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October 2, 2014

Fine Art Committee Program Report

By Judith Prowda, Chair, EASL Fine Arts Committee

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

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

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

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


Edward Winkleman, Gallerist

Elizabeth Dee, Gallerist

Richard M. Lehun, Attorney at Stropheus Art Law

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

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

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

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

October 7, 2014

Week in Review

By Martha Nimmer

Belcher's Brain Showed Signs of CTE

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

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

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


Updates in the Ray Rice Suspension

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

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


Battle of the Books

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

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

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


SoCal Art Gallery Owner Gets the Slammer

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

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


They're Kind of a Big Deal

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

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

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


October 8, 2014

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

By Jacob Reiser

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

The Amazing Jack Kirby and The Quest To Reclaim His Works

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

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

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

The Dastardly "Instance and Expense Test"

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

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

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

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

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

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

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

The 2nd Circuit Thwarts The Supreme Court

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

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

A Hero Must Rise

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

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

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

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


By Steve Gordon

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

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

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

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

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

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

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

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

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

The Current Pre-1972 Cases

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

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

Judge Gutierrez's decision

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

It's clear that, if upheld, this decision would mean that both Pandora and Sirius XM would have to seek permission and pay for pre-1972 recordings. However, would nightclubs, bars, restaurants as well as radio stations have to seek permission to play and pay performance royalties for pre-1972 records? On its face, yes. The judge based his ruling on the wording of the statute which reads in relevant part: "The author of an original work of authorship consisting of a sound recording initially fixed prior to February 15, 1972, has an exclusive ownership therein until February 15, 2047, as against all persons except one who independently makes or duplicates another sound recording that does not directly or indirectly recapture the actual sounds fixed in such prior recording, but consists entirely of an independent fixation of other sounds, even though such sounds imitate or simulate the sounds contained in the prior sound recording." Cal. Civ. Code § 980(a)(2). Judge Gutierrez emphasized that there is nothing in the statutory language what would preclude performance rights in pre-1972 sound recordings. He wrote in relevant part: "...the Court infers that the legislature did not intend to further limit ownership rights, otherwise it would have indicated that intent explicitly."

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

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


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

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

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

Possible Outcomes and Conclusion

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

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

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

Center for Art Law Case Updates

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

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

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

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

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

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

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

October 9, 2014

Week in Review

By Martha Nimmer

NFL Tackles HGH

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



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

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

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

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


When How is a Four-Letter Word

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

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

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

Let the trademark battle begin.


Tax Triumph for Artists

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

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

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


October 22, 2014

How to Recoup Overpaid Wages from Employees

By Kristine Sova

Many employers logically assume that if they overpay an employee, they should be able to recoup that overpayment by simply adjusting an employee's future paychecks. While that's the case under the federal Fair Labor Standards Act (FLSA), it's not always the case under state law.

Many states have statutes or regulations that permit recoupment under certain conditions, while other states have statutes or regulations that flat out prohibit recoupment through paycheck deductions. In this post, we address New York State law for employers looking to recoup wage overpayments.

Recoupment Allowed Only Under Certain Circumstances

Under New York law, in order for an employer to recover an overpayment made to an employee by way of payroll deduction, the overpayment must be the result of a mathematical or clerical error. Further, the law permits employers to recoup such overpayments only under the following conditions:

•Employers may only recover overpayments made in the 8 weeks prior to the issuance of a Notice of Intent, described below, but may make deductions to recover overpayments for a period of 6 years from the date of the original overpayment.

•Employers are limited to one deduction per wage payment to recover an overpayment.

•If the overpayment is less than or equal to the net wages in the next wage payment, the entire amount may be deducted; otherwise, the overpayment deduction is limited to 12.5% of the employee's gross wages, so long as the deduction does not reduce the employee's wages below the New York State minimum wage (currently, $8.00/hour).

•Employers must provide affected employees with a Notice of Intent in order to commence making deductions to recoup the overpayment. If an employer will be recouping the entire overpayment in the next wage payment, the Notice must be provided at least 3 days before making the deduction. In all other cases, the Notice must be provided at least 3 weeks before the deductions may commence.

