the topic of their favorite knockouts came up in conversation. On the other hand, however, the fans also saw the brutal ending to the career of a proud warrior in Gamache, a veteran of many high profile fights who had given his all in the ring during in a sixteen-year professional career. That is because in suffering brain damage from the knockout, Gamache was rendered medically ineligible to ever box again.

The outcome was not entirely unexpected to boxing cognoscenti, as Gatti had already scored plenty of memorable knockouts in his career and Gamache was a few years and a few weight classes past his prime. What was surprising, however, was that Gatti looked about two to three weight classes heavier than Gamache when he entered the ring on February 26, 2000. Indeed, since the weigh-in the day before, Gatti had reportedly put on close to 20 pounds, effectively making him a middleweight (160 lbs) in a bout that was scheduled to take place one pound over the junior welterweight (140 lbs) limit. While putting on several pounds after a weigh-in is standard in boxing, it was the circumstances that surrounded Gatti's weigh-in that ultimately shrouded the weigh-in the controversy. Questions arose as to whether Gatti had properly weighed in at the limit to begin with, and more specifically whether he stood on the scale for long enough for it to balance out and provide an accurate reading of his weight. Further questions arose as to whether Gatti should have been allowed to fight the night of February 26, 2000, after reports on his weight gain started circulating around Madison Square Garden.

By virtue of a Notice of Intention to File a Claim against the New York State Athletic Commission (hereinafter the "Commission"), date stamped March 24, 2000, Gamache asserted that Gatti did not make weight and that the Commission was responsible for making certain that he did. In the next few months, the New York Court of Claims will decide whether Gatti's weigh-in was, in fact, compromised, and whether the Commission committed acts of negligence in allowing it to be so compromised and in allowing the fight to take place. After nearly nine years of discovery and motion practice, Gamache will soon get to see whether he can score a revenge knock out for the premature termination of his boxing career.

Elements of Negligence Under New York Common Law

The basic elements that must be established for any claim of negligence under New York State common law are: (1) duty, (2) breach, (3) causation, and (4) damages. To prove his case against the Commission, therefore, Gamache will have to establish that the Commission had a duty to make certain that the weigh-in was properly conducted in accordance with its standard practices and procedures and/or to disallow the fight if Gatti was more than 11 lbs. over the junior welterweight limit by fight night, that it had breached that duty by allowing Gatti to weigh-in in the manner in which he did or by not canceling the fight, that the fact that Gatti was permitted to weigh-in over the junior welterweight limit and/or that he was permitted to fight 11 lbs. over the junior welterweight limit on fight night was the cause of the injuries alleged, and whether Gamache suffered damages as a result of the breach of said duty. An element-by-element analysis follows below.

The Duty That the Commission Owes to All Boxers Under Its Jurisdiction

19 NYCRR § 206.5 provides, in relevant part, that a representative of the Commission "shall have complete authority, subject only to the direction of the commission or a higher-ranking representative of the commission acting on behalf of the commission, over all phases of the weigh-in[.]" At the same time, 19 NYCRR § 210.6 states that "all participants shall be weighed in on scales approved by the commission and in the presence of their opponents, the matchmaker and representatives of the commission, unless otherwise directed or authorized by the commission." Reading these two provisions together, it is indisputable that the Commission is the ultimate authority when it comes to a weigh-in, but at the same time partially delegates the witnessing of the weigh-in itself to other parties, the opponent and the matchmaker. Despite allowing other parties to witness the weigh-in, however, the New York Code of Rules and Regulations appears to create a duty to make certain that the weigh-in was properly conducted in accordance with the Commission's standard practices and procedures.

The duty owed by the Commission is heightened by a third provision, 19 NYCRR § 213.14, which provides that "[n]o boxer shall participate in any contest or exhibition following weight loss of one percent or more of body weight within 24 hours prior to such contest or exhibition, unless otherwise authorized by the commission." This provision would seem to indicate that the Commission has a proactive duty to investigate whether a boxer had to lose weight by extreme means prior to the weigh-in to get to the contractually agreed upon weight for a given fight. The duty is further heightened by 19 NYCRR § 214.8, which indicates that a bout should not be permitted to take place between two junior welterweights if there is more than an 11 lb. weight differential between them.


