Copyright in characters is not a new concept but it can take interesting twists. We saw this recently when litigation over the Netflix movie Enola Holmes raised the question just how far the term of copyright in Sherlock Holmes could be extended. A strictly 2020’s application of the doctrine has emerged recently as comic book art meets blockchain technology.

Comic artists working on established titles typically have little to show for their work outside of fees. The leading publishers Marvel and DC jealously guard the rights to their characters in all forms of exploitation, no matter how substantial the contribution of individual artists to those characters’ identity. One exception has been that artist are permitted to retain their original drawings on paper for resale at comic conventions and the like.

Enter non-fungible tokens (NFTs). These are certificates of ownership of digital assets recorded on the blockchain. A number of comic artists saw an opportunity in this burgeoning market to sell their digital works. For the publishers, however, this was a bridge too far. Both DC and Marvel sent notices to their artists warning against sales of digital images featuring their intellectual property, whether in works created under commission for the publisher or original works.

This reaction is not at all surprising. NFTs are suddenly everywhere in the news, along with a sense that there is a great deal of money to be made with them. The giant companies that own DC and Marvel do not want to find themselves on the outside looking in. DC acknowledged as much in its letter to creators, which barred them from selling digital images “[a]s DC examines the complexities of the NFT marketplace and we work on a reasonable and fair solution for all parties involved.” The sale of paper artwork is a small, slow and manageable market that publishers know they can tolerate. The sale of NFTs is potentially disruptive, which leads them to be more protective of their assets.

In a unanimous decision, the Supreme Court voted to uphold a decision by the FCC to deregulate ownership of television broadcast stations. The Commission proposed the rule change in 2017 under Trump-appointed FCC chair Ajit Pai. The changes included an elimination of a rule that barred common ownership of stations in a market if the result would be fewer than eight independently owned stations, and another rule forbidding cross-ownership of a station and newspaper in the same market. The Commission also relaxed rules relating to joint advertising sales agreements between stations.

The Third Circuit overturned the rules change on the grounds that the Commission “did not adequately consider the effect its sweeping rule changes will have on ownership of broadcast media by women and racial minorities.” This was the same argument pursued by the public interest parties at the Supreme Court. They did not presume to dictate policy to the FCC, but only to show that it had failed to give serious consideration to the data in order to reach a balanced judgement.

The decision from Justice Kavanaugh swept this argument aside. Based on the record before it, he wrote, the agency “reasonably concluded that the three ownership rules at issue were no longer necessary to serve the agency’s public interest goals of competition, localism and viewpoint diversity….” Although there were gaps in the data on which it relied, the FCC acknowledged the gaps and was not obligated to dig further in order to avoid falling afoul of the “arbitrary and capricious” standard required to overturn agency rulings under the Administrative Procedure Act.

Proponents of the changes argued that they were long overdue. Local TV and newspapers have long been facing stiff headwinds, first from cable competition and now from hypertargeted digital advertising on Google and Facebook. The mom-and-pop broadcast outlets and local station groups would be doomed unless they can join deep-pocketed national station groups.

The argument for continued diversity has its appeal, however, when one looks at Sinclair Broadcasting, a large station group that made headlines for forcing the news broadcasts of its stations to run right wing segments. Even short of a conservative takeover of local news, widespread consolidation could result in homogenization and the loss of independent voices.

In light of these arguments, the unanimity of the Supreme Court decision may seem surprising. It’s plausible to suppose that the Court’s liberals are playing the long game here to ensure the continued viability of Chevron deference. This was the doctrine established in Chevron U.S.A. Inc. v. Natural Resources Defense Council, 467 U.S. 384 (1984) that federal courts should defer to an agency’s interpretation of a statute if the statute is ambiguous and the agency’s interpretation is reasonable.

The Court has been steadily narrowing the reach of Chevron, and conservative commentators and some of the justices have called for it to be overruled. This has raised concerns on the left that judges will substitute their judgement for that of administrative agencies and accomplish deregulation by judicial means. By standing behind the FCC in this case, even though they may differ in the substantive result, the Court’s liberals have buttressed the principle of agency independence.

