May 2002 - Los Angeles County Bar Association

Transcription

18th Annual Entertainment Law Issue
MAY 2002, VOL.25, NO.3 / $3.00
Recording
Industry
Contracts
page 14
Los Angeles lawyer
Bonnie E. Berry, with the
musical group Dream, offers
guidance on representing
underage performers
page 28
Estate Planning
for Copyright
Holders
page 20
Practice in
a Minor Key
Right of
Publicity
Update
page 44
EARN MCLE CREDIT
Legal Cases That
Shaped Hollywood
page 35
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page 28
Contents
Los Angeles Lawyer
departments
The Magazine of the
14 Practice Tips
Challenging the practices of the
recording industry
By A. Barry Cappello and Troy A.
Thielemann
Los Angeles County
Bar Association
May 2002
Vol. 25, No. 3
cover
20 Tax Tips
Estate and gift tax planning for
copyright owners
By William M. Weintraub and
Burton A. Mitchell
52 By the Book
The Government vs. Erotica
Reviewed by R. J. Comer
54 Computer Counselor
The emergence of PDFs as the
new standard for e-documents
By Benjamin Sotelo and
James A. Flanagan
features
columns
10 Barristers Tips
How to break into show
business law
By Timothy R. Collins
60 Closing Argument
Is the law irrelevant in the
convergence era?
By Arnold P. Peter
Bonnie E. Berry, a partner with
57
Classifieds
chair of the firm’s Entertainment
58
Index to Advertisers
Department, is surrounded by
59
CLE Preview
Kirkpatrick & Lockhart, LLP, and
28 Practice in a Minor Key
The ambiguities of the music industry complicate the
relationship between attorneys and their minor clients
By Bonnie E. Berry
35 Five Cases That Shook Hollywood
Since its inception, the film industry has been shaped by
a series of landmark court decisions
By Gerald F. Phillips
Plus: Earn MCLE credit. MCLE Test No. 105,
her clients, the R&B group
sponsored by West Group, begins on page 38.
Dream. In “Practice in a Minor
44 The Unbearable Likeness of Being
Key,” she discusses the special
The right of artists to use a celebrity’s likeness seems to hinge
challenges of representing
on the extent to which the use is purely commercial
youthful entertainers.
By Ted F. Gerdes
Her article begins on page 28.
Cover photo: Tom Keller
page 44
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AL3673
from
the
chair
By Patric M. Verrone
A
As for writers, the comedy writer dreams
s you might have guessed from this
of the laugh. The dramatic writer dreams of
month’s cover, the ongoing consolithe sigh. The horror writer dreams of the
dation frenzy that has overtaken all
shriek. All writers dream of the day when
forms of media in our time has led to the
their agent actually takes their call.
inevitable: Los Angeles Lawyer has finally
The agent dreams of being able to do
merged with Tiger Beat. You can now expect
what the manager does. The manager dreams
many more articles on why Britney Spears
of being able to do what the
loves eminent domain proceedPatric M. Verrone,
producer does. The producer
ings and how to get tickets to an
coordinating editor
dreams of being able to do any’N Sync concert under Civil Code
of this issue, is
thing and everything the execSection 43.
supervising
utive in charge of production will
Actually, that day has not
producer of Fox
not allow.
come. At least not yet. This is
TV’s Futurama
The television network execLAL’s annual Entertainment Law
(Sundays at 7 P.M.)
utive dreams of ratings. The film
Issue. Ironically, the Entertainand secretaryexecutive dreams of the green
ment Law Issue turns 18 this
treasurer of the
light from upstairs. The studio
year—as do our cover girls. For
Writers Guild of
chief dreams of a world free from
those of you not hip enough (and
America, west.
difficult actors, uncontrollable
by “you” I mean “us”) to know
directors, bitter writers, pushy
who these young ladies are, let
agents, meddling managers,
me introduce you. They are the
rogue producers, and obsequious underlings.
members of the R&B girl band Dream. Their
Well, maybe not the last one.
debut album, It Was All a Dream, made
The talent dreams of owning production
Billboard’s Top Ten chart last year, but it is
companies. The production companies dream
their appearance on our cover that will unof owning agencies. The agencies dream of
doubtedly cinch their success. Now let’s see
owning studios. The studios dream of owning
Rolling Stone put Pierce O’Donnell on its
networks; their affiliates; cable systems; thecover.
It is fitting that a band called Dream would ater chains; magazine, book, and newspaper
publishers; online service providers; and all
appear on the coming-of-age installment of
the other ancillary right distributors existing
LAL’s Entertainment Law series. Los Angeles
or yet to be discovered in all the known and
is often called The City of Dreams (I know, it’s
unknown universe, now and until the end of
more often called The City of Angels, but we
time. Or at least that is the Disney standard
did not get a band called Angel on the cover—
contract language.
work with me here, people) and the enterBut the biggest dream of all these dreamtainment industry is the very center of those
ers is to follow the letter-perfect advice of
dreams.
their all-knowing, fair-minded, and affordable
The aspiring actor dreams of the big
entertainment lawyer. This is true, of course,
break. The successful actor dreams of the
only in the dreams of entertainment lawyers.
starring role in a TV series. The TV star
Dreams that will become reality when LAL
dreams of movie stardom. The movie star
really merges with Tiger Beat.
dreams of a star on Hollywood Boulevard.
Now it is time to thank our own Dream
And they all want to direct.
Team: my fellow coordinating editor Bil
But the director dreams, too. The maverTavares, associate editor Eric Howard, senior
ick, independent director dreams of popular
editor Lauren Milicov Jomie, and publisher
success. The box office giant dreams of critSam Lipsman. Without them, putting this isical acclaim. The critically acclaimed superstar
sue together would be a nightmare.
■
dreams of an Emmy or an Oscar. They all
dream of the artistic freedom that comes
with unlimited time and money and control.
And the writers want them to wake up from
their dreamland in which the credit “A Film
By” refers just to the director.
LAW
SOUTHWESTERN
S O U T H W E S T E R N U N I V E R S I T Y S C H O O L O F L AW
Master of Laws in
Entertainment and
Media Law
B
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F O R A D M I S S I O N S I N F O R M AT I O N ,
V I S I T w w w. s w l a w. e d u / l l m O N L I N E , O R C O N TA C T:
Ms. Anne Wilson, Director of Admissions
Tel: 213.738.6717 Email: [email protected]
Admissions
Master of Laws in Entertainment and Media Law
Southwestern University School of Law
National Entertainment & Media Law Institute
675 South Westmoreland Avenue
Los Angeles, CA 90005-3992
D
barristers
tips
By Timothy R. Collins
How to Break Into Show Business Law
Significant hurdles often exist, but they can be
overcome by the diligent job seeker
A
s a motion picture attorney, I have often been asked, “What
is the best way to become an enter tainment attorney?”
Many young lawyers find that potential employers are
looking for attor neys who already have enter tainment law
experience. But, in a classic chicken-or-egg conundrum, unless the
applicant is one of the lucky few who was able to get a job
practicing entertainment law straight out of law school, he or she
will not have any entertainment law experience. There are myriad
ways to enter this field, but some avenues are more efficient and
less frustrating than others. Everyone has advice, but the following
pointers are among the best.
First, yes, it is who you know. Not surprisingly, the most
effective way to gain entry into the entertainment field, whether inhouse or at an entertainment boutique firm, is through someone
you know who is already practicing in the field. A number of
reasons exist for the success stories that arise from this search
method. Many entertainment positions are never listed or reported
in any periodical or publication; the existence of the position is
simply communicated through word of mouth among entertainment lawyers in that specialized field of practice (e.g., music,
motion pictures, television, etc.). Therefore, it truly helps to have
someone within a particular entertainment field who can alert you
to oppor tunities. Once you are notified of the existence of a
position, however, who you know is not all. Some lawyers wait to be
called, but you naturally have a better chance of actually obtaining
the position if you apply. You will be competing with the others who
also heard about the position by word of mouth.
If you learn of the existence of an unlisted position, you will be
competing only with those who heard about the position by word of
mouth, as opposed to the potentially hundreds of applicants who
might respond to an entertainment position listed in a periodical.
Obviously, this increases your chances of obtaining the
entertainment position. Finally, the person who is referring you to
the position may be able to recommend you to the company or firm
that is hiring.
Since it pays to know people, network. What do you do if you
work for a company or firm with no entertainment attorneys? In
addition to asking acquaintances if they have any friends who
practice in your area of interest, you can attend one of the
enter tainment law conferences that are held throughout Los
Angeles. UCLA and USC host annual enter tainment law
conferences that draw many lawyers from studios, entertainment
boutique firms, and production companies. The Beverly Hills Bar
Association also occasionally sponsors seminars with an
entertainment theme. In addition, the Association’s own Intel10 LOS ANGELES LAWYER / MAY 2002
lectual Property and Entertainment Law Section sponsors a comprehensive yearly symposium that covers issues of importance to
all practitioners in entertainment or media law, and Association
members receive a discount. Before, between, and after the
lectures at these seminars (which also offer MCLE credit), many of
these lawyers socialize informally. These events provide informal
settings in which to meet lawyers in the entertainment field and
thus of fer a good place to star t networking to those who are
starting from the ground floor.
Next, remember that you will not get what you want if you do
not know what you want. It is a good idea to spend some time
talking to your contacts in entertainment law to identify the type of
position and the field of practice in which you would be the most
interested. Entertainment law includes everything from litigators
practicing intellectual property at large firms to in-house attorneys
negotiating deals at small production companies. If you have
determined that you want to negotiate deals and contracts in a
business setting, you still have to decide in what field you wish to
practice (film, television, or music, for example) and in what setting
(enter tainment depar tment of a large firm, boutique firm, or
studio). The variety of fields and settings provide for very different
experiences, and it is well wor th your time to investigate the
particular forum that you are considering to ensure that it meets
your interest.
Tailor your resume. Once you learn of an enter tainment
position in your field of interest, it helps your chances of obtaining
a job if your resume shows that you
either have some experience that is
transferable or applicable to that
par ticular enter tainment position or
have demonstrated an interest in that
area in the past.
For example, if you are a litigator
who has a measure of copyright law
experience and you are now attempting
to obtain a position as a transactional
attorney negotiating enter tainment
contracts, the resume should highlight
Timothy R. Collins is
and focus upon your intellectual
assistant general
proper ty experience. If you are a
counsel in the
corporate attor ney striving for the
motion picture legal
same position, your resume should
department at
focus upon the various types of conWarner Bros.
tracts that you have negotiated, because the transactional experience is
transferable to other types of contracts. If
you do not have much enter tainment
experience, you can attend university
extension classes in the business in which
you seek entr y and add them to your
resume (and those extension courses are
also a good place to network).
Have patience. Anecdotal evidence
seems to suggest that a young lawyer
tr ying to get an enter tainment job is
something akin to tr ying to become a
supermodel or a rock star. However, it can
and does happen (the former, not the
latter). Unless you are lucky or well connected, you will most likely have to go
through numerous inter views before you
find an enter tainment position at a wellknown entertainment company or boutique
law firm. Entertainment companies can also
be notoriously slow when it comes to
making decisions about hiring candidates
who have interviewed for positions. If you
don’t have the patience for any or all of the
above, you can try to join the entertainment
department of a larger law firm and then
transition to an entertainment company or
boutique firm later. And don’t forget to
follow up periodically with personal
contacts; one week they may not know of
anything available, and two weeks later
they may know of three positions that are
open. For example, I obtained my position
through a check-up call to one of my
personal contacts.
Check the Trades and the Internet
Check job listings. Although the easiest
path to an enter tainment law position is
through a personal contact, it is not the
only path. There are, of course, other avenues that can be utilized that are usually
more frustrating but on occasion can yield
results. Besides asking a headhunter to
assist you in a search for a job, you can
check the job listings in Daily Variety and
The Hollywood Repor ter. These industr y
publications occasionally list entertainment
attorney positions in their employment
opportunities sections. You can also check
for entertainment positions on the Internet.
The Web site at www.ifcome.com is one of
the best known within the industry; it lists
positions that are available for entertainment attorneys at entertainment companies
as well as law firms. Job listings can also be
found at additional sites, including www
.enter tainmentcareers.net and www
.showbizjobs.com. The problem with these
methods is that you will probably be
competing with scores of applicants. However, many people do obtain jobs through
these sources, so it is worth your time—
assuming your last name isn’t Disney.
■
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practice
tips
By A. Barry Cappello and Troy A. Thielemann
Challenging the Practices of the
Recording Industry
Recent lawsuits
Labor Code Section 2855(a)
permits employees to terminate
by recording artists personal service contracts after
seven years. Section 2855(b), a
question the
1987 amendment to Section 2855
that applies only to recording
legality of their
artists, purports to allow record
companies to sue recording
contracts
artists for undefined damages
after the ar tists invoke their
rights under Section 2855(a).
he litigation in which rock (See “The Seven-Year Rule,” page
star Cour tney Love cur- 16.) According to the record comrently is embroiled may panies, Section 2855(b) allows
change the record industry and them to sue recording artists for
the way recording artists con- speculative lost profits on undetract with record companies.1 The livered albums.
Pretty on the Inside, the debut
battle is not about piracy in the
way Napster-type software allows album of Love’s band Hole, was
Web surfers to search out and released by an independent
copy music without any intention label. After that album, Hole,
of paying for it. Love’s suit is through its corporation, Doll
about piracy by the major record- Head, Inc., signed with Geffen
ing companies; she asserts that Records, Inc., which was a small,
boutique record
they have hidden
A. Barry Cappello is
label specializing
behind unconscionmanaging partner of
in the developable and imposthe Santa Barbara
ment, marketing,
sible-to-perform relaw firm Cappello &
and distribution of
cording contracts
McCann LLP, and
rock bands. Gefand unconstituTroy A. Thielemann is
fen Records was
tional, lobbyist-dria senior associate
known for its longven legislation to
with the firm. They
term financial and
reap billions of dolrepresent Courtney
marketing commitlars of profit from
Love and Doll Head,
ments as well as
recording artists.
Inc. in their lawsuit
the creative supThe artists, meanagainst Geffen
port and freedom
while, are left with
Records, Inc. and
its artists enjoyed.
little to show for
Universal’s UMG
The agreement retheir efforts after
Recordings, Inc.
quired delivery of
they—not the comtwo albums and
panies—cover the
gave Geffen three
costs of creating,
recording, and promoting their options for delivery of another
work. Specifically, Love chal- five albums. If all the options were
lenges the applicability and con- exercised, the band would have
stitutionality of Labor Code been required to deliver a total of
Section 2855(b), as well as the seven albums in seven years—a
industry’s contracting, account- requirement that most recording
artists would agree is virtually
ing, and marketing schemes.2
RICHARD EWING
T
impossible to fulfill.
Love delivered the two
required albums: the first, Live
Through This, in 1994 and the
second, Celebrity Skin, in 1998.
Each album was a major hit and
was followed by successful tours.
Love then terminated the recording agreement in 1999 under
Section 2855(a). Gef fen and
Universal’s UMG Recordings,
Inc. (which had obtained the
recording agreement during a
wave of consolidation in the
music industry) then sued Love
under Section 2855(b). Love and
Doll Head cross-complained,
attacking Section 2855(b) and the
record companies’ breaches and
deceitful practices.
Section 2855(b) has never
been fully tested in court. Other
recording artists who have filed
suits similar to Love’s have settled
out of court, usually crumbling
under the record companies’
explicit or implicit threats of endless litigation over millions of dollars in profits supposedly lost by
the record companies. Indeed,
the industry’s strategy of offering
enticing settlements—including
higher royalty percentages—
before an artist fully challenges
Section 2855(b) has been a successful one to date.
Involuntary Servitude
The high point for the sevenyear rule came in the mid-1940s,
when actress Olivia De Haviland
challenged the studio with which
she had an employment contract. De Haviland
v. Warner Bros. Pictures affirmed that the
actress’s studio contract could not be
extended past seven years, spelling the end
of the contract player system and leading
directly to the equitable compensation and
creative freedom enjoyed by contemporary
film actors.3
The De Haviland court explained the purpose of Section 2855:
It is safe to say that the great majority
of men and women who work are
engaged in rendering personal services under employment contracts.
Without their labors the activities of the
entire country would stagnate. Their
welfare is the direct concern of every
community. Seven years of time is fixed
as the maximum time for which they
may contract for their services without
the right to change employers or occupations. Thereafter they may make a
change if they deem it necessary or
advisable. There are innumerable rea-
sons why a change of employment
may be to their advantage. Considerations relating to age or health, to
the raising and schooling of children,
new economic conditions and social
surroundings may call for a change. As
one grows more experienced and
skillful there should be a reasonable
opportunity to move upward and to
employ his abilities to the best advantage and for the highest obtainable
compensation.4
Today, film actors enjoy the equitable compensation and creative freedom espoused by
Section 2855(a) and De Haviland; contemporary music artists do not. Section 2855(b)
has prevented one class of employees (recording artists) from enjoying the very freedoms
for which Section 2855(a) was meant to provide. Every other employee in the state of
California enjoys these freedoms and can
seek other employment after seven years
without exposure to liability.
According to the record companies’ inter-
The Seven-Year Rule
While the ability to terminate personal service contracts after seven years under Labor Code
Section 2855 has been a benefit to many, including film actors and athletes, recording
artists see the law in a different light. For recording artists, Section 2855(b), which applies specifically to them, effectively nullifies any advantages that the seven-year rule provides. Indeed,
many artists, including Courtney Love, consider Section 2855(b) to be unconstitutional.
According to Labor Code Section 2855:
(a) Except as otherwise provided in subdivision (b), a contract to render personal service, other than a contract of apprenticeship as provided in Chapter 4 (commencing
with Section 3070), may not be enforced against the employee beyond seven years
from the commencement of service under it. Any contract, otherwise valid, to perform
or render service of a special, unique, unusual, extraordinary, or intellectual character,
which gives it peculiar value and the loss of which can not be reasonably or adequately
compensated in damages in an action at law, may nevertheless be enforced against
the person contracting to render the service, for a term not to exceed seven years from
the commencement of service under it. If the employee voluntarily continues to serve
under it beyond that time, the contract may be referred to as affording a presumptive measure of the compensation.
(b) Notwithstanding subdivision (a): (1) Any employee who is a party to a contract to
render personal service in the production of phonorecords in which sounds are first
fixed, as defined in Section 101 of Title 17 of the United States Code, may not invoke
the provisions of subdivision (a) without first giving written notice to the employer in
accordance with Section 1020 of the Code of Civil Procedure, specifying that the
employee from and after a future date certain specified in the notice will no longer
render service under the contract by reason of subdivision (a). (2) Any party to such a
contract shall have the right to recover damages for a breach of the contract occurring during its term in an action commenced during or after its term, but within the
applicable period prescribed by law. (3) In the event a party to such a contract is, or
could contractually be, required to render personal service in the production of a specified quantity of the phonorecords and fails to render all of the required service prior
to the date specified in the notice provided in paragraph (1), the party damaged by
the failure shall have the right to recover damages for each phonorecord as to which
that party has failed to render service in an action which, notwithstanding paragraph
(2), shall be commenced within 45 days after the date specified in the notice.
Subdivision (b) is a 1987 amendment to Section 2855.—A.B.C. & T.A.T.
pretation of Section 2855(b), Universal may
bind an artist to its employ until all seven
albums are delivered. There are many reasons why the requirement to deliver seven
albums in seven years is more than onerous.
For just one song, an artist must first create
and write the music and the lyrics, put the
music and lyrics together, add instruments,
record the song, and then mix and edit it to
make the completed product. When the artist
goes through this process for a sufficient
number of songs for an album, the songs are
assembled, a cover is created, and the album
is prepared for market. The artist’s work does
not end there, though. The artist must promote the album, produce videos, and tour. For
the next album, the artist must start the
process all over again.
The reality is that no successful artist can
deliver seven albums in seven years, especially considering that the record companies
usually require an 18-month to two-year gap
between releases for rock ar tists. When
artists sign the industry standard contracts,
no one expects them to deliver seven albums
in seven years, yet the industr y uses the
threat of speculative lost profit damages under
Section 2855(b) to force an artist to produce
seven albums even if doing so will require the
artist to perform beyond seven years.
Recording artists have alleged that the
industry’s position imposes involuntary servitude, which exists when the victim has “no
available choice but to work or be subject to
legal sanction.”5 When, for example, a person
is forced to work for a particular employer
until a debt to that employer is paid off, involuntary servitude exists.6 In Love’s suit, she
asserts that Universal seeks her involuntary
servitude because the company requests an
injunction to prevent Love from working for
anyone else until all five additional albums are
delivered to it.
If Section 2855(b) is applied in this way, no
recording artist would be able to terminate a
contract under Section 2855(a). Instead,
artists would be forced to continue working
for the record company to which they are
contracted, since any profits made for a new
company would be owed to the old company
as damages. Of course, this would mean that
artists could not support themselves under a
new contract, which is exactly the situation
proscribed by Section 2855(a): continued
forced service after seven years.
The Definition of Damages
Substantive due process deals with protection from unreasonable, arbitrary, or capricious legislation.7 Due process is also violated by “a statute which either forbids or
requires the doing of an act in terms so vague
that men of common intelligence must nec-
essarily guess at its meaning and differ as to
its application.”8
Section 2855(b) purports to allow damages if an artist gives notice of termination
under Section 2855(a). Although neither the
statute itself nor any reported case law defines
“damages” in this context, recording companies equate damages with lost profits.
Under this theory of lost profits, a record
company would be entitled to recover the
expected profits on the additional albums
that artists have neither delivered nor created.
The statute does not provide for the recovery
of lost profits, and if the record companies’
theory were truly applicable, it would vitiate
the statute itself. The typical record company’s
profit on a single album exceeds the royalty
earned by the artist, so the record company’s
“lost profit” would always exceed whatever
royalty the artist would earn under a new
record deal.