•The Notice of Intent must contain: (1) the amount overpaid in total; (2) the amount overpaid per pay period; (3) the total amount to be deducted; and (4) the date of each intended deduction together with the amount of each anticipated deduction. The notice must also inform the employee of his/her right to contest the overpayment, provide the date by which the employee must contest the overpayment, and include the procedure for the employee to contest the overpayment and/or terms of recovery.

Employers Must Establish a Specific Procedure for Challenging Any Planned Recoupment

New York Labor Law is specific as to what the procedure must entail. The procedure must:

•Provide an employee with one week from the date of receipt of the Notice of Intent to challenge the proposed deduction(s).

•Require an employer to respond to the employee within one week of receipt of the employee's response. The employer's response must address the issues raised by the employee and contain a clear statement indicating the employer's position regarding the overpayment (specifically, whether or not the employer agrees with the employee's position, together with a reason why the employer agrees or disagrees).

•Provide the employee written notice of the opportunity to meet with the employer within one week of receiving the employer's response to discuss any disagreements that may remain regarding the anticipated deductions.

•Require the employer to provide the employee with written notice of the employer's final determination regarding the deductions within one week of this meeting. In making a final determination, the employer must consider the agreed-upon wage rate paid to the employee and whether the overpayment appeared to the employee to be a new agreed-upon rate of pay. Further, when making a final determination regarding the amount of the deduction to be made per pay period and the date such deduction(s) will commence, the employer must also consider the issues raised in the employee's request regarding the amount of each deduction.

Where employees avail themselves of this procedure, employers must wait at least 3 weeks after issuing the final determination before commencing deductions.

The procedure is slightly different where the entire overpayment may be recouped in the next wage payment after the overpayment. In those cases, the employee must challenge the proposed deduction within 2 days of receipt of the Notice of Intent. Should the employee challenge the proposed deduction, the employer must postpone the deduction and fully follow procedures outlined above.

The same parameters apply to employers looking to recoup an overpayment, not from a future payroll deduction, but from a separate transaction. In other words, employers cannot circumvent the law's requirements by simply requiring an employee to pay the employer back by writing a check for the overpayment.

Employers who fail to follow the parameters outlined above create the presumption that the contested deduction was impermissible and in violation of the New York Labor Law.

Legal Ethics Aside, Disgraced is a Hit!

By Lisa Fantino
Lisa Fantino is an award-winning journalist and solo practitioner who has just released her first novel, a political murder mystery, "Shrouded in Pompei" (http://authorlisafantino.com/) She has a general practice firm in Mamaroneck, New York, where she focuses on entertainment as well as general transactional and litigation matters. She can be found at http://www.LisaFantino.com.

There's a reason that a literary work earns a Pulitzer award, and Disgraced on Broadway is it (http://www.boneaubryanbrown.com/press/image/display/class/full/id/3134). Disgraced is probing, insightful, intelligent and funny, all while sitting on the cutting edge of rubbing almost everyone the wrong way.

Humanity can't help but destroy itself by allowing its differences to fester into violent confrontations toward supremacy. In the past, the differences which divided us were more isolated, geographically dispersed and somewhat easier to ignore. Yet all that has changed in the 21st century, and as the regional boundaries of culture, tradition, politics and religion have all but been erased in this virtual world, other boundaries have been created as outsiders try to assimilate to a new world order. Disgraced brings it all to the front, to the places we know exist but yet try to ignore, to the beliefs which are so ingrained in each of us that maybe, just maybe unity is not meant for humanity.

Disgraced is basically the story of how a lapsed Muslim attorney tries to fit into life in New York City post-911. He is on the litigation partner track, or so he believes, at a top law firm. However, his career path is potholed with deceit, bias and assumptions or misconceptions that make his character come face-to-face with his past in the present. It comes to a head during an explosive dinner party with one of his colleagues and her husband in the apartment he shares with his artist wife.

