Law concept: circuit board with copyright icon, 3d renderIn November of last year, a division of Walt Disney Company brought a lawsuit against Redbox. The Mouse now has kicked it up a notch by moving for a preliminary injunction.

One of the ways in which Disney markets its movies is in Combo Packs. These are bundles that include DVD and Blu-ray discs as well as digital download codes. The Combo Packs are packaged and priced to be sold as a unit. The outside packaging of the Combo Packs states that “codes are not for sale or transfer”; similar language appears on the package insert containing the code. A consumer redeeming the codes on the Disney portal is likewise required to represent that he or she is “the owner of the physical product that accompanied the digital code at the time of purchase.”

Redbox is best known for its automated cut-rate video rental kiosks outside drugstores and supermarkets. The lawsuit alleges that Redbox has purchased Disney Combo Packs, disassembled them and sold the digital download codes through its kiosks and directly on its website. The business issue this raises for Disney is that because Disney discounts the price of the code when sold in a Combo Pack, Redbox can resell the codes for less than the price of a digital download on iTunes or a similar site. In an effort to shut down Redbox’s practice, Disney has asserted claims for breach of contract and copyright infringement.

The breach of contract claim is predicated on the contention that Redbox accepted the prohibition on sale or transfer of the codes when it purchased and opened the Combo Packs. To this end, Disney cites numerous cases upholding the validity of “shrink-wrap licenses.”

The sale of the codes does not in itself infringe on the rights protected under copyright law; the actual infringement alleged by Disney occurs when the Redbox customer downloads and views the movie. But under the doctrine of contributory infringement, Redbox could be held liable if it knowingly induced or materially contributed to its customer’s infringing activities. To establish this point, Disney cites not only the sales themselves, but that they were promoted heavily by Redbox as “cheap” and a “smart buy.”

Interestingly, Disney’s preliminary injunction motion attempts to answer what it anticipates will be Redbox’s principal defense. Redbox carries on its main disc rental business under the “first sale” provisions of copyright law. The first sale defense provides that the lawful owner of a copy of a work may sell or otherwise dispose of its possession. This is why you can sell your secondhand books, CDs and DVDs without fear of liability, and why Redbox contends that it has unlimited rights to rent DVDs lawfully purchased from their copyright owners.

Disney argues that the first sale defense is inapplicable to resale of the download codes. That defense, it contends, applies only to the distribution of lawfully obtained copies of copyrighted works, whereas a digital download constitutes a reproduction of the work. Likewise, a download code is not a copy at all, merely a code permitting a user to download a copy subject to the posted terms of use.

Disney’s motion will prevail if the judge agrees that sales of the codes are causing it irreparable harm, and that it is likely to succeed on the merits. If the preliminary injunction is granted, it will bring an immediate halt to Redbox’s sales of the unbundled codes and likely lead to a quick resolution to the lawsuit as a whole.

You can read Disney’s full motion here.

The jury has spoken. After a saga worth of Homer, Comic-Con is a valid trademark.

The battle began when, the organizers of San Diego Comic-Con (SDCC), the 50-year old grandaddy of fan conventions, sued the producers of Salt Lake Comic Con for infringement. As we previously reported, the defendants struck back by asserting that comic con (no hyphen) had become a generic descriptor for comic book conventions, citing the scores of events around the country that describe themselves the same way.

The case took a curious turn when the trial judge issued a gag order against the defendants prohibiting them from taking their case to social media, bringing First Amendment issues into what was otherwise a straightforward trademark case. The Salt Lake crew challenged this order by seeking a writ of mandamus from the Circuit Court, which agreed with them and vacated the order.

The case went to trial in early December, with a verdict in favor of the San Diego Comic-Con. The jury found both that the plaintiff’s mark is valid and also that it was infringed. It determined, however, that the infringement was not willful, and awarded only $20,000 in damages rather than the $12 million demanded by the plaintiffs. Nevertheless, armed with a finding of validity, SDCC could be emboldened to take action against other comic book conventions.

The defendants, meanwhile, have not laid down their weapons. They’ve announced an intention to appeal the verdict and are also pursuing an petition before the US Patent and Trademark Office to cancel the rival mark.