In other words, under the theory of recovery of lost profits for record companies, artists
would be free to sign with a new record
label—exactly the purpose of Section
2855(a)—but would end up losing money
since they would owe their previous record
company more money in alleged lost profits
than they would most likely earn in royalties
from their new record contract. Under these
circumstances, it would not be economically
feasible for an artist to give notice of termination of the recording contract. A record
company’s attempt to apply the statute in this
manner would, in all practicality, eliminate
the ability of an artist to terminate a personal
service contract after seven years.
Beyond this rather fundamental issue of
the definition of “damages,” it is completely
speculative for record companies to assume
that over the next 20 or so years they would
actually exercise each of their remaining
options or that the sales on artists’ future
albums would be the same in the future as
they were at the time that the artists had
their first big hits.9
In short, Section 2855(b) fails to give
recording artists notice of their rights and
remedies and what they can and cannot do
with regard to their recording contracts. Also,
Section 2855(b) provides no reasonably adequate standards to guide recording artists
and their employers and fails to inform the
artists of what and how much they can be
sued for if they exercise their right under
Section 2855(a).
Artists argue that Section 2855(b) is simply an irrational ruse that slipped through
the legislature via the highly paid lobbyists for
the recording industry. They also assert that
Section 2855(b) was specifically designed to
provide protection for the business practices
employed by the recording industry. Many
artists have appeared before the state legislature in suppor t of legislation to repeal
Section 2855(b).10 They note that the adoption
of Section 2855(b) has unfairly excluded them
from the same protections afforded all others
and prevented them from pursuing the opportunities available to all others. They argue
that there is absolutely no compelling reason (legitimate or other wise) to penalize
recording artists exclusively.11
Unfair Practices
Recording artists not only criticize Labor
Code Section 2855(b) but claim unfair and
unreasonable treatment by record labels in a
variety of other areas. In Love’s suit, she
alleges improper accounting, unpaid royalties due, improper assignment of agreements,
failure to market Hole’s product, failure to
disclose up-front payments from record clubs,
and unauthorized streaming of Hole videos
and music on the Internet.
Many recording contracts ef fectively
require the artist to incur production and
other costs that are recoupable against
advances—a situation that virtually guarantees little financial return for the artists and
monumental profits for the record company.
By utilizing this system of advances, recoupment, and (purported) royalties, the record
companies control the artists and the artists’
work and keep the artists hungry, dependent, and tied to the label.12
Under this arrangement, the record company demands that an artist sign an exclusive,
multialbum recording contract. The company
agrees to front the money to produce one or
two albums, after which it has options to
demand several more albums (if it sees that
the artist is commercially successful). The
company gives the artist an advance of some
of the artist’s theoretically anticipated royalties for production of the first album; the
artist uses the advance to record the album
and gives copyright ownership of the album—
which he or she has made and will pay for—
to the label. According to one commentator,
the label “in its sole discretion, determines
how much money (if any) will be spent on
marketing and advertising, how long the
record will be on the market and at what
price, and whether the record will even be
released.”13
This deal is based on the label’s agreement
to pay royalties to the artist. In fact, royalties
are based on myriad factors and rates, all of
which enable the label—which controls collection, accounting, and disbursement—to
structure sales deals in order to avoid accounting for royalties. And the label recoups all
advances and other costs from the artist’s
royalties before paying the artist.14
Thus, while an artist pays to produce a suc-
cessful album, the record company lays claim
to the album, has the option of demanding further albums and cross-collateralizing outstanding advances from any one album
against royalties on other albums, and takes
its profit off the top with the advance being
just another expense. For their efforts, artists
usually are left with little or no real compensation in return.15
The system is akin to a company town in
which the employees have to buy at the company store and wind up in debt to the company. The record company advances the artist
some of the artist’s own theoretically anticipated royalties to produce an album, but the
artist is forced to pay for the production and
winds up with no control over the product and
in debt to the company.
Love’s case brings to light how record
companies force artists to participate in and
pay for marketing schemes that may not be
effective for their careers. Artists, for example, are forced to perform on radio show concerts for little or no money. Bands often play
for twenty minutes on bills with a dozen or
more other groups. If an artist refuses to play
these shows, record companies withhold marketing support.
Record companies also spend millions of
dollars on radio promotion fees that are
charged to the artist. Love asserts that these
fees are little more than payoffs to radio stations and seldom directly benefit the artist.
Nevertheless, record companies charge these
fees against a successful ar tist’s royalty
account when the apparent purpose of the
fees is to secure airplay for new and unknown
performers.
Many record agreements not only give a
record company complete control over the
computation and disbursement of royalties
but at the same time they restrict artists from
obtaining access to information that would
confirm or disprove those calculations. This
has led to allegations from artists that record
companies provide false statements of domestic and foreign royalties. A prime example of
this record industry scheme is the exploitation of recordings by record clubs.
Artists have alleged that record companies
enter into secret agreements with record
clubs, in which the clubs pay hundreds of
millions of dollars in up-front fees to the
record companies for the right to sell the
companies’ CDs. Record companies do not
disclose these fees to their artists and do not
account for them in their royalty calculations
for those artists. Instead, the record companies customarily pay their artists a minimal
royalty on the records the clubs sell at full
retail list price. For example, that royalty may
be computed at 50 percent of the artist’s usual
royalty rate or at 50 percent of the company’s
LOS ANGELES LAWYER / MAY 2002 17
Judgments Enforced
Law Office of Donald P. Brigham
23232 Peralta Dr., Suite 204, Laguna Hills, CA 92653
P: 949.206.1661
F: 949.206.9718
[email protected]
AV Rated
net receipts on each sale. The companies pay
little or nothing on other record club sales or
“giveaways.” Of course, the record clubs’
bread and butter are the continuing sales to
club members enticed to join the clubs by the
clubs’ promotional sales and free goods: for
example, the promotions to “buy 13 CDs for
1¢.” The record companies have already
received their payment for these CDs, in the
form of the up-front fee, but claim the artist
is not entitled to a royalty because the up-front
fee is not connected to the sale of the CDs.
Industry Consolidation
In recent years a flurry of corporate consolidations in the recording industry resulted
in the creation of ever-larger conglomerates
swallowing a plethora of smaller, boutique
labels. The consequences of this move are
considerable. For example, under the Hole
agreement, Geffen Records could assign its
rights but not its obligations. This was important because Love originally signed with
Geffen because of its expertise in and emphasis on rock music and its reputation working
with rock bands. Love had rejected entreaties
from record companies lacking the characteristics that were a hallmark of Gef fen
Records. However, when Universal absorbed
Geffen, Love’s recording agreement fell into
Universal’s hands. Universal did not retain
Geffen’s rock music priorities and did not
market Hole’s music or perform the obligations that Geffen had promised.
Indeed, in 1999, during the marketing and
promotion of Celebrity Skin, Universal closed
Geffen’s offices, terminated Geffen’s employees, and assigned Geffen’s contractual obligations to Universal’s Interscope Records
label, one of the companies Love originally
rejected in 1992 as incompatible with Hole’s
artistic needs. Interscope did not promote
Hole’s music in the fashion that Geffen had
promised the band when it signed its recording agreement with Geffen.
Love argues that Geffen had specifically
sold itself as a safe haven for rock artists and
induced Love to contract with it based on
that fact. Thus Geffen was obligated to market and promote Hole’s albums in the Geffen
manner and could not assign its obligations
to an entity whose philosophy was not completely compatible with Geffen’s. This is especially true since Love had given Geffen discretion to exercise Geffen’s judgment over
material issues such as marketing and
exploitation, and Geffen’s discretion must be
exercised in good faith in order to fulfill, not
frustrate, the purpose of the agreement.16
Universal, nevertheless, believes that it may
refrain completely from promoting Hole’s
work.
Most artists agree to provide exclusive
services for a course of years. The only payment for those services are advances and
royalties, and the only way artists can reach
their audiences is the effective exploitation of
the artists’ work. If Geffen had no obligation
to promote or exploit Hole’s work, Love’s
expectations would be completely frustrated
and the contract illusory. Universal’s claim
that it has the right to refuse to promote or
exploit Hole’s work specifically illustrates
why Love did not want to contract with
Interscope in the first place.
Love also alleges that Universal has an
obligation to pay her for streaming Hole
videos and music on the Internet. She claims
that her agreement allowed for the use of
Hole videos for advertising, promotional, and
commercial purposes related to Hole and not
other bands. Universal, however, streams
Hole videos on its Farmclub.com Web site not
to promote Hole but to draw in and expose
consumers to—and sell them records by—
new or unknown artists. Love alleges that
Universal breached her agreement by using
Hole videos to promote other ar tists,
Universal’s Web site, and the company itself,
with no marketing value for Hole. She argues
that even if Universal were entitled to stream
the videos to promote other groups, the
record company cannot do so without paying
Love for that use since the agreement provides that any compensation derived from
the use of the videos “shall be credited” to
Love’s account.
If recording ar tists enjoyed the same
rights as all other citizens, there would be a
reasonable opportunity for them to receive
fair-market compensation for their services.
The trend of the law over the last 50 years has
created immense opportunities for creative
individuals, including film actors and athletes. Free agency has resulted in enormous
wealth for these individuals, and the film and
sports industries have prospered even as
salaries have risen. Recording artists, on the
other hand, do not receive an equitable share
of the enormous profits they create, and the
recording industry has systematically used
unfair contracts and the specter of protracted
litigation and damages under Labor Code
Section 2855(b) to prevent artists from gaining fair payment for their creative efforts. ■
1
Geffen Records, Inc. v. Love, Los Angeles Superior
Court No. BC223364 (filed Jan. 19, 2000).
2
Love asserts causes of action for declaratory relief,
rescission, breach of contract, breach of the implied
covenant of good faith and fair dealing, promise without intent to perform, breach of fiduciary duty, accounting, unjust enrichment, and imposition of constructive
trust.
3
De Haviland v. Warner Bros. Pictures, 67 Cal. App. 2d
225 (1945).
4
Id. at 235.
5
United States v. Kozminski, 487 U.S. 931, 942-43, 108
S. Ct. 2751, 2760 (1988).
6
See, e.g., Moss v. Superior Court, 17 Cal. 4th 396, 412
(1998).
7
Russell v. Carleson, 36 Cal. App. 3d 334, 342-43 (1973).
8
Britt v. City of Pomona, 223 Cal. App. 3d 265, 278-79
(1990).
9
See Automatic Poultry Feeder Co. v. Wedel, 213 Cal.
App. 2d 509, 516 (1963) (Damages that are uncertain,
contingent, or speculative cannot be recovered.).
10
See SB 1246 (2001-2002 Reg. Sess.); SB 2080 (20012002 Reg. Sess.).
11
See Russell, 36 Cal. App. 3d at 343; Weber v. City
Council of Thousand Oaks, 9 Cal. 3d 950, 959 (1973).
12
See Joseph B. Anderson, The Work Made for Hire
Doctrine and California Recording Contracts: A Recipe for
Disaster, 17 HASTINGS COMM. & ENT. L.J. 587, 590 (1995).
13
Id. at 592; see also id. at 590-92.
14
Id. at 590-92.
15
Id.
16
See Kransco v. American Empire Surplus Lines Ins.
Co., 23 Cal. 4th 390, 400 (2000) (The implied covenant
of good faith obligates each party to a contract to not
do anything that will injure the right of the other to
receive the benefits of the agreement.); Schoolcraft v.
Ross, 81 Cal. App. 3d 75, 80 (1978) (The covenant
“imposes upon each party the obligation to do everything that the contract presupposes they will do to
accomplish its purpose.”); Carma Developers (Cal.)
Inc. v. Marathon Dev. Cal., Inc., 2 Cal. 4th 342, 373
(1992) (The scope of the covenant extends as far as necessary to fulfill the purposes of the contract.).
Robert A.
Holtzman
Gerald F.
Phillips
Roy G.
Rifkin
Sol
Rosenthal
Jerome J.
Sussman
Of Counsel (Ret.)
Loeb & Loeb.
Arbitrator since
1971. Mediator
since 1992. 40
years in Entertainment Litigation. On
AAA Entertainment
Panel. Member of the
College of
Commercial
Arbitrators
213.688-3546
rholtzman
@loeb.com
Mediator &
Arbitrator for 12
years. Entertainment
attorney for 30
years. Formerly V.P.
United Artists Corporation litigation.
Former member of
Phillips, Nizer,
Benjamin, Krim &
Ballon. On AAA and
AFMA Entertainment
Panels. Founding
member of the
College of Commercial Artbitrators.
310.277.7117
gphillips
@plllaw.com
Senior Partner, Wolf,
Rifkin & Shapiro, LLP.
Litigation attorney for
23 years,
commercial and
business disputes.
On AFMA and AAA
Entertainment Panels.
310.478.4100
rrifkin
@wrslawyers.com
Arnold & Porter
Entertainment lawyer
for 30 years.
Arbitrator for DGA,
SAG, & WGA. On
AAA and AFMA
Member of the
College of Commercial Arbitrators.
310.552.2500
sol_rosenthal
@aporter.com
Private practice.
Formerly with 20th
Century Fox Film
Corp. Specializes in
entertainment,
representing film, TV
producers and
distributors since
1965. On AFMA
and AAA
310.788.2744
Mediators & Arbitrators for
Entertainment Disputes
tax
tips
By William M. Weintraub and Burton A. Mitchell
Estate and Gift Tax Planning for
Copyright Owners
The intersection
now and 2009,3 repeals the estate
tax entirely in the year 20104 (but
of tax and
substitutes a carr yover basis
regime), and finally, repeals the
copyright laws
repeal of the estate tax, the rate
reductions, and exemption
creates unusual
increases after 2010.5
The 1976 Copyright Act, 6
planning scenarios
which became ef fective on
January 1, 1978, establishes the
rules for copyright protection for
he disposition of intellec- works of authorship.7 Prior to that
tual proper ty presents date, the Copyright Act of 1909
unique challenges and generally governed the protecopportunities for estate planners, tion of copyrights. Under the 1976
most of whom are not fully Act, registration of a copyright is
informed about copyright law. In not necessary for protection of a
the disposition of intellectual work subject to the act; protection
property, both tax and nontax is automatically extended whenissues can be more complex than ever the works are created.
for other, more common assets, However, registration of copysuch as marketable securities, rights is necessar y to enforce
real estate, and closely held busi- protectible rights.
ness interests. These differences
Section 106 of the 1976
are critical for songwriters, play- Copyright Act generally gives the
wrights, authors, and others for owner of a copyright the excluwhom copyrights are their prin- sive right to do, and to authorize
cipal assets.
others to do, the following:
In estate planning for copy- 1) Reproduce the work in copies
right holders, the practitioner or phono records.
must work with the
2) Prepare derivaalready complex
tive works based
William M.
income, gift, and
upon the work.
Weintraub and
estate tax r ules,
3) Distribute coBurton A. Mitchell
together with an
pies for phono reare partners in the
overlay of the comcords of the work
tax department of
pletely unrelated
to the public by
Jeffer, Mangels,
set of r ules govsale or other transButler & Marmaro
erning the ownerfer of ownership,
LLP in Century City.
ship and disposiby rental, lease or
tion of copyrights.
lending.
This mixture is fur4) Per form the
ther muddled by the recent work publicly, in the case of litchange in federal tax law1 that erar y, musical, dramatic and
reduces the maximum estate and choreographic works, pangift tax rate between 2002 and tomimes, and motion pictures
2009,2 increases the amount of and other audiovisual works.
property that may be transferred 5) Display the work publicly, in
free of estate tax at death between the case of literary, music, or dra-
T
matic and choreographic works,
pantomimes and pictorial,
graphic or sculptural works,
including the individual images of
motion picture or other audiovisual work.
6) In the case of sound recordings, to perform the work publicly by means of a digital audio
transmission.8
A work that is not for hire that
is created on or after January 1,
1978, is protected from the date
of its creation for a period that
equals the author’s life plus an
additional 70 years.9 If the work
was created by the joint effort of
two or more authors who do not
work for hire, the term lasts for
70 years after the last surviving
author’s death.10
The term for works made for
hire or for anonymous or pseudononymous works (unless the
author’s identity is revealed in
copyright office records) is 95
years from publication or 120
years from creation, whichever
is shorter.11 The same rules generally apply to works created
before January 1, 1978, except
that in no case does the term of a
copyright for pre-1978 works
expire before December 31,
2002. 12 For works published
between January 1, 1978, and December 31, 2002, the copyright
does not expire before December
31, 2047.13
For works originally created
and published or registered
before January 1, 1978, the original copyright protection endured
for a term of 28 years, subject to
a renewal term of 28 years. The
1976 Act, together with other
changes in the law, provide a total
renewal term of 67 years. This
provides for total protection,
including the original 28-year
term, of 95 years.
A work made for hire is
treated differently for both tax
and copyright purposes. A work
made for hire is a work prepared
by an employee within the scope
of employment or a work specifically ordered or commissioned
for certain specific purposes.14
The period of protection of a work
for hire is not related to the life of
the author. Instead, the copyright
protection lasts for a period that
expires upon the earlier of 75
years from the year of first publication or 100 years from the date
of creation.15
The 1976 Copyright Act provides that the author has an
absolute right to terminate the
grant of either an exclusive or
nonexclusive transfer or a license
of a copyright at any time during
a five-year period beginning 35
years after the grant. 16 If the
author is deceased, this right
passes to the surviving spouse,
children, or grandchildren of the
author, but the right cannot be
transferred by will.17
The right of termination
reserved to the author or to the
author’s spouse or issue raises a
number of highly technical tax
questions. In general, the analysis of gifts, sales, and other transfers for tax purposes is ordinarily
based upon the irrevocable nature of such transactions. The
right to terminate the grant of
any interest in a copyright therefore raises problems that most
tax planners do not ordinarily address. These issues may include
the valuation of the right to terminate, the inclusion of assets in
the estate of a decedent possessing the right to terminate, and
the effect, if any, on certain intended irrevocable transfers, such as charitable gifts and
marital trusts.
Lifetime Transfers versus
Transfers at Death
Planning for the disposition of copyrights
often involves trade-offs between income tax
benefits and estate tax benefits; that is,
between lifetime gifts and transfers at death.
The starting point for any analysis or planning
is the recognition that copyrights are not capital assets in the hands of their creators.18
This tax rule vastly restricts lifetime estate
planning opportunities for creators of copyrights, par ticularly as the tax on estates
declines between now and 2009 and then disappears altogether in 2010. (This rule does
not apply to works made for hire. Because the
owner of the copyright of a work made for
hire would not be the taxpayer whose personal efforts created the copyright, the copyright may qualify as a capital asset.19)
Many estate planning techniques implemented during the lifetime of an individual are
designed to remove the future appreciation of
an asset from an individual’s estate. Typically,
the trade-off for the removal of future appreciation is a carryover of the tax basis of the
asset transferred. That is, the transferor’s tax
basis becomes the tax basis for the transferee. In contrast, if the asset remains in a
transferor’s estate, the full value of the asset
is included in the estate, but the transferee’s
tax basis is stepped up to reflect the fair market value of the asset as of the date of death
or, when appropriate, six months after the
date of death. As a result, the transferee can
sell the asset at the value established in the
estate without incurring a gain for apprecia-
tion that took place before the transferor’s
death.
This trade-off often produces favorable
results because the estate tax rate historically exceeded the gift tax on a lifetime transfer plus the income tax on the sale of an asset
(the basis often being zero). Further, most
estate taxes must be paid within nine months
of the date of death. In contrast, the recipient
of a lifetime transfer can control the timing of
the income tax by deciding when to sell the
property.
The following example illustrates the tax
benefit—prior to the change in the estate tax
law—of removing an appreciating asset from
an estate: Assume that in 2001, a parent gave
away an asset with a fair market value of
$675,000 to a child and avoided paying a gift
tax by utilizing all of the parent’s lifetime
credits. At the time of the gift, the parent had
a tax basis in the asset of $100,000. The parent anticipated that the asset would appreciate to at least $2 million before the parent’s
death. The transfer of the asset in 2001 will
remove the asset and all appreciation of the
asset from the parent’s estate. Therefore,
under the old law (assuming that the asset
was worth $2 million at the date of the parent’s
death), the parent would avoid a 55 percent
tax on appreciation of $1,325,000 (the appreciation after the gift). This would result in
tax savings to the parent’s estate of approximately $730,000.
Because the asset was transferred as a
gift, the child has a tax basis in the asset of
only $100,000 and will have to pay income
tax on the asset’s appreciation at the time he
or she sells or other wise disposes of the
asset. Assuming an effective income tax rate
on capital gains for a California resident of 25
The Valuation of Copyrights
While there is no simple method for determining the value of a copyright, there are a number of factors that should be considered. Principal among these are the income stream available to the holder of a copyright and the term of the projected income stream. Obviously there
are many factors that could affect the projected income stream. Moreover, the term of the
copyright and the termination rights of the creator raise some interesting questions in the
evaluation of copyrights.
First, for copyrights created before January 1, 1978, renewal rights are granted to the creator or the creator’s surviving spouse and children. Thus, under the old law, the creator or
the creator’s heirs could reclaim the value of the copyright. For example, if the creator transferred rights to the renewal term of a copyright other than by will before 1978, the heirs can
recapture the rights to the copyright by terminating prior grants. For a transfer after 1978,
the right to terminate the transfer exists during a five-year period which starts at the end of
35 years after the transfer. The grant may be terminated by serving notice on the grantee during a specified notice period, which is more than two years but less than ten years before the
termination date stated in the notice.
These rules can affect the valuation of copyrights. Therefore, in valuing a copyright, an
appraiser will have to take into account the value of the reversionary interest in the rights previously granted by the owner of the copyright.—W.M.W. & B.A.M.
percent, the child would eventually pay
income tax of approximately $475,000 upon a
sale of the $2 million asset, assuming that
capital gains rates apply.
If the parent had not made a gift of the
asset to the child during the parent’s lifetime,
the parent would have incurred an additional
$730,000 of estate tax on the appreciation of
the asset. However, the child would have
avoided the income tax of approximately
$475,000 on the sale of the asset because the
child would get a step-up in basis of the asset
to $2 million, the fair market value of the
asset included in the parent’s estate. Since the
estate tax on the appreciation of the asset
exceeded the income tax resulting from the
sale of the asset, the lifetime transfer of the
asset produced substantial tax savings.
