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Home Runaway 20th Annual Entertainment Law Issue Anticircumvention
s 511
hic .
Et n No 51
o e
ini pag
Op
20th Annual Entertainment Law Issue
MAY 2004, VOL.27, NO.3 / $3.00
EARN MCLE CREDIT
SAG President
Melissa Gilbert
speaks out on
the impact of
runaway
productions on
the film industry
page 27
Runaway
Home
Anticircumvention
Litigation
page 33
Fan Web Sites
page 15
Double
Taxation
of Actors
page 20
Foreign
Production
Incentives
page 24
Independent
Film Financing
page 44
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page 24
Contents
Los Angeles Lawyer
departments
The Magazine of the
15 Practice Tips
Fan Web sites and copyright
enforcement
By Dennis L. Wilson and
Konrad Gatien
Los Angeles County
Bar Association
May 2004
Vol. 27, No. 3
20 Tax Tips
A tax anomaly that penalizes actors
working abroad
By Barbara Rosenfeld
cover
51 Ethics Opinion No. 511
Sharing in fees as partner or
employee of two law firms
54 Computer Counselor
Remote computing rules for
attorneys
By Benjamin Sotelo and
James A. Flanagan
56 By the Book
Clearance and Copyright
Reviewed by Keith E. Cooper
columns
12 Barristers Tips
The extraordinary nature
of writ relief
By Randee Barak
Under the leadership of Melissa
Gilbert, the Screen Actors Guild
has fought to keep film
production in Los Angeles. In
“Runaway Home,” Los Angeles
60 Closing Argument
Civility? Yes, civility
By Bruce M. Ramer
features
24 Runaway Home
To keep film production at home, California and Los Angeles
must match the foreign incentives that are attracting
productions abroad
By Mark Litwak
33 Code Breaking
The anticircumvention provisions of the DMCA have
10
57
58
59
Letters to the Editor
Classifieds
Index to Advertisers
CLE Preview
withstood all constitutional challenges to the sanctions
against code breakers
By James D. Nguyen
Plus: Earn MCLE credit. MCLE Test No. 126,
lawyer Mark Litwak, a Beverly
sponsored by CourtCall LLC, begins on page 36.
Hills entertainment attorney
and producer representative,
44 Independent Wealth
offers an overview of the most
Financing counsel in today’s independent film market must
be a master of contract, surety, banking, and bankruptcy
popular production incentives
law as well as litigation and arbitration
enticing film production abroad,
By Jeffrey S. Konvitz
and California’s response. His
article begins on page 24.
page 44
Cover photo: Alex Berliner
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GARY RASKIN
ANN M. AGUILAR
DANIEL L. ALEXANDER
HONEY KESSLER AMADO
ETHEL W. BENNETT
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JOEL B. WEINBERG
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from
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By Keith E. Cooper, Gary S. Raskin, and Patric M. Verrone
HAPPY HOUR
Daily food and
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OFFICE DELIVERY
was a bond issue. Before Martha Stewart
his is Los Angeles Lawyer’s 20th annual
was a lifestyle (or a felon). Before Harr y
Entertainment Law issue. Much has
Potter was an empire. Before Hollywood was
changed since January 1985, when the
a planet. Before a period was a dot.
first Entertainment Law issue was published
Michael Jackson was at the top of the
on parchment paper with goat blood.
record char ts, not the most wanted list.
Art Buchwald had yet to see Eddie MurMichael Jordan had accomplished none of
phy in Coming to America. Luther Campbell
his multiple championships or
and 2 Live Crew had yet to
Keith E. Cooper,
retirements. Mikhail Gorbachev
record “Pretty Woman.” SamGary S. Raskin, and
was an obscure member of the
sung had yet to cast Vanna White
Patric M. Verrone
Politburo who had not yet tradeas a robot. Kim Basinger had yet
are the coordinamarked his forehead birthmark.
to turn down Boxing Helena. Ted
ting editors of this
Michael Eisner had just been
T ur ner had yet to colorize
special issue.
asked to save Disney by joining
Casablanca. Larry Flynt had yet
the company by the same people
to joke about Jerr y Falwell’s
who are now asking him to do
“first time.” The underlying
the same thing by leaving the company.
rights to Rear Window had yet to fall into the
In those days, we listened to LPs, recorded
public domain, and It’s a Wonderful Life had
on VCRs, and watched either VHF or UHF.
yet to fall out of the public domain. The
Winnie the Pooh heirs hadn’t even fired their Today we listen to MP3s, record on TiVos,
and download to either PCs or Macs. Back
first lawyer yet.
then, CDs were something that paid 9 percent
Back then there was no National Film
interest. Today, they’re something we burn
Registry. The United States hadn’t signed the
(interest rates are that low). Back then, HDTV
Berne Treaty. Copyright lasted 20 years less
was a technology only a few years away.
than it does now. There was an actor in the
Today, HDTV is a technology only a few years
White House, not the governor’s mansion.
away.