In its written decision and order on the summary judgment motion filed by the Commission in this matter (hereinafter the "Decision & Order"), the Court of Claims found that the statutory and regulatory scheme that governs professional boxing in New York State "does indeed create...a duty of care which runs from the Athletic Commission directly to the licensed boxers under its jurisdiction and control." The Court of Claims continued on to state that the Commission "must determine in the first instance whether two fighters are suitable opponents and may reject the match if it is not in the best interests of the health of either." It goes on to note that from the time that a fight is made in New York State, a boxer is required to be in ongoing contact with the Commission, and that on fight night the laws mandate that the Commission and "its agents are in direct control of everything that happens." As an initial matter, therefore, Gamache must establish, at trial, the duty that the Commission had as to the particular circumstances of the Gatti fight in order to succeed on his negligence claim.

The Purported Breach of Duty by the Commission

Once Gamache establishes that the Commission had a duty to make sure the weigh-in was conducted properly and/or to cancel the bout if it appeared that Gatti was more than 11 lbs. heavier than Gamache on fight night, he must then establish that the Commission breached that duty. The Decision & Order summarizes several purported discussions, interactions, and observations both at and after the weigh-in about Gatti's weight and whether a real protest was ever lodged after he stepped off the scale. It further refers to Gatti's noted history of having difficulty making weight and putting on sizeable amounts of weight between his fights. Based upon this evidence, it will be for the trier of fact to determine whether the Commission breached its duty, once so established.

The Causation Between the Commission's Actions and Gamache's Injuries

On causation, the Decision & Order infers that Gamache may have some problems establishing traditional negligence, but may be able to establish "relative fault." This is because by the time that the bout took place, the report that Gatti weighed-in around 160 lbs. on HBO's scale and the publicized controversy over Gatti's "rehydration" after the official weigh-in had "ripened sufficiently" as to impute the awareness of same to Gamache. Gamache, however, went forward with the fight. He later explained in his deposition that upon seeing Gatti in the ring that night, he said to himself "oh my God he's huge and we're fighters. I mean, we're in the trenches...so me I never quite a fight. I've never backed down from a fight or been intimidated whatever may be the case." In citing this, the Court of Claims concluded that it needed "no more eloquent a statement of why the question of reliance does not preclude claimants' recovery in negligence but goes only to determining relative fault."

It should be noted here that, rather than walking through the traditional elements of negligence, the Court of Claims first dismissed a cause of action for fraud against the Commission and then employed the fraud element of "reliance" to evaluate the negligence claims. Thus, although the causation element of a negligence claim is not neatly discussed within the decision, the inference of the Decision & Order in finding that this may be a matter of relative fault is that the decision by Gamache himself to participate in the Gatti fight, knowing what he likely knew about Gatti's weight issues, was the partial cause of the injuries that he ultimately sustained therein. To put it another way, the Court questioned whether Gamache reasonably relied on the Commission alone, rather than his own instincts and those of his handlers, in allowing the fight to go forward.

The Damages Sustained by Gamache

There is no dispute that Gamache suffered permanent injuries in his fight with Gatti and sustained financial loss as a result. Damages can be established even if the rest of a negligence claim ultimately cannot. If negligence can be shown under the idea of relative fault, therefore, the question is how much at fault Gamache was for what happened to him against Gatti, and once established, how much of the financial loss that he incurred as a result of the fight is owed to him by the Commission as damages.

In sum, the Decision & Order of the Court of Claims opened the door for Gamache to take the Commission to trial on several issues of fact surrounding the weigh-in prior to his ill-fated February 26, 2000 bout with Arturo Gatti. While Gamache's case appears strong as to the Commission's duty and breach of duty as to him, it might prove tricky for Gamache's counsel to fully overcome the argument that Gamache and his corner, knowing what they knew about the controversy surrounding Gatti's weigh-in, were partially at fault for what happened by allowing the fight to go on. If Gamache is found too much at fault, he may see this matter reach a dissatisfying conclusion. If not, perhaps the scales of justice will be more kind to Gamache than were those of the Commission, and will allow him to score the knockout this time around.

Paul Stuart Haberman, Esq. is an attorney at the New York law firm of Heidell, Pittoni, Murphy & Bach, LLP. He is also a New York State licensed boxing manager and the Chairman of the Sports Law Committee of the New York County Lawyers Association. ©

Would an Exception Knock Out the Rule?