However, if the gift asset was a copyright,
the tax payable by the child upon the sale of
the copyright would not be eligible for capital gains treatment. Instead, a copyright
retains its status as a noncapital asset in the
hands of the child because the child’s tax
basis is determined by the parent’s tax basis.20
While the lifetime transfer removes future
appreciation from the parent’s estate, it does
not avoid the income tax on the built-in gain
on the date of transfer or the income tax on
any appreciation thereafter. This appreciation would be taxed at the combined federal
and state rate for ordinary income (45 percent
for California residents in the highest tax
bracket), or approximately $900,000, an
amount substantially greater than the savings derived by removing the appreciation
from the taxpayer’s estate.
Even if by 2007 there were no built-in gain
as of the date of the lifetime transfer, tax rates
on estates will not be much higher than rates
on ordinary income. Tax planning may thus
favor retention of a copyright in the estate of
the creator so that beneficiaries will get a
step-up in basis of, and thereby avoid ordinary
income tax rates on, the built-in gain. More
important, since the beneficiaries’ basis in
the copyright would not be determined by the
deceased creator’s basis, the copyright would
convert to a capital asset. Accordingly, any
future appreciation would be taxed at the presumably lower capital gains rates. These benefits are obtained at the cost of inclusion of the
copyright in the creator’s estate, making it
subject to estate tax rates that are approximately equal to income tax rates.
When the estate tax is repealed in 2010, an
entirely different set of considerations could
apply. The scheduled elimination of the estate
tax is accompanied by the application of carr yover basis rules for beneficiaries of an
estate. While the law as drafted provides a partial step-up in the basis of assets, the amount
of the step-up is limited to $3 million for a sur-
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viving spouse and $1.3 million for other beneficiaries (which could also include a surviving spouse).21 If these rules apply, the copyrights held by the estate of a deceased
taxpayer would be the most likely to receive
the step-up in basis for two obvious reasons.
First, without the step-up in basis, any gain on
the subsequent sale of the copyrights would
be taxed at the higher ordinary income tax
rates, and second, by applying the substituted basis rules of IRC Section 1014,22 the
copyrights would then become capital assets
for the beneficiary.
Holders of copyrights who are not the
creators of the copyrights can generally minimize the estate and gift taxes in transferring
copyrights in the same methods used in transferring other capital assets. This may involve
the use of family limited partnerships, transfers to grantor retained annuity trusts, or
sales to defective grantor trusts. However,
for creators of copyrights, the planning opportunities are more limited because of the tax
consequences associated with their treatment as noncapital assets. While the traditional planning techniques may be useful in
removing the future appreciation in assets
from an individual’s estate, they do not eliminate the built-in gain or change the character of the resulting gain upon the sale.
Charitable Remainder Trusts
A charitable remainder trust—a traditional
estate planning technique—can be applied
ef fectively to minimize these problems.
Basically, a charitable remainder trust is a
split interest trust in which an income interest is set aside for one or more noncharitable
beneficiaries and a remainder interest is set
aside for a charitable beneficiary. Typically, a
donor contributes assets to an irrevocable
trust in exchange for the right to receive a
payment, either for a designated term of years
or for the life or lives of one or more individuals. The donor may establish the amount
of the payment made by the trust to the donor
as either a fixed annual annuity or as a unitrust payment measured by a percentage of
the fair market value of the assets in the trust,
valued annually. A trust that provides for the
payment of an annuity is generally known as
a charitable remainder annuity trust or a
CRAT.23 If the payment is in the form of unitrust, the trust is commonly known as a charitable remainder unitrust or a CRUT.24 The
annual payment to the beneficiaries from
either a CRAT or a CRUT must be not less
than 5 percent nor more than 50 percent of
the trust assets.25 In both cases, the value of
the remainder to the charitable beneficiaries
must be at least 10 percent of the initial net fair
market value of property transferred to the
trust.26
Unitrust payments from a CRUT can take
a variety of forms, the most basic of which is
a fixed percentage of the net fair market value
of the assets, valued on an annual basis.
However, in many cases, the trust may not
have sufficient liquid assets to make a payment to the donor each year. In order to avoid
using principal to make payments, the terms
of the trust can limit the payment to the lesser
of a fixed percentage of the net fair market
value of the assets or the net income of the
trust.27 Thus, if a trust has no net income
during the year, the trust would have no obligation to make a payment to the donor.
Another version of CRUT payments is a
net income charitable unitrust with a makeup provision under which the trust distributes
to the noncharitable beneficiaries in later
years sufficient income to make up for any
shortfall between the unitrust amount and
the net income of the trust in prior years.28
This type of trust is known as a net income
make up charitable remainder unitrust or a
NIMCRUT.
Finally, another version of a charitable
remainder unitrust allows a NIMCRUT to
flip into a regular unitrust without any net
income limitations.29 However, the triggering event for the flip cannot be at the discretion or within the control of the trustee. The
sale of unmarketable assets and changes in
family relationships, such as a marriage,
divorce, death, or birth of a child, will not be
considered discretionary or within the control
of the trustees or other persons. After the
flip, the trust pays a fixed percentage of trust
assets to the noncharitable beneficiary, irrespective of the income earned by the trust
each year.
A NIMCRUT with a flip provision can
prove useful to the creator of a copyright.
For example, assume that a 65-year-old creator owns a copyright that is expected to
appreciate in the future. It is possible that
the death of the creator will cause dramatic
appreciation in the value of the copyright.
Currently the royalty that the creator receives
from ownership of the copyright is relatively
small, perhaps $20,000 per year. Based upon
the current royalty stream, the value of the
copyright is estimated at $200,000. The creator is not married but has a 40-year-old
daughter whom the creator would like to
benefit. The creator can manage the copyright
during his lifetime but anticipates that the
copyright will be sold and would like the proceeds held for both his benefit for the remainder of his life and for the benefit of his daughter for the remainder of her life. However,
the creator does not want to reduce the proceeds available for investment by paying
income tax at ordinary rates.
The creator can establish a CRUT by con-
tributing the copyright and providing a 6.5
percent unitrust payment, subject to a net
income limitation.30 Each year after the trust
is established, the copyright is valued. The
creator receives the lesser of the income of
the trust or the unitrust payment of 6.5 percent of the value of the copyright. If the copyright dramatically appreciates in value (typically because of an increase in the royalty
stream), the creator will receive larger unitrust payments. On the other hand, if, for any
reason, the trust receives little or no income
during any year, the net income limitation
would apply to reduce the trust’s obligation
to pay the creator. If the copyright is sold, the
trust would flip to a regular unitrust providing for annual payments of 6.5 percent of the
trust assets for the remainder of the life of the
creator and his daughter.
Therefore, if the copyright sold for $2 million, the creator and his daughter will have the
full pretax use of the proceeds from the sale
available to generate income for the rest of
their lives (versus $1.2 million on an after-tax
basis). Even if the proceeds do not produce
income at 6.5 percent, the creator and then his
daughter would each receive 6.5 percent of
the value of the CRUT assets each year.
Through the use of this technique, the value
of the copyright will not be reduced by any
income taxes or estate taxes, since the asset
is not includable in the creator’s estate and has
been sold tax free by the CRUT.
Charitable Lead Trusts
A charitable lead trust is similar to a charitable remainder trust except that the rights
of the charitable and noncharitable beneficiaries are reversed. In a charitable lead trust,
a charity receives the income interest for a
period of years and the noncharitable beneficiaries receive the remainder.31 Thus, for
transfer tax purposes, either gift or estate,
the value of the property subject to transfer
tax is the remainder interest transferred to the
noncharitable beneficiaries.
Assume, for example, that a 65-year-old
parent owns an asset worth $1 million. The
parent wants to transfer the asset to his or her
child after it provides income of $120,000 per
year for 10 years to the parent’s favorite charity. After 10 years, the asset, together with all
rights to its income, will be transferred to
the child. Under these terms, the value of
the gift to the child is the difference between
the fair market value of the property transferred and the value of the income interest
transferred to the charitable beneficiar y.
Based on these facts, the value of the gift to
the child would be approximately $65,000.
The benefit of this technique can be leveraged if the asset is first transferred to a limited partnership and the parent then con-
tributes the limited partnership interest to
the charitable lead trust. In this manner, the
fair market value of the contribution of the
partnership interest would be less than the
contribution of the asset because of the discounts applicable to valuations of limited partnership interests. However, the income
stream available to pay to the charitable beneficiary should remain the same. Therefore,
the lead or income interest to a charitable
beneficiary could be shorter yet achieve the
same value of the gift of the remainder interest to the child. Based upon the previous
assumptions, if the limited partnership interest was discounted by 30 percent, and assuming the same annual payment of $120,000,
the term of the interest to the charity could
be shortened to six years.
Use of a charitable lead trust reduces or
eliminates the transfer tax cost, either estate
tax or gift tax, normally imposed on the transfer of property to intended beneficiaries.
However, the built-in gain on the asset transfer will remain; that is, the transferee will
receive the property with a tax basis equal to
the transferor’s tax basis. Further, because the
transferee’s basis is determined by the transferor’s basis, if the asset is a copyright, it will
remain a noncapital asset. Therefore, a sale
of the copyright would be taxed at ordinary
income rates, not capital gains rates.32
However, if it is the intention of the transferor to retain the copyright in the family,
and no sale is contemplated during the term
of the copyright protection, elimination of
the potential tax on a sale would be irrelevant.
In that case, the problem that a charitable
lead trust can successfully address is the
transfer tax cost that results from the inclusion of the asset in the transferor’s estate (especially if the asset appreciates in value during the transferor’s lifetime).
Other Estate Planning Issues
Estate planning for copyright assets is
simplified if the creator is willing to part with
the expected revenue stream in the future.
For example, a creator, upon creating a new
copyright, the value which has not been established, can sell the copyright to a trust for the
benefit of the creator’s children or grandchildren. Assuming that the sale is conducted
at a price equal to the fair market value of the
copyright, the creator will have removed all
future appreciation in the value of the copyright from the creator’s estate. Additionally,
because the trust will have purchased the
copyright, the trust’s basis in the copyright is
not determined by the basis of the copyright
in the hands of the creator.33 Therefore, the
copyright is not automatically excluded from
the definition of a capital asset. As a result, the
gain on any eventual sale of the copyright by
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the trust should result in a tax imposed at capital gains rates.34
The Internal Revenue Code includes special rules for the treatment of transfers of
works of art and their copyrights that are
intended to qualify for the gift or estate tax
charitable deduction. In general, the IRC
treats works of art and their copyrights as
interests in the same property. In particular,
the IRC provides that no estate tax or gift tax
charitable deduction is allowed if a donor
transfers a par tial interest in proper ty. 35
(Exceptions to these rules were made for
transfers to certain specific split interest trusts
such as CRUTs and CRATs.)
If a work of art and a copyright are considered the same property, the transferor of
one without the other would be treated as a
gift of a partial interest, and, therefore, the prohibition for deducting transfers of partial
interests would apply. For example, an artist
who created a painting has separate property rights in both the painting and the copyright of the painting. If these are treated as the
same property, the prohibition against transfers of partial interests would apply unless the
creator donated both the painting and the
copyright to the same beneficiary.
However, an exception is provided if a
donation is a qualified contribution, which is
a contribution of a work of art to an exempt
organization whose use of the property is
related to the purpose or function serving as
the basis for the organization’s exemption.36
For example, a donation by an artist of a
painting to a museum for use in public display
or exhibit would generally constitute a qualified contribution. However, if it is anticipated
that the museum will sell the painting, then
the exception would not apply and the copyright of the painting would be treated as the
same property.
These rules will not apply to an individual
who does not own the copyright.37 For example, a collector of art who does not own a
copyright is not subject to the potential application of the partial interest rule. Therefore,
most collectors are able to donate art or the
related copyright of works of art to charitable
organizations without concern over the use of
the property by the charity. However, creators of copyrights must be careful in selecting the charities for their contributions. Either
the property must be used by the charity
towards the charity’s exempt purpose or the
donor must contribute the property and the
related copyrights.
As these examples illustrate, the unique
nature of copyrights requires tax planners to
consider factors that are not present when
planning with many other categories of assets.
With or without the repeal of the estate tax,
copyrights provide serious challenges and
opportunities for both their creators and their
tax advisers.
■
1
The Economic Growth and Tax Relief Reconciliation
Act of 2001, Pub. L. No. 107-16.
2
I.R.C. §2001(c).
3
I.R.C. §2010(c).
4
I.R.C. §2210(a).
5
The Economic Growth and Tax Relief Reconciliation
Act of 2001 §901(b). For a full analysis of the changes
in estate and gift taxes introduced by this legislation,
see Charles P. Rettig, The Life and Death of Estate
Taxes, LOS ANGELES LAWYER, Nov. 2001, at 32.
6
17 U.S.C. §101, et seq.
7
Works of authorship include 1) literary works, 2)
musical works including any accompanying works, 3)
dramatic works including any accompanying music, 4)
pantomimes and choreographic works, 5) pictorial,
graphic, and sculptural works, 6) motion pictures and
other audiovisual works, 7) sound recordings, and 8)
architectural works. 17 U.S.C. §102(a).
8
17 U.S.C. §106.
9
17 U.S.C. §302(a).
10
17 U.S.C. §302(b).
11
17 U.S.C. §302(c).
12
17 U.S.C. §303(a).
13
Id.
14
17 U.S.C. §101.
15
17 U.S.C. §302(c).
16
17 U.S.C. §203.
17
No right of termination applies to a work created for
hire. 17 U.S.C. §203(a).
18
I.R.C. §1221(a)(3).
19
The application of the work for hire rules is unclear
when the principal shareholder of a corporation provides the work for hire to the corporation. The issue is
whether in that instance the corporation would be
treated as the creator, thus barring capital gain treatment. In the case of a widely held entertainment company, the corporation that acquired the work for hire
produced by the efforts of many individuals would not
likely be treated as the creator.
20
I.R.C. §1221(a)(3)(C).
21
I.R.C. §1022.
22
I.R.C. §1014.
23
I.R.C. §664(d)(1).
24
I.R.C. §664(d)(2).
25
I.R.C. §§664(d)(1)(A), 664(d)(2)(A).
26
I.R.C. §§664(d)(1)(D), 664(d)(2)(D).
27
I.R.C. §664(d)(3).
28
Id.
29
Treas. Reg. §1.664-3(a)(1)(i)(C).
30
The creator would get little income tax benefit from
the contribution of a copyright to a charitable remainder trust because deductions for contributions of property that would produce ordinary income on sale are limited to the contributor’s basis in the property. I.R.C.
§170(e)(1).
31
I.R.C. §§170(f)(2), 2055(e)(2)(B), 2522(c)(2)(B).
32
The value of the income tax deduction is limited to
the donor’s cost basis. I.R.C. §170(e)(1).
33
I.R.C. §1012.
34
If the sale of the copyright is not for full fair market
value, other problems could arise. For example, a sale
for less than fair market value would be characterized
as a gift by the creator. As a result, a portion of the trust’s
basis in the copyright would be determined by reference
to the basis of the creator. Upon a subsequent sale by
the trust, a portion of the proceeds would not qualify for
capital gain treatment.
35
I.R.C. §2055(e)(2) (for estates); §2522(c)(2) (for
gifts).
36
I.R.C. §§2055(e)(4), 2522(c)(3).
37
Treas. Reg. §20.2055-2(e)(1)(ii).
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by bonnie e. berry
Practice in a
Minor Key
california law presents some
challenging issues for lawyers
representing young entertainers
L
majority.” Once an agreement is disaffirmed, a minor has no further obligations
to perform under it. As the court stated in
Neimann v. Deverich, “It is the policy of the
law to protect a minor against himself and
his indiscretions and immaturity as well as
against the machinations of other people
and to discourage adults from contracting
with an infant. Any loss occasioned by the
disaffirmance of a minor’s contract might
have been avoided by declining to enter
into the contract.”1
There are only two ways that an adult or
entity that contracts with a minor can avoid
the potential consequences of a minor’s
disaffirming the contract. First, a contract
with a minor that fits within the exceptions
set forth in Family Code Section 6712 cannot be disaffirmed. Under this statute, an
otherwise valid contract entered into with
a minor may not be disaffirmed if the contract is to pay the reasonable value of things
Bonnie E. Berry, a partner with Kirkpatrick
& Lockhart, LLP, is the chairperson of the
firm’s Entertainment Department and represents recording artists, songwriters, music
production companies, screenwriters, and
filmmakers.
KEN CORRAL
awyers representing young
artists in the music industry will
encounter innumerable issues
particular to their clients’ status as minors. Contract and
labor issues, allocations of
income earned, educational
requirements, and medical issues all significantly af fect this task. Although
California has the most comprehensive
legal framework to protect children in the
entertainment industry, issues outside the
realm of contracts and legislation also frequently arise. While much of the legislation
is geared specifically toward child actors
who perform in television and motion pictures, these laws often do not address the
specific environment and obligations of the
child musical performer. As a result, parallels and extrapolations are often drawn
without a specific legislative mandate.
When entering into a contract with a
minor, the most important responsibility
is to have the contract confirmed, if possible, by a court. Entering into contracts with
minors without obtaining court approval is
a risky proposition. According to Family
Code Section 6710, “A contract of a minor
may be disaffirmed by the minor before
necessary for the support of the minor or
the minor’s family, these things have been
actually furnished to the minor or to the
minor’s family, and the contract is entered
into by the minor when not under the care of
a parent or guardian able to provide for the
minor or the minor’s family.2 The second
method is to have the contract cour t
approved.
To protect the interests of minors as well
as adults and entertainment companies that
contract with them, the California Legislature
enacted minors’ enter tainment contract
statutes.3 These statutes authorize the superior court to approve or disapprove a minor’s
entertainment-related contracts. California
Family Code Section 6750 provides that contracts in which the minor is “employed or
agrees to render artistic or creative services”
may be approved by the superior court and
thus not subject to disaf firmance under
Family Code Section 6751. Section 6750
defines artistic or creative services to include,
without limitation, “ser vices as an actor,
actress, dancer, musician, comedian, singer,
stunt-person, voice-over artist, or other performer or entertainer, or as a songwriter,
musical producer or arranger, writer, director,
producer, production executive, choreographer, composer, conductor, or designer.”
Section 6750 also provides that contracts with
studios, production companies, record labels,
and music publishers are affirmable. Family
Code Section 6751(a) provides that a contract for the rendition of artistic or creative
ser vices cannot be disaf firmed on the
grounds of being a minor if the contract has
been approved by the superior court.
The superior court will consider the following factors: 1) whether the minor’s contract is fair and reasonable, 2) the minor’s
financial and educational interests, 3) the
proper development of his or her talents, and
4) the chances of professional success. 4
Section 6751 also provides that if the entertainment agreement at issue has not been
court approved, the agreement can be disaffirmed by the minor and is then rendered
void ab initio.5
Problems for Managers
In addition to the contracts detailed in Section
6750 of the Family Code, Section 1700.37 of
the Labor Code allows talent agency agreements with minors to be af firmed. 6 The
California Attorney General also has opined
that a minor athlete could not disaffirm his
personal services contract with a sports manager after the contract had been approved
by the superior court.7 However, the Los
Angeles Superior Court will not confirm contracts between minors and managers in the
entertainment industry, because such agree30 LOS ANGELES LAWYER / MAY 2002
ments are not included among the confirmable contracts enumerated under Family
Code Section 6750. The underlying theory for
the exclusion of management agreements is
that Section 6750 governs agreements in
which the minor is “employed or engaged” by
another person or entity. In contrast, however, artists engage or employ the manager.
While this distinction appears reasonable
on its face, in reality it serves as an example
of the inconsistency between the representation of child musical performers and child
actors, because child actors often are represented by agents whereas musicians always
are represented by managers. Because managers effectively cannot make contracts with
child musical performers, however, they
instead often create production companies,
since music production agreements are
affirmable.
The distinction between minors in the
music business and minors in the film and
television industry, which relates to Section
6750, is untenable in view of a well-known
exception to Labor Code Section 1700.4,
which defines “talent agency” as a person or
corporation that engages in the occupation of
procuring, offering, promising, or attempting to procure employment or engagements
for an artist or artists. The section contains an
exception that is frequently of great significance to those representing the interests of
any recording artist. According to the section,
the activities of procuring, offering, or promising to procure recording contracts for an
artist or artists do not by themselves subject
a person or corporation to regulation as a talent agency. This exception has been upheld
in court. In Wachs v. Curry, the court held that
a rational basis existed for exempting persons who procure employment agreements
for recording artists.8
The Wachs court endorsed the California
Entertainment Commission’s reasoning that
determined:
A recording contract is an employment
contract of a different nature from
those in common usage in the industry involving personal services. The
purpose of the contract is to produce
a permanent and repayable showcase
of the talents of the artist. In the recording industry, many successful artists
retain personal managers to act as their
intermediaries, and negotiations for a
recording contract are commonly conducted by a personal manager, not a talent agent. Personal managers frequently contribute financial support
for the living and business expenses of
entertainers. They may act as a conduit
between the artist and the recording
company, offering suggestions about
the use of the artist or the level of
effort that the recording company is
expending on behalf of the ar tist.
However, the problems of attempting
to license or otherwise regulate this
activity arise from the ambiguities,
intangibles and imprecisions of the
activity. The majority of the commission concluded that the industry would
be best ser ved by resolving these
ambiguities on the side of preserving
the exemption of this activity from the
requirements of licensure.9
Accordingly, music industry managers
are allowed to procure employment for their
recording artist clients without talent agency
licenses. The courts recognized that personal
managers in the music industry primarily
advise, counsel, direct, and coordinate the
development of the artist’s career. They advise
in both business and personal matters, frequently lend money to young artists, and
serve as spokespersons for the artists.10
But unlike talent agents who represent
minors, the managers of minor recording
artists are not allowed to have their contracts
confirmed. This inequity places managers in
an extremely vulnerable position in which
they may lose their commissions and relationships with minor artists once record deals
are obtained. The lack of security leads adults
who are interested in developing a minor’s
musical talent to establish themselves as production companies, since music production
agreements are affirmable.