The Internet was a twinkle in Al Gore’s eye,
In 1985, MTV aired music videos 24 hours
and “Purple Rain” was a sliver in Tipper
a day. In 2004 it has aired 24 music videos. In
Gore’s.
When the first annual issue debuted, Keira 1985, Clear Channel owned less than 10 radio
stations. In 2004, it owns more than 10 percent
Knightly, Frankie Muniz, and Hilary Duff
of all radio stations. In 1985, Fox was not a
weren’t born yet. Rock Hudson, Orson Welles,
broadcast network. In 2004, based on its curand John Huston weren’t dead yet. Paris Hilton
rent lineup, it’s now only arguably one. In
was a place to stay in France. Homer Simpson
1985, there were three networks and 30 enterwas a character in The Day of the Locust. The
tainment firms making almost $100 billion
Rock was a prison in San Francisco Bay.
in revenues. In 2004, there are six networks
Twenty years ago, “Titanic” was synonyand six entertainment firms totaling $300 bilmous with disaster. “Google” was a term
lion in revenues.
known only to math nerds. “Survivor” was the
The Hot Topics of 1985 that found their
band that sang “Eye of the Tiger.” A wireway into the first Entertainment Law issue
less telephone was unfashionable. A comincluded celebrity rights of publicity, the regputer terminal was unportable. The Lord of the
ulation of personal managers, ever-changing
Rings was unfilmable.
TV development and production agreements,
These were the days before David Bowie
and conflicts of interest in representing entertainment clients. Okay, so maybe some things
Keith E. Cooper is a Los Angeles sole practinever change.
■
tioner specializing in copyright and entertainment law. Gary S. Raskin is a principal of
Garfield Tepper & Raskin, where his primary
area of practice is entertainment litigation.
Patric M. Verrone is an Emmy-winning writerproducer and secretary-treasurer of the Writers
Guild of America, west.
T
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LOS ANGELES LAWYER / MAY 2004 9
Professional
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Letters
egarding the Closing Argument column titled “The Case for Switching
Teams” (October 2003): Whatever the
merits may be for prosecutors and public
defenders to switch sides, there is a practical
aspect that must be taken into account and
undoubtedly was one of the bases upon which
district attorneys rejected such a proposal
during the time that I was a prosecutor.
If a prosecutor wanted to change sides, he
or she could only do so by resigning from his
or her position as prosecutor. Any effort to
make such a switch by taking a leave of
absence would be unlawful (Government
Code Section 25640; 66 Opinions of the
Attorney General 31). Thus if a prosecutor
made such a switch and then decided to
return in two or three years to the prosecutor’s office (as suggested in the column), he
or she would lose seniority and, depending
upon the applicable hiring policies of the particular district attorney’s office, probably any
promotions previously achieved in the prosecutor’s office.
Harry B. Sondheim
R
Regarding the October 2003 issue of Los
Angeles Lawyer: I just want to say that I
thought this issue was power-packed with
interesting and useful information by practicing lawyers who really know their stuff. I
am so impressed.
Maria Stratton
Re: “In a Class of Their Own” (January
2004), I felt the authors downplayed the significance and impact of the Ninth Circuit
Court of Appeals decision in Carpinteria Valley
Farms, Ltd. v. County of Santa Barbara (in
which I represented the plaintiff). It’s a precedent-setting decision. The court strengthened the civil rights of individuals who come
before local government. Its ruling sends a
clear message that local governments cannot
use their considerable power to harass and
abuse the civil rights of their citizens. In
Carpinteria, property owner Patrick Nesbitt
wanted to build on his 20-acre parcel in Santa
Barbara County. Through the process he
became an outspoken critic of Santa Barbara
County government. As a result, he submitted 11 applications to the county to develop
the property but was denied every time, while
neighboring property owners were allowed to
build under less stringent conditions. Nesbitt
was not silent about the way he was being
10 LOS ANGELES LAWYER / MAY 2004
treated, and that didn’t sit well with the county.
We don’t live in a police state where we are
harassed if we speak out against the government. Carpinteria makes it clear that improper
government behavior against its citizens will
no longer be tolerated. The authors, one of
whom represented Santa Barbara County in
Carpinteria, minimized the impact of
Carpinteria and wrote as if they were hoping
the decision would somehow go away. That’s
not going to happen. City and county government employees should be on notice that
they must now treat their constituency fairly
and with respect, or otherwise face the consequences.