Whether it Would be Smart for New York State to Lift Its Medical Suspension of Lightweight Champion & Knockout Artist Edwin Valero

By Paul Stuart Haberman, Esq.

In 2004, undefeated Venezuelan junior lightweight prospect Edwin (El Inca) Valero applied for a license to box in New York State after scoring 12 first round knockouts in his first 12 professional fights. On the strength of his knockout streak, Valero was then becoming one of the hottest prospects in boxing. Valero, however, had a skeleton in his closet: a head injury sustained in a 2001 motorcycle accident. Evidence of Valero's head injury went undiscovered, or was otherwise ignored, before three bouts in California and nine in his native Venezuela, but was revealed during a MRI that he underwent for his New York State license. Valero was subsequently denied a license to box in New York and, until April 4, 2009, had not fought again in the United States. Undeterred, Valero continued his boxing career in both Japan and South America, becoming an international sensation in the process.

At the end of March, Valero, now 25-0 (25 KOs) and a junior lightweight and lightweight world champion, was granted a license to box in Texas in advance of his April 4, 2009 bout with Antonio Pitalua for the vacant World Boxing Council lightweight title. That Texas granted Valero a license was not entirely surprising to boxing cognoscenti as Texas has a history of thumbing its nose at the suspensions of other states' commissions. Indeed, Texas was the same state that granted former undisputed heavyweight and cruiserweight champion Evander Holyfield a license to box after New York State placed him on administrative suspension in 2005. However, in light of Texas' decision to license Valero, the question is begged as to whether a boxer such as Valero, who at age 27 is an undefeated two division world champion and seemingly entering into the prime of his career following a second round stoppage of Pitalua, should have the denial of his license reversed by the New York State Athletic Commission (hereinafter the "Commission") or otherwise be permitted to box in the United States by other influential commissions.

The Medical Testing Required for Licensure in New York State

In New York, in order to "obtain a license or the renewal of a license to box, all boxers shall submit to a thorough medical examination by a physician approved by the medical advisory board." Said medical examination must include "a complete physical examination, an electroencephalographic examination, electrocardiographic examination, CAT scan, dilated eye examination by a licensed ophthalmologist and laboratory and other tests and examinations as may be required by such physician and/or the commission." Underscoring the importance of the pre-licensing medical examinations, New York mandates elsewhere in its laws governing professional boxing that:

"[a]ny professional boxer applying for a license or renewal of a license...shall undergo a comprehensive physical examination including clinical neurological and neuropsychological examinations by a physician approved by the commission. If, at the time of such examination, there is any indication of brain injury, or for any other reason the physician deems appropriate, the boxer shall be required to undergo further neurological and neuropsychological examinations by a neurologist including, but not limited to, a computed tomography or medically equivalent procedure. The commission shall not issue a license to a boxer until such examinations are completed and reviewed by the commission. The results of all such examinations herein shall become a part of the boxer's permanent medical record as maintained by the commission. The costs of all such examinations called for...shall be assumed by the state if such examinations are performed by a physician or neurologist approved by the commission."

In addition, a boxer shall present to the Commission his or her "medical history relating to any physical condition, medical test or procedure which relates to his ability to box, and a record of all medical suspensions[]" along with their application for a license.

The above laws, widely regarded as among the most stringent in the country, leave little room for disguising evidence of, or omitting information about, a boxer's medical conditions and history. They also leave no room for the removal of any medical findings from a boxer's permanent record. Although a boxer denied a license on medical grounds always has an opportunity for a hearing before the Commission can take "any final action negatively affecting such person's individual privileges or property granted by a license duly issued by the commission[,]" therefore, a brain injury such as Valero's will forever be in the medical record of such a boxer requesting the hearing and effectively render the hearing over before it started given the grave concerns that such an injury would inevitably raise.

Notwithstanding the above, the Commission alone has and "is vested with the sole direction, management, control and jurisdiction...over all licenses to any and all persons who participate in...boxing, sparring or wrestling matches or exhibitions" in the State of New York.. The inference then is that no matter what is in a boxer's medical file, it is ultimately within the Commission's discretion whether or not a boxer should be granted a license despite a given condition. In that case, in addition to evaluating the condition itself, the analysis of a given boxer then becomes a balancing test between such issues as whether a given decision would subject the Commission to liability in the event of an injury to a boxer, whether it comports with public policy to license a given boxer, what kind of precedent the licensure of one boxer could set for the licensure of another boxer, and where the Commission could draw the line in licensing certain boxers with questionable medical conditions over others. Each of these items will be looked at individually below as they would apply to Valero's situation.