In light of the ubiquity of cable and satellite, a controversy over the ownership of terrestrial broadcast stations may seem like a sideshow. The reality is, however, that an increasing number of American households are receiving broadcast stations by means of over-the-air transmission, either exclusively or together with a subscription video service.

The Supreme Court recently heard arguments over moves taken by the FCC in 2017 to loosen regulations on broadcast stations. These included lifting the ban on common ownership of broadcast stations and newspapers in the same market and cross-ownership of television and radio stations. The FCC’s proposed deregulation also made it easier for outlets to join forces for purposes of advertising sales or to merge outright.

The Third Circuit rejected these proposed changes in September, 2019. It ordered the FCC to reconsider the rules changes in their entirety with greater attention to their effect on women and minority ownership of broadcast stations. The government and the National Association of Broadcasters (NAB) appealed to the Supreme Court, which heard arguments in January.

The position of the FCC and NAB is that broadcasters face so much more competition than they did in decades past that they must be permitted to consolidate in order to survive. They argued that the FCC is not required to prioritize women and minority ownership in its rulemaking. The NAB took this further. It asserted that Section 202(h) of the Telecommunications Act of 1996 calls for deregulation as a matter of simple statutory interpretation. That section requires the FCC conduct a biennial review of its rules and repeal or modify “any regulation it determines to be no longer in the public interest” as the result of competition.

The public interest parties took an administrative law approach. The issue they presented was not whether competition or diversity should be the controlling policy but whether the FCC had adequately explored the potential effect of deregulation on women and minorities. The rulemaking, they contended, included only conclusory statements of minimal effect without supporting data. Where the public interest parties had presented a study from Free Press showing that deregulation would affect women and minority station ownership adversely, the FCC did not present a substantive response.

Several of the Justices, both liberal and conservative, questioned the FCC’s failure to show specific data to support its decision to prioritize competition over diversity. Justice Sotomayor put it this way. “We have a legion of cases that say you don’t have to rule in favor of one point of view or another, but when you’re rejecting something, you should give it adequate consideration.” Justice Kavanaugh challenged the Deputy Solicitor General with a similar question. “Having considered it, doesn’t the FCC have to justify how it considered it?”

While most of us look back on the last twelve months as a horrible dream, Hollywood’s labor unions can actually point to a string of successes. Early in the pandemic, all three of the above-the-line guilds closed new three year deals that among other things included significant increases in residuals for high-budget streaming programs. Just this month, the WGA finally closed the book on its two-year campaign to bar talent agencies from collecting package commissions and owning interests in production entities exceeding 20%.

Now, in a less dramatic but also forward-looking move, SAG-AFTRA has provided a structure under which social media influencers can work under union contracts. It will work like this. The influencer must have a corporation or LLC that contracts directly with a brand to produce and deliver content. Compensation is freely negotiable with no set minimums. The content must be intended only for YouTube or for the influencer’s or the brand’s social media platforms or websites. Pension and health contributions are payable on the share of the influencer’s compensation (at least 20%) allocated to on-camera services as opposed to writing and producing services.

This structure is a foot in the door for SAG-AFTRA in what it sees as an area of potential growth. It remains to be seen what the uptake will be. In the immediate future, advertisers are for the most part not likely to add pension and health contributions to their payments to influencers, which means that most influencers choosing to work SAG-AFTRA would be going out of pocket for these payments. There may be a group of influencers willing to make these payments in order to get SAG-AFTRA health insurance. Union membership is also a benefit in itself in that it opens doors to work in other media. It may be a bigger boost, however, for the TV and movie stars who are active influencers. This move may give them the leverage to require that their brand include pension and health as part of their compensation.

