Tuesday, June 21, 2011

Altertantive(s) to Litigation

Even though I like my clients very much, I never fail to get a humorous response from my fellow practitioners when I say that sometimes I wish I could insist that any party interested in initiating a lawsuit had to be compelled to carry a hot iron bar in their bare hands twenty paces to demonstrate sufficient belief in the merits of their own case before being allowed to file any form of complaint. I know that seems harsh (and indeed it was when a variant of this procedure was used in medieval England), but it was an early – and extreme – example of an ADR [Alternative Dispute Resolution] mechanism at work.
A Little History
Trial by combat is typically something that is mentioned in passing (if at all) in most civil procedure courses. If it is mentioned, reference is usually made to the fact that parties to dispute could basically fight it out, and the stronger party (supported by “truth”) would somehow prevail. Variations to fighting included the ordeal of water, where a priest would invoke a tub of water to not accept a liar, after which the accused would be lowered in. If the accused floated, guilt was pronounced, as the water would be “rejecting” a liar (yes, I know this sounds a little Monty Pythonesque, but there you have it (and on a side note to talk about myself a bit here – I went to the same high school as did Terry Gilliam of Monty Python fame…but, back to trial by combat…) Once the parties had set upon some form of trial by combat, they each had to retire to a local monastery (or similar institution) where they were secluded for anywhere from several days to almost a month, compelled to pray, fast and seek the counsel of a priest, who would query them again and again and again to discover if they might want to “settle” instead. Interestingly, the only point at which a party could withdraw from a trial by combat was only after the actual combat commenced; the case could be “settled” any time before that. Thus began a very early form of ADR.
           Fast forward a few centuries when the common law had developed to the point of more precise procedure and potential litigants had more of a choice as to where to take their claims: the Court of Common Pleas, the King’s Bench, the Chancellor of the Exchequer and so on. Taking advantage of any one of these forums would generally preclude physical violence as a procedural option. However, burdened by the highly technical forms of writ-based pleading, these courts still were not able to efficiently address or resolve many of the disputes of the day. Think about our modern concept of easily pleading the breach of a partially performed oral contract; the closest you might be able to in one of these courts was by pleading indebitatus assumpsit, wherein you would stretch the already rigid writ of assumpsit whenever you were stuck in the situation where you had already delivered the goods to the defendant and now wanted to be paid. And here’s what that writ/pleading looked like “back in the day”:

“The King to the sheriff, etc. in Trespass to show that, whereas the said defendant heretofore, to wit (date and place) was indebted to the said plaintiff in the sum of for divers[e] goods wares and merchandises by the said plaintiff before that time sold and delivered to the said defendant at his special instance and request, and being so indebted, he the said defendant in consideration thereof afterwards to wit (date and place aforesaid) undertook and faithfully promised the said plaintiff to pay him the said sum of money when he the said defendant should be thereto afterwards requested. Yet the said X, not regarding his said promise and undertaking but contriving and fraudulently intending craftily and [subtly] to deceive and defraud the said plaintiff in this behalf, hath not yet paid the said sum of money or any part thereof to the said plaintiff (although oftentimes afterwards requested). But the said defendant to pay the same or any part thereof hath hitherto wholly refused and still refuses, to the damage of the said plaintiff of ___ pounds as it is said. And have you there, etc.”

           Again, ADR – in the form recourse to the newer mercantile courts – provided a solution. Parties here would agree to be bound by some variation of what later became nominated as the Law Merchant, which had business-savvy judges applying more real-world commercial norms to resolve disputes. Thus began the Uniform Commercial Code.
ADR Now, Litigation Later...If At All....
As an attorney, I am a very strong believer in the necessity for aggrieved parties to have recourse to a court of law. The procedural rules, though highly technical and sometimes seemingly obtuse, really have as their noble goal the placement of the parties in equipoise: properly represented, the small side should be on an equal footing with the larger side so that the law can be applied fairly.