What is revealed during this wonderfully directed, tightly acted scene is the internal struggle we each possess between what we've learned, our culture, our heritage, and what we know to be morally correct. Lead character Amir Kapoor, brilliantly played by Hari Dhillon, is forced to cough up his ethical missteps bit by bit as the self-serving interests of each character come to the fore. His colleague, Jory, smartly portrayed by Karen Pittman, a black woman in a Jewish firm, struggles with the fact that she's been given a partner slot while the "ex-Muslim" Amir has worked for it harder and longer, highlighting that Muslims may be the new Blacks when it comes to racial profiling. She's now accepted and he's not.

For attorneys in the audience, the ethical violations in this scene are glaring. Amir seems to think that changing his clothing while denouncing his Muslim upbringing will distance himself from his roots. He admits to changing his name and getting a new social security number, but fails to disclose these things when applying to the Bar or his new firm. He truly believes that failure to disclose is not the same thing as lying. Yet such an ethical sidestep goes to the very heart of what we as professionals swear to uphold - the integrity and competence of the legal profession, which is the core principle of Canon I of the Code of Professional Conduct.

While EC 1-7 of the Code holds that attorneys should treat all with dignity and respect and refrain from bias, what does it say about a society where an American-born Muslim feels ashamed to identify his own heritage and a law firm feels the need to dismiss him for his political beliefs? We are human, and while we should avoid such prejudices in theory, our cultural roots are as much a part of our DNA as the color of our skin and eyes. As Amir proudly and defiantly states, "It's tribal...it's in the bones."

Pre-911, New York City was a metropolis where the stereotypes which plagued the culture were that blacks were violent gangstas, Latinos were thieves with blades, and Jews were liberal advocates for Israel. Post-911, those stereotypes still exist but have all but been obliterated by the overwhelming bias against Muslims, be they foreign or domestic born.

So, what do you get when you have a Jew, a WASP, a black woman and an ex-Muslim at a tiny dinner table? An explosion of talent as the hot button issues of religion, politics, sex and racial profiling are the catalyst for a night of great theater on Broadway.

Eleventh Circuit Decision in Cambridge University Press v. Patton

By Barry Werbin

An important and generally well-reasoned 129-page fair use decision came down October 17th by the Eleventh Circuit, in a case involving teaching course books that was brought against officials of Georgia State University and the University System of Georgia. The alleged that the defendants infringed the plaintiff publishers' copyrights by permitting professors to make digital copies of excerpts of graduate-level scholarly and academic books available to graduate students for free (i.e., modern digital versions of paper "coursepacks" that normally contain licensed content). The Court reversed in part the District Court's 300+ page decision, which had found after a bench trial that only 5 of 74 works in issue infringed and that a fair use defense applied to 48 of the works overall (as for the balance, either copyright ownership was not established or the copying was deemed "de minimus"). Cambridge University Press v. Patton, Nos. 12-14676 & 12-15147 (11th Cir. Oct. 17, 2014) (gsu-decision.pdf).

The universities maintain systems for digital distribution of course materials to students. Materials selected by professors that are either owned by the school libraries or the professors are scanned and posted to the distribution system. Based on a 2009 university protocol, each professor was required to complete a checklist of fair use factors for every excerpt as part of an assessment as to whether the excerpt qualified as fair use. Access to the network was password protected and was permitted only for students of each class during the applicable semester. The plaintiffs alleged that numerous professors made thousands of excerpts of plaintiffs' articles available in their distribution systems without permission, and that the universities' administrations encouraged this activity.

On appeal, the Court faulted the District Court for giving all four Section 107 factors equal weight and for using a mathematical formulaic method for assessing each factor, referring to that court's approach as "overarching fair use methodology." Instead, fair use must be assessed as to each work. One of the more interesting discussions in the appellate opinion is that while the uses of the plaintiffs' works were not "transformative" (with the Court otherwise adopting "transformative use" as a key component of the first Section 107 factor) -- because they were verbatim copies of the originals converted to digital format and served the same intrinsic purposes as the originals -- the use was clearly for nonprofit educational purposes and not commercial exploitation, even if the universities avoided paying license fees and charged tuition, and the use furthered a public purpose since these were public universities. Thus, "the first factor favors a finding of fair use despite the nontransformative nature of the use."