The Commission's Potential Liability if Valero Were Licensed and Then Injured

As recently reinforced in Joey Gamache's lawsuit against the Commission regarding the brain damage that he suffered in his February 26, 2000 knockout loss to Arturo Gatti at Madison Square Garden, the statutory and regulatory scheme that governs professional boxing in New York "does indeed create...a duty of care which runs from the Athletic Commission directly to the licensed boxers under its jurisdiction and control." In other words, in the event that Valero were licensed to box by the Commission despite the Commission's knowledge of his 2001 brain injury, and sustained another brain injury during a boxing match in New York, the Commission could very likely be found liable in a subsequent lawsuit. The Commission would, therefore, be licensing Valero at its peril. In reality, a majority of athletic commissions and federations that grant Valero a license are likely operating under the same peril since New York's discovery in 2004.

Is it Against Public Policy in New York State to License a Boxer with a Known Brain Injury?

To find the answer to this question, one needs to look no further than the case of undefeated New York-based heavyweight contender "Baby" Joe Mesi. Mesi, a former 1996 U.S. Olympic alternate who was once so popular in his home city of Buffalo, New York that he was often referred to as Buffalo's "third franchise," has not been permitted to box in New York State since suffering a brain bleed in his March 13, 2003 decision win in Las Vegas over former cruiserweight champion Vassiliy Jirov. In other words, although Mesi was subsequently licensed to box in Puerto Rico, Quebec, Arkansas, Michigan, West Virginia, and Rhode Island, one of the biggest ticket sellers in recent New York history has been not allowed to fight before his hometown fans since 2003. The moral of the Mesi story is clear: the Commission will not permit boxers that have sustained brain injuries to fight again under its jurisdiction. It would, therefore, appear that allowing boxers with known brain injuries is plainly against public policy in New York State.


What Kind of Precedent Would it Set for New York State to License Valero?

In the event that the Commission were to grant a license to Valero, it would not only open itself up to heavy criticism and the re-examination of its suspensions of Mesi, Evander Holyfield, Junior Jones, and others who are no longer permitted to box in New York State, but it would also hazard leaving itself open to future legal challenges of license denials from other boxers with brain and other injuries. Such legal action could lead the New York State courts to conclude that certain denials were improper given that the Commission had issued Valero a license despite knowledge of his brain injury. In short, granting Valero a license to box in New York State could send the Commission down a very slippery slope in the licensing of boxers under its jurisdiction and into a wave of prospective legal challenges to the future denial of boxing licenses.

Despite the above prognostication of doom in the event that the Commission ever decided to license Valero, it should be noted that the Commission must simply furnish a rational basis for its decision to not issue a boxer a license. When coupled with the fact that the Commission alone has and "is vested with the sole direction, management, control and jurisdiction...over all licenses to any and all persons who participate in...boxing, sparring or wrestling matches or exhibitions" in the State of New York[,]" it would therefore likely survive most any legal challenge to its denial of a license, even if Valero were issued a license. The first court to rule on such a case, however, would have to be very careful to tailor its decision as to distinguish the case before it from Valero's situation to make sure it does not create a culture of inconsistency in the licensing of boxers in New York State.

Is the Commission Capable of Drawing a Line Between One Brain Injury and Another?

In the event that the Commission were to one day license Valero, there would be serious questions as to where, if anywhere, it would be able to draw the line going forward. Would it make a difference if a brain injury happened earlier in one's life or boxing career, as it did with Valero, who turned pro the year after his motorcycle accident? Would it be possible, for example, for amateur boxer Angelo Piccirillo, who sustained a brain injury during the 2009 New York State Golden Gloves competition, to apply for a license to fight professionally a few years from now, if he sufficiently recovers, under the idea that he had time to heal and his body would be more mature by then? Could non-boxing related head injuries be regarded as less relevant or probative than those actually sustained in the ring? Would the Commission entertain a petition for a license from a star athlete from another sport, such as retired New York Jets wide receiver Wayne Chrebet, despite his long history of concussions?