           That being said, I know that at the end of the day parties to a civil action usually come away feeling like the whole matter could have been handled better. Studies continuously bear out that the vast majority of parties to non-personal injury actions have stated that if given the chance with their opposing side, they probably could have worked out a more satisfactory result outside of court. Moreover, most of those polled agreed that the missing factor in a civil action was time, and time is the coin of the realm for a host of practice areas. As a practitioner, you need to be aware that the cycle time for concluding a civil action often does not serve the life cycle of the litigated subject matter, even if you end up representing the prevailing party. Accordingly, consider the merits of some form of ADR as a precursor to filing suit. Technology and entertainment provide are two areas where ADR makes sense.
In high technology practice, “Moore’s Law” dictates that the speed of an average CPU (i.e., the computer’s brain) doubles approximately every 18 months. This means that the shelf life for most software programs is about one year, and is in fact often less. While you might be able to obtain some timely injunctive relief, today’s fast-track rules don’t really capture technology’s life cycle to make civil litigation the preferred forum for resolving disputes where the underlying subject matter surrounds things like software or the Internet. Let me give an example.
           In the not-too-distant past, I was asked to resolve a dispute between a technology house and one of its former employees. The technology house (I’ll call them “TechCo”) was in the posture of the plaintiff and the former employee (whom I’ll call “Programmer”) was in the posture of the defendant, who had threatened to file a counter-claim. This dispute arose out of Programmer’s alleged theft of TechCo’s trade secrets while developing a particular piece of software code. Programmer claimed that there was no theft as Programmer was never an employee, only an independent contractor. It gets worse: not only did TechCo retain Programmer under an oral contract, TechCo appears to have never properly protected its proprietary information in the first place such that it could credibly argue that such information should be subject to trade secret protection. But wait, there’s more: Programmer was prepared to allege that Programmer was retained by TechCo to develop the specific piece of code in question to allow Programmer’s own trade secret information to work with TechCo’s contemplated software program.
           I have to complement the counsel for both sides here as they realized that all parties stood to lose if this matter were not resolved in less than one month. Here’s what we all were able to come up with in non-binding mediation. Each side would release the other; TechCo agreed to a one time fee (approximating 1 year of what it would have paid Programmer as an employee) for an exclusive, one-year license to Programmer’s proprietary information; Programmer, in turn, agreed to a very robust set of cooperation obligations for this one-year period to work with TechCo finalizing, debugging and implementing this software for any of TechCo’s clients who purchased this software. At the conclusion of this one-year period, each side agreed to engage in substantive negotiations for the retention of Programmer as either an employee or consultant, and reduce an agreement covering such to written form, including how any of Programmer’s subsequent “inventions” would be treated (e.g., TechCo as having right-of-first refusal, work-for-hire, etc.). Importantly, it took only 1 day for us to hear, analyze and craft an agreement for this. I doubt that any court could have compelled such a win-win solution in even 1 year.
In entertainment practice, cycle time is important, but so is the availability of really robust arbital forums. Luckily, a good portion of the entertainment industry is covered by collective bargaining agreements that provide for ADR – especially arbitration – with neutrals that really understand the “biz”.
           For example, let’s say you represent a screenwriter who has gotten the run-around from a quasi-professional producer who has a “housekeeping deal” with a studio (whereby the studio basically agrees to seriously consider any and all movie ideas presented by the producer during the term of the “housekeeping deal”). Your client was asked to perform what otherwise might be characterized as some non-substantial edits and this producer is now wanting a co-writing credit should your client’s script get optioned for development by a major studio. Obviously, you might be able to file suit alleging breach of a confidential relationship (and plead a Desny claim) in the hopes of getting this producer to cry uncle, but win, draw or lose, this course of action has the strong likelihood of destroying your client’s current (albeit imperfect) deal and also marking your client as a “suer”, foreclosing a lot of meetings with other producers in the future. A better tack would be to take advantage of the Writers Guild of America arbitration powers. Not only would your client arbitrate before a panel of three very well qualified writers, but a decision would be reached pretty quickly...and in this set of circumstances, the decision would likely be in favor of the screenwriter. This would allow you to continue work with your client moving this script in development and, hopefully, on to pilot format (I do like to be optimistic).