The Court also distinguished several prior cases involving infringing copying of coursepack content by for-profit copy-shops, as those did not involve direct copying by teachers and universities themselves, noting that in those cases, the courts "expressly declined to conclude that the copying would fall outside the boundaries of fair use if conducted by professors, students, or academic institutions."

Nevertheless, the university policy used the plaintiffs' works for their intended market purpose and the publishers licensed much of their content for fees, such that the forth factor addressing potential market harm was more serious in this case. The district court also should not have ignored the creative and other aspects of the works individually, particularly where that court also erred by adopting a 10% mathematical benchmark for the amount of content used, regardless of the qualitative nature of the content, which also was reversible error. In terms of the policy underlying fair use, the Circuit Court emphasized that, "when determining whether Defendants' unpaid copying should be excused under the doctrine of fair use in this case, we are primarily concerned with the effect of Defendants' copying on Plaintiffs' incentive to publish, not on academic authors' incentive to write."

The District Court had also erred in its assessment of the second fair use factor -- the nature of the copyrighted work -- by finding fair use in every case. While the appeals court noted this factor was "of comparatively little weight in this case particularly because the works at issue are neither fictional nor unpublished, where the excerpts in question contained evaluative, analytical, or subjectively descriptive material that surpasses the bare facts, or derives from the author's own experiences or opinions, the District Court should have held that the second factor was neutral or even weighed against fair use where such material dominated."

In the end, the Court found that the trial court had abused its discretion in granting injunctive and declaratory relief and remanded. An award of legal fees to the defendants also was reversed. The Court also cited favorably to the Second Circuit's approach to fair use assessment in Cariou v. Prince. Note that unlike Cariou, however, the Eleventh Circuit did not make its own ultimate findings of fair use, but remanded the case to permit the District Court to make that decision on a work-by-work basis.

October 24, 2014

Aereo Decision

Aereo has lost the argument in the Southern District that it should be considered as a cable company and allowed to operate under the compulsory license scheme following the Supreme Court's opinion that its transmissions were similar to that of a cable company. Judge Nathan found that: "The Supreme Court in Aereo III did not imply, much less hold, that simply because an entity performs publicly in much the same way as a CATV system, it is necessarily a cable system entitled to a ... compulsory license ... Stated simply, while all cable systems may perform publicly, not all entities that perform publicly are necessarily cable systems, and nothing in the Supreme Court's opinion indicates otherwise." The Judge also stated that: "The void left by Aereo III's silence on 111 is filled by on-point, binding Second Circuit precedent, which has already resolved the issue presented here." AereoSDNYDecisionreCompulsoryLicense.pdf

October 28, 2014

A Beneficial Partnership

By Matthew Luchs

American sports have tried to cross the plane into the international market for years and have had some instances of positive results. For example, many international National Basketball Association (NBA) players, like Dallas Mavericks' Dirk Nowitzki, attribute the rise in international interest in NBA basketball to the 1992 United States Men's Olympic basketball team, also known as the "Dream Team." (http://projectspurs.com/2012-articles/ginobili-parker-influenced-by-92-dream-team.html). Since the "Dream Team," international interest in basketball has been at an all time high. Although the International Basketball Federation Basketball World Cup displayed that the USA is still the leading powerhouse in the basketball world, there are also a number of other countries that possess serious talent, such as Spain and France. The NBA has taken the next step toward continuing the success of their international programs, while increasing fan interest to an already strong international market. For example, on October 13th2, the NBA and China's Ministry of Education formed a joint partnership to implement basketball development curriculums throughout China. (http://probasketballtalk.nbcsports.com/2014/10/18/nba-announces-groundbreaking-partnership-to-implement-basketball-development-curriculum-in-chinese-schools/).