A. Barry Cappello
The article titled “Marital Duty” (February
2004) was timely and well done; however,
it uses the term “Hobson’s choice” as a
euphemism for “two equally bad choices.”
In fact, the term “Hobson’s choice” means “no
choice available.” It derives from Hobson’s
New York City-based livery stable that lined
up morning rentals in a narrow alley for
the customers. Each customer had to take
the next horse in line or none at all. See
http://phrases.shu.ac.uk/meanings/183300
.html.
Scott Clarkson
Articles Solicited
To Our Readers:
Los Angeles Lawyer encourages the submission
of well-written, well-researched legal articles.
Manuscripts and query letters should be
sent to: Los Angeles Lawyer, P. O. Box 55020,
Los Angeles, CA 90055. Requests for a Style
Guide can be faxed to 213/623-4328.
The Los Angeles Lawyer Editorial Board
carefully considers all submissions.
Samuel Lipsman
Publisher and Editor
The LACBA Professional Responsibility and
Ethics Committee (PREC) prepares written
opinions and responds to questions by lawyers
concerning lawyers’ ethical duties and responsibilities. You may access PREC’s formal opinions through the LACBA’s Web site at www
.lacba.org/showpage.cfm?pageid=427. Formal
opinions are completed within six months to
a year. If you have a legal ethics issue (not currently in litigation), please contact Grace Lee
at (213) 896-6407 or [email protected]
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Tel: 213.738.6717 Email: [email protected]
Southwestern is a member of the Association of American Law
Schools and is approved by the American Bar Association.
A
N
D
barristers
tips
By Randee Barak
The Extraordinary Nature of Writ Relief
Writ petitions are very rarely granted, so
litigants should consider not filing them
or better or worse, litigants are increasingly resorting to petitions for writ mandate or prohibition to challenge any error that
does not result in an appealable order or judgment. Ninety
percent of writ petitions are summarily denied without explanation,
usually by postcard or terse order,1 however, and those pursuing
this remedy without success are sometimes left confused and disheartened as to why the asserted error was not addressed on the merits. At the heart of this confusion lies a misunderstanding that writs
are quick appeals designed to provide expeditious relief for trial
court error. In fact, writs and appeals are fundamentally different, serving distinct purposes and providing vastly different challenges for the
parties who pursue them.
A writ petition is, in effect, a plea to the court of appeal to exercise
its equitable power to rectify an injustice. Unlike an appeal, which must
be heard as a matter of right if timely filed after final order or judgment, writ review is thus extraordinary, equitable, and discretionary.
While an appellant’s challenge in an appeal is to persuade the appellate court of error requiring reversal of the final order or judgment,
the challenge in a writ petition is to persuade the court to hear the matter in the first place.
The reason for the different treatment is plain. In effect, a petition
for writ review is an attempt to cut into line ahead of those litigants
awaiting determination of a postjudgment appeal.2 To justify such extraordinary treatment, the party seeking review by writ must demonstrate
the trial court’s order subjects the party to harm that is manifestly
irreparable and cannot later be cured by appeal.3
The consequences if the rule were otherwise are easily imagined. Both the trial and appellate courts would become mired in gridlock if every trial court ruling were subject to immediate interlocutor y review.4 Inter vention before a final judgment or order also
disregards the potential for the case to settle, issues to diminish in
importance, and the error to be corrected by the trial court as the case
proceeds to judgment, making review unnecessary. Further, appellate courts are simply better positioned to address trial court error
in connection with an appeal than with a writ petition. Appeals provide
a more complete record, more time to deliberate, and greater insight
into the issues than a writ petition filed in the middle of a case with
a record of the petitioner’s choosing.5
F
Grounds for Writ Review
The question thus arises: Under what circumstances will a court
of appeal consider a writ petition on the merits? Because writ relief
is equitable, there is no set rule identifying every issue that lends itself
to writ relief. The California Supreme Court and courts of appeal, however, have identified general criteria for determining the propriety of
12 LOS ANGELES LAWYER / MAY 2004
extraordinary relief. Writ review is more likely to be granted when the
petition presents a significant or novel constitutional issue; an issue
of widespread public importance, particularly one for which resolution does not require a full and complete factual record; an issue
that has been recurring in the trial courts with conflicting results; a
clearly erroneous order that substantially prejudices the petitioner’s
case; or a ruling that causes irreparable harm for which there is no
adequate legal remedy.6
A trial court ruling ordering the production of documents in violation of the attorney-client privilege, for example, lends itself to
review by writ because production of the documents would destroy
the privilege, leaving the injured party irreparably harmed by the disclosure with no practical ability to unring the bell with an appeal.7 On
the other hand, the expense and delay in having to litigate the case
and then pursue an appeal, while perhaps an “irreparable inconvenience,” are usually not, by themselves, the type of harm that justifies equitable relief.8
Conservation of Judicial Resources
A petitioner may also request the trial court to certify an issue for
writ review, lending to the petition the trial court’s expressed belief
that the controlling legal issue is one about which “there are substantial
grounds for difference of opinion,” the prompt resolution of which
would “materially advance the conclusion of the litigation” and thereby
preserve judicial resources.9 The comments of the trial court concerning certification may assist a party, particularly one with limited
resources, in deciding whether to pursue
writ relief. A trial court’s certification
may also prove helpful to the appellate
court’s determination regarding whether
to exercise its discretion to hear the petition. Neither the granting nor the denial
of certification itself, however, is controlling on the determination of the court
of appeal.