In what must be counted as a victory for solidarity among WGA members and the often controversial tactics of its executive director David Goodman, the leading agency WME reached a deal for a franchise agreement with the union. This will permit the agency to resume representing writers almost two years after its writer clients fired the agency en masse. In exchange the agency will phase out package commissions on scripted projects and will reduce its stake in the production company Endeavor Content.

WME was the last to settle of the largest agencies. Its rivals UTA and CAA reached agreement last year, leading them also to drop out of the antitrust litigation to which all three had been parties. Fellow Big Four agency ICM, which was never a party to the litigation, made its own deal with the WGA last summer.

The sticking point for WME was not so much the elimination of package commissions. Those terms largely track those agreed to by UTA and CAA. The difficulty lay in getting WME’s ownership of Endeavor Content below the 20% share that the WGA would accept. Throughout its negotiations, the WGA had insisted on transparency regarding WME’s capital structure and that of its private equity investors. In reaching settlement, the WGA has satisfied itself that there will not be lingering conflicts of interests following divestiture.

We recently reported on a lawsuit that the actor Faizon Love brought in November against Universal Pictures. Love was one of the stars of the 2009 movie Couples Retreat, whose overseas publicity campaign aroused controversy when it was discovered that Love, the movie’s only Black star, and his Black female partner had been removed from the key art. In his 2020 lawsuit, Love said that he refrained from suing at the time in reliance upon promises that the offending art would no longer be used and that he would be offered attractive acting roles to compensate, neither of which promises were kept.

While Love prepared to depose Universal executives, Universal made ready to move the case to arbitration, but before things went any further, Love moved to dismiss his action. Per his attorneys, “Universal Pictures and Faizon Love reached an amicable agreement.”

Amity. That is what we like to see.

As the COVID-19 pandemic forced widespread postponement and cancellation of film and TV production in 2020, it brought a corresponding explosion of insurance claims by producers. This led inevitably to coverage disputes as carriers sought to deny coverage wherever they could. A recent lawsuit by ViacomCBS illustrates some interesting issues that can arise in these disputes.

ViacomCBS had a Television Production Portfolio Policy with Great Divide Insurance Company that covered all of its productions. The policy provided separately for each production, $30,000,000 of Cast coverage, $10,000,000 of Extra Expense coverage, $10,000,000 for Imminent Peril coverage $1,000,000 for Ingress/Egress coverage and $1,000,000 in Civil Authority coverage. According to the complaint, the policy did not include an industry standard-form virus or bacteria loss exclusion.

ViacomCBS alleges that over 100 of its productions were affected by the pandemic and submitted claims for losses on each of them under all of its coverages. Great Divide acknowledged only that productions were cut short by government shutdown orders and agreed to Civil Authority coverage—the one with the lowest limit—but refused any other coverage.

The complaint recites the discussions that took place between the parties in which ViacomCBS provided a detailed explication of the policy language in order to establish that Great Divide’s denial of coverage relied on an “overly narrow and wrongful” interpretation of its terms. For example, Great Divide’s position was that the invisible and inchoate threat posed by the virus did not present “certain, immediate and impending danger” that would trigger the Imminent Peril coverage. This, ViacomCBS claims, constitutes a breach of its obligations under the policy.

A second claim arose out of Great Divide’s behavior in renewing the policy. The policy was written for three annual policy periods beginning in December 2018. When the final renewal came up in December, 2020, Great Divide allegedly insisted on including a COVID-19 exclusion and a substantial premium increase. According to ViacomCBS, this ran contrary to insurance industry custom and its own reasonable expectations, which were that the policy would renew on the same material terms as before and would not be subject to cancellation or non-renewal before December 2021.