This agreement represents the first partnership that China's Ministry of Education has undertaken with an American professional sports league. (http://www.usatoday.com/story/sports/nba/2014/10/17/nba-china-education-basketball-training/17457813/). The NBA released a statement indicating that "[t]he groundbreaking partnership [will] focus on basketball participation in elementary, middle and high schools across China and... provide enhanced basketball training to at least 3 million students by 2017." (http://probasketballtalk.nbcsports.com/2014/10/18/nba-announces-groundbreaking-partnership-to-implement-basketball-development-curriculum-in-chinese-schools/). Although three million people, relative to China's 1.35 billion person population, would seem small, the nature of the program speaks to how large a step this is for relations between China and the NBA. (http://www.geoba.se/population.php?pc=world). The NBA will be sending a combination of NBA players, alumni legends and coaches to educate and inform Chinese coaches and physical education teachers on the experience they gained during their employment with the NBA. (http://probasketballtalk.nbcsports.com/2014/10/18/nba-announces-groundbreaking-partnership-to-implement-basketball-development-curriculum-in-chinese-schools/). In addition, the NBA has agreed to help the Ministry of Education with China's youth basketball leagues. (http://www.foxnews.com/sports/2014/10/17/nba-announces-partnership-to-expand-basketball-development-and-training-in/)

The partnership makes sense from a relationship perspective. The NBA has been involved with China "for decades," but the NBA's growth in popularity has occurred since the formation of NBA China. (http://www.nba.com/news/nba_china_080114.html). On January 14, 2008 the NBA "announced the formation of NBA China, which [was] a new entity that [would] conduct all of the leagues business in greater China." Id. The then-NBA Commissioner, David Stern, thought that "the opportunity for basketball and the NBA in China [was] simply extraordinary . . . ." Id. He believed that by "working with the General Administration of Sports and the Chinese Basketball Association," the NBA could continue to "emphasize, in both rural and urban Chinese communities, its contribution to fitness, healthy lifestyle and an appreciation of teamwork." Id. Basketball is now the most popular sport in China, with more than 300 million participants. (http://www.nba.com/2014/news/10/13/nba-china-anta-partnership/).

Although it appears that this new partnership with the Chinese Ministry of Education is solely in furtherance of the goal of healthy living set by David Stern, there may be other underlying motivations as well. On the same day that the deal with China's Ministry of Education was announced, the NBA revealed that ANTA Sports Products Limited (ANTA) would be "an Official Marketing and Merchandising Partner of NBA China...The announcement was made at a press conference in Beijing by NBA Commissioner Adam Silver and ANTA Sports Chairman and CEO Ding Shizhong . . . ." Id. This deal allows ATNA to launch a "complete line of ATNA and NBA co-branded league and team-identified footwear and accessories..." Id. They will be "available online and in over 2,000 ATNA stores around the country." Id. The NBA's current commissioner, Adam Silver, sees this as an opportunity to give Chinese fans a chance to connect with their favorite team via ATNA's products. Id.

In addition to the NBA's deal with ATNA, "[t]he NBA currently has relationships with a strong network of television and digital media outlets in China, including a partnership of more than 25 years with national broadcaster CCTV." (http://www.nba.com/2014/news/10/17/nba-ministry-of-education-in-china-join-to-push-basketball-fitness-in-chinese-schools/). The NBA hosts hundreds of touring basketball events for fans, conducts community enrichment programs, and maintains marketing partnerships with a combination of world-class Chinese-based corporations and U.S.-based multinationals. Id.

Some believe this may be step for the NBA to introduce an official Chinese team that would play in its American league. However, there are a number of complications with that proposition. How much time would teams need off to adjust to the time difference and the trip length from China to the United States? At what time would the games be shown to maximize viewership when there is a 12-hour time difference? What is clear, however, is that the NBA is years from making such a project a reality. Yet this partnership with ATNA and China's Ministry of Education will not only provide a great outlet for Chinese students interested in basketball, but will also continue to increase the NBA's international revenue.

Internet Streaming of Live Broadcast Television

By Rachele Morelli

In a recent decision, American Broadcasting Companies, Inc. v. Aereo, Inc., the Supreme Court of the United States granted to television broadcasters a sigh of relief under the Copyright Act of 1976. 573 U.S. __ (2014). The Supreme Court held Aereo, the internet-based broadcast television streaming service, infringed copyright holders' exclusive right to "perform" their works "publicly" within the meaning of the Transmit Clause of the 1976 Copyright Act. Id.

