We blogged recently about criminal proceedings brought by the LA City Attorney against numerous defendants accused of operating pay-for-play casting workshops in which actors allegedly paid for the opportunity to audition in front of casting directors. These cases are working thei

Man in handcuffs covering face
Copyright: ratru / 123RF Stock Photo

r way through the justice system, as some defendants pled guilty. Two more casting directors have taken guilty pleas, while some twenty-five are still awaiting trial.

Read more about it in the Deadline Hollywood story here.

46927072 – Aleksandr Smaglov

After the outspoken conservative commentator Milo Yiannopoulos sued Simon & Schuster this summer for allegedly breaching their contract to publish his autobiography Dangerous, Simon & Schuster threw the book at Yiannopoulos with a motion to dismiss.  But New York Supreme Court Judge Barry Ostrager was not convinced Yiannopoulos’ suit is ready for its final chapter.  Last week, the Court denied the motion and opened the door to discovery of evidence Yiannopoulos vows will show the publishing company breached the contract in bad faith to appease left-wing critics.

When news broke that Simon & Schuster agreed to publish Yiannopoulous’ work in December of 2016, droves of left-leaning celebrities and well-known authors decried the arrangement as promoting “hate speech” and called for a widespread boycott.  However, it was not until a podcast surfaced two months later in which Yiannopoulos purportedly condoned pedophilia that Simon & Schuster backed out, citing a clause within the contract that empowers Simon & Schuster to refuse publication of the work “if in its sole good faith the Work is not acceptable to it.”  That Yiannopoulos vociferously denied the accusation claiming his remarks were sarcastic and taken out of context is irrelevant, argued the publisher.

But what caught Ostrager’s eye was Yiannopoulos’ counterargument citing Simon & Schuster’s contractual obligation to permit Yiannopoulos to revise any manuscript the company deemed unsatisfactory and to provide specific reasons for rejection.  Yiannopoulos contends not only did Simon & Schuster fail to provide any reasons for rejection, but it also used the podcast as a pretext for terminating the contract to diffuse widespread left-wing backlash.

Regardless, the publisher reasoned Yiannopoulos should still lose because he kept his $80,000 advance and thereby triggered the defense of accord and satisfaction.  However, Ostrager held Yiannopoulos’ rebuttal that Simon & Schuster told him he had 18 months to return the funds was enough to defeat this argument at the pleading stage.

Yiannopoulos ultimately self-published Dangerous three days before filing suit, strongly suggesting, in Simon & Schuster’s words, the case is nothing more than a “publicity stunt.”  Regardless, the publishing company must answer Yiannopoulos’ verified complaint and engage in costly discovery if a settlement cannot be reached.

Closeup of earbuds and smartphoneLos Angeles-based IP lawyer Erin M. Jacobson recently penned a piece describing the ongoing dispute between members of the music industry and music streaming service Spotify, and arguing against Spotify’s attempts to limit the type of licenses it must obtain from copyright holders in order to maintain the service. She outlines the series of copyright infringement cases brought against the company and notes the ramifications for songwriters and publishers of a potential precedent-setting court decision in favor of Spotify’s argument that its streaming does not require a mechanical license.

To read the full piece, visit Erin’s blog. It was also published on the Forbes website on September 22.

The stakes just raised in an imminent trial over the validity of the San Diego Comic-Con trademark. What started out as a straightforward trademark dispute has now implicated First Amendment free speech issues.

10066940 – super hero and a ninja doing battle.

The underlying case involves an action by SDCC, which owns a trademark registration for San Diego Comic-Con, against Dan Farr and Bryan Brandenburg, organizers of a Utah convention named Salt Lake Comic Con. Among Farr’s and Brandenburg’s defenses is that “Comic Con” has become a generic description of fan conventions of that type. I recently blogged about this here.

Springing into action outside the courtroom as well as in, Farr and Brandenburg made numerous posts on their website and social media accounts, including by posting court documents, painting themselves as plucky Davids against the mighty San Diego Goliath. In addition to the trademark arguments, their posts also included accusations of fraud against SDCC, but these claims were dismissed last month on summary judgement. Ultimately, over 200,000 media articles were written on the case.

Anthony Battaglia, the US District Judge in San Diego, became concerned that the extensive coverage would taint the local jury pool. He issued a series of gag orders requiring both sides to refrain from discussing the issues publicly or from posting court documents. He also ordered Farr and Brandenburg to post a disclaimer on the Salt Lake Comic Con website specifically stating that they were under court order to make no comments on the case.