Conclusion & Resources
No matter what your practice area, though, keep in mind the costs that can be saved by you and your client when you elect ADR over civil litigation. Whenever I have a client who really wants to litigate I do a litigation budget that captures not only what it will cost to get to – and through – trial, but also how long it will take (I find Microsoft Excel displays this sort of data very clearly, especially for my high-tech clients).
           And I can tell you that once most of my clients go over this, they are soon asking me if there are other alternatives....

Tuesday, June 14, 2011

The Ultimate Copy Protection Scheme

A specter is haunting Hollywood  –  the specter of ongoing digitization. From nervous comments made at the most recent Academy Awards ceremony to the current activities of the entertainment trade associations, no segment of the intellectual property-based economy yet seems truly ready to take advantage of what digital technology has to offer – increased market share and correlative revenue potential.
           For those of us who practice entertainment law, royalty payments are the coin of the realm and profligate copying now poses a serious threat to the rightful creators and owners of the intellectual properties embodied in entertainment, be they in the form of movies, television, music, streaming media, games and so on. Looking back into the not-too-distant past, while domestic box office for 2005 stood at about 10 billion dollars, media such as DVD technology and the Internet have eaten into what many experts believe should have been 20 billion dollars because it is now possible to create a near infinite number of perfect copies for very little money. Mindful that ease of copying is no defense to a Copyright infringement action but to quote John Adams, “[f]acts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passions, they cannot alter the state of facts and evidence.” Today, the evidence is that digitally based media forms the primary – and not the ancillary – revenue stream for most of the motion picture studios. Or, as the head of one industry association put it, movies are now the loss leaders for DVD sales. This current reality is of specific importance to the legal community in the San Fernando Valley for the simple fact that ever since “Hollywood” came to Hollywood, the Valley is where much entertainment is conceived, produced, filmed, edited and distributed.
           As an attorney I am no believer that either national and international Copyright protection regimes should now just roll over and play dead simply because it is easier than ever to copy and trade in pirated product. However, as a semi-reformed computer geek and former employee of a major aerospace company (and without revealing anything too specific), I also know of no data encryption methodology yet devised that can’t be figured out and gotten around. Accordingly, what is to be done?
The answer lies in the implementation of the ultimate copy protection scheme: widely available product, reasonably priced. In other words, to stay on the cutting edge of new media, studios and other distributors of entertainment are going to have to continue to embrace digital technology and progressively drop “the price of admission”. It does take a certain amount of unmitigated bravado to think that this will work, however it is actually just this sort of scheme that made not only the movie industry in Southern California what it is today, but has allowed for each successive form of entertainment distribution to supplement – and not supplant – what is Los Angeles’ (and, by extension, the Valley’s) continuing economic miracle, even in these troubled economic time.
           Let’s start with motion pictures. Between 1900 and 1920, most of what would later become the major studios had sprung up in and around Los Angeles, providing very popular entertainment for very little money. Technological advances in sound recording soon made possible motion pictures with sound (i.e., “talkies”) and Hollywood smartly and swiftly adapted to this new technology. The result: throughout the Great Depression Hollywood continued to grow and become more profitable as theaters multiplied and ticket prices did not.
           Let’s now talk about radio. These very advances in sound recording soon led to advance in the transmission of sound-based media and during the Depression radio entered the arena as an alternative form of entertainment that for a brief time had Hollywood worried. Luckily, most of the early sponsors of radio (i.e., the major corporations) underwrote most of the programming and this, combined with the fact that a simple radio set was pretty affordable, actually increased peoples’ appetites for all forms of entertainment. The result: movies and radio began a parallel track of revenue generation that continues to this day.
           Let’s return to the movies. During the 1940’s and 1950’s the motion picture industry continued to grow. Hollywood was able to dominate as more theaters were opened and new technologies, such as Technicolor, were swiftly embraced. Theater attendance increased and all the while ticket prices remained low. Sometime in the 1950’s, an even newer technology again had Hollywood worried: television. What looked like a combination of radio and movies appeared poised to replace films. Whether by design or default, though, the motion picture studios neither decreased the number of theaters they built nor drastically increased ticket prices. The result: television soon joined radio and movies as a very profitable industry, and continued to grow as an important – and profitable – segment of the “business”, especially for the Valley (psst...the real Brady Bunch house is located in Studio City).