 

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It is not often that a court of law can issue a landmark opinion laden with profanity and sexual innuendos.  But last Friday, the United States Court of Appeals for the Federal Circuit seized the opportunity in a colorful decision holding the refusal of the United States Patent and Trademark Office (USPTO) to register street artist Erik Brunetti’s mark “FUCT” is an unconstitutional restriction of Brunetti’s right to free speech.

Brunetti and professional skateboarder Natas Kaupas created the “Fuct” clothing brand in 1990 and sought to register “FUCT” as a federal trademark in 2011.  In its refusal, the USPTO cited Section 2(a) of the Lanham Act which case law has interpreted to bar registration of a mark if a “substantial composite of the general public” would find it “immoral” or “scandalous.”  Brunetti then turned to the Trademark Trial and Appeal Board (TTAB) to no avail.

Since the enactment of the 1905 Trademark Act, the USPTO has had the power to refuse registration to marks deemed immoral, scandalous, deceptive, or disparaging.  This restriction was imported into the Lanham Act in 1946 and withstood a constitutional challenge in the 1981 case In re McGinley where the government successfully argued a refusal to register a mark does not implicate an applicant’s First Amendment rights because the applicant can still use the mark as he or she pleases, just without federal trademark protection.

Then came a game-changer when the U.S. Supreme Court decided the pivotal case In re Tam this June involving an Asian rock group who sought trademark registration of the racial slur “THE SLANTS” but was denied under the disparagement provision of Section 2(a).  In Tam, the Court found refusing to register “THE SLANTS” constituted an impermissible viewpoint-based restriction on speech and struck down the disparagement element of 2(a) as unconstitutional.

Judge Kimberly A. Moore of the Federal Circuit wasted little time affirming the TTAB’s finding that “FUCT” was an immoral and scandalous mark rooted in an “unmistakable aura of negative sexual connotations.”  However, Moore acknowledged that, although offensive and uncouth, an immoral and scandalous mark still conveys expression protected by the First Amendment and restricting registration on these grounds constitutes content-based discrimination.

The government conceded this but argued a form of intermediate scrutiny as set forth in the seminal Supreme Court case Central Hudson should apply because trademarks derive from a federal subsidy, involve a limited forum, and constitute commercial speech – arguments largely rejected in Tam.

Judge Moore was not persuaded and found the restriction fails even under intermediate scrutiny.  “In this electronic/Internet age, to the extent that the government seeks to protect the general population from scandalous materials, with all due respect, it has completely failed,” wrote Moore.  The Federal Circuit also found Section 2(a) was not sufficiently tailored enough to exclude, for example, only sexually explicit or obscene material, since “immoral” and “scandalous” are fatally ambiguous.  Moore noted how the subjective nature of Section 2(a) has caused a myriad of inconsistent registrations such as “BACKROOM MILF,” “MUTHA EFFIN BINGO”, and “FCUK” vs. the rejected marks “GOT MILF”, “F**K PROJECT” and Brunetti’s “FUCT.”

In the wake of Tam and Brunetti, critics are concerned that stripping the government’s ability to refuse registration to immoral and scandalous marks will poison the marketplace.  But Lincoln D. Bandlow, a partner in the Fox Rothschild LLP Los Angeles office who specializes in First Amendment and intellectual property matters, told the Los Angeles Daily Journal the market will keep scandalous marks in check.  “Market forces will tamp it down,” he said.  “There’s a lot of things people don’t say on television – not because people don’t want to hear it, but because sponsors don’t want to hear it.”  As for a truly obscene mark depicting sexual conduct, Bandlow added “then you’d have a scenario where you’d have material that’s not protected under the Miller test.”  Miller was the seminal 1973 case in which the Supreme Court held obscene materials do not enjoy First Amendment protection.

The government has ninety days from the entry of judgment to ask the Supreme Court for a writ of certiorari.  As of now, it appears the opinion is here to stay.

Bryan Golerkansky and Ryan Dunner, supervising senior associates at Green Hasson Janks, write:

With the new age of digital streaming and an abundant amount of on-demand content available for  24/7 consumption, many consumers have opted to stay at home on a Friday night binging on television series and movies as opposed to the traditional theater viewing experience.  One attempt to draw moviegoers back into theater seats is the creation of MoviePass, a low-fee subscription-based movie service which allows subscribers to use a mobile application and prepaid card to view one movie per day at participating locations.

