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.

Happy New Year to all. To kick off 2021, I’ve provided quick takes below on some of the bigger stories we’ll be watching

WME v. WGA

Just before Christmas, CAA closed a deal with the Writers Guild regarding phasing out of package commissions and partial divestiture of its ownership of production entities. That left WME as the last agency without a deal. The parties were reportedly negotiating but without resolution.

Meanwhile, WME’s attempt to gain an advantage on the litigation front suffered a setback in District Court. The WGA’s long campaign against the agencies succeeded because its members refused to be represented by agents who did not accede to a code of conduct renouncing packing and producing. WME asserted that this constituted an illegal boycott outside the protection of labor law and sought an injunction. Judge André Birotte, Jr. denied WME’s motion on January 4, holding that the WGA boycott falls squarely within the area protected by the Norris-La Guardia Act.

The judge also took the opportunity to urge the parties to get back to the bargaining table.

WARNER BROS. v. HOLLYWOOD

Hollywood is still buzzing over Warner Bros’ surprise announcement in early December that all of its theatrical releases in 2021 would be released concurrently on its HBO Max subscription service. The reasons for the move are not totally clear. If this were simply a hedge during the COVID pandemic, there would be no reason to commit to SVOD release for the entirety of 2021. Another proposed motivation is that the studio’s parent AT&T has decided to sacrifice 2021 theatrical revenues to jump start HBO Max, which had a disappointing launch.

Whatever the reason, the action has angered more than just theater owners. Warner Bros. co-financiers stand to see reduced returns. Performers, directors and writers, not to mention their representatives, receive substantial compensation based on theatrical box office revenues, revenues that are now being cannibalized by HBO Max. It is widely expected that Warner Bros. will be making substantial payments to compensate for these lost revenues.

Stepping back, this move by Warner Bros. may have been handled awkwardly, but is only part of a larger trend. We are seeing a shift away from theatrical exhibition toward streaming as the favored means of delivery of premium content. The market pressure was building even before last year, but the pandemic let it loose. Just at the start of the lockdown, in April 2020, Universal pulled its scheduled theatrical release of Trolls World Tour to play on pay-per-view only to great success. Disney repeated the same gambit for its live action Mulan. Universal raised a stir later in the summer by making a deal with AMC Theaters to reduce the exclusive theatrical window for its features from 90 days to three weekends in exchange for a share of pay-per-view revenues.

HAWLEY v. SECTION 230

Section 230 of the Communications Decency Act was enacted in 1996. It shields “interactive computer services” from liability for content posted on their sites by third parties. In the early days of the internet, this allowed for the expansion of social media networks and other fledgling websites by relieving moderators of the daunting burden of reviewing every individual piece of user-generated content at the risk of liability for libel or copyright infringement.

This does not mean that privately-owned platforms have no discretion over what will be permitted on their sites. Every social media platform has terms of use governing hate speech, falsehood and other antisocial messaging. After first slapping warning labels on President Trump’s false posts regarding voter fraud, Twitter and Facebook have finally suspended his accounts completely following the January 6 invasion of the Capitol.

Sen. Josh Hawley (R-Mo.) is convinced that Facebook, Twitter and YouTube are tweaking their algorithms or manually moderating content to disfavor the circulation of conservative opinion. He introduced legislation in 2019 under which tech companies would lose Section 230 protection unless they can prove to the FTC that their algorithms and content-removal policies are politically neutral, and has since made this a signature issue. Mark Zuckerberg and other Silicon Valley executives were called before Congress to be raked over the coals. The idea of censorship by social media companies has become sufficiently widespread on the right as to prompt President Trump’s recent unsuccessful veto of the Defense Authorization Bill over its failure to repeal Section 230.

Section 230 has been in for its share of attacks from Democrats as well for its failure to regulate false and incendiary posts from the President on down. Even before the dramatic events of last week, Facebook and Twitter were self-regulating in an attempt to head off more aggressive federal action, culminating in the permanent suspensions of Trump’s account on both of those platforms.

US v. FACEBOOK & GOOGLE

The Justice Department brought an antitrust lawsuit against Google in October, 2020, followed by two antitrust actions in December by coalitions of states. Separately, the Federal Trade Commission, joined by a number of states have brought an antitrust action against Facebook. These have the potential to shake up the media landscape and also reflect a rethinking of antitrust law.

Since at least the Regan administration, antitrust enforcers have looked solely to consumer harm as measured by market efficency. If an alleged monopolist was not increasing prices or reducing quantity, then the law was not violated. The current suits instead allege that by using their market power to stifle competition, the two tech giants are preventing the emergence of new, potentially higher-quality services.

The FTC action points to Facebook’s acquisition of Instagram and What’s App. These companies both developed novel social platforms. Rather than develop its own feature set in response, it bought them out. The Google lawsuits accuse it of entering into exclusionary relationships (including with Facebook and Apple) to monopolize online search. They also claim that it rigs its search advertising business to block competitors from gaining a foothold.

FCC v. PROMETHEUS RADIO PROJECT

The FCC has been pursuing a deregulatory path for some time. Some of its actions, like the repeal of net neutrality, have received a great deal of attention. Others may not have received the attention they deserve. Local broadcast station ownership rules are not terribly sexy, but they address a conflict of basic policy issues that will soon be decided by the Supreme Court.

In 2017, the Federal Communications Commission, supported by the broadcast industry, agreed to relax certain ownership rules on local television stations, including those covering common ownership of newspapers and stations and radio and television stations in the same markets. These changes were challenged by Prometheus Radio Project and other plaintiffs, who have so far prevailed in the Third Circuit.