Finally, ViacomCBS raised a cause of action specifically relating to its program the Kids’ Choice Awards. This was scheduled to be aired as a live show on Nickelodeon on March 22, 2020 from the Forum in Inglewood, CA. After the first wave of state shutdown orders beginning on March 11, Nickelodeon gave up on the live show and aired a virtual show Kids’ Choice Awards: Celebrate Together on May 22. It submitted an insurance claim to Great Divide under its Abandonment coverage for the additional production cost of the second show as well as its sunk cost from preparing for the live show. Great Divide agreed to recognize the extra expense to complete the virtual show but not the sunk cost. It took the position that the live show had not been abandoned at all but merely postponed, so that the virtual show on May 22 was in fact the same show as had been originally scheduled for March 22. To counter this, ViacomCBS pointed out that the production company, crew size (10 rather than 1,000) host, lack of performances and stunts, format and lower budget of the virtual show all distinguished it from the Kids’ Choice Awards.

On January 15th, the Department of Justice announced it has ended its two-year review of the 80-year old consent decrees that govern the operation of the largest music performing rights organizations in the United States: ASCAP (American Society of Composers, Authors and Publishers) and BMI (Broadcast Music, Inc.). The DOJ decided not to take any action to modify or terminate the decrees, but left open the possibility of changes in the future. The DOJ’s underlying philosophy is that market-based solutions are preferable to legally mandated decrees in this area of the music business.

ASCAP and BMI provide licenses to businesses that publicly perform music which is owned by their songwriter and publisher members, including to bars, restaurants, radio and television stations, internet programmers and streaming platforms. ASCAP and BMI provide catalog-wide and per-program licenses so the users do not have to sign a license agreement with each songwriter and publisher whose music they wish to perform. One of reasons the DOJ decided to maintain the current consent decrees is so the owners and users of music performance rights would not have to enter into potentially costly and lengthy renegotiations.

The ASCAP and BMI consent decrees were originally signed in 1941 and were products of lawsuits brought by the United States government against those organizations under Section 1 of the Sherman Act, 15 U.S.C. § 1, to address competitive concerns arising from the market power each organization acquired through the pooling of public performance rights held by their member songwriters and music publishers. The essence of the consent decrees is to encourage competition between ASCAP and BMI, and their respective members, to license copyrighted music to users.

The decrees only govern ASCAP and BMI, which together represent approximately 90% of songwriters and music publishers in the U.S. They do not affect any other performing rights organizations in the U.S., such as SESAC (formerly Society of European Stage Authors and Composers) or GMR (Global Music Rights).

Since 1941, the DOJ has periodically reviewed the operation and effectiveness of the consent decrees, most recently in 2014 – 2015. The ASCAP consent decree was last amended in 2001 and the BMI consent decree was last amended in 1994. Two years ago, the DOJ announced that it would conduct another review of the consent decrees to determine if they still serve their intended purpose.

As part of its recent review, the DOJ invited interested persons and entities, including songwriters, music publishers, licensees and other industry stakeholders, to provide the DOJ with information or comments relevant to whether the consent decrees continue to protect competition. Some critics argued the decrees fail to reflect the way Americans consume music today and some asserted the decrees discourage innovation by locking in existing practices and licensing terms. Many stakeholders expressed the view that the competitive concerns existing when the original decree were entered into are still in existence today. Other respondents commented favorably or unfavorably on ASCAP and BMI licensing only the portions of songs they represent (as opposed to the entire songs) and the ability of songwriters to limit ASCAP’s or BMI’s authority to grant licenses to certain types of users.

Although the DOJ recognized that changes in the music marketplace require them to continue to monitor the decrees and modify them if market realities require, the DOJ left the terms unaltered based on its review. The DOJ representative stated that “A properly functioning market is the best method for determining the rates that properly reflect supply, demand and each party’s relative contribution to the music exosphere.”

The DOJ announcement was made by Makan Delrahim, the outgoing Assistant Attorney General to the Antitrust Division, who stepped down from his position four days after the announcement.

 

In response to a copyright claim that the Netflix series “Stranger Things” infringed the plaintiff’s unpublished screenplays, Netflix and the other defendants filed a Rule 12(b)(6) motion to dismiss, arguing that the works were not substantially similar as a matter of law.  In connection with the motion, Netflix submitted – and the Court accepted – copies of the allegedly infringed screenplays and the allegedly infringing three seasons of “Stranger Things.”

