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2013 Entertainment Business Law Seminar Presented by CMJ & EASL

By David Jacob, Esq.
Marc Jacobson, P.C.

Collective Versus Direct Digital Licensing

The first panel of the day featured speakers with varying perspectives as to whether copyright owners are better off having the Performance Rights Organizations (PROs) collectively license their performance rights for new media or negotiate the deals directly themselves. Marc Jacobson of Marc Jacobson, PC led the discussion, which featured representatives from Spotify, Sound Exchange, music publishers and an economist.

James Duffet-Smith, Head of Licensing Business Affairs for Spotify, stated that from its point of view, direct licensing makes sense when dealing with recordings because of the way the transaction is handled. The labels deliver recordings, which Spotify is able to match in its system, and track and pay out directly based on the number of plays. However, in the context of music publishing, there is not any content actually changing hands. A publisher does not deliver any actual recordings, and it is more difficult for companies in Spotify's position to pay out the many songwriters or publishers that could be involved in a particular song in a particular territory. The problem is the lack of a central database upon which everyone can rely for intellectual property ownership information.

One thing that everyone seemed to agree on, which was also reiterated later in the day by keynote speaker David Israelite, CEO and President of the National Music Publishers Association, Inc., is that the PROs are doing as good a job as can be expected; although they are working in a broken system that needs to be updated in the digital age. The panel suggested that one way to do this is to adjust how the consent decree operates, or remove it altogether. The consent decree limits a PRO's ability to exploit the full value of its catalog, and is the main reason why publishers are attempting to withdraw their new media rights from the PROs. It was suggested that having the publishers involved in the rate court process could be one way to have all parties properly represented throughout the process.

Film Finance: It's To Your Credit: Getting the Full Use of Tax Credits for Film Production

This panel gave an overview of how New York State offers film tax credits. New York has made great strides over the last decade to get more talent and production into the State for various types of productions. As one of the speakers pointed out, there was once a time where most films would go to Toronto and Montreal to film "New York" scenes, simply because their tax credits were more attractive to the producers.

New York City's efforts to change this trend have been extremely successful, as 2012 was the busiest year yet, with 26 prime time episodic shows produced in NYC, along with 162 films and more than 160 TV shows. The entertainment industry now employs over 130,000 New Yorkers, and contributes $7.1 billion to the city's economy.

In addition to focusing on attracting film productions to New York, efforts have also been made to increase commercial productions and post-production services. Generally speaking, a producer can receive transferable tax credits of up to 30% for qualified film production or post-production costs, or 20% of qualified production costs for commercials.

Ethics: The Law of Anyplace: Ethical Considerations of Lawyering Without Borders (Virtual Practices, Outsourcing, Technology)

Professor Stephen Gillers, Elihu Root Professor of the New York University School of Law, led the ethics discussion for the day. His presentation focused primarily on the ability for an attorney to represent clients in other states and at what point does this amount to "practicing law" in a state in which one may not be licensed to practice. Technology has made it very easy for an attorney to provide legal services from almost anywhere in the world, and the lines are becoming blurred as to when one may commit malpractice.

The logic that one can represent a client in another state as long as the attorney stays at his or her computer in a state in which the attorney is licensed seems to be dated. If that same attorney goes to meet his or her client and offers legal services and advice directly in that state, then he or she may be committing malpractice by performing the unauthorized practice of law.

Professor Gillers also argued that the bar exam and general law school curriculum might be a poor approach to evaluate how fit an attorney is to practice law. Most attorneys are fairly specialized in the type of law in which they practice. Furthermore, while an attorney may be licensed to practice law in New York, it doesn't mean that he or she is fit to practice any type of law. As an ethics attorney in New York, Gillers is licensed to practice any type of law, but he would still be committing malpractice by representing a client in a specific field in which he is not familiar or competent. Alternatively, he questioned that as an attorney who specializes in copyright law, which is federal law and the same in every state, what is the point of requiring that the attorney be licensed in every state in which he or she actively practices?

Changing the Channel: Recent Cases and Developments Redefining the Television Landscape

Much of this panel focused on the ongoing controversy surrounding the Aereo lawsuits. The panel focused on Aereo's attempts to circumvent the copyright laws by claiming that its service does not constitute a public performance. Rather, Aereo claims that each transmission is a private performance, because each user has its own specific antenna that transmits a unique copy of specific content directly to an individual user. This argument comes from the Cablevision rulings, which the panel stressed, are being exploited in ways that can be very detrimental to the entire broadcasting industry and content owners.