Unfortunately, production company agreements are usually significantly more onerous and invasive than management contracts.
For example, production companies frequently demand ownership of the artist’s professional name, retain publishing and merchandising rights, and contract with the major
record label in lieu of the artist. Additionally,
whereas managers rarely receive commissions in excess of 20 percent of the artist’s
gross earnings, a production company typically splits all revenues 50-50 between itself
and the artist (regardless of how many members are in the recording group). Thus, what
was intended to be legal protection—the ability of minors to disaffirm contracts with managers—has backfired; parents and talented
children are often compelled to relinquish
more, financially and creatively, to production
companies than they normally would have
to give to managers.
Contracts with Parents
Many managers often believe that parental
consent, parental acknowledgement, or
parental assumption of the minor’s obligations will defeat the minor’s ability to disaffirm. Creative services contracts often have
language that the parent guarantees the child
will perform his or her obligations and that
the parent is liable if the child disaffirms or
otherwise fails to perform under the agreement. Lawyers have drafted and sought to
enforce such language in entertainment contracts by extrapolating from cases such as
Hohe v. San Diego Unified School District11
and Aaris v. Las Virgenes Unified School
District.12 In both Hohe and Aaris the courts
held that parents were still bound by the
release forms they signed on behalf of their
children to permit the children’s participation in school-sponsored activities, despite
the child’s dissafirmance.
However, a parental signature does not
validate an entertainment contract with a
minor that has not been court approved. If the
legislature intended that a parent’s signature
would serve the same purpose as obtaining
court confirmation pursuant to Family Code
Section 6751, it is highly unlikely anyone
would ever need to petition the court for
approval. The intent of the legislature was to
allow judicial scrutiny of entertainment agreements involving minors in order to determine the reasonableness and fairness of the
provisions contained in each agreement. If a
parent’s acceptance and execution of the
agreement were sufficient, there would be no
need for the judicial supervision mandated by
the legislature. Additionally, for public policy reasons, an agreement is not enforceable
against the minor simply because it contains
a parental signature. To enforce a contract
obligating a minor to perform promotes involuntary servitude.
Although contracts that bear parental signatures are disaffirmable by child performers,
parental signatures may expose the parents
to liability based upon reliance by third parties. Typically, the agreement is not enforceable against the parent because once it has
been voided there are no surviving rights to
derive from the underlying agreement. There
are, however, a few cases in which extremely
specific language in an agreement resulted in
a court’s conclusion that the minor’s disaffirmance did not extinguish alleged duties
on the part of the parent.13 Raden v. Laurie
involved a minor defendant and a minor defendant’s parent who engaged the plaintiff talent
manager to provide counseling to the minor
and the parent. The agreement was drafted in
the form of a letter and clearly used language
instructing the plaintiff to provide services to
both the minor and the parent: “One of your
duties hereunder shall be to counsel and
advise us in connection with the selection
and employment of agents to represent the
undersigned [child].…”14 The court held that
because both the minor and the parent
employed the plaintiff to provide counsel, the
disaffirmance of the minor’s obligation did not
relieve the parent’s obligation.15 Parental consent to or parental acknowledgment of a manager rendering services to a minor is not the
same thing. Accordingly, practitioners representing managers should draft agreements
involving parents and minors in such a way
that the services are being rendered to both
the parent and child. This is especially true
since most of the communications and decisions are often made between the parent and
the manager rather than the child and the
manager.
Child Labor Rules
California has numerous laws designed to
protect the child performer. These laws protect the minor’s financial interests, govern
the type of environment in which the child
actor works, and ensure that the child’s educational needs are not overlooked. Pursuant
to Family Code Sections 6752 and 6753, a
portion of the minor’s earnings from any of
the contracts enumerated in Section 6750
must be set aside in trust until the minor
reaches the age of 18. The Coogan law,16 originally enacted in 1939 and named after silent
picture actor Jackie Coogan (whose parents
squandered all his earnings), was amended
in January 2000. Under the amended law, a
minimum of 15 percent of the minor’s gross
earnings in connection with the minor’s activities in the entertainment industry must be set
aside in trust, whether or not the minor’s
contract has been cour t approved. The
revised law also stipulates that all the minor’s
earnings are the separate property of the
child (rather than the community property of
the parents), requires timely deposits of such
funds, and allows all or part of such funds to
be invested in acceptable investment opportunities such as broad-based index funds and
government securities. In an interesting twist,
the revised Coogan law also imposes a fiduciary duty, governed by California trust law,
on those responsible for the child’s earnings
to act with due diligence in the management
of this income.
The Division of Labor Standards Enforce-
ment also has very specific provisions to protect minors in the entertainment industry.
The DLSE requires that minors employed in
the entertainment industry must have a permit to work and employers must have a permit to employ. 17 These permits are also
required for minors making phonographic
recordings and musical performances. The
DLSE stipulates that minors may not work
more than 8 hours in a day or more than 48
hours in a week, and only between the hours
of 5 A.M. and 10 P.M., and that a studio teacher
be continually present. California limits the
working hours of minors according to age.
Within a 24 hour period, minors between the
ages of 9 and 16 are permitted at the place of
employment up to 9 hours, in which the minor
may not work more than 5 hours and must
receive at least 3 hours of schooling. Minors
between the ages of 16 and 18 are permitted
at the place of employment for 10 hours, in
which the minor receives 3 hours of school
and works a maximum of 6 hours. No minor
may work between the hours of 10 P.M. and 5
A.M. on any day before a school day. Work
time includes makeup and hairdressing while
in the minor’s home, both of which are prohibited before 8:30 A.M. Parents and employers who violate this section can be charged
with a misdemeanor. The permits may be
denied, revoked, or suspended if the regulations are violated.
In addition to the DLSE standards, SAG
and AFTRA have clear language regarding
the protection of minors in the entertainment
industry. Paragraph 35 of the AFTRA 19972001 National Code of Fair Practice for Sound
Recordings requires that a minor not be
employed by signatory companies unless the
performance environment is proper for the
minor, the conditions of employment are not
detrimental to the health and morals of the
minor, the minor’s education will not be compromised by the employment, and the company will comply with all applicable education
laws. It is the intent of this provision that the
best interests of the minor be the primary consideration, with due regard to the age of the
minor.18
Yet despite what appears to be clear policies of the DLSE and AFTRA, in practice
these regulations are often unknown, ignored,
or routinely overlooked by record company
employees, tour promoters, video directors,
and others in the music industry, especially
as deadlines and budget restrictions loom.
When a musical artist is touring or recording
an album, many of these provisions are rendered meaningless. Within the course of a
day, artists frequently find themselves running from radio station drop-ins to in-store
appearances to meet and greet with local
press and record label representatives before
per forming at concer ts. Not only is the
minor’s workday much longer than permitted
under the DLSE but studying is almost impossible under such circumstances.
Although California Education Code
Section 48224 exempts children from attending public school full time if a private tutor
instructs them, the tutor must hold a state
teaching credential for the grade level of the
minor. 19 The child must attend classes
between 8 A.M. and 4 P.M. for at least three
hours a day for 175 days in a calendar year.
The private instructor is supposed to be provided by the employer, but it is sometimes difficult getting the record label to recognize this
financial obligation, especially given the
unpredictability of a recording artist’s schedule. A musical performer is often requested
on short notice to appear at various events,
and time spent in the recording studio is
often dictated by the availability of the producers. Even when the minor is not on the
road touring or in the studio recording, the
minor still may find it is too difficult to attend
school and will need to be taught by the tutor
instead. The record label may ignore or even
resist the obligation to pay for the tutor during a performer’s so-called downtime. The
attorney representing the minor should have
language regarding the tutor included in the
contract to eliminate any later questions or discussions about the label’s obligation.
The music lawyer should also anticipate
issues that arise when the child performer is
on tour, especially while traveling out of the
country. When touring abroad, child musical
performers frequently travel without their
parents. Instead they are often accompanied
by the tutor, road managers, personal managers, and record label representatives.
Problems arise when a minor needs to sign
legal documents or needs emergency medical
care while away from his or her parents.
Without parental consent, contracting parties and medical caregivers may be unable to
assist the minor. Attorneys can prepare their
clients for these types of situations by drafting a limited durable power of attorney. The
power of attorney should provide that when
the child is out of the country or away from
his or her parents for specified periods of
time, certain designated adults traveling with
the child are authorized agents for the child.
The notarized power of attorney should authorize the agents to make any nonmedical decisions, including signing legal instruments
such as replacement passport applications, as
may be required for the personal care of the
child while he or she is out of the country.
This authorization should also include the
right to consent to any necessary medical or
Who Pays the Teacher?
D
espite the significant number of musical performers who are children, there is still considerable confusion regarding the appropriate engagement and payment of the studio teacher. Recently, I have had to argue against a record label’s assertion that it had
the right to recoup the cost of a studio teacher.
California Labor Code Section 11755 unequivocally provides that “the remuneration of the studio teacher shall be paid by the
employer.” SAG and AFTRA reiterate these provisions in the context of child actors. However, as often happens, there appears to be some
confusion among record labels and their representatives regarding whether a child musical performer is entitled to a studio teacher at
the label’s expense. This is a constant problem simply because nonrecoupable expenditures are an anomaly for record companies.
In the motion picture and television industry, studio teachers provide educational tutoring while the minor actor is on the set rendering acting services. The production company or the studio pays the studio teacher. The compensation paid to the minor actor is not
reduced by the amount paid to the teacher. However, in the music business a typical recording contract treats almost all charges incurred
by the record label on behalf of the recording artist as advances. These expenditures run the gamut from studio rentals to producer fees
to travel and accommodations. Ultimately, these costs are deducted from the performance royalties paid to the artist. In those instances
in which the record company pays all authorized costs from a recording fund, the artist is entitled to receive the remainder, or what is
commonly known as the backend payment. Yet when the record company attempts to include the cost of the studio teacher as an authorized charge against the recording fund or recoupable against royalties, it is effectively making the minor artist pay for the studio teacher,
which is contrary to California law.
This problem is exacerbated when the contract is between the record label and a production company for the services of the minor artist.
The record label may argue that it is the production company’s obligation to pay for the studio teacher. However, many production companies are financially incapable of sustaining the cost of a studio teacher during the time required to record and promote an album. The
record label may pay the studio teacher on behalf of the production company, but since the record label will recoup all costs against the
production company before the artist or group receives its share of the royalties, charging the production company is akin to charging
the artist.
These matters are best contemplated at the time the recording contracts are negotiated. I have seen several executed recording contracts that do not consider the record label’s educational obligations to the minor. Many recording contracts with children basically use
the same template as those used for agreements with adults. During the negotiation of a new recording contract, the lawyers, managers,
parents, and artists tend to aggressively debate such issues as the advance, royalties, and the number of albums required during the term.
The special educational issues concerning minors often do not come to the fore until later.—B.E.B.
Qualified Television Industry
Expert Witness and
Business/Legal Consultant
dental treatment, such as emergency care or
hospitalization, and the right of the agents to
commit any of the parents’ insurance or other
funds that may be required to carry out such
medical or dental treatment.
More than 36 years legal and business
affairs experience negotiating and
drafting entertainment agreements in the
television industry for:
• The development of television movies,
pilots, television series and reality
programming
Business and Childhood
The reality is that child performers live as
adults. They have full-time employment and
are often financially responsible for themselves and their families. Accordingly, their
music endeavors must be run like a business. However, there are limitations on a
minor’s ability to control that business.
Generally, under Family Code Section
6701(a), a minor cannot grant a delegation of
power. This raises particular issues in connection with a minor artist’s partnership
agreements that are designed to define the
relationship between the minor and other
members of the recording group, who may or
may not also be minors. It also raises questions in connection with the minor’s involvement in corporations, limited liability companies, and other corporate entities that are
often created to protect the minor from thirdparty liability. California has outlined specific
guidelines concerning minors’ entertainment
contracts; namely, that minors can enter into
contracts for artistic services, including establishing loan-out corporations, so long as such
contracts gain court approval.
Frequently, parents and minors contemplate emancipation as a way to avoid the
restrictions and limitations on minors in the
entertainment industry. In California, a minor
may be emancipated by a court declaration
under the emancipation of minors law.
Pursuant to Section 7122 of the Family Code,
a person under 18 years old is an emancipated minor if he or she has received a declaration of emancipation, which shall then
serve as conclusive evidence that the minor
is emancipated. To obtain such a declaration,
the minor may petition the superior court of
the county in which the minor resides or is
temporarily domiciled. Pursuant to Family
Code Section 7120, the petition should set
forth with specificity that the minor is at least
14 years old. The minor also must willingly
live separate from the minor’s parents, with
their consent. Petitioning minors also must
demonstrate to the court that they are managing their financial affairs by completing a
declaration of income and expenses. The
source of the minor’s income, furthermore,
must not be derived from any criminal activity.20 The court will most likely grant the petition if it determines that the minor has satisfied the requirements of Section 7120 and
that emancipation would not be contrary to
the minor’s best interests.
Emancipated minors obtain many privi-
• Actors, writers, directors, producers,
composers, et cetra
• Adjusted gross and net profit definitions
• Film, tape and animation production
• Network, cable, and first-run syndication
• Domestic and international distribution
for all types of television programming
• Music acquisition, licensing, publishing,
and administration
• Merchandise licensing, home video, and
ancillary rights
• International (including Canadian content)
American and foreign co-productions for
various television productions
MARVIN S. KATZ
TEL:
310.475.7855
FAX: 310.470.6315
E-MAIL: [email protected]
JACK TRIMARCO & ASSOCIATES
POLYGRAPH/INVESTIGATIONS, INC.
9454 Wilshire Blvd. #525
Beverly Hills, CA 90212
(310) 247-2637
1361 Avenida De Aprisa
Camarillo, CA 93010
(805) 383-8004
email: [email protected]
Member Society of Former Special Agents
Federal Bureau of Investigation
Jack Trimarco - President
Former Polygraph Unit Chief
Los Angeles F.B.I. (1990-1998)
CA. P.I. # 20970
Current Polygraph Inspection Team Leader
Office of Counter Intelligence
U.S. Department of Energy
leges, including the right to consent to medical, dental, or psychiatric care without
parental consent or knowledge. The parent is
free of any financial liability for such services.
Emancipated minors may enter into binding
contracts without court confirmation. An
emancipated minor may also grant a delegation of power. Emancipated minors may buy,
sell, lease, encumber, exchange, or transfer
interest in real or personal property, and may
sue—or be sued—in their own name.
Similarly, an emancipated minor may also
compromise, settle, arbitrate, or otherwise
adjust a claim, action, or proceeding by or
against the minor. An emancipated minor
may make or revoke a will, and he or she
may also apply for the release of any entertainment earnings from a blocked account.21
The emancipated minor also may apply for a
work permit pursuant to Section 49110 of the
Education Code without the request of the
minor’s parents and enroll in school or college. An emancipated minor in the entertainment industry, however, is still subject to
the DLSE statutes regarding work periods
and schooling.
The music business forces children to
grow up quickly. A child musical performer
faces the same obligations that an adult entertainer does. Music lawyers should do their
best to ensure that their clients are able to
remain children as long as possible. This is
best achieved by insisting that the provisions
governing child performers in the film and
television industry are equally enforced in
the music business.
California is the pacesetter in this area of
law. A compelling need exists for standardization of child entertainer laws throughout the
rest of the United States, arguably through the
development of a model code. These laws
should recognize the exigencies of the modern entertainment industry and provide adequate protections to all parties involved. The
areas that need to be addressed include educational requirements, psychological and emotional counseling, appropriate working conditions and safety, financial management and
control, compensation for parents, and income
tax reform. As it stands, outside of California,
New York, New Jersey, and Georgia, the
nation does not have laws articulating in any
great detail how child performers are to be
treated. As music groups featuring minors
proliferate, the demand for teen movies rises,
and recording and motion picture production
expands outside California and New York,
laws need to be in place to protect children.
Until such time, many of these issues will fall
under the auspices of the parent, manager, and
lawyer representing the minor as well as the
lawyers representing the entertainment com-
IMMIGRATION
CONSULAR PROCESSING
EMPLOYER SANCTIONS (I-9)
DESIGN CORPORATE IMMIGRATION POLICIES
TEMPORARY WORK VISAS
panies that employ minors. This group of
adults should diligently work together in
addressing such issues with the overriding
purpose of protecting the child.
■
1
Niemann v. Deverich, 98 Cal. App. 2d 787, 793, 221 P.
2d 178 (1950).
2
FAM. CODE §6712.
3
FAM. CODE §§6750 et seq.
4
Warner Bros. Pictures, Inc. v. Brodel, 192 P. 2d 949
(Cal. 1948).
5
Hurley v. Southern Cal. Edison Co., 183 F. 2d 125 (9th
Cir. 1950).
6
LAB. CODE §1700.37.
7
Att’y Gen. Op. No. 46-136 (May 6, 1946).
8
Wachs v. Curry, 13 Cal. App. 4th 616 (1993).
9
REPORT OF THE CAL. ENTM’T COM. 13-14 (1985).
10
Park v. Deftones, 71 Cal. App. 4th 1465 (1999).
11
Hohe v. San Diego Unified Sch. Dist., 224 Cal. App.
3d 1559, 1565 (1990).
12
Aaris v. Las Virgenes Unified Sch. Dist., 64 Cal. App.
4th 1112, 1120 (1998).
13
See Raden v. Laurie, 120 Cal. App. 2d 778 (1953).
14
Id. at 779.
15
Id. at 783.
16
See CIV. CODE §36.1.
17
CAL. CODE REGS. tit. 8, ch. 6. Division of Labor
Standards Enforcement, subch. 2 Employment of
Minors in the Entertainment Industry §§11751(b) and
11753(a).
18
AFTRA, 1997-2001 NATIONAL CODE OF FAIR PRACTICE
FOR SOUND RECORDINGS ¶35.
19
See People v. Turner, 121 Cal. App. 2d 861 (1953).
20
FAM. CODE §7120.
21
FAM. CODE §6752.
LAW
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Five Cases
That Shook
Hollywood
by gerald f. phillips
WHAT COURT CASES MAKE HOLLYWOOD’S A-LIST?
he Academy of Motion Picture
Arts and Sciences customarily
designates five nominees, in
various categories, for the coveted Academy Award, the
Oscar. In keeping with that
spirit, five legal cases deserve
nomination as the court decisions that have
had the greatest impact on the motion picture industry. These cases are Allied Artists
Pictures Corporation v. Rhodes, 1 which
upheld the constitutionality of state legislation regulating the licensing of motion
pictures; Fortnightly Corporation v. United
Artists Television, Inc.,2 in which the U.S.
Supreme Court held that the importation by
cable systems of distant signals did not
constitute copyright infringement; AldenRochelle, Inc., v. American Society of
T
Composers, Authors and Publishers,3 which
decreed that, contrary to the law throughout the rest of the world, motion picture theaters in the United States are not required
to obtain a performance right license for the
music in the films that they exhibit; Joseph
Burstyn, Inc. v. Wilson,4 which reversed a
prior opinion of the U.S. Supreme Court
that held that motion pictures were not
protected by the First Amendment; and
United States v. Paramount Pictures, Inc.,5
which required the major motion picture
companies to divest their ownership in theaters and enjoined eight motion picture
distributors from engaging in common
trade practices.
All these cases are as vital today as when
they were decided and will continue to
affect the film industry. Is there one among
the five that wins the award as the case
that had the most significant impact of all?
Most commentators would choose
Paramount for that honor.
States Rights for Motion
Picture Wrongs
Allied Artists Pictures Corporation v. Rhodes
and its progeny had a significant impact
on the industry in that they upheld the regulation of the distribution of motion pictures by states and other jurisdictions. Allied
Artists upheld an Ohio statute prohibiting
the practices of “blind selling” and “blind
bidding,” which involve the licensing of a
motion picture without af fording an
exhibitor the opportunity to view the film.
Twenty-five other jurisdictions have passed
similar legislation prohibiting these distri-
Gerald F. Phillips, an attorney with offices in Century City, is a full-time mediator and arbitrator specializing in resolving large commercial
disputes and controversies, including those arising in the entertainment industry. He also is an adjunct professor at Pepperdine School of
Law. Phillips was actively involved in various capacities in four cases mentioned in this article: Allied Artists Pictures Corporation v.
Rhodes, Interstate Circuit v. Dallas, Fortnightly Corporation v. United Artists Television, Inc., and United States v. Paramount
Pictures, Inc. He was initially involved with Joseph Burstyn, Inc. v. Wilson but did not take part in the litigation of that case.
bution practices. No such legislation has been
passed in California or New York.
Blind selling is as old as the industry. In
the 1960s, the National Theater Owners of
America (NATO) began a campaign to stop
distributors from blind selling and blind bidding by having the practices declared illegal
and by barring distributors from obtaining
guarantees and advances on film rentals.
Theater owners argued that blind bidding
required them to buy a pig in a poke and
companies brought suit against the governor and other state officials. In Allied Artists,
the distributors attacked the statute on federal
constitutional grounds, claiming that the law
violated the First Amendment and placed an
undue burden on interstate commerce in violation of the commerce clause. They also
asserted that the statute violated the preemption provision of the Copyright Act. The
district court upheld the statute, rejecting all
the arguments advanced by the distributors.
regulate the dissemination of material to
minors that may be considered obscene for
minors though not for adults.
Astounding as it may seem now, before
1952 there were grave doubts that motion
pictures were protected by the First
Amendment. This unbelievable view was the
direct result of the U.S. Supreme Court’s
decision in Mutual Film Corporation v.