The FCC’s reasoning has been that local stations need to consolidate in order to have the economic strength to complete with unregulated online platforms. Without deregulation, they say, local television news could go the way of so many local newspapers. Prometheus’s argument to retain the cross-ownership rules is that this will limit opportunities for women and minority ownership of broadcast outlets.

The 2009 Universal ensemble comedy Couples Retreat sparked controversy when its Black performers were erased from the film’s international marketing. That controversy has come back to life as the film’s co-star Faizon Love has filed suit against Universal alleging that promises that were made to him were not kept.

Couples Retreat Movie Poster
Court filing

In posters for the US release, Love was billed fourth after Vince Vaughn, Jason Bateman and Jon Favreau, and pictured with Kali Fox, his onscreen partner, who also received prominent billing. Overseas, however, the names and likenesses of both performers were removed. This was first brought to public attention by UK newspapers when the picture was first released. Universal’s response was that the change was made to “simplify” the poster. It expressed regret and promised to pull the whitewashed poster from circulation

According to Love’s lawsuit, Love agreed not to sue Universal at the time based on specific representations that were made to him. Universal promised that it would cease any further use of the offending poster and offer recompense to Love in the form of future high-profile roles. Both of these promises were false, giving rise to his present claims for breach of contract and fraudulent inducement.

Love alleges that he has recently discovered that the poster can still be seen on movie websites around the world. As for the promises of future career benefits, Love stresses that he intentionally “opted for engagement and equanimity” with Universal and “endeavored to engage constructively.” To that end, he cites a personal apology he received at the time from Scott Stuber, one of the film’s producers who was then under a production deal with Universal. Stuber backed that apology with a promise to cast Love in a future movie that he produced for Universal. Adam Fogelson, who had just been promoted from head of marketing to studio chief, also called Love to apologize. Fogelson was joined on one of these calls by Vince Vaughn in which Fogelson and Vaughn committed to do a TV show with Love and suggested that making a “big deal” about the poster would not be good for his career.

The promised roles did not come through. Stuber is now head of original films at Netflix. Fogelson is now the chair of STX. Vaughn is still Vince Vaughn.

The complaint also asserts claims under California’s Fair Housing and Employment Act and the Unruh Civil Rights Act. It backs these claims by showing the paucity of Black faces in the top ranks of Universal’s executive suite and on screen, and also points to Gabrielle Union’s well-publicized complaints of discrimination around her firing from America’s Got Talent, which airs on Universal’s corporate sibling NBC. Love asserts that these continued disparities despite the proven success of Black Panther and other projects with Black leads are strong evidence of continued racial discrimination.

Universal has not commented on the lawsuit.

In my last blog, I expressed cautious optimism that the WGA was making progress in settling its long-running dispute with CAA and WME, the two largest talent agencies and the last two holdouts in signing a franchise agreement that would permit them to represent writers. In April 2019, the WGA directed its members to fire their agents who did not agree to abandon package commissions ownership of production companies. Since then, the WGA agreed that agencies could own stakes of up to 20% in production entities.

CAA announced in early October that it accepted the WGA’s requirements in principle, though both sides acknowledged there was still much to work through. This certainly proved true. The parties have reverted to type and both CAA and WME have sued for preliminary injunctions in their federal lawsuit with the Guild.

CAA’s position is that it has acceded to the WGA’s demands. The packaging issue is largely settled. As for wiip, the producing entity of which it is part owner, CAA put its interest into a blind trust. The trustee’s instructions are to sell off CAA’s stake to no more than the WGA’s approved 20% threshold. According to CAA, by seeking to impose additional conditions on a settlement the WGA is “refusing to take ‘yes’ for an answer.” One reason it cites for the Guild’s intransigence is personal animus against CAA on the part of David Young, the executive director of the WGA.

CAA alleges that this is causing it irreparable harm, a necessary showing for a preliminary injunction. In support of this claim, CAA notes that UTA, one of its leading competitors, has already settled with the WGA. It alleges that UTA has been using CAA’s uncertain status to poach its writer clients aggressively, saying that the WGA will “never” agree to franchise CAA. As a result, 18 of CAA’s former writer clients have jumped ship to UTA and 16 have gone to other agencies.

WME’s motion followed a similar script. The agency said that it had agreed to reduce its ownership in Endeavor Content to 20% only to be faced with an unreasonable set of new demands. As a result of its continued inability to represent writers, it claimed to have lost its relationships with “thousands of writers and hundreds of showrunners who may never return.” The continued boycott stymies its ability to sign new literary clients. It is also losing agents, including former partners. To top it off, WME accused the WGA of playing a role in the postponement of its parent company Endeavor’s planned IPO by smearing it publicly as a “risky investment.”

WME also alleged that the bare knuckles tactics of David Young crossed the line into personal animosity. It submitted a declaration from Rick Rosen, a WME partner, stating that Young threatened repeatedly to “kill” Rosen during an August phone call. Rosen goes on to say that when he reported this call to WGA President David Goodman, he inferred from Goodman’s response that such behavior “is both expected and condoned.” Young and Goodman have denied these claims.

Both CAA and WME argue that the WGA’s tactics bring it outside the exemption from antitrust law that applies to collective actions of unions. Both agencies argue that the Guild is pursuing illegitimate goals of “conquest” that go beyond protecting its members from conflicts of interest. The union boycott is also illegal because it involves nonmembers such as talent managers and writers who are also producers.

The WGA has not yet filed a response to these motions. In its public statements, it accused the agencies of walking away from the negotiating table and heading back to court as a bullying tactic. Its legitimate goal is to get to the bottom of the tangled ownership structures of the two agencies to be clear that any deal it makes truly resolves their conflicts of interest.