Movie theater
Copyright: fergregory / 123RF Stock Photo

MoviePass, founded in 2011, was originally backed by investors such as True Ventures, AOL Ventures and Chris Kelly (former Chief Privacy Officer of Facebook). With an original price hovering around $50 per month, MoviePass initially had difficulties growing their subscriber base. In 2016, MoviePass hired Mitch Lowe as CEO, a previous executive at both Netflix and Redbox. Lowe identified the significant issues and began focusing on the pricing structure of the service. In July of 2016, MoviePass announced alternative subscription plans allowing subscribers to view two, three or unlimited movies per month with the lowest tier starting at $15 per month. Even with the new pricing model, the subscriber base had only reached 20,000 and MoviePass was still searching for a way to appeal to the masses.

In August 2017, analytics firm Helios and Matheson obtained a majority stake in MoviePass and brought a fresh business model to the company. Through their analytics background, they saw the true potential of using MoviePass to follow a platform, similar to Facebook, where the emphasis was on data collection and targeted advertising as opposed to high subscription fees. In the same year, monthly subscription fees for unlimited films were dropped to $9.95 as their priority was to increase the subscriber base. While this new price point has created a surge in new subscribers, it may also cause MoviePass to operate at a loss due to the fact that MoviePass must subsidize the difference between the full ticket price and the amount collected in monthly subscription fees. MoviePass has already anticipated such losses and is focusing on selling its users’ data to create additional revenue streams to offset potential losses. By accessing its users’ mobile files, pictures and offering users the ability to sync with their Facebook profiles, MoviePass will be able to offer major film studios the opportunity to measure the effectiveness of their movie marketing campaigns. To date, movie studios have the ability to promote their films through social media platforms, strategically targeting specific demographics, but do not have the ability to track who, within the targeted demographic, actually viewed the film. Another alternative plan to boost revenue is a potential launch of an online streaming service which was suggested by Lowe in a recent interview with CNBC. Currently the subscriber base is up to 600,000 and growing.

While the amount of subscribers has exponentially grown in 2017, MoviePass still has to overcome multiple challenges to ensure its success for the future. With approximately 90% of U.S. theaters participating in the subscription program, MoviePass is pressured to continue this rapid growth in order to keep exhibitors enticed and increase the overall sales of concessions, the main source of profit for exhibitors. Another reason MoviePass must increase its subscriber base is to obtain valuable user data that can be sold to movie studios in an effort to provide them with the tools to create more effective marketing campaigns at lower costs.

Assuming MoviePass changes the theater-going experience like Netflix transformed the way we consume content, the end result could be a real game changer. The exhibitors would see a spike in both ticket and concession sales, movie studios will receive additional theatrical revenue and actionable data to lower their marketing campaign costs, and ultimately profit participants should expect to share in higher theatrical revenue and lower overall marketing costs.

Will MoviePass be successful in revitalizing the traditional theater viewing experience or will the current shift to anywhere, anytime viewing continue? Only time will tell.


This post was originally published on the Green Hasson Janks Media Clips blog.

In another controversial move, the FCC has approved by a 3-2 vote the adoption of the ATSC 3.0 standard for broadcast TV, known as Next Gen TV. This IP-based standard will permit over-the-air broadcasters to offer Ultra High Definition signals and improve mobile transmission. Sounds good, right? Opponents cite two concerns.

Copyright: scanrail / 123RF Stock Photo

Using Next Gen TV, broadcasters will be able to track individualized viewing data to deliver targeted ads. This is a red flag for consumer and privacy advocates. Using language that sounds more sinister than was likely intended, one executive for Sinclair Broadcast Group praised the new standard’s ability to gather“perfect data” about consumers. “We’ll know where you are, who you are, and what you’re doing—just like you do now, just like everybody does now, the Internet does….”

The second big objection is that the change will impose unnecessary costs on consumers. Current televisions cannot receive Next Gen signals. The FCC imposed a five-year transition period during which broadcasters must simulcast using both the current and new standards. If they abandon the current standard after that period, broadcast consumers will be forced to buy new equipment.

A federal court on Monday held California’s State Insurance Compensation Fund has no obligation to cover a series of claims from three porn actors against Cybernet for allegedly causing them to contract human immunodeficiency virus (HIV) during film shoots in 2013.