Industrial Commission.8 In that 1915 case,
the Court held that the free speech and free
astounding as it may seem now,
before 1952 there were grave
doubts that motion pictures were
protected by the first amendment.
make substantial financial commitments without adequate information. The distributors
countered by arguing that licensing motion
pictures before they were completed enabled
the distributors to share, to some extent, the
huge financial risk of the films with the
exhibitors. Further, if a film could not be
licensed before it was screened by theater
owners, the distributors often could not secure
holiday play dates for it from the better theaters
in a particular market because the theaters
would license other distributors’ films that
had been screened. The distributors pointed
out that many other copyrighted works are
licensed unseen, with guarantees paid in
advance—such as in the book publishing
industry and the record industry, in which
authors and composers are often paid before
they even sit down to write and compose.
In 1978, NATO lobbied successfully for the
introduction of bills in various state legislatures to regulate the licensing of motion pictures. As each bill was introduced in a particular state, at the behest of the exhibitors in
that state the Motion Picture Association of
America worked to have the proposed bill
defeated. However, the MPAA had little leverage with the state legislatures, and the statutes
were passed in 24 states, as well as in Prince
George’s County, Maryland, and Puerto Rico.
The state of Ohio passed the first antiblind bidding statute in 1978, which also
included provisions barring advances and
guarantees—nonrefundable, minimum cash
amounts that an exhibitor agrees to pay
notwithstanding the eventual box office performance of a motion picture. The major
motion picture distributors and other smaller
The opinion stated that nothing in the
Constitution guaranteed the distributors an
unfettered right to decide how to market their
product or prevented the state from recognizing that the local theater operators were
suffering undue economic hardship. The
court also held that the state was not prevented from rectifying the imbalance between
the distributors and the exhibitors.
The distributors appealed to the Sixth
Circuit Court of Appeals, which held that the
statute requiring the screening of motion pictures for exhibitors and establishing competitive bidding procedures does not violate
the First Amendment, the commerce clause,
the antitrust laws, or the Copyright Act. It
did, however, remand the case back to the district court for further consideration regarding
the validity of the statute’s prohibition against
advances and guarantee payments.6 After further proceedings, the film industry also lost
on these issues.
As a result of Allied Artists and cases in
other jurisdictions that subsequently followed
it, all distributors of motion pictures must
adhere to the procedures for licensing films
set forth in the statutes that are controlling in
26 jurisdictions. The statutes in most of the
jurisdictions also prohibit the distributors of
motion pictures from requesting or receiving
an advance or a guarantee payment.
Screening Fire in a Crowded Theater
It is best to consider Joseph Burstyn, Inc. v.
Wilson in tandem with a later case, Interstate
Circuit v. Dallas.7 Burstyn brought movies
under the protection of the First Amendment,
while Dallas held that a state or a city could
press provisions of the Ohio Constitution did
not protect movies against government censorship. The Court reasoned that because
the production, distribution, and exhibition of
motion pictures was a large-scale business
conducted for private profit, films did not
come within the protection of the U.S.
Constitution.
Burstyn was the first case after Mutual to
present squarely to the Supreme Court the
question of whether motion pictures are protected by the First Amendment. Joseph
Burstyn, a distributor of foreign films,
obtained the film The Miracle for distribution in the United States. The Motion Picture
Division of the New York Education
Department originally issued a license to a
theater authorizing the exhibition of the film.
However, as a result of an avalanche of letters,
the New York State Board of Regents, which
administered the New York Education
Department, viewed the film, determined
that The Miracle was “sacrilegious,” and
ordered the Commissioner of Education to
rescind the theater’s license to exhibit the
film. Burstyn brought an action in New York
state court to review the determination of
the Board of Regents. The New York Appellate Division sustained the revocation of the
theater’s license, but the U.S. Supreme Court
reversed. In a unanimous decision, the Court
also reversed the Mutual case and stated:
We conclude that expression by means
of motion pictures is included within
the free speech and press guaranty of
the First and Fourteen[th] Amendments. To the extent that language in
the opinion in Mutual Film Corp. v.
Industrial Commission…is out of harmony with the views here set forth,
we no longer adhere to it.9
The Court, however, observed that “[i]t
does not follow that the Constitution requires
absolute freedom to exhibit every motion
picture…” and there may be “exceptional”
cases. This opened the door to the censorship
of films held to be obscene. The Court did
invalidate the term “sacrilegious” as the determinative factor in the denial of an exhibition
license, noting that a censor would find it
impossible to avoid favoring one religion over
another.
The Dallas case, decided by the U.S.
Supreme Court in 1968, involved the film
Viva Maria. In 1965 the city of Dallas, Texas,
established an ordinance that classified
motion pictures according to their suitability
for children. It required exhibitors to include
the city’s ratings in all advertisements. The
ordinance imposed criminal penalties on any
theater admitting children under the age of 16,
without a parent or guardian, to a film that the
city had rated “unsuitable.”
The Supreme Court announced two decisions on the day it handed down the Dallas
opinion. In the other case, Ginsberg v. New
York,10 the Court upheld a New York statute
that regulated the dissemination of material—not including motion pictures—to minors
that is obscene for minors though not necessarily for adults. Nevertheless, the Court in
Dallas found that the Dallas classification
ordinance was unconstitutionally vague.
The Dallas opinion gave bir th to the
Classification and Rating Administration
(CARA), the film industry’s answer to the
cry for laws to protect children from viewing
films containing inappropriate material. CARA
has been rating movies—based on language,
sexuality, violence, and other elements—for
more than 30 years. Following the lead of
CARA, ratings for the protection of children
have been implemented in the broadcast,
recording, video game, and toy industries.
Cutting the Cable Deal
The landmark ruling of the U.S. Supreme
Court in Fortnightly Corporation v. United
Artists Television, Inc. was the genesis of
Section 111 of the Copyright Act of 1976,
which provided that cable systems must pay
a compulsory license for copyrighted films
that are imported from a distant broadcasting
station. In 1976 United Artists Television
brought a test case against a cable company
owned by the Fortnightly Corporation, alleging that the cable company infringed on the
copyright to a motion picture when its cable
system imported distant signals carrying the
film. (This method of operation by a cable system should not be confused with the carrying
of programs supplied by pay system channels such as HBO and Showtime, which must
obtain licenses for copyrighted material.)
There were two basic reasons why the
suit was brought. First, cable systems were
showing copyrighted films and not paying
any license fees. Second, the importation of
the films depressed the market value of those
films offered for license to local television
stations, because the films had already been
shown on cable systems.
United Artists believed that it had a very
strong precedent in Buck v. Jewell-La Salle
Realty Corporation,11 a unanimous opinion of
the Supreme Court written by Justice Louis
D. Brandeis. In that 1931 case, a hotel in
Philadelphia received a broadcast signal from
a radio station in New York and piped the
music throughout the hotel. It paid no copyright fees. The Supreme Court held that the
use of special equipment to extend a broadcast to a greater audience than the broadcast would otherwise enjoy was a “performance” of the copyrighted work.
In Fortnightly, the Second Circuit Court of
Appeals followed the Buck precedent and
held that cable systems “perform” the programs. 12 The Supreme Cour t, however,
rejected the approach and reasoning of the
Second Circuit. It held that the retransmission
by cable systems of copyrighted motion pictures, imported by cable systems from distant
stations into the local community, is not an
infringement of copyright. The importation of
a program by a cable system did not constitute a performance under the Copyright Act
of 1909. The Court stated, “Broadcasters perform. Viewers do not perform.” The Court,
based on this simplistic analysis, held that
cable “falls on the viewer’s side of the line” and
cable companies do not perform the programs that they receive. In order to accommodate its holding in Jewell-La Salle, the
Fortnightly court limited its prior holding to
the facts in that case. 13 Cable was thus
exempted from the copyright law with respect
to its then primary activity of importing signals from distant markets.
In its ruling, the Supreme Court called
upon Congress to act. Congress responded
when it incorporated a complex Section 111—
the cable copyright provision—into the
Copyright Act of 1976. In passing the 1976 act,
Congress stated (contrary to the holding in
Fortnightly), “[C]able systems are commercial
enterprises whose basic retransmission operations are based on the carriage of copyrighted program material and…copyright
royalties should be paid by cable operators to
the creators of such programs.”14 Thus, the
ruling in Fortnightly regarding performance
by cable systems was reversed legislatively.
The 1976 act established a compulsory license
This Los Angeles Lawyer MCLE
self-study test is sponsored by
WEST GROUP.
MCLE Test
No. 105
The Los Angeles County Bar Association
certifies that this activity has been
approved for Minimum Continuing
Legal Education credit by the State Bar
of California in the amount of 1 hour.
1. Motion picture distributors are enjoined in
several states from “blind bidding” and “blind
selling,” which are two practices that involve the
licensing of motion pictures without affording
exhibitors an opportunity to view them.
True.
False.
2. The Ohio statute discussed in Allied Artists
Pictures Corporation v. Rhodes included provisions prohibiting distributors of motion pictures from requesting or receiving guarantees
and advances. These provisions:
A. Violated the First Amendment to the
U.S. Constitution.
B. Placed an undue burden on interstate
commerce in violation of the commerce
clause of the Constitution.
C. Violated the preemption provision of
the Copyright Act.
D. None of the above.
3. Motion picture distributors in California may
license films to theaters without affording
exhibitors an opportunity to view the films.
True.
False.
4. The free speech and free press provisions of
a state constitution or the U.S. Constitution
do not protect movies against government
censorship.
True.
False.
MCLE Answer Sheet #105
5. A city may censor and prevent a film from
being shown in theaters on the ground that the
film is “sacrilegious.”
True.
False.
6. The U.S. Constitution does not “require
absolute freedom” to exhibit every motion picture, and there may be “exceptional” cases.
True.
False.
7. A governmental entity may regulate the dissemination of material to minors that is obscene
for them, even if the material is not obscene for
adults.
True.
False.
8. Cable systems need not negotiate and obtain
from the copyright owner of a motion picture
the right to transmit the film to their customers,
because the cable systems have a compulsory
license granted by the Copyright Act of 1976.
True.
False.
9. Pay system channels such as HBO must
obtain the right to show a copyrighted motion
picture from the copyright owner.
True.
False.
10. Motion picture theaters outside of the
United States must obtain a performing right
license to perform the music contained in a
motion picture.
True.
False.
11. Motion picture theaters in the United States
must obtain a performing right license to perform the music contained in a motion picture.
True.
False.
12. For the music contained in a film, the producer, before licensing the film to theaters in the
United States, must obtain:
A. The performing right to the music.
B. The synchronization right to the music.
C. A and B.
13. Television stations and television networks
are not required to obtain a performing right
license to perform the music in the films that
they show.
True.
False.
14. The integration of distribution and exhibition is per se illegal.
True.
False.
15. The motion picture distributors who were
defendants in the government antitrust suit
referred to as the Paramount case—which included Paramount Pictures, Inc., Warner Bros.
Pictures, Inc., Twentieth Century Fox Film Corporation, Metro-Goldwyn-Mayer, Universal
Pictures Corporation, Columbia Pictures Corporation, and United Artists Corporation—are
subject to the consent decrees entered in that
case more than 50 years ago. These decrees
enjoin eight trade practices.
True.
False.
FIVE CASES THAT SHOOK HOLLYWOOD
Sponsored by WEST GROUP
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Address
City
State/Zip
E-mail
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State Bar #
Instructions for Obtaining MCLE Credits
16. The defendants in the Paramount case
may:
A. Require a theater to license five films.
B. Require a theater to license 10 films.
C. May not condition the licensing of one
film on the licensing of any other film.
1. Study the MCLE article in this issue.
2. Answer the test questions opposite by
marking the appropriate boxes below. Each
question has only one answer. Photocopies of
this answer sheet may be submitted; however,
this form should not be enlarged or reduced.
17. The defendants in the Paramount case are
enjoined from fixing the admission price that
theaters charge to see their films.
True.
False.
3. Mail the answer sheet and the $15 testing
fee ($20 for non-LACBA members) to:
18. The Paramount defendants are still enjoined
from licensing motion pictures in any manner
other than one in which each license “shall be
offered and taken theatre by theatre, solely
upon the merits and without discrimination.”
True.
False.
Make checks payable to Los Angeles Lawyer.
19. Pursuant to the decrees in the Paramount
case, Warner Bros., MGM, and Fox were enjoined from owning theaters in this country, but
Universal, Columbia, and United Artists had no
such provision in their decrees.
True.
False.
20. Forty years after Judge William B. Herlands’s
decision in United States v. Loew’s Inc., some
motion picture distribution companies are still
enjoined from conditioning the licensing of
one or more films to television stations on the
licensing of any other film.
True.
False.
Los Angeles Lawyer
MCLE Test
P.O. Box 55020
4. Within six weeks, Los Angeles Lawyer will
return your test with the correct answers, a
rationale for the correct answers, and a
certificate verifying the MCLE credit you earned
through this self-assessment activity.
5. For future reference, please retain the MCLE
test materials returned to you.
Answers
Mark your answers to the test by checking the
appropriate boxes below. Each question has
only one answer.
1.
■ True
2.
■A
■ False
3.
■ True
■ False
4.
■ True
■ False
5.
■ True
■ False
6.
■ True
■ False
7.
■ True
■ False
8.
■ True
■ False
9.
■ True
■ False
10.
■ True
■ False
11.
■ True
■ False
12.
■A
13.
■ True
■ False
14.
■ True
■ False
15.
■ True
■ False
16.
■A
17.
■ True
■ False
18.
■ True
■ False
19.
■ True
■ False
20.
■ True
■ False
■B
■B
■B
■C
■D
■C
■C
for cable, permitting cable systems to retransmit primary transmissions made by broadcast
stations only upon payment of a fixed, compulsor y royalty fee to the U.S. Copyright
Office. The fees are passed on to the copyright owners.
Cable systems have become potent industrial and political entities largely because
Fortnightly did not require them to pay full
copyright fees. Instead, Congress fixed the
compulsory license fee at a noncompetitive
rate, allowing the cable industry to become a
major communications force. Cable television, greatly aided by Fortnightly, has revolutionized the motion picture and television
industries.
Paying the Theatrical Piper
When a theater exhibits a film, it is performing the film and the music contained therein.
Under almost all circumstances, performers
of music protected by copyright must obtain
the right to publicly perform that music. The
one exception is motion picture theaters in the
United States, which do not have to obtain a
performance right for the music in the motion
pictures that are screened in the theaters.
The theaters have the 1948 case of AldenRochelle v. American Society of Composers,
Authors, and Publishers to thank for their
exemption.
In order to appreciate Alden-Rochelle, it
is important to understand the function of
performing rights societies. In 1914 it became
evident that an individual music copyright
owner could not negotiate licenses with all
possible users of music. Likewise, all those
who wished to perform compositions without
infringing the copyright could not, as a practical matter, obtain licenses for all the music
they would perform. To fill this void, several
famous composers of music formed the
American Society of Composers, Authors,
and Publishers. Its members assigned to
ASCAP their exclusive right to grant users the
right to publically per form their works.
ASCAP, acting on behalf of its members, monitors the public performance of music in its
repertor y, brings copyright infringement
actions, and distributes to its members the
royalties paid by licensees and foreign performing societies. The revenue collected by
ASCAP is divided evenly between the publishers (as a group) and the composers and
authors (as another group.) Broadcast Music,
Inc. (BMI) was organized in 1939 by members of the broadcast industry to compete
with ASCAP. A third entity, the Society of
European Stage, Authors and Composers
(SESAC), was formed in 1931. The three
organizations license the performance rights
to virtually every musical composition copyrighted in the United States.
Before the advent of sound motion pictures, any music designed to accompany the
action in silent motion pictures was supplied
by piano players or, at some theaters, by
orchestras. Theater owners originally refused
to pay any royalties to ASCAP for the right to
perform the musical compositions for the
films. In 1923, however, after ASCAP brought
a series of infringement actions, theater owners began to obtain ASCAP licenses and pay
an annual fee.
When the major film production and distribution entities were acquiring exhibition
companies, some of them acquired music
publishers as well. They soon discovered that
it was in the financial interest of producers
whose publishing entities were members of
ASCAP to obtain only the synchronization
right for music in a motion picture and not to
seek to acquire the performing rights, thus
leaving to ASCAP the licensing of performing
rights to theaters. (The synchronization right
is a separate right that must be acquired to
incorporate music in synchronization to the
other elements of a film.) The film exhibition agreements specifically provided that no
right to perform the music was granted. The
exhibitor was required to obtain an ASCAP
license. The film companies that were members of ASCAP through their publishing companies then shared in the revenue paid by the
theaters.
The power of ASCAP and its relationship
to motion picture producers came under judicial scrutiny in 1942 in the Alden-Rochelle
case when a group of 164 exhibitors (operating 200 theaters) filed an antitrust complaint against ASCAP. The case was finally
tried in 1948 before U.S. District Court Judge
Edward Leibell. The court held that almost
every part of the structure of ASCAP and its
licensing of theaters involved a violation of the
Sherman Antitrust Act. The court found that
motion picture producer/distributors,
through their publishing subsidiaries,
received 37 percent of the 50 percent allocated by ASCAP to its publishing members.
This amount, the court stated, was the result
of the exhibition agreements that were conditioned on an exhibitor obtaining an ASCAP
license. The court said that the members of
ASCAP, by pooling their rights and license
fees, shared in the copyrighted work of each
other. Combining the copyrights, according
to the court, added to the monopoly of the
copyrights in violation of the antitrust laws.
The theater owners argued successfully that
they should not be required to obtain a license
from ASCAP but producer/distributors
should obtain the performing rights when
they acquired the synchronization rights to
the music.15
The court designed an injunction to strike
down the means by which ASCAP and film
distributors were able to require theaters to
obtain an ASCAP license. The cour t
restrained ASCAP from 1) licensing the performance rights of any musical composition
synchronized with a motion picture when the
musical compositions are performed in a theater, 2) refusing to grant to producers the
right to perform the music in motion picture
theaters when ASCAP licenses the synchronization right to the music to the producers,
3) conspiring with producers to include a
clause in exhibition agreements that required
exhibitors to obtain a license from ASCAP, and
4) splitting the synchronization and performing rights of a musical composition; both
rights must be assigned to a producer at the
same time. The court’s action effectively
meant that exhibitors would not need an
ASCAP license.
Alden-Rochelle has had an important impact
on the production of motion pictures and on
all theaters in the United States. Producers
must obtain a license for the U.S. theatrical performing right for the music in their motion pictures. The cost paid by producers for this
right is usually a sum equal to the amount
paid for the synchronization right—and this
has added to the production cost of motion pictures. The studios (by virtue of the membership of their publishing subsidiaries in ASCAP
prior to Alden-Rochelle) received a portion of
the money paid by theaters for a theater’s
right to perform the music in films. Producers
no longer receive this revenue and do not
charge exhibitors any separate fee to cover the
performing rights. Thus, the operating costs
of theaters are reduced.
Alden-Rochelle has had one more impact.
Unlike their American counterparts, theaters
throughout the world pay a performance
right when they exhibit a film (usually based
on the number of seats in a theater or on
gross receipts.) The fact that theaters in this
country do not pay performing rights societies for the right to perform music has presented negotiating problems for the U.S. collection societies when they are dealing with
their foreign counterparts. The concept of
licensing at the source—in this instance, the
motion picture producer—as required by
Alden-Rochelle is limited to theatrical performance. The ruling has not been applied to the
licensing of films to television. The efforts by
the networks and local stations to expand
mandated source licensing have failed.
Breaking Up Is Hard to Do
United States v. Paramount Pictures, Inc.—
commonly referred to as the Paramount
case—is the landmark case that restructured
the motion picture industr y. It broke the
nexus between distribution and theaters but
left production and distribution connected.
It enjoined eight distribution practices.
Paramount is not only the most significant
case affecting the motion picture industry
from a historical perspective but it is also key
to understanding the wave of mergers that is
transforming the entertainment industr y
today. Only the future will reveal the full
extent of Paramount’s continuing impact on
this industry.
In 1938 the federal government filed an
antitrust suit against the eight dominant
motion picture companies. The so-called five
“majors”—Paramount Pictures, Inc. (the
largest theater owner and the first defendant
listed), Loew’s Inc. (a theater company that
owned Metro-Goldwyn-Mayer), Warner Bros.
Pictures, Inc., Twentieth Century Fox Film
Corporation, and Radio Keith Orpheum
Corporation (RKO)—were vertically integrated in that they each owned large theater
chains. Two defendants—Columbia Pictures
Corporation and Universal Pictures
Corporation—only produced and distributed
films. The final defendant—United Artists
Corporation—was only a distributor. The latter three companies were referred to as the
“minors” or the “little three.” The majors
were charged with combining and conspiring
to restrain trade in the production, distribution, and exhibition of motion pictures. The
minors were charged with combining and
conspiring with the majors and with each
other. The Department of Justice sought the
divorcement of production and distribution
from exhibition as well as injunctions enjoining various distribution practices. The Justice
Department was propelled by prior Supreme
Court decisions involving the industry, complaints by exhibitors who urged the government to bring the antitrust case, and opinions
rendered in private antitrust suits brought
by exhibitors against these same companies.
On November 20, 1940, before trial, the
majors entered into consent decrees. The
case against the minors was adjourned. The
consenting distributors were enjoined from
licensing films until they were shown to
exhibitors and from licensing a group of more
than five films. The decrees also required
complaints by exhibitors against distributors
to be arbitrated by the American Arbitration
Association. On August 4, 1944, the Justice
Depar tment reactivated the litigation. It
asserted that the consent decrees hardly
attacked the roots of the conspiracy. The
three-judge district court—a statutory court
whose decisions could be appealed directly to
the Supreme Court—found that the evidence
had established “various infractions of the
Sherman Act on the part of each of the defendants.…” It stated, however, that it would not
bar the distributors from owning theaters.
Rounding Out the Top Ten
The Oscars may be limited to five nominees, but with apologies to David Letterman, the Top
Ten list of the most significant cases affecting the motion picture industry would likely include
these additional five cases:
✰ Desny v. Wilder,1 in which the California Supreme Court, acknowledging that ideas are
not protectible by copyright, held that the conveyance of an idea, even though it is not novel
or concrete, may be protected by contract and thus merit compensation.
✰ Sony Corporation of America v. Universal City Studios,2 which held that the manufacture
and sale of home video recorders do not constitute copyright infringement.