Farr and Brandenburg petitioned the Ninth Circuit Court of Appeals for a writ of mandamus overturning the District Court order on First Amendment grounds. They assert that they order constitutes a prior restraint on free speech, which is highly disfavored under First Amendment jurisprudence. They claim that, contrary to Judge Battaglia’s point that the imminence of trial justified his order, “the nearness of trial weighs at least as heavily against prior restraints … because that is the ‘precise time when public interest in the matters discussed would naturally be at its height.'”

They argue further that the gag order is overbroad. The judge could, for example, have prohibited comment only on the fraud claims that had already been dismissed without also barring comment on the genericness of SDCC’s trademark, which is the critical issue in the case. The ban on posting court documents also aroused Farr’s and Brandenburg’s ire. They claim that a prior restraint on truthful publication of official court records is “unprecedented.”

They had this to say in opposition to the mandated disclaimer:  “[T]he petitioners should not be forced to make the Hobson’s choice between (1) acquiescing in the continued infringement of their right to remain silent, by retaining the unduly intrusive disclaimer mandate, or (2) saying nothing, not even that they have been suppressed, when they want to explain their silence.”

The Ninth Circuit agreed on October 3 to hear the petition and gave SDCC until October 6 to file its answering brief. In a rare move, the appeals court also invited Judge Battaglia to respond to Farr’s and Brandenburg’s petition.

 

For those of you contemplating investing in commercial theatre, you are bound to hear of the phrase “One for One”, “One for Two” or “One for Three” bandied about in co-producer negotiations. These are deal terms accorded to co-producers or early investors to induce them to come onboard in a more meaningful way than a standard investment. You might hear a lead producer rattling off these deal terms like footy scores (I’m Australian, I can say footy) or categorizing groups of investors as “the one for three pool.” For first timers these terms are confusing, but the truth is they describe a very simple concept.

 

Set your stopwatch to 190 seconds – let me explain.

  1. A traditional financing structure for commercial theatre (be it musical or legitimate stage play) divides a production’s net profits as follows: (i) 50% becomes the Producer Share; and (ii) 50% becomes the Investor Share.
  2. So, if the production makes $50 worth of net profits, $25.00 will be allocated to the producers, and $25.00 will be divided among the investors, pro rata in the proportion that each investor’s investment bears to the aggregate of all investments.
  3. But what about investors who are early adopters of the production and take the greatest amount of risk (i.e. front money investors) or those co-producers who bring a cohort of investors to the table? How are they compensated for their contributions to the production?
  4. Enter, the One for One/One for Two concept.
    1. THE ONE FOR ONE: An individual receiving 1:1 terms has the strongest deal. This means that for every 1% of the net profits they receive from the Investor Share, they will receive 1% from the Producer Share. ONE – FOR – ONE.
    2. THE ONE FOR TWO: second best to the One for One. For every 1% of the net profits an investor receives from the Investor Share, they will receive 1/2% from the Producer Share.
    3. THE ONE FOR THREE: third in line but a Metziah* nonetheless. For every 1% of the net profits the investor receives from the Investor Share, they will receive 1/3% from the Producer Share, and so on…
  5. Let’s play with an example:

Fox Rothschild: the Musical tells the inspirational story of a Philadelphia-based law firm set to 70’s disco hits. The production capitalizes on Broadway at $8 million. Ms. Fox is the lead producer on the project and brings in two investors, Devyn and Veronica. Mr. Rothschild is an associate producer, and brings in one investor, Yvette.

  • Like many productions, Fox Rothschild: the Musical distributes net profits in accordance with the following: 50% to the Producers and 50% to the Investors
  • Devyn invests $4 million in the project and negotiates a 1:1 deal for her investment.
  • Veronica invests $2 million in the project and receives a 1:4 deal.
  • Mr. Rothschild does not raise any money, but is accorded 1:2 terms on all the money he brings in.
  • Yvette invests $2 million in the project but does not receive any special deal terms.

 

The production is a runaway hit and starts distributing net profits. How are these divided?