If the above scenarios seem difficult to differentiate between, that is because they are all simply permutations of the same problem: How to handle an applicant for a boxing license that has a history of brain injuries when boxing presents a real risk for either an aggravation of said injuries or the creation of additional injuries. Perhaps then, the Commission would be best served to stay consistent and keep Valero out of New York State. This is because while New York law could keep an exception such as Valero from swallowing the rule regarding applicants with head injuries, the Commission would be unable to maintain the high degree of credibility and integrity that it has today versus other athletic commissions in the United States if it did make such an exception.

Paul Stuart Haberman, Esq. is an attorney at the New York law firm of Heidell, Pittoni, Murphy & Bach, LLP. He is also a New York State licensed boxing manager and the Chairman of the Sports Law Committee of the New York County Lawyers Association. ©

New Fashion Committee

EASL is proud to announce the formation of a new committee on Fashion Law, co-chaired by David H. Faux and Cathryn A. Mitchell. This committee will keep its members apprised of new developments in copyright, trademark, and other applicable business laws that particularly apply to the business of fashion. Already, the co-chairs are planning events in survival skills for designers and designers’ representatives in a down economy, updates on the efforts to gain copyright protection for designs, and more. They are also looking to expand options and opportunities for committee members to be involved and informed. If interested, please join the committee by responding to Carolyn Clayton at cclayton@nysba.org, or contact Dave (davefaux@dhf-law.net) and Cathy (cam@cll.com) for more information.

Welcome to the EASL Section Blog

The goal of this blog is to provide a wonderful opportunity to create forums for debate and discussion relating to entertainment, art and sports law issues.

The blog will be able to communicate a sense of currency and reinforce our strong programming, affordable CLE, and pro bono efforts. It will give a voice to the Section, provide an opportunity to flesh out EASL website postings, and offer previews of and comments after programs, thereby sustaining and continuing the energy of discussions. It will also offer timely summaries and analysis of legislation, litigation and judicial opinions.

The Blog will be a wonderful opportunity to present opinions, articles and conversations that will be seen by countless others who are interested in your expertise and commentary. We look forward to hearing from you!

Elissa D. Hecker
Blog Editor
eheckeresq@yahoo.com

April 17, 2009

E-books and Digital Marketing: How Publishers Are Using the Internet to Reach Readers

Ed McCoyd

E-books

An e-book is a book sold in digital form, for reading on a computerized device such as a desktop or laptop computer, a "personal digital assistant" such as a Palm handheld or Pocket PC, a handheld device dedicated for reading electronic content, a mobile product (such as a cell phone or Blackberry), or other digital platform.

While e-books still only account for a very small portion of total book industry sales, their sales numbers have been increasing steadily for the past several years, from an estimated $20 million in wholesale revenues in 2003, up to $30 million in 2004, $44 million in 2005, $54 million in 2006, $67 million in 2007, and more than $113 million in 2008. The number of e-books that are available has also grown since publishers began offering e-book products. Last month it was reported in Publishers Weekly that ninety percent of the top 50,000 trade (i.e., general interest fiction and nonfiction) book titles were available in both print and electronic editions.

E-books are also becoming increasingly available in the education market. The MBS textbook exchange, for example, offers e-books from many of the largest publishers of postsecondary instructional materials. Higher Ed publishers Pearson, Wiley, Cengage, McGraw-Hill, Houghton Mifflin, and Bedford, Freeman & Worth have created CourseSmart, another e-textbook store, in an effort to spark student adoption of e-books by providing a critical mass of available titles at one site.

The e-book format even empowers educators to mix and match content from a wide variety of books into one electronic package. O'Reilly Media's SafariU lets professors create custom computer science course materials, from a selection of thousands of books and articles from O'Reilly, Pearson, and other publishers. Similar platforms include Primis from McGraw-Hill, and Cengage Learning's iChapters.

E-books are available in a wide range of formats for multiple devices. Adobe PDF-formatted e-books can be rendered on desktop and laptop PCs and a range of handheld devices. The Mobipocket format, which is optimized for handhelds, works on Palm OS, Windows Mobile, and Blackberry handheld devices, as well as on Symbian OS phones. Other popular reading formats include Sony, Kindle, Microsoft Reader, Palm Reader, and others.