✰ United States v. Capitol Service, Inc.,3 which held that agreements among exhibitors to
allocate films among themselves are illegal per se.
✰ Abend v. MCA, Inc.,4 the Rear Window case, which held that the exhibition of many classic films may be prevented if the underlying literary rights are not obtained from the estate
of the original author during the copyright renewal period. The Copyright Act of 1976 legislatively reversed this opinion.
✰ Buchwald v. Paramount Pictures Corporation,5 which held that seven provisions of the
standard industry definition of “net profits” are unconscionable. The case was settled before
—G.F.P.
any opinion was reached on appeal.—
1
Desny v. Wilder, 46 Cal. 2d 715 (1953). See Pierce O’Donnell & William Lockard, You Have No Idea, LOS ANGELES LAWYER, Apr. 2000,
at 32, 35.
2
Sony Corp. of Am. v. Universal City Studios, 480 F. Supp. 429 (C.D. Cal. 1979), reversed, 659 F. 2d 963 (9th Cir. 1981), aff’d, 464
U.S. 420 (1984), rehearing denied, 465 U.S. 1112 (1984).
3
United States v. Capitol Serv., Inc., 568 F. Supp. 134 (E.D. Wis. 1983), 756 F. 2d 502 (7th Cir. 1985), cert. denied, 474 U.S. 945
(1985).
4
Abend v. MCA, Inc., 863 F. 2d 1465 (9th Cir. 1988), aff’d sub nom, Stewart v. Abend, 495 U.S. 207 (1990).
5
Buchwald v. Paramount Pictures Corp., 13 U.S.P.Q. 2d 1497 (1990) (vacated during appeal after the parties reached a settlement).
See Joseph F. Hart & Philip J. Hacker, Less than Zero, LOS ANGELES LAWYER, Apr. 1996, at 34.
Instead, it enjoined the defendants from
licensing their films for exhibition without
offering licenses through a mandatory system
of competitive bidding.
The Department of Justice and each of
the defendants appealed to the Supreme
Court. The government urged the Court to
hold that vertical integration of production,
distribution, and exhibition was illegal per
se. The Court declined, holding that the legality of vertical integration turned on the purpose or intent with which it was conceived or
the power it created. Because these factors
had not been considered by the district court,
the Supreme Court set aside the lower court’s
finding of monopoly. The Court’s holding
that integration was not illegal per se has no
doubt played an important role as film companies have in recent years combined with
television companies, cable systems, and
cable programmers.
The Supreme Court did sustain almost
all the findings made by the district court.
However, it found that the system of competitive bidding ordered by the district court
was not an adequate or proper remedy and
remanded the case “so that a more effective
decree may be fashioned.” The court believed
that competitive bidding played into the hands
of the theater with “the longest purse.”16
After the Supreme Court sent the case
back down, the district court held that “the
vertical integrations were a definite means of
carrying out the restraints and conspiracies”
and concluded that divorcement was “the
only adequate means of terminating the conspiracy and preventing the resurgence of
monopoly power.…”17
Sensing what was to come, RKO and
Paramount (in 1948 and 1949, respectively)
each agreed to divest themselves of their theater interests in the United States, which
were placed in new exhibition entities independent of the distribution companies. The
new distribution entities were enjoined from
eight trade practices. The district cour t
ordered the three remaining integrated companies (Warner, Fox, and Loew’s) to submit
plans for divorcement. These three companies
again appealed to the Supreme Court, which
affirmed the judgment of the district court.
Columbia, Universal, and UA did not appeal
and entered into consent decrees that only
enjoined them from the eight distribution
practices. After the Supreme Court affirmed
the lower court’s decision, Fox, Warner, and
Loew’s entered into consent decrees similar
to those of RKO and Paramount. Stringent
restrictions, however, were placed on Warner,
Fox, and MGM (the production/distribution
entity that was formed as a result of the
Loew’s divorcement) regarding the future
acquisition of theaters. The Paramount and
RKO decrees did not bar the future ownership
of theaters.
In 1987 Warner sought an order modifying its consent decree to permit it to acquire
a half interest in an exhibition company
owned by Paramount. Judge Edmund
Palmieri of the Southern District of New
York, who was assigned to monitor the consent decrees, granted the motion but only in
part.18 He refused to permit the return of
integration, and Warner appealed. The
Second Circuit Court of Appeals reversed
and held that the proposed ownership by
Warner would not restrain competition, scuttling the part of the decrees concerning the
ownership of theaters.19
The consent decrees included eight injunctions that applied to all eight defendants. The
first enjoined the companies from fixing the
admission prices to be charged by theaters.
Both the district court and the Supreme Court
relied on the fact that the admission prices
were fixed pursuant to conspiracy. Two injunctions enjoined the distributors from maintaining a system of clearances (the period of
time stipulated in license contracts that must
elapse between runs of the same feature
within a particular area or in specific theaters) and from granting clearances between
noncompetitive theaters or for a longer time
than is reasonably necessary to protect the
licensee granted the clearance for a particular run. Clearances are no longer granted
and, therefore, the injunctions relating to
clearances are only of historical interest. Also
of limited academic interest are the injunctions that enjoined the making of franchise,
formula, and master agreements.
The decrees enjoined the distributors
from “block booking”—that is, conditioning
the licensing of one film upon the licensing of
one or more other motion pictures. The
Supreme Court held the practice of block
booking to be illegal because it “prevents
competitors from bidding for single features
on their individual merits” and because it
“added to the monopoly of a single copyrighted picture that of another copyrighted
picture which must be taken and exhibited in
order to secure the first.”20
The clear statement in the Paramount
case that block booking is illegal had a direct
impact on the licensing of films to television.
In 1957, the government brought six civil
antitrust actions, consolidated for trial as
United States v. Loew’s Inc.21 The complaints
alleged that the defendants had engaged in
block booking in their licensing of films to
television stations. U.S. District Court Judge
William B. Herlands held that each of the
defendants violated the Sherman Antitrust
Act by block booking films to television stations. Each of the final judgments entered in
that case enjoined the defendant from conditioning the licensing of one or more films
on the licensing of any other film. However,
each judgment added an important proviso
that permitted the defendant to defer licensing to a customer while the defendant was
simultaneously negotiating with a competing station that was negotiating for a larger
number of films. The judgments required
that the defendants offer each film individually and separately priced.
The most pervasive injunction of each of
the Paramount decrees enjoined the distributor from licensing any feature in any manner
other than one in which each license was
“offered and taken theater by theater, solely
upon the merits and without discrimination.”
The Justice Department consistently maintained that this meant that a distributor was
required to afford every comparable theater
a competitive opportunity to license each of
its motion pictures. However, in December
1988, the Justice Department expressed a
completely contrary view. It stated that as
long as a selection of a preferred exhibitor is
the result of a distributor’s prior determination of the merits of each theater and is not a
cover-up for conduct that would be unlawful,
such a selection is lawful.
One of the reasons that the impact of the
Paramount litigation is so profound is that it
enabled the minor defendants (Universal,
Columbia, and UA) to prosper and to more
ef fectively compete against Paramount,
Warner, Fox, and MGM. It created an open
market in which Walt Disney could form his
own distribution company in 1953. It was one
of the factors causing the end of the “star
system” because, as a result of the divorcement, the studios did not have the need to fill
their own theaters. A direct consequence of
the demise of the star system was the rise of
the independent producer. Moreover,
Paramount permitted the theaters formerly
controlled by the majors to exhibit foreign and
independent films that previously could not be
exhibited if the distributing company could
not obtain an MPAA Code Seal of Approval.
Finally, it enabled theaters that were not part
of a chain as well as smaller theater circuits
to more effectively compete against the larger
circuits, because the distributors were
required to license their films to theaters on
the merits of each theater and could not prefer the larger customers.
The distribution injunctions are still in
place. In 1985 the Justice Department advised
Judge Palmieri that, after an investigation of
the decrees, it had decided not to seek their
modification or termination. It further advised
the court that the distributors subject to the
decrees were not prepared to file motions
seeking termination of the decrees or to
demonstrate to the court that terminating
the decrees would be in the public interest.
The future will reveal the full and precise impact of Paramount on the multitude of
mergers in the enter tainment industr y.
Certainly the Supreme Court’s ruling that
integration is not illegal per se (contrary to
government urging) has permitted companies to integrate. The Paramount decrees
were actively enforced between 1950 and
approximately 1990, when the Justice
Department generally became less active in
the enforcement of antitrust laws. While each
of the Paramount defendants is still subject
to the consent decrees, the question remains
to this day whether the Justice Department
will enforce them or allow them to remain
dormant.
■
1
Allied Artists Pictures Corp. v. Rhodes, 496 F. Supp.
408 (S.D. Ohio, 1980), aff’d in part and remanded in part,
679 F. 2d 656 (6th Cir. 1982).
2
Fortnightly Corp. v. United Artists Television, Inc., 255
F. Supp. 177 (S.D. N.Y. 1966), aff’d, 377 F. 2d 872 (2d
Cir. 1967), reversed, 392 U.S. 390 (1968).
3
Alden-Rochelle, Inc. v. American Soc’y of Composers,
Authors and Publishers, 80 F. Supp. 890 (S.D. N.Y.
1948).
4
Joseph Burstyn, Inc. v. Wilson, 343 U.S. 495 (1952).
5
United States v. Paramount Pictures, Inc., 66 F. Supp.
323 (S.D. N.Y. 1946), 70 F. Supp. 53 (S.D. N.Y. 1947),
aff’d in part and rev’d in part, 334 U.S. 131 (1948), on
remand, 85 F. Supp. 881 (S.D. N.Y. 1949), aff’d, 339 U.S.
984 (1950).
6
Allied Artists Pictures Corp. v. Rhodes, 679 F. 2d 656
(6th Cir. 1982).
7
Interstate Circuit v. Dallas, 390 U.S. 629 (1968).
8
Mutual Film Corp. v. Industrial Comm’n, 236 U.S.
230 (1915).
9
Joseph Burstyn, Inc. v. Wilson, 343 U.S. 495, 505
(1952).
10
Ginsberg v. New York, 390 U.S. 629 (1968).
11
Buck v. Jewell-La Salle Realty Corp., 283 U.S. 191
(1931).
12
Fortnightly Corp. v. United Artists Television, Inc.,
377 F. 2d 872 (2d Cir. 1967).
13
Fortnightly Corp. v. United Artists Television, Inc.,
392 U.S. 390, 400 (1968).
14
H.R. REP. NO. 94-1476, at 89 (1976).
15
Alden-Rochelle, Inc. v. American Soc’y of Composers,
Authors and Publishers, 80 F. Supp. 890, 899 (S.D.
N.Y. 1948).
16
United States v. Paramount Pictures, Inc., 334 U.S.
131, 174 (1948).
17
United States v. Paramount Pictures, Inc., 85 F. Supp.
881 (S.D. N.Y. 1949).
18
United States v. Loew’s Inc., 705 F. Supp. 878 (S.D.
N.Y. 1987). The caption to the Paramount case was
changed to United States v. Loew’s Inc. after Paramount
entered into its consent decree.
19
United States v. Loew’s Inc., 882 F. 2d 29 (2d Cir.
1989).
20
Paramount Pictures, 334 U.S. at 157.
21
United States v. Loew’s Inc., 180 F. Supp. 373 (S.D.
N.Y. 1960), aff’d, 371 U.S. 38 (1962).
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PUBLISHED BY THE LOS ANGELES COUNTY BAR ASSOCIATION'S PUBLICATIONS DEPARTMENT
by ted f. gerdes
The Unbearable
Likenessof
Being
recent court decisions
highlight the tension between
entrepreneurs’ first
amendment rights and
celebrities’ rights of publicity
W
celebrity photo in an advertisement endorsing a product. In the center is an area in which the permissibility of use is not quite so clear.
Extensive appellate court opinions in three recent high-profile
right of publicity cases have practical implications for practitioners,
but whether the contours of the law have been clarified or complicated remains an issue. The first case considered the sale of Tshirts incorporating drawings of the faces of the Three Stooges.
The second involved the use of a doctored photo of Hoffman in an
issue of Los Angeles magazine. The third scrutinized the reuse of
a photograph of surfers in an Abercrombie & Fitch catalog.
In early January 2002, the U.S. Supreme Court, without comment, let stand the decision of the California Supreme Court in
Comedy III Productions, Inc. v. Gary Saderup, Inc.1 This case began
Ted F. Gerdes is an attorney with expertise in copyright and trademark and the clearance, acquisition, and exploitation of likeness and
intellectual property rights. He has litigated right of publicity actions,
including Waits v. Frito Lay, Inc. and White v. Samsung Electronics
America, Inc.
JONATHAN BARKAT
hat do the Three Stooges have in common with
actor Dustin Hoffman in drag and a group of champion surfers? No, it is not some kind of bizarre
slapstick sequel—Gidget Meets the Three Stooges.
The correct answer is that they have all been
involved in recent litigation involving the right of
publicity.
California’s right of publicity statutes prohibit the unauthorized use of a person’s “name, voice, signature, photograph, or likeness…on or in products…for purposes of advertising or selling.…”
Civil Code Section 3344 protects living individuals, and Civil Code
Section 3344.1 is the right of publicity statute for “deceased personalit[ies].”
A fine line exists between a protected First Amendment use of
the name, voice, likeness, or image of an individual and a violation
of California’s right of publicity statutes. On one end of the continuum is the legitimate use of the photograph of an actress accompanying a story about her winning an Oscar or being arrested for
shoplifting. On the opposite end is the clearly prohibited use of a
as an action filed by the heirs of the Three
Stooges against charcoal artist Gary Saderup
under Civil Code Section 990, formerly the
statute protecting the publicity rights of
deceased personalities.2 Saderup had been
making charcoal drawings of celebrities for 25
years. His drawings were used to create lithograph and silkscreen masters that were then
used to produce multiple reproductions.
Saderup sold lithographs and T-shirts bearing the likeness of the Stooges. Saderup’s
profit from the sale of these items was
$75,000. Based on these facts, the trial court
found for Comedy III Productions—a corporation that owned all the necessary rights to
the Stooges’ likeness—and entered a judgment against Saderup of $75,000 plus $150,000
in attorney’s fees. The judgment was affirmed
on appeal.
Saderup argued against liability because
the lithographs and T-shirts did not constitute
an advertisement, endorsement, or sponsorship of a product. The California Supreme
Court read the right of publicity statute differently, stating, “[I]t makes liable any person
who, without consent, uses a deceased personality’s name, voice, photograph, etc., either
(1) ‘on or in’ a product, or (2) in ‘advertising
or selling’ a product.”3 The court concluded,
“By producing and selling such lithographs
and T-shirts, Saderup thus used the likeness
of The Three Stooges ‘on...products, merchandise, or goods’ within the meaning of
the statute.”4
Having found that Saderup’s use of the
Stooges’ images fell within the confines of the
right of publicity statute, the court turned to the
difficult constitutional issue. Justice Stanley
Mosk, writing for the majority, quoted
Guglielmi v. Spelling-Goldberg Productions:5
“The right of publicity derived from public
prominence does not ward off caricature, parody and satire. Rather, prominence invites creative comment.” The decision explained that
Saderup’s creations do not lose constitutional
protection because they are for entertainment
rather than informational purposes or because
they are a form of nonverbal visual representation or because they appear on T-shirts.
Unfortunately for Saderup, at this point
the tone of the opinion changed. “But having
recognized the high degree of First Amendment protection for noncommercial speech
about celebrities,” the court continued, “we
need not conclude that all expression that
trenches on the right of publicity receives
such protection.”6 The court referred to Lugosi
v. Universal Pictures,7 discussing the considerable time, money, and effort needed to
obtain public prominence, and concluded,
“The present case exemplifies this kind of
creative labor.”8
In Guglielmi, the court proposed a bal46 LOS ANGELES LAWYER / MAY 2002
ancing test to distinguish protected from
unprotected appropriation of celebrity likeness: “[A]n action for infringement of the
right of publicity can be maintained only if the
propriety interest at issue clearly outweighs
the value of free expression in this context.”9
In Comedy III, the court borrowed, in a limited way, from the copyright concept of fair
use. The fair use test, under 17 USC Section
107, comprises four factors.
Justice Mosk concluded that factor 2—
“the nature of the copyrighted work”—and
factor 3—“the amount and substantiality of the
portion used in relation to the copyrighted
work as a whole”—were inappropriate in the
right of publicity context. He did, however,
find that the first factor—“the purpose and
character of the use, including whether such
use is of a commercial nature or is for nonprofit educational purposes”—was helpful.
Transformative Elements
The relevant question to ask, according to
the opinion, is whether the work in question
adds something new to the original creation
with a further purpose or different character,
altering the original with a new expressive
meaning or message that makes the new
work “transformative.”10 The cour t held,
“When artistic expression takes the form of
a literal depiction or imitation of a celebrity for
commercial gain, directly trespassing on the
right of publicity without adding significant
expression beyond that trespass, the state
law interest in protecting the fruits of artistic
labor outweighs the expressive interests of
the imitative artist.”11
The court observed that when “a work
contains significant transformative elements,
it is not only especially wor thy of First
Amendment protection, but it is also less likely
to interfere with the economic interests protected by the right of publicity.” The court
then acknowledged the fourth factor in the fair
use test—“the effect of the use upon the potential market for or value of the copyrighted
work”—and reasoned that the addition of sufficient creative elements to transform the
celebrity depiction enough to warrant First
Amendment protection makes unnecessary
any review of whether the new work cuts into
the market for the celebrity’s image.
In an effort to illustrate the concept of
transformation, the court discussed Cardtoons, L.C. v. Major League Baseball Players
Association12 and ETW Corporation v. Jireh
Publishing, Inc.,13 among other cases. The
Cardtoons court found First Amendment protection for a company that produced baseball cards containing caricatures that parodied
major league baseball players, calling the
cards “social commentary on public figures.”14
ETW Corporation was an Ohio case in which
an artist utilized a montage of likenesses of
plaintiff Tiger Woods in a painting that was
reproduced in 5,000 prints for sale. According
to Mosk, the ETW court held that the work
was “a work of art and therefore protected
under the First Amendment.” Mosk disagreed
with the holding if it meant that “any work of
art, however much it trespasses on the right
of publicity and however much it lacks additional creative elements, is categorically
shielded from liability by the First
Amendment.”15
The Comedy III court posited a simple
question to determine whether a work is
transformative: “[D]oes the marketability and
economic value of the challenged work derive
primarily from the fame of the celebrity
depicted?”16 The court noted, “When the value
of the work comes principally from some
source other than the fame of the celebrity—
from the creativity, skill, and reputation of
the artist—it may be presumed that sufficient transformative elements are present to
warrant First Amendment protection.”17
Applying this test, the court found that
Saderup’s “undeniable skill is manifestly subordinated to the overall goal of creating literal,
conventional depictions of the Three Stooges
so as to exploit their fame.”18 The court therefore concluded, “Were we to decide that
Saderup’s depictions were protected by the
First Amendment, we cannot perceive how
the right of publicity would remain a viable
right other than in cases of falsified celebrity
endorsements.”19
Unlike defendant Saderup in the Comedy
III case, the First Amendment favored the
defendant in the Hoffman case. “What do you
get when you cross a hopelessly straight,
starving actor with a dynamite red dress?
You get America’s hottest actress.” This caption appeared on a still photograph from the
film Tootsie showing the film’s star, Dustin
Hoffman, in front of an American flag in a redsequined evening dress and high heels. (In
the film, Hoffman’s character, an actor, wears
drag to disguise himself as an actress auditioning for and then playing a female role in
a television soap opera.) In its March 1997
Famous Hollywood issue, Los Angeles magazine had some artistic and editorial fun with
this photo in an ar ticle entitled “Grand
Illusions.” Using computer technology, a number of memorable movie stills were altered,
replacing the actors’ clothing with current
fashions. The doctored photos depicted
famous actors in well-known scenes from
North by Northwest, The Seven Year Itch, The
Creature from the Black Lagoon, and others.
In the spoof of the Alfred Hitchcock film,
Cary Grant was shown running away from the
low-flying plane in a new suit and tie. Marilyn
Monroe stands on the infamous sidewalk air
vent coyly attempting to maintain her dignity in a current designer dress. The Creature
raises a fright spor ting Nike shoes.
Hoffman’s outfit was also changed. The original caption was omitted, replaced by a new
one identifying the still from the film and
adding, “Dustin Hoffman isn’t a drag in a
butter-colored silk gown by Richard Tyler
and Ralph Lauren heels.”
Hoffman found the fashion spread to be a
drag and filed an action in federal district
court, claiming that the publication of the
photograph misappropriated his name and
likeness in violation of California’s right of
publicity law. Permission to use the photograph had not been sought from Hoffman or
the owner of the copyright, Columbia
Pictures. The magazine asser ted a First
Amendment defense but to no avail. After a
bench trial, Judge Dickran M. Tevrizian in
Hoffman v. Capital Cities/ABC, Inc.20 awarded
Hoffman $1,500,000 in compensatory damages, $1,500,000 in punitive damages, and
attorney’s fees of $269,528.50. Los Angeles
magazine appealed.
Actual Malice
In a July 2001 ruling based primarily on the
First Amendment, the Ninth Circuit reversed
the district court’s holding.21 “We evaluate
this defense,” Ninth Circuit Judge Robert
Boochever stated, “aware of ‘the careful balance that courts have gradually constructed
between the right of publicity and the First
Amendment and federal intellectual property
laws.’”22 The court continued, “Hoffman, a
public figure, must therefore show that [Los
Angeles magazine], a media defendant, acted
with ‘actual malice’ that is, with knowledge
that the photograph was false or with reckless
disregard for its falsity.”23
The court acknowledged a conundrum
for celebrity plaintiffs in right of publicity
cases: “Hoffman does not contest that he is a
public figure. In fact, Hoffman alleges that he
is a readily-identifiable individual whose persona has commercial value under his right of
publicity claim.”24 Pleading a right of publicity cause of action essentially amounts to an
admission or concession that the plaintiff is
a public figure. Such a concession virtually
guarantees application of the actual malice
rather than the negligence standard. The former is a much more difficult obstacle for a
plaintiff.