  • At $4 Million, Devyn invested 50% of the total capital for the production and is therefore eligible to receive 25% of net profits in her capacity as an investor. However, owing to the fact that she was accorded 1:1 deal terms, she will receive her standard 25% from the Investor Share in addition to a full 25% from the Producer Share. Devyn’s aggregate net profit participation is 50%.
  • At $2 million Veronica has invested One-Quarter of the total capital for the production and is therefore eligible to receive 12.5% of net profits in her capacity as an investor. However, owing to the fact that she has received 1:4 terms, she will receive her standard 12.5% from the Investor Share, and 3.125% from the Producer Share. Veronica’s aggregate net profit participation is 15.625%.
  • At $2 million Yvette has invested One-Quarter of the total capital for the production and is therefore eligible to receive 12.5% of net profits in her capacity as an investor. Remember, Yvette did not receive any special deal terms. Yvette’s aggregate net profit participation is 12.5%.
  • Mr. Rothschild did not raise any money, but is accorded 1:2 terms on all the money he brings in, i.e. Yvette’s share. As such, Mr. Fox will receive 6.25% from the Investor Share. Mr. Fox’s aggregate net profit participation is 6.25%.
  • But what about Miss Fox? While Miss Fox did not invest any money herself, she will receive the remainder of the Producer Share, less those percentages allocated to investors/producers from the Producers share, i.e. 15.625%. Miss Fox’s aggregate net profit participation is 15.625%.
  • Double checking our math: 50% + 15.625% + 12.5% + 6.25% +15.625% = 100%

 

See? Not as hard as you thought.

*Metziah – Yiddish. “A good deal.”

10066940 – super hero and a ninja doing battle.

A federal judge in San Diego has cleared for trial a case that may strip San Diego Comic-Con from trademark protection.

First, some background. Even a registered trademark such as Comic-Con can lose protection if it becomes generic, that is, if consumers regard it as designating a class of good or services rather than a branded product or service from a particular source. History has many examples of former trademarks, such as “aspirin,” “escalator” and “cellophane,” that over time were appropriated by the public to become the generic name of the product. Trademark lawyers call this process “genericide.” It’s for this reason that the owners of ubiquitous trademarks such as “Kleenex” diligently police their marks to remind competitors and the public against their use in a generic manner.

In the case at hand, Dan Farr and Bryan Brandenburg founded the Salt Lake Comic Con, which like the San Diego Comic-Con, is a fan event for lovers of comics, gaming, fantasy and science fiction. San Diego Comic Convention (“SDCC”), the owner of the registered Comic-Con  trademark, sued and moved for summary judgment on the ground that there is no issue of fact that, with or without a hyphen, the name Salt Lake Comic Con infringes its mark. Apart from the registration itself, which creates a presumption of validity, the plaintiff cited as key evidence a consumer survey in which 82% of respondents identified Comic-Con as a brand name rather than a common generic name.

The defendants were nevertheless able to create an issue of fact on genericide sufficient to withstand summary judgment. The court noted that over 100 competitors used the unhyphenated form of Comic Con to identify events in virtually every state, including New York Comic Con, Amazing Arizona Comic Con, Emerald City Comic Con and Tampa Bay Comic Con. The defendants also cited many news articles that use “comic con” in a generic sense, such as “New Yorkers get their nerd on at Comic Con” and “Comic Cons business update.”

The case is scheduled for trial in November. Stay tuned for a jury to decide whether mighty SDCC wipes the other Cons away, or srappy Salt Lake Comic Con has some Kryptonite® up its sleeve.

1. Registration of a song with a PRO does not provide any copyright protection.

Closeup of earbuds and smartphoneThe most common misunderstanding I encounter from songwriters is that registering their songs with one of the U.S. music performance rights organizations (“PROs”), i.e. ASCAP, BMI, SESAC or GMR, gives the songwriter some protection of their intellectual property rights in their songs. That is simply not the case. Registration of a song with a PRO simply puts the song into the licensable database of the PRO and makes the proprietor information publicly available.

Music performance rights organizations, also known as performing rights societies, act as licensing agents for songwriters and music publishers with respect to the public performance of their songs. In order to play a copyrighted song on radio (over-the-air, satellite and internet), on television (network, cable, satellite and internet), perform it live (bars, concert halls and festivals) or digitally stream it (Pandora, Spotify, etc.), a public performance license must be obtained from the writer and publisher.

Registering a song or catalog of songs with a PRO will enable a songwriter or publisher to receive public performance rights and allow them to participate in events or take advantage of collective negotiating efforts, but that is all the registration does. The PRO registration does not register the copyright in a song or provide any licensing benefits other than public performance. In order to obtain the full benefits of copyright law protection, the writer or publisher should register their songs with the U.S. Copyright Office.