There are also hardware devices dedicated for e-book reading. One is called eBookwise, a device from the e-book retailer Fictionwise.com (recently acquired by Barnes & Noble). Another that has captured people's imaginations is the Sony Reader. This device uses an innovative screen technology known as E-Ink electronic paper display, which consists of capsules that turn white or black based on an electric charge to configure the text. What makes E-Ink unique is that it when you read it, it's the light around you that enables you to read the text, rather than light projected from the screen. Consequently, you can read on the device on a beach, and generally it's contended that this technology creates less glare and eye strain. Furthermore, without backlighting, the need for battery power is reduced, enabling a lightweight device that can render up to 7,500 page turns without recharging. There approximately 45,000 titles available in this format on the Sony Connect bookstore. Sony and Borders have also teamed up to sell books in this format, and e-books formatted for the Sony Reader are also available on eBooks.com, a site with over 130,000 e-book titles available in a range of formats including Sony, Adobe, Mobipocket, and Microsoft Reader.

The E-Ink screen is also featured on the iLiad and the iLiad Book Edition available from the Dutch iRex Technologies. These devices display e-books in the popular Mobipocket format.

Amazon has made a huge splash with its Kindle e-book reading device, which also uses an E-Ink screen, and has a built-in wireless connection enabling device owners to access the Amazon bookstore anywhere, anytime. Customers grabbed up Amazon's entire inventory of the device within the first few months after it went on the market in November of 2007. In February of 2009 Amazon released the "Kindle 2," a new version of the device with improvements including a slimmer and more lightweight design, sharper screen display, and longer battery life, to name a few. The fact that more than 245,000 titles are now available for use on the Kindle is clear evidence that book publishers are also embracing the technology.

In May of 2008, Amazon CEO Jeff Bezos made the interesting announcement that sales of books for use on the Kindle were accounting for 6% of all Amazon sales of books available in both Kindle and print formats (125,000 books at the time). In August of 2008, Amazon executive Ian Freed said that owners of the Kindle more than doubled their overall number of book purchases after getting the device, and that they continued to buy as many printed books as they had prior to owning a Kindle. In February of this year, Bezos announced that e-books were accounting for 10% of all sales on Amazon. Today, the Kindle has the added cache of being known to have been acquired by many celebrities and public figures - as of February, Tiki Barber, Oprah Winfrey, Jennifer Aniston, Warren Buffet, Dick Cheney, Martha Stewart, and Whoopi Goldberg were all reported to own Kindles.

Numerous platforms and applications for reading e-books on cell phones and mobile devices have recently been unveiled. Last month, Amazon began making e-books for the Kindle also available in a format that renders them on the iPhone and the iPod Touch. Stanza, an application from the company Lexcycle, also makes e-books available for these two devices. eReader Pro rendering software from Fictionwise works on Blackberrys and a wide range of other mobile devices, and e-books solutions for mobile are also being provided by Macmillan Publishing Solutions, Expanded Books, Incelligence, and ScrollMotion.

A relatively new format innovation is .EPUB, developed by the International Publishing Forum (IDPF). EPUB is a standard that enables publishers to create one reflowable file of an e-book, which retailers and wholesalers can then easily convert into formats for various consumer devices (Mobipocket, iLiad, etc.). Furthermore, an EPUB file can be rendered directly on many of the devices.

E-books are also available via libraries. The vendor Overdrive's Digital Library Reserve platform offers more than 80,000 e-book and downloadable audiobook titles to libraries. Libraries purchase the books outright, and the encryption attached to the book permits a one-patron-at-a-time lending model. The patron "checks out" the book and reads it on the device of his or her choosing. When the lending period expires, the book automatically "checks back in" and the next patron can access it. Netlibrary offers a comparable model for more than 160,000 e-book titles and a growing collection of audiobooks.

Digital Marketing

The Internet is accounting for an increasing amount of people's leisure time. Book publishers need to compete with the Internet by using the Internet. They are now pursuing a variety of online strategies to market and sell their products.

One approach is the distribution of book "widgets," which are copyable and transferable digital "objects" that resemble the books they promote. A widget typically is a replica of the book's cover. If you click on it, you may get access to portions of the work, such as the table of contents and a sample chapter, plus a link to buy the product. Widgets can be posted anywhere on the Internet, including on individuals' pages on community sites like MySpace and Facebook as a form of "viral" marketing, in online book reviews, and elsewhere.