Let’s turn to beta...oops, sorry...VHS technology. In the late 1970’s and early 1980’s it looked as if the twin assault on the “business” in the forms of cable television and VHS would quickly bring down the major studios. However, the very technology that many entertainment executives and trade associations were decrying one year became – literally – one of Hollywood’s most profitable ancillary markets the next: movie rentals, in the form of studio syndication to cable television companies and videotapes. And whether you were going to see a film at your local theater, watching a movie on Channel Z or renting something from your local video store, the price always worked out to a few bucks a flick. The result: let’s just say that if I had authored this article for Variety magazine sometime in the mid-80’s, it might have been entitled “Studio Big Wigs Now Dig Vid”.
           How I wish this pithy title evinced the industry’s collective attitude to today’s twin digital technology of the Internet and DVDs. Ironically, just as DVDs and streaming movies are becoming a viable supplement to theatrical revenues, the studios are not really aggressively embracing current technology. The result: producers and distributors of entertainment continue to tear at their own Achilles heel by decreasing the number of theater seats while drastically increasing ticket prices and limiting the availability of digital media. Today, there are fewer local rental outlets and very little available over the Internet (e.g., Netflix) compared to the actual “global” library of available films, even as optical cable can handle the transmission of movies to one’s home theater system. Luckily, current distribution models already exist that should be replicated.
           A few years ago I took a break from my usual evening reading (i.e., Witkin, Weil & Brown, Nimmer, etc.) and sat down on the couch, turned on the living room television, switched to cable, came across yet another AOL commercial for high speed Internet service (psst...the guy who comes onto the track field and says, “...don’t want to pull a hammy....” is my brother) and then watched Lawrence of Arabia. I realized that my viewing (or “renting” to be technical about it) Lawrence of Arabia already operated under a regime where my family paid about $2.00 to watch a movie (courtesy of Adelphia at that time)... again: widely available product, reasonably priced.
           Not too long ago the Motorola box was replaced by a Wii-type box that stays connected to a Netflix-type server that streams movies to our home. The potential revenue pool to be generated by this type of technology is going to be one of the key subjects to be [re]negotiated in many of Hollywood’s collective bargaining agreements over the next few years and I’m already putting together some specialized contract clauses for my clients that contemplate some sort of reasonable royalty payment for just this sort of thing.
           Keep an eye on the iPod, music downloads for $0.99 and Apple’s iCloud for a preview of more things to come.

Saturday, June 11, 2011

Dastar Corp. v. 20th Century Fox, et al.: Implications For In-House Counsel & Others

For those of us who practice in the intellectual property arena, the implications of the U.S. Supreme Court’s holding in Dastar Corp. v. Twentieth Century Fox Film Corp., et al., 123 S.Ct. 2041 (2003) continue to reverberate throughout the entertainment field...especially for in-house counsel and those tasked with maintaining and exploiting any institutions intellectual property. This article will brief the Dastar case and then provide some suggested best practices.
Factual Background
In 1948, Doubleday published General Dwight D. Eisenhower’s famous book, Crusade in Europe and soon thereafter Fox obtained the exclusive rights to create a television series under the same name. In 1949, Fox produced (utilizing narration based on General Eisenhower’s book and stock film from the U.S. government along with various other sources) and aired a 26-episode television show entitled Crusade in Europe.
In 1975, Doubleday renewed the copyright in the book, but Fox failed to renew the copyright in its television series and in 1977 the television show Crusade in Europe entered the public domain. Nonetheless, in 1988 Fox reacquired the television rights to the book and licensed other companies the right to distribute Crusade in Europe on video. SFM Entertainment and New Line Home Video thereafter acquired the exclusive right to manufacture and distribute the Crusade in Europe television series on video.