Although copyright registration is not a prerequisite to copyright protection, it is certainly “cheap insurance” from an intellectual property standpoint. If registration is made within three months of publication of the song or at any time prior to an infringement of the song, the copyright owner is entitled to seek statutory damages and attorney’s fees in federal court. That means a losing infringer may have to pay the owner’s legal fees and the damages awarded to the owner may be substantially increased based on the copyright law.

In addition to registering their songs with a PRO, songwriters and publishers should take the additional step of registering the copyrights in their songs with the Copyright Office. PRO registration is beneficial for searching writer/publisher information and for performance royalty collection purposes, but songwriters and publishers should not assume that registration provides any more expansive advantages than it actually does.

2. PROs issue licenses for public performance of songs and collect performance royalties (that is basically all they do).

The right of public performance is one of the exclusive rights granted to copyright owners under the U.S. Copyright Act (see 17 U.S. Code §106). Although copyright law allows songwriters and publishers to license performance rights themselves, it would be impossible (or at least impractical) for them to negotiate licenses with every radio station, television station, concert hall, etc. So, the concept of performing rights organizations arose. PROs aggregate the performing rights of writers and publishers, negotiate licenses with users of their music, collect the income from those licenses, and distribute that income to the applicable writers and publishers after deducting their operating expenses.

PROs track performances using various reporting and sampling techniques, and they offer both catalog licenses and per-use licenses. PROs do provide certain career development assistance, legislation advocacy efforts and philanthropic help for their members and outside musicians. They consistently present concerts, expos, seminars, workshops, camps and other activities for their members and the public, but that is where their efforts stop. PROs are not huge rights clearing houses for song catalogs.

3. Registration of a song with a PRO does not facilitate issuing mechanical licenses or synchronization licenses.

PROs do not issue mechanical licenses, synchronization licenses or any music publishing licenses other than public performance licenses. Registration of a song with a PRO makes the relevant writer/publisher information searchable for the song, which may help a potential licensee locate the proprietor of a song. However, the applicable PRO does not have any involvement in procuring, negotiating or issuing mechanical licenses for recordings of songs by recording artists or synchronization licenses for uses of songs in films, television programs, video games or other audiovisual productions. Those types of licensing must be handled separately by a songwriter’s music publisher and/or attorney.

Drug cartels are notorious for murder and extortion, but the family of the late drug lord Pablo Escobar has unleashed the scariest weapon of all–trademark litigation.

Escobar, Inc. has a longstanding grudge against the Netflix series Narcos, which dramatizes the late drug lord’s life. In a creative and brazen move, Escobar filed trademark registrations for the marks NARCOS and CARTEL WARS, and has threatened the producers, Narco Productions, LLC (“NPL”) with litigation if they won’t play ball. Escobar’s brother, Roberto De Jesus Escobar Gaviria, has been quoted to say he will “close their little show” if Netflix doesn’t cough up $1 billion to settle the infringement claims.

In a letter from its counsel, NPL responded that the Escobar claims are fraudulent. They assert that the specimens of use in commerce submitted in support of the Escobar trademark application were in fact taken from or copies of Netflix’s own advertising for its video game Narcos: Cartel Wars. Another red flag noted by NPL counsel was that Escobar claimed to have used the mark since 1986 in “operating a website” and “game services provided online from a computer network.” This despite that fact that the consumer internet did not exist in 1986, and was certainly incapable of streaming video games. There is also a question whether NARCOS is registrable at all, since the term is purely descriptive of anyone involved in drug cartels.

Perhaps coincidentally, the show Narcos was also in the news when its location scout was murdered in rural Mexico on September 11. Asked whether anyone at Escobar, Inc. had knowledge of the circumstances, the company’s president responded only “no comment.” Gaviria has been quoted, however, challenging the right of any production to film in Colombia regarding the Medellin cartel without authorization from Escobar, Inc., and recommending that Netflix hire hitmen to provide security to its crew.

37541052 – belchonock

Television host and psychologist Dr. Phil McGraw got just what the doctor ordered when a district court in Texas awarded summary judgment on Dr. Phil’s copyright claim against the woman who sued him in 2015 for alleged false imprisonment and infliction of emotional distress.