Another form of widget is videos featuring authors discussing their books. While author videos are not new, what is new is the ability to distribute them through social networking and streaming video sites. Online video production companies currently providing services to publishers and authors include TurnHere, Vidlit, and BookShorts, to name a few.

Web sites developed by publishers may be built around a particular author, or even a specific book. Nowadays the sites contain features to make them "sticky," that is, to create a relationship with readers that makes them enthused about the site and causes them to keep returning. These features may include digitized elements of book covers that users can download as screen savers; community chat rooms; chats with the author; community games, such one in which users of the site can contribute sections to a collectively-written story; blogs; newsletters; and RSS feeds.

There are even social networking sites dedicated to users' book interests, including LibraryThing.com and Shelfari.com.

Marketing to customers via their mobile phones is also being employed. The romance novel publisher Harlequin sends out serialized stories in electronic format to readers' mobile phones, for example, to maintain a connection with customers.

It will be fascinating to see what the future holds as publishers, along with their authors and technology partners, continue exploring ways to employ the Internet and digital technologies generally to reach readers and distribute books to them.

Ed McCoyd is an attorney and director of digital policy at the Association of American Publishers, the leading trade organization of book publishers in the U.S. He works on issues including the use of digital technologies to market, sell, and distribute publishers' products; the prevention of electronic piracy of books; the provision of accessible instructional materials to postsecondary students with disabilities under applicable federal and state laws; and environmental issues associated with the procurement of book paper. He can be reached at emccoyd@publishers.org.

Prior to joining AAP's staff, Ed served as director of legal services at the Authors Guild, providing licensing and copyright advice to published writers and advocating for authors' rights. Ed is also the author of the book To Live and Dream: The Incredible Story of George Foreman, as well as the song "Besame," featured in the major motion pictures "16 Blocks" (starring Bruce Willis) and "Cleaner" (starring Samuel L. Jackson, Eva Mendes, and Ed Harris).

April 21, 2009

Fairey v. Associated Press Pleadings

For those interested in following the Fairey v. Associated Press copyright infringement litigation concerning the Obama "Hope" poster and fair use issues, the pleadings are available electronically at the website for the U.S. District Court for the Southern District of New York, under Docket Number 09 civ 01123. Judge Hellerstein is the judge assigned to the case.

Joel L. Hecker, Esq.
Russo & Burke
600 Third Avenue
New York, NY 10016
(212) 557-9600
Fax: (212) 557-9610
www.RussoandBurke.com.

April 26, 2009

NEW YORK REPLENISHES FUND FOR 30% TAX CREDIT ON QUALIFIED FILM PRODUCTIONS COMPLETED IN 2009

In early 2008, New York State allocated $515 million for tax credits to be applied for qualified film production expenditures, in connection with the tripling of the available tax credit from 10% to 30%. By February, 2009, the entire sum had been allocated to qualified productions.

$350 Million now Available for 2009 Productions

On April 1, 2009, as part of this year’s budget adoption process, and on the heels of the financial community’s collapse and New York State’s large budget deficits, Governor Patterson approved an additional $350 million in tax credits for qualified film production expenditures for 2009. No funding has yet been approved for 2010 or beyond. The original $515 million allocation was designed to cover applications through 2013 even though the enabling legislation allowed the use of the funds to be accelerated into earlier years. When combined with the 5% tax credit available in New York City, New York City and New York State remain a financially attractive location to create and produce qualified productions.

Timing of Credit Availability Varies

The GT alert of May 2008 which addressed the increased tax credit, how it can be accessed, and how it is administered remains accurate, except for the following recently-enacted changes. Under the new funding legislation, if the amount of the tax credit is at least $1 million, but less than $5 million, the credit is claimed over a two year period, beginning in the taxable year in which the production of the qualified film is completed, and in the next succeeding taxable year, with one-half of the amount of the credit allowed being claimed in each year. If the amount of the credit is over $5 million, then the credit is spread out over three years, with one-third being made available each year. Although not specifically mentioned in the statute, if the amount of the tax credit is under $1 million it presumably is payable in the year in which the production of the qualified production is completed.

We repeat below the remaining provisions of the May 2008 GT Alert which reflect the portions of the tax credit which remain unchanged.