Prior to the 1976 amendment, the 1909 Copyright Act (the 1909 Act) granted copyright owners the right to publicly perform their works. Am. Broad. Cos. v. Aereo, Inc., 874 F. Supp. 2d 373 (S.D.N.Y. 2012). However, under the 1909 Act, to perform a copyrighted work publicly required a literal performance of the work. Id. The United States Supreme Court decided two cases under the 1909 Act that discussed cable television systems which received broadcast signals through antennas and then retransmitted those signals to its subscribers via coaxial cable. Id. Ultimately, the Court found that the defendants, the cable television systems, were not infringing the copyright holders' exclusive right to publicly perform, because the systems were not actually "performing" the copyrighted works through their transmittals. Id. Congress was extremely dissatisfied with the outcome of these cases and began efforts to amend the 1909 Act to account for the rapid advances in technology. Id.

In 1976, the Copyright Act (the 1976 Act) was amended with the intention of encompassing cable system providers within its scope. The 1976 Act provided that a copyright owner has the exclusive right to perform his/her copyrighted work publicly. See 17 U.S.C. §101; 17 U.S.C. §106(4). Further, the 1976 Act clarified that to "perform" an audiovisual work means "to show its images in any sequence or to make the sounds accompanying it audible." Id. Further, the addition of the Transmit Clause clarified that an entity performs a work "publicly" when it transmits or otherwise communicates a performance of the copyrighted work to the public. Id.

A significant case decided under the 1976 Act was "Cablevision". Cartoon Network LP v. CSC Holdings, Inc., 536 F.3d 121 (2d Cir. 2008). There, the court found that Cablevision's transmission of a recorded program to an individual customer through its remote server Digital Video Recorder (RS-DVR) system was not a public performance, but rather more similar to a private performance. Id. at 137-40. The court premised its holding on two major facts: 1) that the RS-DVR system created unique copies of every program, and 2) that the transmission of the recorded program to each specific customer was produced solely from that unique copy. Id. at 137. The court reasoned that each private performance created a one-to-one relationship, because each user made an individual copy that was viewable only by that user. Id. The court found that the RS-DVR's private performances did not violate any rights because the 1976 Act only protects the right to make a public performance of a copyrighted work. Id.

In light of the Cablevision holding and the explosion of innovative portable Internet enabled devices, numerous services have emerged that offer online streaming of live broadcast television. Most services have formulated their streaming in accordance with the Cablevision case rationale and have devised systems that attempt to create a one-to-one relationship with each user to ensure that the performances would remain "private" rather than "public." These novel progressive services have produced widespread implications for the future of all broadcast television.

Aereo, Inc. is a part of this group of services that allows users to stream live broadcast television from any Internet-enabled device without giving proper compensation to the owners of the copyrighted material it transmits. The television producers, marketers, distributors and broadcasters that own the copyrights in many of the programs Aereo streams sued Aereo for infringing on their right to "perform" their copyrighted works "publicly." Aereo, Inc., 134 S.Ct. 2498, 2503 (2014). The case was first decided in July 2012 by the District Court for the Southern District of New York (Aereo, Inc., 874 F. Supp. 2d at 373), and affirmed in April 2013 by the Second Circuit (WNET, THIRTEEN, Fox Television Stations, Inc. v. Aereo, Inc., 712 F.3d 676). Both lower courts declined to find infringement because they analogized Aereo's service to the RS-DVR in Cablevision. Aereo, Inc., 874 F. Supp. 2d at 382-96; Aereo, 712 F.3d at 684-95.

The Supreme Court granted certiorari and heard Aereo unsuccessfully argue that its streamed Internet transmissions were not made "publicly" under the 1976 Act. Aereo, Inc., 573 U.S. at __. Aereo attempted to persuade the Court that its streams were not "public," and similar to the RS-DVR in Cablevision, because Aereo's system generated separate copies of each program and the transmission to each individual subscriber was created solely from those unique copies. The Court relied heavily on Congress' regulatory objectives and refused to allow the "behind the scenes" technological differences to distinguish Aereo from an ordinary cable provider that does publicly perform. Overall, the Court ruled in a 6-3 decision that Aereo transmits a performance of the copyrighted works to the public within the meaning of the Transmit Clause of the 1976 Act. Id. As a result of the Supreme Court's decision, the case was remanded to the lower court and Aereo suspended its services on June 28, 2014.