Netflix provided a detailed analysis to demonstrate that the competing works were not “substantially similar” under the “extrinsic similarity” test, which applies at the Rule 12(b)(6) pleading stage.  Under this test, the Court conducts an objective analysis of similarities between the competing works’ plot, themes, dialogue, settings, pacing, characters and sequence of events after filtering out non-protectable similarities (e.g., scenes-a-faire elements, historical facts and general ideas).

In contrast to the Plaintiff’s screenplays – which Netflix described as telling the story of an epileptic army veteran’s quest to free his dead wife’s spirit from a giant English-speaking angel/demon – Netflix explained that “Stranger Things” focuses on a group of teenagers dealing with common teenage issues (e.g., conflicts with adults, romantic crushes), while engaging with and fighting off science fiction monsters, evil scientists and Russian military personnel.

In opposition, Plaintiff relied heavily on Zindel v. Fox Searchlight Pictures, Inc., 815 F. App’x 158 (9th Cir. 2020) and Alfred v. Walt Disney Co., 821 F. App’x 727 (9th Cir. 2020).  In these recent unpublished decisions (issued in June and July, 2020), the Ninth Circuit reversed Rule 12(b)(6) dismissals of copyright claims asserted against “The Shape of Water” and “Pirates of the Caribbean: Curse of the Black Pearl.”  Invoking those decisions, the Plaintiff argued that (i) pre-discovery dismissal of copyright claims involving literary works for lack of substantial similarity is, in the words of Zindel, “virtually unheard of,” and (ii) it was “critical” for the District Court to have “the benefit of expert analysis of the works” (citing both Zindel and Alfred). Notably, the Plaintiff did not support its claim that expert testimony was “critical” with any argument as to where it was needed to respond to any aspect of Netflix’s extrinsic test analysis.

In denying the motion, the District Court made no mention whatsoever of the plots, characters, themes or other elements of the extrinsic similarity test and offered no analysis of whether it deemed the works in issue similar in any respect.  Instead, relying entirely on the unpublished decision in Alfred, the District Court ruled that “additional evidence such as expert testimony may help inform the question of substantial similarity in this case” and the determination of what similar elements “are indeed unprotectible material.”  (Emphasis added.)  In issuing this ruling, the District Court did not identify any aspect of Netflix’s extrinsic test analysis for which it deemed expert testimony necessary following its opportunity to review the allegedly infringed and infringing works before it on Netflix’s motion to dismiss.

Irish Rover Entertainment, LLC v. Sims, et al., slip op. Case No. 2:20-cv-06293 (CBM) (C.D. Cal. Jan. 21, 2021)

Owners of copyright in characters are often well-advised not to press their claims too far in litigation at the risk of losing their rights altogether. This may be what motivated a quick settlement of litigation over Sherlock Holmes.

In June, 2020, the estate of Sir Arthur Conan Doyle sued Netflix and others over their planned release of Enola Holmes. This was a movie starring Millie Bobbie Brown as Sherlock’s younger sister, a character not found in the original Doyle oeuvre. The lawsuit claimed that the depiction of the iconic detective in the movie constituted copyright infringement and also infringed trademarks controlled by the estate.

This was a daring gambit, as the defendants pointed out in their motion to dismiss. Ten Sherlock Holmes stories at most remained under copyright at the time of the suit. Even earlier, in 2014, the Seventh Circuit had ruled the character had fallen into the public domain based on the number of underlying works whose copyrights had expired.

The complaint sidestepped this issue by asserting that these last ten stories introduced an emotional Sherlock Holmes who is respectful of women, and it was this “new” Holmes that was infringed. The defendants countered this by arguing that emotion and respect are generic traits that are not copyrightable and in any event were both displayed by Sherlock Holmes in public domain works.

Despite quotes in the defendants’ motion from the Seventh Circuit decision referring to the plaintiff’s business practices as “a form of extortion,” it appears that neither side was willing to put the Doyle Estate’s theory to the test. The case settled shortly before Christmas.