The district court had concluded that the
use of Hoffman’s likeness was commercial
speech to which the First Amendment does
not apply. It also found that Los Angeles magazine had acted with actual malice, reaffirming that the First Amendment does not protect knowingly false speech.
Actual malice does not enter into many
right of publicity cases because the use of
the celebrity likeness most often occurs in an
advertisement. Commercial speech as defined
in Bolger v. Young Drug Products Corporation25
is speech that “does no more than propose a
commercial transaction.” Commercial speech
does not receive the same level of protection as other types of expression.26 Actual
malice does not apply to speech categorized
as commercial.27
Hof fman had argued that the magazine’s use of his likeness was commercial.
He was identified as
wearing Ralph Lauren
shoes, there was a
Ralph Lauren advertisement elsewhere in
the magazine (the ad
did not feature shoes),
and the magazine included a Shopper’s
Guide that provided
stores and prices.
The Hoffman court
concluded, “These
facts are not enough to make the Tootsie photograph pure commercial speech. If the
altered photograph had appeared in a Ralph
Lauren advertisement, then we would be facing a case much like those cited above. But
[Los Angeles magazine] did not use Hoffman’s
image in a traditional advertisement printed
merely to sell a product.”28
Throughout the opinion, the court continued to describe the use of the photo as
noncommercial. No consideration was
received from the designers, the article did
not advance a commercial message, and the
article appeared on the cover and was listed
in the magazine’s table of contents to advance
the theme of the Hollywood special issue.
“Viewed in context, the article as a whole is
a combination of fashion photography, humor
and visual and verbal comments on classic
films and famous actors,” the court determined. “Any commercial aspects are ‘inextricably entwined’ with expressive elements,
and so they cannot be separated out ‘from the
fully protected whole.’”29
The district court had ruled that, because
the article was designed to “attract attention,”
it was not protected speech.30 The Ninth
Circuit deflected this argument by stating,
“A printed article meant to draw attention to
the for-profit magazine in which it appears,
however, does not fall outside of the protection of the First Amendment merely because
it may help to sell copies.”31
As for actual malice, the district court
found that the magazine published Hoffman’s
altered image knowing it was false: “[Los
Angeles magazine] admitted that it intended
to create the false impression in the minds of
the public ‘that they were seeing Mr.
Hoffman’s body.’”32 The Ninth Circuit similarly considered the issue of whether the
magazine acted with “reckless disregard for
the truth” or a “high degree of awareness of
the probable falsity”33 and held that “[t]he
evidence must clearly and convincingly
demonstrate that [Los Angeles magazine]
knew (or purposely avoided knowing) that the
photograph would mislead its readers into
thinking that the body in the altered photograph was Hoffman.”34
Nevertheless, the court listed numerous
statements throughout the magazine, and on
its cover, that described the article and disclosed the fact that the fashion photographs
were altered through digital techniques.
Accordingly, the court concluded that Los
Angeles magazine was entitled to full First
Amendment protection and that “Hoffman
did not show by clear and convincing evidence, which is ‘far in excess of the preponderance sufficient for most civil litigation’
that [Los Angeles magazine] acted with actual
malice in publishing the altered Tootsie photograph.”35 Without proving malice in a noncommercial presentation, the court held that
Hoffman had no case and his right of publicity was not violated.
The Importance of Context
Barely two months after the Hoffman opinion,
the Ninth Circuit rendered another right
of publicity decision that appears to be in
direct conflict with Hoffman. In Downing v.
Abercrombie & Fitch,36 the court reversed a
U.S. district court ruling on summary judgment that the First Amendment protected
Abercrombie’s use of a photograph of the
plaintiffs.
In the early 1900’s, Ezra Fitch was a successful lawyer who was bored with the law. He
partnered with David Abercrombie to build a
popular clothing retailer that today has more
than 200 stores nationwide. The company
also sells its merchandise though a subscription catalog called Abercrombie & Fitch
Quarterly. The catalog accounts for 80 percent
of Abercrombie’s total advertising budget.
Each issue is more than 250 pages long and
is designed around a theme. Approximately
25 percent of each issue is devoted to sto-
ries, news, and other editorial material.
The theme of Abercrombie’s 1999 Spring
Fever quarterly was surfing. It contained a
Surf Nekid section that included an article on
the history of surfing, another about the ecological group called the Surfrider Foundation,
a piece written by the editor of Sur fer
Magazine, and an interview with world champion surfer Nat Young.
The issue also contained an article entitled
“Your Beach Should Be This Cool” describing
the history of Old Man’s Beach at San Onofre,
California. The page after this article contained a photograph of George Downing and
the other plaintiffs. Surf photographer LeRoy
Grannis had taken the photograph at the 1965
Makahia International Surf Championship in
Hawaii. Grannis was paid $100 by
Abercrombie for use of the photograph. The
plaintif fs received no compensation.
Abercrombie decided to create T-shirts similar to those worn by the plaintiffs in the photograph. They were called Final Heat Tees
and appeared in the quarterly two pages after
the Grannis photograph.
The Ninth Circuit opinion discussed a
number of issues: preemption of state law
right of publicity claims by the federal
Copyright Act, proper choice of law between
California and Hawaii, Lanham Act claims,
and defamation. In its treatment of the elements of a right of publicity claim, the court
stated, “Plaintiff must allege a knowing use by
the defendant as well as a direct connection
between the alleged use and the commercial
purpose.”37 After a brief discussion of the
First Amendment defense, the court, relying
on and quoting Eastwood v. Superior Court,38
stated, “The defense is not absolute; we must
find ‘a proper accommodation between [the]
competing concerns’ of the freedom of speech
and the right of publicity.”
Abercrombie had argued that the photograph illustrates an article about surfing and
relied in part on Dora v. Frontline Video, Inc.39
In that case, Mickey
Dora, a surfing champion, sued the producer of a documentar y about sur fing,
asser ting a right of
publicity claim. The
trial cour t granted
summary judgment in
favor of the producer,
which was affirmed by
the California Court of
Appeal on the grounds
that the documentary
was about a matter of
public interest, surfing, and the producer
was protected by a
First Amendment defense.
The Downing court distinguished the Dora
case, holding, “Although the theme of
Abercrombie’s catalog was surfing and surf
culture, a matter of public interest, the use of
Appellants’ name and pictures is quite different from that involved in the Dora
case.…Dora was depicted in the documentary
because his identity directly contributed to the
story about surfing, which came within the
protected public interest.”40
The court discussed the tenuous relationship between the photograph in the
Abercrombie catalog and the theme presented. It declared that the photo was merely
“window dressing to advance the catalog’s
surf theme.” The catalog copy did not explain
that the appellants were surf legends and did
not connect them or the photo to any of the
articles. The caption incorrectly identified
where the photo was taken.
Riding an argumentative wave, the court
had to navigate its earlier decision in Hoffman
to avoid a logical wipeout. It distinguished
the cases in two ways. First, according to the
court, Abercrombie “used its catalog to promote its clothing while Los Angeles Magazine
was unconnected to and received no consideration from the designer for the gown
depicted in the ar ticle.” Second, while
Abercrombie placed the relevant photo on a
page immediately preceding the shirts for
sale, Los Angeles magazine “merely referenced a shopping guide buried in the back of
the magazine that provided stores and prices
for the gown.”41 Based upon these factors,
the court concluded that “Abercrombie’s use
was much more commercial in nature, and,
therefore, not entitled to the full First Amendment protection afforded to [Los Angeles]
Magazine’s use of Hoffman’s image.” The
court, at best, made precise, fact-based distinctions between the two cases.
Indeed, court decisions such as Comedy
III, Hoffman, and Downing are all fact specific,
and it is difficult to derive much practical
guidance from them. Attorneys who advise
media or celebrity clients need to reconcile
these rulings beyond knowing simply that
the use of an altered photo of Dustin Hoffman
in drag from Tootsie is acceptable but a photograph of George Downing with a surfboard
or a charcoal drawing of the Three Stooges is
not. Still, the decisions offer some interesting
and perhaps useful parallels.
A comparison of Hoffman and Downing
reveals that the context of the use makes a difference. While one may dispute the court’s
characterization of the context, it is clear that
when the use of a likeness falls within an editorial and informational context, a license is
unnecessary. However, if the use falls within
an advertising context, then permission is
warranted. An unauthorized use in a commercial context is a violation of the right of
publicity.
The difficulty in applying Downing is that
it appears to lie between pure editorial use (as
described in Dora or Guglielmi) and pure
commercial use. Had the court concluded
that the Abercrombie & Fitch Quarterly was as
much an informational publication as a catalog, the cour t presumably would have
reached an opposite result. The decision
appears to indicate that it did not merely turn
on the court’s assessment that the quarterly
was a catalog. What seemed to be determinative was the fact that the photograph was
not clearly integrated into and tied to the editorial matter and that it appeared too close in
proximity to the Final Heat Tees ad.
Hoffman may be helpful on the issue of a
use in a setting that contains editorial and
commercial elements. The Hoffman court
referred to the “indirect connection” between
the use of the photograph in the article and
the advertising elsewhere in the magazine.
Downing found a direct connection between
the use of the photograph and the commercial purpose of the catalog.
What is not clear is whether the Downing
photograph in the Abercrombie & Fitch
Quarterly could have been used in a manner
that was not offensive to the court and that
warranted First Amendment protection.
Would it have made a difference if the photo
had been properly identified or if it was placed
farther away from the ad for the Final Heat
Tees or if it was directly connected to the
editorial content? Is it possible that none of
these solutions would have helped because
the court deemed the quarterly a catalog
(and, therefore, a commercial work) so that
any use of the photograph in it would have
required a license from the plaintiffs? The
Hoffman case would have presented similar
problems had the Ninth Circuit not seen the
practical difficulty created by the district court
and resolved the confusion by determining
that the doctored photograph was ultimately
editorial in purpose.
While Comedy III may create a chilling
effect on artists who draw, paint, or otherwise recreate the likeness of celebrities, it
was perhaps the clearest of the three cases.
Literal depictions of a celebrity that are massproduced and sold are a violation of that
celebrity’s right of publicity, at least in
California. The Ohio cour t in ETW Corporation, however, was not concerned about
5,000 prints of an unauthorized work containing the likeness of a celebrity. Had Tiger
Woods been able to plead his case in
California, these two seemingly opposite decisions might have been reconciled.
Drawing the Line
Aside from the context of the use, the other
wild card that exists in these cases is whether
the work in dispute is transformative. The
Comedy III court stated that parody or caricature is acceptable but was not definitive
about what else is. The question that also
arises is what is necessary to transform a
work. The Hof fman court referenced the
Comedy III standard when it stated, “Los
Angeles Magazine’s publication of the Tootsie
photograph contained ‘significant transformative elements.’” 42 Judge Boochever
asserted that Hoffman’s body was substituted
for another and that Hoffman’s “entire case
rests on his allegation that the photograph
was not a ‘true’ or ‘literal’ depiction of him.”
The court concluded, “Regardless of the
scope of Comedy III, it is clear to us that it does
not strip Los Angeles Magazine of First
Amendment protection.”
In an interview with Reuters following the
U.S. Supreme Court’s decision not to review
the California case,43 defendant Saderup said,
“Who knows—if we tint our pictures like
Andy Warhol did, would they then be protected speech?” He continued, “I think the
whole thing is a strike against artistic freedom.…I studied ar t professionally and
worked at my craft for 40 years.…I’m actually
tr ying to do something uplifting with the
subject matter. It’s sad that they (the court)
didn’t see the creativity in that.”
Robert Benjamin, a stepson of Curly Joe
DeRita (one of the members of the Three
Stooges), was one of the attorneys repre-
senting the Stooges’ heirs in the Comedy III
case. Benjamin saw the issue differently.
“He [Saderup] takes a simple charcoal drawing and puts it on a T-shirt. Now he will have
to get permission from a celebrity, or if the
celebrity is deceased, from his heirs.”44
Where can an artist draw the line? Is only
a single, original work of art protected? What
elements are necessary to transform a work
to warrant protection? What would have
worked in the Three Stooges case? Justice
Mosk noted, “When the value of the work
comes principally from some source other
than the fame of the celebrity—from the creativity, skill, and reputation of the artist—it
may be presumed that sufficient transformative elements are present to warrant First
Amendment protection.”45
While these holdings finalized the disputes
between the parties, they are not the final
word for practitioners who represent celebrities or those who use likenesses. One might
think the easy solution is to make sure that a
likeness is always licensed. Such a practice,
however, would create a chilling effect on editorial comment because it is unlikely that
celebrities would allow the use of their images
in a negative context—even if the information that is being presented is accurate and
true. The First Amendment requires latitude
for information disseminated to the public.
It appears these three cases have been
helpful only in their clarification that a likeness is given First Amendment protection
when it is closely connected with legitimate
editorial content and/or it contains significant
transformative artistic elements. For other
uses of likenesses, artists, magazine and catalog publishers, and other creative entrepreneurs should be prepared for the legal
reality that, when they draw a line through
the right of publicity of a celebrity under the
jurisdiction of California, they might actually be crossing it.
■
1
Comedy III Prods., Inc. v. Gary Saderup, Inc., 25 Cal
4th 387 (2001). See Bela G. Lugosi & Caroline H.
Mankey, Life after Death, LOS ANGELES LAWYER, Apr.
1999, at 41.
2
During the time this suit was winding its way through
the appellate process, Civil Code Section 990 was
amended and renumbered as Civil Code Section 3344.1,
joining Civil Code Section 3344, the right of publicity
statute for living individuals. Changes were made to
Civil Code Section 990 but not to the basic language
cited by the court: “Any person who uses a deceased
personality’s name, voice, signature, photograph, or
likeness in any manner, on or in products, merchandise,
or goods, or for the purposes of advertising or selling,
or soliciting purchases of products, merchandise, goods
or services, without prior consent from the person or
persons specified in subdivision (c), shall be liable for
any damages sustained by the person or persons injured
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as a result thereof.” This opening language is virtually
identical to the opening language in Civil Code Section
3344.
3
Comedy III, 25 Cal 4th at 395.
4
Id.
5
Guglielmi v. Spelling-Goldberg Prods., 25 Cal. 3d 860,
160 Cal. Rptr. 352, 603 P. 2d 454 (1979).
6
7
Lugosi v. Universal Pictures, 25 Cal. 3d 813, 160 Cal.
Rptr. 323, 603 P. 2d 425 (1979).
8
9
Guglielmi, 25 Cal. 3d at 871.
10
Comedy III, 25 Cal. 3d at 404 (citing Campbell v. Acuff
Rose Music, Inc., 510 U.S. 569 (1994)).
11
Id. at 405 (citing Zacchini v. Scripps-Howard Broad.
Co., 433 U.S. 562 (1977)).
12
Cardtoons, L.C. v. Major League Baseball Players
Ass’n, 95 F. 3d 959 (10th Cir. 1996).
13
ETW Corp. v. Jireh Publ’g, Inc., 99 F. Supp. 2d 829
(N.D. Ohio 2000).
14
Cardtoons, 95 F. 3d at 969.
15
Comedy III, 25 Cal. 3d at 407 n.11
16
Id. at 407.
17
Id.
18
Id. at 409.
19
Id.
20
Hoffman v. Capital Cities/ABC, Inc., 33 F. Supp. 2d
867 (C.D. Cal. 1999).
21
Hoffman v. Capital Cities/ABC, Inc., 255 F. 3d 1180
(9th Cir. 2001).
22
Id. at 1183-84 (quoting Landham v. Lewis Galoob
Toys, Inc., 227 F. 3d 619, 626 (6th Cir. 2000)).
23
Id. at 1184 (citing New York Times Co. v. Sullivan, 376
U.S. 254, 279-80 (1964)).
24
Id. at n.1.
25
Bolger v. Young Drug Prods. Corp., 463 U.S. 60, 66
(1983).
26
Liquormart, Inc. v. Rhode Island, 517 U.S. 484, 498
(1996).
27
Procter & Gamble Co. v. Amway Corp. 242 F. 3d 539,
556 (5th Cir. 2001).
28
Hoffman, 255 F. 3d at 1185.
29
Id. (quoting Gaudiya Vaishnava Soc’y v. City & County
of San Francisco, 952 F. 2d 1059 (9th Cir. 1991) (as
amended)).
30
Hoffman v. Capital Cities/ABC, Inc, 33 F. Supp. 2d
867, 874 (C.D. Cal. 1999).
31
Hoffman, 255 F. 3d at 1186 (citing Dworkin v. Hustler
Magazine, Inc., 867 F. 2d 1188, 1198-98 (9th Cir. 1989)).
32
Hoffman, 33 F. Supp. 2d at 875.
33
Hoffman, 255 F. 3d at 1186 (citing Harte-Hanks
Communications, Inc. v. Connaughton, 491 U.S. 657,
667 (1989)).
34
Id. at 1187 (citing Eastwood v. National Enquirer, Inc.,
123 F. 2d 1249, 1256 (9th Cir. 1997)).
35
Id. at 1189.
36
Downing v. Abercrombie & Fitch, 265 F. 3d 994(9th
Cir. Sept. 13, 2001). The Ninth Circuit’s reversal of the
district court’s grant of summary judgment for the
defendant allowed the case to proceed. At press time,
a trial date was set for May 14, 2002.
37
Id. at 1001.
38
Eastwood v. Superior Court, 149 Cal. App. 3d 409, 422
(1983).
39
Dora v. Frontline Video, Inc., 15 Cal. App. 4th 536
(1993).
40
Downing, 265 F. 3d at 1002.
41
Id. at 1003 n.2.
42
Hoffman v. Capital Cities/ABC, Inc, 255 F. 3d 1180,
1184 n.2 (9th Cir. 2001) (quoting Comedy III Prods., Inc.
v. Gary Saderup, Inc., 25 Cal. 4th 387, 405 (2001)).
43
“Supreme Court Sides with Heirs of Three Stooges,”
Reuters, Jan. 8, 2002 (on file with author).
44
Id.
45
Comedy III, 25 Cal. 4th at 407.
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by
the
book
Reviewed by R. J. Comer
The Government vs. Erotica
Basic freedoms
company still distributes. They
could not convict him in his own
and fair play are
state of North Carolina, so they
indicted him in Utah. He counat stake when the
tered by suing the federal government on conspiracy charges.
DOJ pursues a
Although published before
September 11 and focused on
catalog company
prosecutions initiated by former
Attorney General Edwin Meese
and his immediate successor, the
The Government vs. Erotica: book is timely. At a time when
America has its most conservaThe Siege of Adam and Eve
By Philip D. Har vey, Nadine tive attor ney general since
Meese, and at a time when the
Strossen
DOJ must strike a balance
Prometheus Books, 2001
between preserving civil liber$24, 295 pages
ties while empowering law
riticizing federal govern- enforcement to combat elements
ment prosecutors—espe- that threaten America’s sacred
cially in the fervent patri- values, Har vey and Strossen
otic undertow following a wave remind us that the government is
of unprecedented ter rorist not always right and that its tacattacks—is not a popular activ- tics are not always noble.
The story begins on May 29,
ity. Defending pornography has
made people notorious but rarely 1986, with a surprise police raid
popular. This unforgiving indict- on Adam and Eve, Harvey’s adult
ment by Philip D. Harvey and product warehouse and mail
Nadine Strossen of the tactics of order company in Car rboro,
the U.S. Department of Justice North Carolina. Armed with a
against distributors of porno- warrant to search for and confiscate allegedly obgraphic material
R. J. Comer is an
scene material, feddoes both and does
attorney who
eral and state law
them well.
practices in Los
enforcement offiPart courtroom
Angeles and wrote
cials detained and
drama, part cable
the foreward to the
inter viewed emmovie melodrama,
national best seller
ployees and confispart incisive guerEtiquette for
cated a large porrilla documentary,
Outlaws.
tion of Har vey’s
The Government vs.
inventory. His surErotica: The Siege
prise and indignaof Adam and Eve is
the story of Harvey’s eight-year tion were exacerbated by the fact
battle against successive DOJ-ini- that he had recently conferred
tiated obscenity indictments with his local district attorney to
across various jurisdictions as ensure that none of his material
the DOJ shopped for a jury that was obscene according to the
would declare obscene the porno- recently revised North Carolina
graphic material that Harvey’s obscenity statute. At the district
C
attorney’s request, Harvey had
removed several questionable
items from the Adam and Eve
catalog. So why was his company
being raided?
The answer to this question
propels the legal battle fought for eight
years following the
raid. Through diligent and aggressive
legal representation
by the late Br uce
Ennis, to whom the
book is dedicated,
Harvey and his legal
team uncovered and
eventually ended a
government drive to
put distributors of
pornography out of business.
Ostensibly, the DOJ’s National
Obscenity Enforcement Unit (or
NOEU) was intended to eradicate obscenity, but its true purpose was the elimination of all
por nography—even por nographic material clearly protected
by the Constitution. Obscene
material is not protected, and
what is obscene is defined in
large part by local community
standards. In partnership with
local district attorneys, the DOJ
engaged in multijurisdictional
obscenity indictments, subjecting adult-oriented material to the
standards of the most conservative local communities. In most
cases, distributors of adult material lacked the wherewithal to
defend themselves on multiple
fronts and settled the indictments. In settlement, the DOJ
demanded that the distributors
cease distributing all adult-oriented material, not just obscene
material. By this strategy, the
DOJ put several companies out of
business without ever having to
try a case.
Unlike other distributors,
Harvey fought back. He emerged
victorious from his first obscenity
trial in Alamance County. The
book’s narration of
jur y selection and
trial tactics achieves
edge-of-the-seat suspense. To re-create
the tension in the
courtroom, Harvey
and Strossen intersperse the narrative
with excerpts from
his trial notes:
The excruciating importance of each
juror and of the nuances
expressed by each one is
of such clear importance
to our vindication that the
tension for me and for our
lawyers…is palpable. Juror
X, who strongly supported
people’s right to choose
whatever they will see in
their own homes, has
turned wimpy. He saw an
X-rated film at the Old
Circle-G theater a few
years ago but now protests
that [seeing the movie]
wasn’t his idea; it was a
double date (his blind!).