Anticipating substantial renewed interest around the time of World War II’s 50th anniversary in 1995, Dastar bought betacam tapes of the original Crusade in Europe television series, copied those tapes, edited them and sold its television series entitled World War II Campaigns in Europe, removing any reference to Eisenhower’s book and crediting itself as the producer of its series entitled World War II Campaigns in Europe.
Procedural Posture
In 1998, Fox brought suit in District Court for copyright infringement and violation of §43(a) of the Lanham Act [15 U.S.C § 1125(a)]. The District Court found that Dastar had infringed on the copyright to the Crusade in Europe book, and also that Dastar had engaged in “reverse passing off” of the television series, claiming that Dastar wrongfully claimed that its Television series was really the property of Fox. The Court of Appeals for the Ninth Circuit reversed the copyright claim, remanding it back to the District Court, but affirmed the “reverse passing off” claim based on §43(a) of the Lanham Act. Dastar petitioned the U.S. Supreme Court and the Court soon granted certiorari.
Supreme Court’s Holding
The Supreme Court’s holding is one of the most interesting of the past few years, applying the facts of this case to the contours of copyright, trademark and patent law, demonstrating that any one of these unique species of intellectual property law can not be extended to the point where it would encroaches upon any of the other form of intellectual property protection, let alone the field of public domain.
The text of the holding largely turned upon what the term “origin” means within the context of the Lanham Act. As trademark law is designed primarily to protect consumers from confusion with regard to the manufacture of goods, “origin” relates to the entity that manufactures and/or produces the tangible goods that are sold in the marketplace [See, e.g., 4 J. McCarthy Trademarks and Unfair Competition, § 27:7 et seq. (4th ed. 2002)]. Accordingly, attempting to stretch the definition of the word “origin” to also include the creator of the ideas embodied in manufactured goods would conflict with copyright law. In summarizing the utility of trademark law, the Court noted that this specific body of law exists to protect consumers from false designations of origin of manufacture, not what might arguably be called false designations of creation.
Using Coca-Cola as a baseline, the Court stated that a typical consumer would not readily believe that the Coca-Cola Co.’s trademark in Coke necessarily implies that Coca-Cola was the original creator of the formula for its soft drink. Extrapolating from this and addressing the potentially special treatment the Lanham Act might accord to what could be called a “communicative product” (e.g., a book), the Court then held that creating a new class of products where “origin” connotes not only manufacture but also creation would directly conflict with both copyright and patent law, both of which allows the public to copy without attribution intellectual property that falls into the public domain. Even though the 1988 revisions to the Lanham Act expanded its application, the Supreme Court stated that the Act’s purpose was not the protection of creativity and cited with approval Dunhill v. Interstate Cigar, noting that, “…§43(a) does not have boundless application as a remedy for unfair trade practices….” Alfred Dunhill, Ltd. V. Interstate Cigar Co. 499 F.2d 232, 237 (1974). Writing for the majority, Justice Scalia also noted that while there may be perceived “moral” crossovers between copyrights, patents and trademarks, one species of protection simply can not be reconfigured to create preemptive rights in works that are in – or fall back into – the public domain. A key subtext is that §43(a) of the Lanham Act can not function as a means to protect what might be nominated as “moral rights”, creating a new class of intellectual property rights that does not yet exist in any substantial form in the U.S. Exceptions to this blanket prohibition to “moral rights” do exist, but they are very narrowly construed, and then typically apply only to the classic visual arts per se [see 17 U.S.C. § 106(a)(1)(A) et seq.; but cf., Article 6bis, Berne Convention for the Protection of Literary and Artistic Works (1971 Paris Act)].
Oral Argument
In his argument on behalf of the United States, the Assistant to the Solicitor General stated, “…the original television series was subject to a copyright, but that copyright expired in 1977 because respondent, Twentieth Century Fox, failed to renew it….if respondent had renewed it, one suspects that we wouldn’t be here today….” [Oral Argument of Gregory G. Garre, Esq., Asst. to the Solicitor General, p. 17, lines 6-10 (April 2, 2003) (emphases added)].