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Cybernet, a San Francisco-based porn studio, was founded in 1998 and currently operates a series of adult-websites including Kink.com which primarily features content involving bondage, domination, sadism, and masochism (BDSM).  Actors John Doe, Cameron Adams and Joshua Rogers sued the company in 2015 for creating a dangerous and unsanitary work environment by failing to test performers for sexually transmitted diseases before each shoot, discouraging the use of condoms, and inviting random members of the public to participate in intimate group activities.  The actors further allege Cybernet intentionally misrepresented the shoots were safe by “requiring” the use of protection, subjected actors to physical assault without consent, and intentionally inflicted emotional distress by creating a situation where the spread of sexually transmitted diseases was virtually certain to occur.

After Cybernet demanded that its insurer, the State Fund, cover the actors’ tort claims, the State Fund fired back, arguing it already paid the actors medical expenses under California’s workers’ compensation system and owed no further duty.  U.S. District Court Judge for the Northern District of California Yvonne Gonzalez Rogers agreed and found the actors’ exclusive remedy for their negligence-based causes of action came within the workers’ compensation system.

Further, while the actors’ allegations of intentional misconduct were not necessarily relegated to workers’ compensation, Rogers found the insurance policy’s exclusion for “damages or bodily injury intentionally caused or aggravated by [Cybernet]” exempted claims of intentional torts.  Cybernet argued case law requires insurers to provide conclusive evidence demonstrating an exclusion of coverage applies and such evidence did not exist for a myriad of reasons, including the language of the policy itself which expressly covered “bodily injury by disease of an employee.”  Rogers was not convinced and cited precedent which indicated that even though an insurance policy can expressly cover a disease contracted on the job, claims that the employer intentionally caused or aggravated the disease are a different story.           

Cybernet has requested leave to file a motion for reconsideration.

Music festival and audienceFox associates Megan Center and Elizabeth Patton wrote a duo of posts for Fox’s advertising law blog Above the Fold examining a trademark dispute surrounding the term “Coachella.” The case relates to entertainment festivals not associated with the organizers of the well-known annual event in Indio, California. As Megan lays out in her post:

“Robert Trevor Simms (Simms) purported to create a film festival known as FILMCHELLA. Prior to filing for the injunction, Coachella Music Festival, LLC and Goldenvoice, LLC (collectively, Coachella) sent numerous cease and desist letters to Simms demanding that Simms change its name with no success. As such, Coachella was forced to file for a preliminary injunction to prevent Simms from using the terms, “Filmchella”, “Coachella for Movies” and “Coachella Film Festival” due to alleged trademark infringement. Coachella argued that Simms’ use of these terms will cause consumer confusion, dilution of its marks and other irreparable harm.”

The U.S. District Court for the Central District of California recently granted a preliminary injunction in the case to Coachella’s organizers. Elizabeth also provided an update yesterday on a flurry of motions filed by the parties in the case.

My partner Nancy Yaffe has just posted a blog with disturbing implications for California entertainment lawyers. As young practitioners we  all were taught that every agreement with a person providing services on a film or TV show must include a provision that the results and proceeds of the person’s services are a “work made for hire” under copyright law.  This language is as important for entertainment lawyers as the Prime Directive is for Capt. Kirk on Star Trek. It now appears that the California EDD takes the position that the presence of those four words in a contract creates a presumption that the service provider is an employee, not a contractor. The Department will take this position even if none of the other indicia of employment are present, and regardless of the plain intent and structure of the Copyright Act.

Law concept: circuit board with  copyright icon, 3d render

Producers can still obtain copyright ownership using assignment language, but this has drawbacks, including that the assignor can terminate the assignment after 35 years. This presents producers with a difficult choice. Proceed as usual and run the risk of being assessed for back taxes and penalties, or engage all cast and crew as employees, with the inconvenience and cost that can entail.

Read Nancy’s enlightening blog here.

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Former American icon Bill Cosby has been accused of sexually assaulting at least sixty women over five decades, according to Time Magazine.  But the Carsey-Werner Company, which produced Cosby’s hit sitcom “The Cosby Show”, claims the program still has “inherent entertainment value” that the British Broadcasting Corporation (BBC) wrongfully capitalized when it used eight clips and music from the show in its documentary “Bill Cosby – Fall of an American Icon.”  Carsey-Werner filed for copyright infringement in the U.S. District Court for the Central District of California last Friday.