Application Process

The two New York credits are available through a single application, administered by the Governor’s Office of Film & Television and the Mayor’s Office of Film Theatre and Broadcasting. The production entity completes the application. The production entity is frequently a limited liability company, or limited partnership or other “pass-through” entity for tax purposes. As such, the credit made available passes through pro rata to the members or partners of the production entity.

Qualified Production Costs

The credit is 30% of the “qualified production costs” paid or incurred in the production of a qualified film. “Qualified production costs” are “production costs” attributable to the use of tangible personal property or performance of services within New York directly and predominantly in the production of a qualified film.

“Production costs” are certain “below the line” costs. Excluded from the definition of “production costs” are (i) the costs of story and script, and (ii) wages, salaries or other compensation for writers, directors, producers and performers (other than background actors with no scripted lines). Payments for principal cast members, rights agreements, writers, directors, producers and others generally found “above the line” are not eligible for the credit. Extras and other crew, location and equipment costs are eligible for the credit. Certain additional costs, such as insurance, contingency funds and completion bond fees, are not eligible for the credit. Crew members need not live in New York, but must render services in New York. Travel costs within the state from location to location may be included, although travel from outside New York into the state is not included.

In addition, the “qualified production costs” (excluding post-production costs) that are attributable to the use of tangible personal property or the performance of services at a “qualified film production facility” in the production of a qualified film must be at least 75% of the total production costs (excluding post-production costs) at any production facility in or out of New York. A “qualified film production facility” is a film production facility in New York that contains at least one sound stage with at least 7,000 square feet of contiguous production space. A list of such facilities is available at www.nylovesfilm.com.

However, if the qualified production costs (excluding post-production costs) at a qualified film production facility are less than $3,000,000, then the portion of the qualified production costs attributable to the use of tangible personal property or performance of services outside of a qualified film production facility is allowed only if the shooting days spent in New York outside of a film production facility are at least 75% of the total shooting days spent outside of a film production facility both in and out of New York.

Using Credits as Collateral

If any member or partner of a pass-through entity making the application for the credit in New York has an existing tax liability to the State or City, as applicable, that member's or partner's pro rata share of the credit will be used to offset that liability. The balance of the credit would be available to the remaining members or partners. The effect of this provision may be to make it difficult to use the credit as collateral for a loan.

However, where the production entity is a Subchapter C corporation, rather than a pass-through entity, the credit can be used as collateral for a loan. Where the entity is a C corporation, income tax is imposed at the corporate level, and the income and losses do not pass through the entity to the members or partners. This results in two levels of income tax, one at the corporate level and another at the shareholder level when dividends are paid by the corporation to the corporation’s shareholders. If the C corporation is a special purpose vehicle, formed for the purpose of producing the film, the credit may be used as collateral for a loan. In each circumstance, however, the benefit of securing the value of the tax credit, and financing it, must be weighed against the cost imposed by two levels of tax. Certain banks may also be willing to finance the credit based on representations and warranties of the individual investors that they have no New York State or City tax liability.

The new legislation did not alter the prior legislation which provides for no limit on the credit available per project.


Conclusion

The significant increase in the amount of the Empire State film production credit provides increased financial incentives to produce films and television programs in New York for both residents and non-residents. These benefits are significantly enhanced by the federal provision permitting deduction rather than amortization of expenses for certain qualified film and television productions. For a taxpayer in the highest combined U.S. and New York State and City marginal tax bracket of 45%, these provisions will have significant impact on the computation of the break-even point for profitability, and it is possible that if the film returns only slightly more than half the total cost of production, the net effect may be that the investor still realizes an after-tax profit, even before the picture itself achieves cash flow break even. For non-residents, the State and City film credits provide offsets to the taxes imposed for doing business in New York. The combination of the federal income tax treatment of certain qualified film and television productions with the improved New York State and existing New York City tax credits may make investing in qualified audiovisual productions a significantly tax advantaged investment for qualified investors and qualified films.

_______


This EASL Blog was written by Marc Jacobson and David Bunning. Questions about this information can be directed to:

• Marc Jacobson—212.801.6516 (jacobsonm@gtlaw.com)
• David Bunning—212.801.9318 (bunningd@gtlaw.com)


About April 2009

This page contains all entries posted to The Entertainment, Arts and Sports Law Blog in April 2009. They are listed from oldest to newest.

May 2009 is the next archive.

Many more can be found on the main index page or by looking through the archives.