In coming to its decision, the Supreme Court predominantly focused on the actual purpose of Aereo's service: To provide live broadcast television in the same manner as a cable provider while circumventing the statutory obligations that are inherent in being a cable provider. Today, there is still great debate as to whether the streaming of websites marks an infringement under the 1976 Act. Regardless of the Supreme Court's ruling, it is highly unlikely that any of the website streaming services, like Aereo, will completely cease to exist. This case and many others in history have proven that there are often consequences when one attempts to combat technology rather than embrace it. The next step to resolve this issue, which stems from our society's inevitable advances in technology, would be statutory reform.

The primary issue presented in this matter is whether these online streaming services should be considered "cable system providers" under the 1976 Act. If these services are indeed viewed as cable system providers, as the Supreme Court found, then the statute should be amended to indicate their inclusion. The 1976 Act allows cable system providers to retransmit copyrighted works from broadcast television stations in exchange for paying a compulsory license fee, which is then distributed accordingly to the copyright holders. Aereo, 712 F.3d at 685. The statutory decision to include these online streaming services under the umbrella of "cable system providers," thereby allowing them to pay the ordinary license fees associated with retransmitting, may be the solution to the technological challenges we are confronted with today.

October 29, 2014

Wage Discrimination in Minor League Baseball

By Daniel Oresajo

Baseball was once America's favorite pastime, so many wonder why baseball's popularity has faded. One possible answer is that little has changed since baseball's inception; even the once beloved nostalgia of baseball, still in its "purest form," seems outdated. While many players long for the days of playing for the love of the game, some players, such as minor league baseball (MiLB) players, do not make enough money to sustain playing solely for the love of the game.

Lucas Mann of Slate describes the minor leaguers' plight, writing, "[[m]inor leaguers are] paid just like they were paid half a century ago. They find off-season work to get them from September to March, just like major leaguers did before their salaries exploded." 

"Over the course of a five month season, the average MiLB player earns between $3,000 and $7,500, a salary well below the federal poverty level of $11,490. By comparison, the average fast food worker earns between $15,000 and $18,000 per year, which is two to three times greater than a minor league player's salary." 

As a result of this seemingly unjust scenario, three former MiLB players, Aaron Senne, Michael Liberto and Oliver Odle, have sued Major League Baseball (MLB), which governs the MiLB, MLB Commissioner Bud Selig, the Kansas City Royals, Miami Marlins, and the San Francisco Giants in a California district court for an alleged violation of antitrust laws, and in particular, wage and overtime laws. Through this action, the plaintiffs mean to "expand the lawsuit into a class action on behalf of thousands of former minor league players." Id.

The plaintiffs argue that the MLB violated the Fair Labor Standards Act (FLSA) and state laws guaranteeing citizens minimum wage and overtime pay. According to the United States Department of Labor,"[t]he FLSA establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector and in Federal, State, and local governments."  Moreover, "[c]overed nonexempt workers are entitled to a minimum wage of not less than $7.25 per hour effective July 24, 2009," as well as "[o]vertime pay at a rate not less than one and one-half times the regular rate of pay is required after 40 hours of work in a workweek." Id.

Players work between 60 and 70 hours per week, which includes playing six or seven games per week and participating in conditioning. Yet they earn meager wages. In addition, the players' wages do not cover participating in instructional leagues and extended spring training. Thus, "[t]he players believe that they, and other current and former minor leaguers, are owed back wages for uncompensated and under-compensated labor."  At first glance, it is difficult to dispute the plaintiffs' arguments. However, the MLB has a number of defenses at its disposal.

First, the MLB can argue that it possesses an FLSA exemption, which "does not require amusement and entertainment businesses operated on a seasonal basis (seven months or less) to pay its employees minimum wage or overtime pay."  As the span of a MiLB season is five months, which includes spring training (team mandated workouts), the MLB can argue that minor leaguers' status as seasonal employees precludes them from FLSA coverage. However, sports law expert Nathanial Grow states that "the decision will come down to which side of the argument the court favors: that baseball is a year-round business or that it is a seasonal operation that does most of its business during a baseball season." Id.