In other words, Fox simply dropped the ball when it came to renewing its copyright to prevent the lapse of Crusade in Europe into the public domain. Dastar, conversely, appears to have been much more on the ball by anticipating renewed interest in World War II around 1995 and aggressively developed and priced its own product. It should be particularly noted that Dastar distributed its World War II Campaigns in Europe for about $25 through retailers such as Sam’s Club, Costco, Best Buy and mail-order distributors, hitting just the right target market at the right price.
Herein lies the key implication for counsel, especially those working in-house for an entertainment company: aggressively manage any and all of your client’s intellectual properties. And, as the Supreme Court focused upon the term “origin”, let’s hone in on some specific strategies that can directly benefit your current (and hopefully, future) entertainment clients.
First, take an inventory. Make sure that your client maintains a database of any and all intellectual properties and provides appropriate triggers for action as expiry dates come due. If you provide legal services for a motion picture production and/or distribution company, you may have to set up a not-too-complex, flat-file database (I like Excel for this myself) that lists each copyright, registration and renewal dates, to whom it may be licensed, key license terms, payment schedules, and so on, and so on.
Second, identify potentially beneficial target markets. Work with your client to get them to brainstorm about any and all configurations for their media. This is what Dastar did when it simply recognized the strong likelihood of renewed interest in this World War II (and what Fox did not when it let its copyright lapse). While this may sound a bit like encouraging purely business activities upon your client, it is also about beginning to develop a licensing strategy. For example, assume you work with a film production company that also distributes its own products. This studio might be well on its way to establishing itself as a production entity, attracting the best talent (ranging from directors to actors to photographers, etc.). Might they be interested in licensing, say, their older movies to other distributors so that more attention (and financial resources) can be placed upon motion picture production?
Third, develop a licensing strategy that correlates to your client’s business goals. For the film production company above that has decided to emphasize creating (and protecting) new productions, identifying which profitable markets to target with their older product will necessarily inform the legal negotiations you will undertake on their behalf: exclusive licenses for new productions vs. non-exclusive licenses based upon territory for the older stuff; time-phased-licenses vs. perpetual licenses with decreasing minimum tiers of license fees; exclusive licenses for new media such as Internet streaming vs. non-exclusive licenses for select properties from your client’s video library; co-licenses vs. franchising…the list can go on and on but I suspect you get the picture (yes, pun intended).
            Fourth, do not forget about mediation and/or arbitration as a dispute resolution mechanism when violations of Copyrights occur. Admittedly, I’m not privy to all of the negotiations prior to the initial filing in District Court in the Dastar matter. However, I can speculate as to what might have been a very beneficial resolution to this matter for all parties. Instead of filing suit, counsel for Fox and team might have first contacted Dastar and entered into discussions during mediation or non-binding arbitration whereby Fox and Dastar might have entered into a cross-licensing arrangement whereby Dastar would be provided an exclusive license to the lower-tier distribution channels (e.g., Costco and the mail-order house mentioned above) and Fox would, in turn, distribute Dastar’s World War II Campaigns in Europe to the higher-end tier(s) (think, History Channel). Now imagine also that Fox and Dastar could bring Time-Life into this (as Time, Inc. was an original producer of the Crusade in Europe television series in 1949) and all three could enter into a new licensing agreement whereby they would jointly agree to provide Time-Life some form of exclusive distribution for multiple sets of World War II documentary films, of which its World War II Campaigns in Europe would be a key part. The financial rewards from such an arrangement would be manifest as Time-Life makes a fortune through its multiple-volume distribution business (think, any decade’s supposed musical hits and Time-Life is there selling a series on it).
I like to think that I am sufficiently savvy as a practitioner to know that there may have been simply too many parties (e.g., Fox and Doubleday and Time and SFM Entertainment and New Line Home Video) along with too many precedent contracts for a workable solution in this particular matter. However, a lesson learned from Dastar is that you should work as closely as possible with your entertainment clients ensuring that the embodiments of the intellectual property are gathering as little dust and as much money as possible!