Trial attorneys will especially
enjoy the transcription of voir
dire, direct and cross-examination, and closing statements.
Having uncovered NOEU
memoranda and other evidence
that the NOEU was attempting
to curtail all pornographic material, Harvey and his legal team
struck back. They filed a complaint in the U.S. District Court in
Washington, D.C. alleging that
then-Attorney General Richard Thornburgh
and the DOJ were engaging in a conspiracy
with local prosecutors to coerce distributors
of protected adult-oriented material into selfcensorship by the threat of multijurisdictional
enforcement actions. Harvey won a preliminary injunction, forbidding the DOJ from initiating multijurisdictional prosecutions against
Harvey or anyone else.
While Harvey’s civil suit was pending, the
DOJ indicted Harvey in one of the most conservative communities in the country: Salt
Lake City, Utah. Because Harvey was indicted
in only one jurisdiction, and the prosecution
was not initiated by the DOJ defendants
named in Harvey’s civil suit, the Utah indictment was not barred by the injunction. Rather
than face a Salt Lake City jury, Harvey’s legal
team filed an interlocutory appeal claiming
that Adam and Eve was immune from prosecution because the very proceeding violated
the defendant’s rights.
The remaining legal battles and the ultimate outcome are better read than reported.
Suffice it to say that Harvey does not emerge
unscathed but fares far better than the DOJ
and its dubious NOEU. Adam and Eve is still
in business. Ironically, Adam and Eve gained
market share because the NOEU put so many
of its competitors out of business.
The authors unfortunately interrupt the
story with intermittent chapters addressing
tired societal debates regarding pornography. Their errant ruminations on the harmlessness of pornography, pornography and
class, and the clichéd question, “What are
we afraid of?” all cover the issue respectably
but add nothing new. While admirably
attempting to bridge the gap between the
abstractions of obscenity law and its societal
antecedents, Harvey and Strossen merely
reconstruct connections already drawn and
discussed by others. Some readers who have
never contemplated the relationship between
sexual norms and pornography may find
these chapters instructive, however. Others
may skip them.
Readers are likely to greatly appreciate
the book’s restraint. Harvey is no Larry Flynt
or Bob Guccione crudely ranting against government hypocrisy and professing that
pornography is just good fun. The Government
vs. Erotica is a thoughtful and self-aware narrative describing the dubious battle between
American conservatism bolstered by political
power and classic American individualism
standing firm on the unpopular fringe of civil
liberties. It is a must-read for any attorney
who understands that courtrooms are sometimes political battlefields where the success
or failure of our esoteric legal strategies can
set the national boundaries of permitted
human expression.
■
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computer
counselor
By Benjamin Sotelo and James A. Flanagan
The Emergence of PDFs as the New
Standard for E-documents
As the practice
sion. Computers that are running
Windows operating systems use
of law moves
these extensions, which appear at
the end of the document’s name.
online, the PDF
Some examples include the .doc
extension for Microsoft Word
is becoming
documents and the .exe extension for applications. The .pdf
indispensable
extension stands for “portable
document format.” PDFs are
por table because they can be
ecause of broadband com- copied and moved from one communication and a whirl- puter to another without addiwind of law office tech- tional files such as fonts or
nology advances, the practice of images. Fonts and images are
law and the management of the embedded in PDFs.
Developed by Adobe Corporalaw office are becoming more
automated and more tied to the tion, PDF files provide for the disInternet. One problem with these tribution of formatted docdevelopments is the lack of stan- uments—and that includes legal
dardization. For example, if one documents—over the Internet.
attorney has a document with PDFs are becoming the standard
heavy formatting in Microsoft for practitioners sending docuWord, it can be quite difficult for ments as e-mail attachments and
the attorney to share that docu- for electronic filings with courts.
ment with a cocounsel who uses Lawyers who are with a firm that
WordPerfect. When members of will be filing with any of the fedthe legal community need to col- eral courts should consider furlaborate over the Internet, obsta- ther research about the PDF standard by examining
cles such as these
Benjamin Sotelo is
the new Case Mancreate significant
president of Legal
agement/Electronlogistical hurdles.
Friendly Technoic Case Files sysNo less an aulogies. He can be
tem, which is now
thority than the
reached at Benjamin
the standard for
federal judiciar y
@LegalFriendly.com.
the federal courts.
has recognized the
James A. Flanagan is
Users may find
need for a standard
a civil litigator with
more information
for electronic doc20 years of
about the CM/
uments, and, as a
experience.
ECF standard by
result, in bankvisiting the inforruptcy, district, and
mational page at
appellate cour ts,
PDF has become the chosen www.uscourts.gov/cmecf/cmecf
standard. Practitioners may rec- .html. (Click on User Information
ognize PDFs as the documents to see how often PDF documents
that require the Adobe Acrobat are mentioned as the standard!)
reader to be opened and read. The PDF standard offers several
PDF documents get their name advantages for members of the
from what is called their exten- legal community.
B
The foremost advantage is
that there is a standard at all.
Users no longer have to waste
time and resources figuring out
ways to convert documents from
WordPerfect to Microsoft Word
or from Apple to PC versions of
these programs. Now, when a
document is completed, it needs
to be converted only once—to a
PDF. The second advantage is
that this is not difficult. Any document created with any word
processing program on any type
of hardware can be converted to
a PDF with the Adobe Acrobat
program. Third, Adobe Acrobat is
simply a good program. It can
handle text, images, optical character recognition (OCR), HTML,
and more with aplomb.
Another advantage is that the
PDF copy of any document has
some advanced features associated with it that may be of considerable use in, for example,
multiparty litigation. A PDF is an
exact copy of the original, preserving all formats, hyperlinks,
and other information, and it
offers password security, interactive forms, digital signatures,
electronic markups, and searchability. Attorneys who want to
secure an e-mail communication
with a client, for example, can
use the digital signature feature.
(Attorneys should be aware, however, of possible security problems—visit, for example, http:/
/www.planetpdf.com/mainpage
.asp?webpageid=1976 for more
information.)
of fers the program that reads
PDFs for free but stays in business by charging for the program
that creates PDFs. In this way,
casual users are allowed the
advantage of not having to pay
to read, for example, various documents on a government Web
site. This convenience, in turn,
helps raise demand for the PDF
creation program among computer users who publish PDFs.
Many new widgets do not
prove to be absolutely necessary
in the daily practice of law, but
PDFs already have proven their
usefulness. Attorneys who are
able to resist participating in the
federal judiciary’s use of PDFs,
for example, may nevertheless
have to deal with the Los Angeles
Superior Cour t’s Web pages,
which make heavy use of PDFs
(visit http://www.lasuperiorcourt
.org/dietdrug/casemgmtorder
.htm for an example), or, finally,
be obliged to comply with law
firm ethics committees that
require the use of PDFs on the
firm’s Web pages.
A Web site is considered
“communication and advertisement” by the Committee on Professional Responsibility and
Conduct (COPRAC). Law firms
must retain a copy of every electronic communication with their
Web site and have a copy available to the State Bar if requested.
The best practical way to comply
with this requirement is to preserve the copies as PDFs and to
burn those PDFs onto CDs.
The Price of PDFs
Learning to Use PDFs
The Adobe Acrobat reader is
free, and users who do not
already have it can download it
from Adobe’s Web site. Adobe
Many Web sites that use
PDFs (including www.lacba.org)
feature clearly marked links to
the Adobe Web site, where the
reader program can be downloaded for free.
Once the program that is appropriate for your
computer is selected, follow the installation
wizard until the program is installed. Then
you can delete the installation program from
your desktop without causing any harm to the
reader. Once you have downloaded and
installed the reader, it will automatically boot
and allow you to read PDF documents,
whether they are on your computer or online.
You do not have to do anything to make the
reader work.
The reader is free to download and use,
but it does not allow users the ability to turn
a document into a PDF. Document conversion
requires Adobe Acrobat (or Adobe Distiller,
which is now included in the current edition
of Acrobat). Acrobat version 5.0 for Windows
has a retail price of about $250. An update, version 5.0.5, may be downloaded from the
Adobe site (at www.adobe.com/products
/acrobat/main.html).
Once Acrobat is installed, users have two
ways to create a PDF. The program can be set
to place a quick-launch button at the top of
other programs, for example Microsoft Word.
The installation wizard will ask if you would
like to use this setting. A firm’s technical support personnel may help with this step. When
this feature is activated, users will also need
to set their commonly used programs to display the new PDF buttons. For example, while
in Word (or whatever program you want to
use to create PDFs), right-click on an open
gray space at the top of the document window,
where the shortcut buttons are. A menu
should appear that of fers the option
PDFMaker 5.0. Selecting this option places
two red Adobe buttons among the others
already there. One button converts the document to a PDF.
When this button (the one on the left) is
installed and enabled, any document you have
open is one click away from being converted
to a PDF. By clicking on this button and using
the conventional Save dialog box, you can
convert the document to a PDF and save it as
such. This does not affect your ability to continue to alter and save the document in its
original word processing program, although
of course any changes made in the word processing program after the PDF is created and
saved will not appear in the PDF. The other
button converts the document and sends it via
e-mail. Users may also send PDFs via e-mail
in the conventional way—by saving them to
a local disk and then attaching them to an email message.
The second way to create PDFs is by
using the Print command. Choose File, Print
at the top left of the window. A Print dialog box
will appear. Click on the Printer Name menu
list at the top of the dialog box and choose
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Acrobat Distiller. Then click OK, and the program will convert the document to a PDF
version and print it, offering you the chance
to save the PDF along the way. Whether using
the red button or the Print dialog box option,
the process is simple and intuitive.
It is easy to read and create PDFs, but
what about receiving and altering a PDF? A
PDF that is open in Acrobat looks more like
an image than a word processing document,
and users who have recently acquired the
program may think that they will need to
convert the PDF back to a word processing
document before they can modify it. This is
not the case. To modify any PDF document,
click the big “T” button at the top of the Acrobat program. The text will open for editing. Of
course, this text-editing feature does not
appear on documents that are merely being
read, for example on an Internet site. But
users who have Acrobat installed can rightclick and use the Save As or Save Target As
command to download files, and then open
the downloaded files in Acrobat in order to
alter them. The modified document may be
saved in the conventional way.
Advanced Functions
Adobe Acrobat has two powerful document management features. First, the program will convert text documents into optical
characters to allow for full-text searchability.
Second, the program will capture graphics
and save them as .tif documents. Adobe
Distiller allows users to merge these two formats in a searchable document depository. In
the never-ending quest to reduce paper clutter and avoid reinvention of the wheel, it also
helps to have a copier that can scan a document and save it as a PDF. Look for the Scan
to .pdf File option on your copier if you are not
sure if it has this feature. Alternately, a scanner with Adobe Paper Capture software can
apply this technology, allowing users to create searchable PDFs from paper copies of
documents. Adobe Paper Capture has a retail
price of about $700 for the personal edition.
Finally, if court adoption, ethics committees, and the Internet do not offer enough reasons to use Adobe PDF software, one more
reason is the arms race. According to the
American Bar Association, since 1995, litigation has increased more than twice as fast as
the population. Most law firms still use the
same document storage and retrieval system
that they used in 1995. That may only seem
a moment ago, but since then content management has improved dramatically, helping
some firms adapt to increasing caseloads.
Can your firm afford not to keep pace? A case
can turn upon one document, but only if that
document is found, and computers are better
than humans at finding it.
■
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Larsen AVR Group, Inc., p. 55
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AT&T Wireless, p. 11
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Ballenger, Strike and Associates LLC, p. 6
Lawyers’ Mutual Insurance Co, p. 13
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Law Offices of Myles L. Berman, p. 51
Lexis Publishing, Inside Front Cvr, p. 7
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Law Office of Donald P. Brigham, p. 18
Lone Mountain Ranch, p. 8
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The Chugh Firm, p. 55
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Tel. 562-229-1220 www.chugh.com
Tel. 925-625-4994 or 800-337-4994 e-mail: [email protected]
CNA/Mitchell & Mitchell Insurance Agency, Inside Back Cvr
Noriega Chiropractic Clinics, p. 57
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Cohen Miskei & Mowrey, p. 56
Ostrove, Krantz & Ostrove, p. 27
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Coldwell Banker, p. 25
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Southern California Document Services, Inc., p. 6
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Steven L. Gleitman, Esq., p. 25
Southland Credit Union, p. 4
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Southwestern University School of Law, p. 9
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Stephen Sears, CPA-Attorney at Law, p. 53
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Jack Trimarco & Associates Polygraph, Inc., p. 33
UBS PaineWebber, p. 18
Tel. 562-495-5506
K & S Diversified Investments, Inc., p. 6
Law Office of Douglas S. Unger, p. 53
Law Offices of Morton A. Kamzan, p. 26
UPS, p. 2
Tel. 818-706-7736
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Kaplan, Sherman Law Offices, p. 27
Vision Sciences Research Corporation, p. 56
Tel. 310-278-2510 www.skaplan.com
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West Group, p. 33, 37, Back Cover
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Marvin S. Katz, p. 33
Wilmington Trust, p. 21
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Jeffrey Kichaven, p. 12
Witkin & Eisinger, LLC, p. 56
Tel. 310-556-1444 www.jeffkichaven.com
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Jessica Langer Videography, p. 51
CLE Preview
31st Annual Benjamin S. Crocker Symposium
ON FRIDAY, MAY 10, the Real Property Section will present the 31st Annual Benjamin S.
Crocker Symposium. Real estate attorneys and executives will provide invaluable guidance on
security, insurance, and technological advances affecting real estate projects. Andrew J. Sobel
will present the keynote address. Panelists Jordan Fishman, Amy R. Forbes, and M. Guy
Maisnik will provide advice for counseling clients in real estate projects involving energy and
utilities, land use, lender concerns, and leasing. In addition, Rae Archibald, Alexandra S.
Glickman, and Kirk Pasich will present the results of a recent security study. In another
presentation, real estate attorneys Michael S. Klein and Ira J. Waldman will provide
information on how to use the Internet. Finally, a seminar on new ethical dilemmas will be led
by John H. Jessen, Joseph T. Lynyak III, and Eric E. Younger. The program will take place at the
Millennium Biltmore Hotel, 506 South Grand Avenue, Downtown. On-site registration will be
available at noon, which is also the time the program begins. Registration code number:
8032E10. A buffet lunch, $25, is not included in the prices below.
$70—CLE+PLUS members
$110—Section members
$135—LACBA members
$160—at-the-door payment and all others
$675—pay for five tickets and get the sixth ticket free
3.75 CLE hours
34th Annual Family Law Symposium
ON SATURDAY, MAY 11, the Family Law Section will present its 34th Annual Family Law
Symposium. Two mock trials will be presented by highly regarded jurists and family law specialists.
In addition, there will be a panel presented by branch court judicial officers and a panel dealing
with forensic accounting issues. From 8:45 to 10:45 A.M. there will be a mock trial about setting
aside prenuptial agreements. The participants in the mock trial will be Daniel J. Jaffe, Judge Lee S.
Edmon, Judith R. Forman, Rolf M. Treu, and Judge Roy L. Paul (who will serve as the judge).
Witnesses will be Commissioner Reva Goetz and Judge Marjorie Steinberg. The next session will
cover tax returns. Presenters will be Lawrence E. Leone, moderator Richard E. Denner, Leonard J.
Meyberg Jr., Garrett C. Dailey, and Noel Applebaum. After lunch, Judges Michael Mink, Ann I.
Jones, Susan Speer, and Gerald Rosenberg, along with Commissioners Louise Halevy, Glenda
Veasey, and moderator John Chemeleski, are slated to inform participants about happenings
outside the Central District. Then, from 2:30 until 4:30 P.M., a mock move-away trial will be held.
The participants will include Ron Anteau, Commissioner Ann Dobbs, Manley Freid, Commissioner
Robert Schnider, and John H. Sandoz. This program will be held at the Westin Bonaventure Hotel,
404 South Figueroa Street, Downtown. On-site registration and a continental breakfast will be
available beginning at 8:00 A.M., with the program continuing from 8:30 A.M. to 4:15 P.M.
Registration code number: 8096E11.
$125—CLE+Plus members
$225—Section members and Barristers
$245—other LACBA members
$250—members of affiliated California bars
$275—all others
$295—at the door
6 CLE hours
Attorney Risk
Management
Techniques
ON WEDNESDAY, MAY 15,
the Attorney Errors and
Omissions Prevention
Committee of the Los
Angeles County Bar
Association and the
Attorneys’ Advantage
Program will present
“Navigating the Legal
Malpractice Minefield—
Attorney Risk Management
Techniques for 2002.” Those
in attendance can receive a
premium credit of up to 7.5
percent off their firm’s
malpractice premium under
the LACBA-sponsored
Attorneys’ Advantage
Program for three
consecutive years following
seminar attendance. At
least 50 percent of the
firm’s attorneys must
attend to receive the full
7.5 percent credit. Credit
must be applied within one
year of the seminar
attendance date. The
program will take place at
the Hilton Universal City,
555 Universal Terrace
Parkway. On-site
registration and a
continental breakfast will
begin at 8:30 A.M., with the
program continuing from 9
A.M. to 12:30 P.M.
Registration code number:
7093E15.
$50—CLE+PLUS members
$100—LACBA members
$125—all others
3.25 CLE hours, including 2
ethics hours
The Los Angeles County Bar Association is a State Bar of California MCLE approved provider. To register for the programs listed
on this page, please call the Member Service Department at (213) 896-6560 or visit the Association Web site at
http://forums.lacba.org/calendar.cfm. For a full listing of this month’s Association programs, please consult the May County Bar Update.
closing
argument
By Arnold P. Peter
Is the Law Irrelevant in the Convergence Era?
Old labor formulas need to be revised to
recognize the realities of new business models
T
he last decade has brought tremendous change to the entertainment industry. While the traditional media of filmed entertainment and recorded music remain dominant forces, new
methods for distributing content and connecting with the consumer
have created dynamic economic opportunities. Today, entertainment
covers a broad spectrum of media that include film, broadcast and
cable, recorded music, publishing, radio, theme parks and locationbased entertainment, hospitality, sports, and Internet/new media.
In this new economy, it is not uncommon for several forms of media
to come together at a single distribution point. This is known as convergence. Already the entertainment industry has developed many
new varieties of convergence:
• The merging of technologies such as television and the Internet
to create a single distribution channel.
• The vertical integration of content creators and content distributors, for example, when a company produces a television program for
its own network.
• The “repurposing” of intellectual property, such as basing a theme
park attraction on a popular motion picture.
Traditional business models and legal arrangements have little
application to this new economy. Unfortunately, entertainment companies and artists continue to look to the courts and Congress—the
very institutions least equipped to address the complex business
relationships engendered by the convergence economy—for guidance.
Take the Napster case: True, the industry was successful in shutting
it down, but not its “evil quints”: Morpheus, Kazaa, audio-galaxy,
Winmx, and MusicCity.
The problem is that artists and distributors continue to base their
actions on traditional business models and formulas. Producers insist
that they retain the right to use and reuse content in any permutation
once they have paid for its creation. Entertainment conglomerates
believe that every consumer transaction must somehow be monetized.
Artists still rely on now-disproved residual formulas for all negotiations. Examples illustrating how traditional business models and
negotiation strategies have little application to the convergence economy are legion. Consider the following:
User manipulation of copyrighted works. If an actor appears
as Britney Spears’s boyfriend in a music video, he receives his payment up front and is not entitled to residuals. Enter www.getmusic
.com, which allows users to mix and match visual elements from
any video available on the site, as well as to add graphics from the
user’s own collection. Now suppose footage of that same actor is cut
and pasted into another artist’s clip and the doctored video goes on
to receive national exposure with an economic impact. What are the
actor’s rights? The Screen Actors Guild prohibits the reuse of an
actor’s image if it substitutes for the hiring of the actor, but it is an open
question whether this would qualify as a substitute for hiring.
Movie-based theme park attractions. The Writers Guild of
America and Universal Studios have been fighting about feature films
that become the basis of park attractions. The guild claims these attractions constitute exploitations of dramatic rights guaranteed to the
writer under the WGA Agreement. An arbitrator held that the Waterworld Live Action Stunt Show was an exploitation of dramatic rights
under the agreement’s separation of rights provisions. This triggered
guaranteed minimum payments to the writer. But that hardly settled
the matter because visitors do not visit a theme park for just one attraction. Should compensation be based on a one-time fee or a percentage of the gate based on some allocation to a particular attraction?
Creative rights for computer generated images. If a virtual Tom
Cruise told you, “Show me the money!” would you write the check
to the superstar or to the special effects wizard who developed the computer-generated image? The answer might be both.
The difference between placing a digitally created dinosaur on a
fictitious island and using a digitally manipulated John Wayne in City
Slickers II is that the brontosaurus will not sue but the Duke’s estate
will. Whether either is entitled to compensation or credit is unclear.
In a 1997 ruling, Astaire v. Best Film and Video Corp.,1 the Ninth
Circuit permitted the inclusion of film clips of Fred Astaire dancing
in an instructional videotape produced
without the permission of Astaire’s
widow. The billion dollar question is:
“How will this all be valued?”
What these examples indicate is that
those representing artists and entertainment companies must abandon obsolete formulas. Entertainment companies
must respect and compensate artists for
their creative efforts, and artists must
recognize that a fledging Internet startup is not like a well-financed, fully inteArnold P. Peter is
grated entertainment company. So long
senior counsel in the
as industry lawyers and executives conCentury City office of
tinue to apply old models to these current
Littler Mendelson. He
issues, the fruits of their effort may well
counsels clients in
be irrelevant. As the Napster case shows,
the entertainment,
the biggest legal victories will simply be
Internet, new media,
ignored by the marketplace.
■
1
Astaire v. Best Film and Video Corp., 116 F.
1297 (9th Cir. 1997).
and hospitality
industries.

May 2002 - Los Angeles County Bar Association

Transcription

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