Second, baseball has historically been allowed an antitrust law exemption, which the MLB will contend might give it legal authorization to continue paying MiLB players such low wages. As distinguished sports attorney Michael McCann writes, "[t]he exemption allows baseball to unilaterally set salaries and working conditions for minor league players. Without this exemption, minor league players could theoretically sue under the Sherman Act, and argue that big league and minor league owners have conspired to unreasonably limit salaries."

A third argument that the MLB may present is that MiLB players cannot form a union. The lack of a union leaves no formal representative body to "advocate for higher player compensation and hold leverage through the power to strike."  Further, unless they have appeared on a MLB team's 40-man roster, MiLB players are also not members of the MLB Players' Association, which is another missing layer of protection.

Additionally, the MLB may argue that MiLB players voluntarily agreed to the terms of their employment by signing their contracts. MiLB players can't argue that they are disadvantaged in negotiations because they have the power to retain agents. In addition to their agents, the MLB Players Association negotiates on behalf of current and prospective MiLB players.

Finally, the "MLB plans to argue that the hours worked and salaries of players are not uniform and therefore should be considered by the court on an individual basis."  However, even if a court disregards this argument, and allows for a class action, "[t]he statute of limitations [for FLSA lawsuits] could limit the ability of minor leaguers who have been retired for several years from joining a class." 

The court has not yet determined whether the class action can go forward. Nevertheless, this case has the potential to significantly impact the MLB's and MiLB's future. If the MiLB players succeed in raising wages, will MLB teams find cheaper alternatives for training their prospects? Increasing MiLB players' salary and benefits could translate into higher ticket prices for fans, which could cause some MiLB teams to file for bankruptcy, taking away the very means by which these players earn a salary (small may it be) in the first place. Put simply, by succeeding, MiLB players could unintentionally end the system they are trying to fix. One thing is clear, America's once favorite pastime may never be the same.

October 31, 2014

EASL's FALL Meeting

"Caution: Children At Work," What You Need to Know about Child Employment in the Entertainment Industry

Thursday, November 13, 2014 | 4:00pm - 7:30pm with Reception to Follow
Loeb & Loeb LLP| 345 Park Avenue (between 51st & 52nd) | New York, NY 10154-1895

This program is accredited for up to 3.5 MCLE Credit Hours in Professional Practice.

Entertainment, Arts & Sports Law Section and Labor & Employment Law Section Member Rate: $50.00
NYSBA Member Rate: $90.00
Non-NYSBA Member Rate: $125.00

The glamour and privileges for children in the entertainment industry are historically accompanied by unsafe, inappropriate and abusive working conditions, a lack of proper educational instruction and supervision, and historically, a misappropriation of their earned funds. This fall program will present a panel of speakers, which is scheduled to include, Mark Knox, Esq. of the New York State Department of Labor, Alan Simon and Karin Farrell of On Location Education, Doreen Small, Esq., of Marquart and Small, Avram Morell of Pryor, Cashman LLP., Michael Maizner of Kauff, McGuire and Margolis and Diane Krausz, Esq. The discussion will cover the new regulations that apply to models as well as child performers, education requirements and licensing, general work laws and permits, and court approval procedures pursuant to Article 35.03 of the NYS Arts and Cultural Affairs Law in New York Courts. You will benefit from this program whether you are new to this area of practice or are an experienced attorney looking to compare your knowledge and techniques with those of the faculty members.

This program is co-sponsored by the Entertainment, Arts and Sports Law Section (http://www.nysba.org/Sections/Entertainment_Arts_Sports/Entertainment_Arts___Sports_Law_Section.html) and the Labor and Employment Law Section (http://www.nysba.org/LaborEmployment/) of the New York State Bar Association (http://www.nysba.org/membership/).

For questions about the program please contact Beth Gould: bgould@nysba.org

To register over the phone or to join NYSBA call our State Bar Service Center at 1-800-582-2452

About October 2014

This page contains all entries posted to The Entertainment, Arts and Sports Law Blog in October 2014. They are listed from oldest to newest.

September 2014 is the previous archive.

November 2014 is the next archive.

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