Of the documentary’s one hour of running time, Carsey-Werner alleges that 234 seconds, or 6.5%, of the content derives from “The Cosby Show,” which the BBC had no permission to use.  But permission is not necessary if the use was fair.  When determining fair use, the court considers 1) whether the unlicensed use of the original work transformed the material taken by using it for a different purpose; 2) the nature of the copyrighted work; 3) the amount and substantiality of the work taken; and 4) the effect of the use on the potential market for the original work.

As to the first factor, use of material for purposes of criticism and comment is recognized by statute as transformative and fair.  Carsey-Werner could argue the documentary pertains to Bill Cosby and offers no comment or criticism of “The Cosby Show,” but the BBC could claim the program is arguably what made Cosby a household name and, ironically, branded him as “America’s Dad.”

The second factor tends to be the least important in the analysis since most copyrighted works are inherently original, but this prong would favor Carsey-Werner as fictional works like “The Cosby Show” are judged to be more original than factual ones such as an autobiography or news report.

The third factor comes down to whether the BBC used more of “The Cosby Show” than what was reasonable to adequately document Cosby’s descent.  Carsey-Werner claims if the BBC wanted to draw “The Cosby Show” to the viewers’ attention, it could have done so without using copyrighted material, but the BBC could argue its use of less than four minutes of show content scattered throughout the documentary was more than reasonable given the pivotal role the program played in building Cosby’s legacy.

The fourth factor requires Carsey-Werner to prove the BBC’s documentary served as a market substitute of the “The Cosby Show,” which will be a tall hill to climb given that the market for the program has arguably been irreversibly damaged amidst Cosby’s scandal.  Plus, the BBC can contend the market for light-hearted sitcoms is entirely different than that for sobering documentaries.

The BBC has yet to file a formal response to the matter but could pursue a shortcut to dismissal since the documentary was never broadcast or made publicly available online in the United States.  The documentary aired just twice in June of 2017 and has not been broadcast since.

Here in the Hollywood bubble, it’s easy to get wrapped up in our own tales of heartbreak, victory and scandal and forget that events outside of LA can also impact the entertainment business. One of these is that the FCC is now Republican-controlled. The new FCC chair Ajit Pai has already signaled that we can expect significant policy shifts. Here are two to watch.

Copyright: scanrail / 123RF Stock Photo

Net Neutrality: This blog has been following the net neutrality saga, most recently here in an article posted after the Presidential election. Net neutrality is the principle that internet service providers (ISPs) must treat all content in their pipes equally, without speeding or slowing transmission for favored or disfavored providers. In 2015, the FCC reclassified ISPs as a common carrier equivalent to telephone companies in order to impose strict neutrality rules. FCC chair Pai has expressed his opposition to the rules, but the issue is not on the FCC’s published November docket. There is no reason to assume, however, that Pai’s stance has altered, only that he is deferring for the present what will be a very hotly contested change.

Ownership Rules: For decades, the FCC has maintained rules governing ownership of broadcast stations in order to encourage local news coverage and diversity in programming. That may be about to change. On October 25, Pai announced proposed rulemaking that would radically overhaul this regulatory scheme. The proposals under discussion include:

  • Permitting one company to own a daily newspaper and a radio or TV station in the same market.
  • Eliminating a rule that requires at least eight independently owned TV stations to remain in a market after two stations combine ownership.
  • Loosening restrictions on the number of television and radio stations that can be owned by a single entity in a market.

These moves have received the support of trade groups representing both broadcast stations and newspaper groups, who argue that they need economies of scale to compete in the 21st century marketplace with giant digital media outlets such as YouTube and Facebook.

These steps follow an FCC action earlier this year lifting the cap on the total number of stations that a single company can own. This opened the door for Sinclair Broadcast Group to pursue its intended purchase of Tribune Media, which would result in Sinclair’s ownership of stations covering 70% of all US television viewers.

The FCC also plans to eliminate a rule that required broadcast stations to have a physical studio in or near the communities they serve. While not a change in ownership rules, it will make it easier for large station groups to centralize their operations.

After eight years of a Democratic administration, it’s not surprising to see the regulatory pendulum swing back to favor free market forces. There is also no doubt that FCC commissioners of all political stripes must address the radical changes in the media landscape brought on by the explosion of the internet. Time will tell whether Chairman Pai’s approach is the right one.