As Rick Stone, partner at Jenner & Block, included in his presentation, Aereo threatens revenues from retransmission fees and has the potential to completely collapse the broadcast TV model as we know it. He went on to discuss two main mistakes made by the Cablevision ruling. First, the Cablevisioncourt ruled that a transmission is in itself a performance, and consequently, it becomes necessary to determine who is capable of receiving each particular transmission. Stone argued a public performance could consist of multiple transmissions to different places at different times, and that it was the court's focus on the individual transmission of a unique copy that was Cablevision's second mistake. Stone stated that Cablevision tried to distinguish each transmission and decide if any individual transmission would amount to a public performance. However, Stone clarified that the Transmit Clause in question makes no mention of "copies" or "master copies", but rather the statute simply focuses on whether a "work" is transmitted.

The panel was hopeful that the Supreme Court would hear this case in the near future and distinguish or overrule the Cablevision ruling to further protect the rights of distributors and content owners. If the courts uphold the Aereo business model, it essentially creates a roadmap for copyright infringement.

Sync or Swim: Licensing Music for Film/TV/Video Games in a Digital World

This panel focused on some of the basic factors to keep in mind when dealing with synchronization licensing. This segment of the music industry has become a reliable source of income as well as an important tool for breaking artists. TV shows, commercials, video games and movies all present different obstacles in placing and negotiating a song in such a project.

For TV shows, Jeff Brabec, Vice President Business Affairs at BMG Chrysalis/BMG Rights Mangagement, spoke about the different strategies that certain shows will take in order to negotiate the best deals. Some of the music-oriented shows, such as "American Idol" and "Dancing With the Stars", will employ a standard license that pays all songs the same rate based on the amount of time the song is used. These shows are essentially a "take it or leave it" license that allows no room for negotiation. The standard license for most TV shows includes media rights to the effect of "all media now known or hereafter devised" and a term of "in perpetuity." However, Brabec was quick to point out that as a publisher, he can only grant the rights to what he controls. As such, he will always cross out "in perpetuity" and simply write "for life of copyright."

The panel also focused on scoring and licensing music for video games. In this context, most people will think of games like Guitar Hero and NBA2k13 (music supervised by Jay-Z). However, in the grand scheme of video games, the music is normally one of the last things to be added. Very few games will provide for a large budget for music unless it is to be a major focus of the game. Even games like Grand Theft Auto that let users control a number of different radio stations throughout the game still have relatively small music budgets compared to the overall budget of the production. Most of the time, composers will be added at some point near the end of the game development and will use storyboards and screen shots to begin scoring a soundtrack that will be used in various scenes.

Chris Hajian, the lone composer on the panel, spoke about the different projects in which he has been involved and the types of work-for-hire contracts he has become accustomed to signing. However, he also shared some words of caution that there are still many artists and composers who are taken advantage of because they don't know the value of their own works and the long-term royalties that can be generated after the licenses. His advice for up-and-coming composers was to read the contracts and understand the rights that are being signed over. His one horror story was from a colleague of his from years ago that scored a nice little jingle and was convinced to sign it over as a work-for-hire for a new TV show. By doing so, this composer gave up any future royalties in the song and only received the fairly small upfront licensing fee. It just so happened that this song became the theme song for a fairly successful TV show that you might have heard of..."The Price Is Right".

Copyright 2013

The last panel of the day focused on recent developments surrounding intellectual property law. Notably, the panel touched on the Cablevision/Aereo controversy and the court's focus on the potential audience of a particular transmission, rather than the potential audiences, of the underlying work. While the Second Circuit has focused on this analysis, the Ninth Circuit has focused more on the transmission of the underlying work, which could lead to a Circuit split.

Another interesting topic of this panel was the discussion of the First Sale Doctrine and how it is applied in the digital context. The panel first touched on the conflict between the First Sale Doctrine and the limitations on the unauthorized importation of copyrighted material. The Supreme Court ruled earlier this year that the First Sale Doctrine trumps the importation limitation and does apply to foreign manufactured goods that are lawfully made (Kirtsaeng v John Wiley & Sons, Inc.).

The First Sale Doctrine discussion continued with a summary of the recent Capitol Records v ReDigi decision. ReDigi is an online marketplace for used digital music. Its software would analyze a user's music files and allow the upload and sale of such files. Upon each sale, the ReDigi software would erase the seller's copy of the music on the user's hard drive. The key factor that killed this service was the process of uploading a seller's music files to ReDigi's "cloud locker." This process created unauthorized reproductions of the works. Although ReDigi argued the First Sale Doctrine protected it, the courts disagreed because the service violated the copyright owner's exclusive reproduction right. Within this decision the court strongly rejected the expansion of the First Sale Doctrine to cover digital files.

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