Leah Rothman, a segment director for the Dr. Phil Show from 2003 to 2015, claimed she suffered emotional distress when Dr. Phil allegedly locked her and approximately three hundred other show employees in a room, demanded they turn off their cell phones and threatened them for supposedly leaking internal information to the press.  Before filing suit, Rothman accessed a database of videos from the show’s archives and copied a nine-second clip to her iPhone which she thought could be useful evidence to prove her case.

In response, Dr. Phil’s Texas-based production company Peteski Productions, Inc. registered the footage with the U.S. Copyright Office and filed for infringement.  Rothman argued fair use, but Judge Rodney Gilstrap of the U.S. District Court for the Eastern District of Texas disagreed.  Although use of a work in a judicial proceeding is ordinarily fair use, Gilstrap held Rothman’s bad faith conduct precluded the defense.  The court found that Rothman had breached multiple employment and confidentiality agreements when she purloined the material and did so to serve her own interests and not the public at large.

It’s up for debate whether a finding of bad faith should cut against fair use.  In the landmark decision Harper & Row Publishers, Inc. v. Nation Enterprises, the U.S. Supreme Court gave significant weight to the defendant magazine’s knowing exploitation of President Gerald Ford’s unpublished memoirs in ruling against fair use.  Conversely, the Court in Campbell v. Acuff-Rose Music, Inc. stated in a footnote that bad faith should not be a central factor in the fair use analysis.

Here, Gilstrap leaned toward Harper & Row, concluding “conduct involving a violation of law or breach of confidence weighs strongly, though not dispositively, against a [finding of fair use].”  Although the court acknowledged it is possible that a breach of contract or some other act of bad faith may sometimes be necessary to further an important public interest and favor a finding of fair use, Gilstrap determined Rothman’s appropriation to be solely self-serving.  As a result, the court found Rothman’s arguments even less persuasive than those of the defendant who lost on fair use in Harper & Row.

Rothman has not released a statement and has yet to file a notice of appeal.

Financing structures for plays and musicals are unique. While they are in some ways similar to motion picture financing, live theatre has its own set of customs and practices that can be confusing to first time investors. A client recently called to tell me that she had been offered ‘one-for-two terms on a front money agreement’ for a new musical that hadn’t been written.

“Yeah, but Dan” she asked, “What does that mean?”

Times Square, New York CityWhat is front money? Front money is essentially first round, series ‘A’ financing for a live-theatrical venture. It is the seed capital used by producers to get a project on its feet, and most importantly, to a stage in the development process where a producer can seek to capitalize a commercial production. As such, front money may only be expended for pre-production expenses directly related to the development of the show, including option payments, key-creative fees, legal and accounting expenses, readings and workshops. Let’s say that all together, shall we – “front money is only for pre-production expenses directly related to the development of the show.” Unless specifically authorized in the front money agreement, which is rare, front money may not be used to cover the travel and expenses of the producer, nor the costs of wining and dining potential collaborators.

Who is a front money investor? Whereas a Broadway musical might have in excess of fifty individual investors, front money investors are a select group of individuals (under New York law, no more than five for any single production) who elect to take on increased risk for the possibility of a greater upside.

What’s the risk? A front money investment carries greater risk than a typical investment in a live-theatrical venture, which is already pretty substantial. Often a front money investment involves a project that has not secured a theatre, an opening date, key creatives or even a completed script. Whether or not the project will progress to the point of raising capital for a full production remains speculative, and thus front money investors generally expect more favorable deal terms for their contribution.

What’s the upside? Though riskier, front money investors get more bang for their buck. Often producers will reward early adopters with a profit participation in the producer’s share of net profits, as opposed to merely the investors’ share of net profits. You might have heard discussions of “one-for-one” or “one-for-two” deals. These are the types of terms offered to front money investors (stay tuned for my next blog post where I will discuss how a “one-for-one” or “one-for-two” actually works).

What do investors sign? A front money investor will sign a front money agreement with the producer. Thereafter, the producer will be authorized to use the funds to develop the show. Once the show is ready for its first commercial production (if ever), the front money investor will become a member of the production entity used to capitalize the first commercial production of the show. Typically, the front money agreement will contemplate the investor automatically rolling-in to the production entity, and thus their front money investment will be deemed an equity investment in the production entity.

While often shorter in length, front money financing agreements govern a (hopefully) longstanding relationship between producer and investor. As such, they are fundamental documents that require careful review and consideration.