Should a practitioner decide the issue
for which the writ may be filed truly is
one that demands extraordinary relief,
Randee Barak is a
careful attention should be paid to ascersenior appellate court
10
taining filing deadlines, providing as
attorney with the
full a record as is necessary to the resoCalifornia Court of
lution of the issue,11 and requesting a
Appeal, Second
stay of the order or proceedings if necDistrict.
essary. The practitioner should also be
aware that in certain limited circum-
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stances identified by the California Legislature—these include motions to disqualify a
trial judge,12 change of venue,13 motions to
expunge a lis pendens,14 and motions to dismiss or set aside a criminal information15—
review may only be had by writ and in accordance with the filing deadlines that are set
forth in the applicable statutes. Failure to
challenge these rulings by statutory writ procedures will foreclose review.16
The maxim that there is no such thing as
a perfect trial broadly applies to litigation in
general. Errors will and do occur. However,
before incurring costs associated with a petition for writ review with little likelihood of success, a practitioner would do well to recognize
the extraordinary nature of writ relief, consider carefully the availability of an adequate
legal remedy and whether irreparable harm
will result if the court does not entertain interlocutory review, and then, if the issue warrants it, file the petition for writ review with
an eye not only to asserting error but also to
persuading the court that the extraordinary
circumstances of the case require intervention by writ.
■
1
Omaha Indem. Co. v. Superior Court, 209 Cal. App. 3d
1266, 1271 (1989); Premium Comm. Servs. Corp. v.
National Bank of Cal., 72 Cal. App. 4th 1493, 1498
(1999).
2
Omaha Indem., 209 Cal. App. 3d at 1273.
3
Smith v. Superior Court, 41 Cal. App. 4th 1014, 102021 (1996).
4
Mitchell v. Superior Court, 50 Cal. 2d 827, 833-34
(1958) (McComb, J., concurring).
5
Omaha Indem., 209 Cal. App. 3d at 1273.
6
See Omaha Indem., 209 Cal. App. 3d at 1273 (summarizing proper issues for writ review).
7
Pacific Tel. & Tel. Co. v. Superior Court, 2 Cal. 3d 161,
169 (1970).
8
Ordway v. Superior Court, 198 Cal. App. 3d 98, 101
(1988), disapproved on another ground in Knight v.
Jewett, 3 Cal. 4th 296, 310 (1992). However, if the order
is plainly erroneous and would result in certain reversal requiring the petitioner to undergo two trials, writ
relief is more likely. Marron v. Superior Court, 108
Cal. App. 4th 1049, 1056 (2003).
9
CODE CIV. PROC. §166.1.
10
Volkswagen of Am., Inc. v. Superior Court, 94 Cal.
App. 4th 695, 701-02 (2001) (“An appellate court may
consider a petition for an extraordinary [nonstatutory]
writ at any time…but has discretion to deny a petition
filed after the 60-day period applicable to appeals, and
should do so absent extraordinary circumstances justifying the delay.”).
11
CAL. R. OF CT. 56(c); Seman v. Superior Court, 40 Cal.
3d 240, 246 (1985).
12
CODE CIV. PROC. §170.3(d); People v. Hull, 1 Cal. 4th
266, 274-76 (1992).
13
CODE CIV. PROC. §400.
14
CODE CIV. PROC. §405.39.
15
PENAL CODE §§995, 999a.
16
A judgment of contempt that is made final and conclusive by Code of Civil Procedure §1222 is not appealable as well. See CODE CIV. PROC. §904.1, subd. (a)(1).
Review under this condition may only be had by writ
of certiorari (in the case of a fine) or by habeus corpus
(if jail time is imposed). In re Buckley, 10 Cal. 3d 237,
259 (1973).
14 LOS ANGELES LAWYER / MAY 2004
practice
tips
By Dennis L. Wilson and Konrad Gatien
Fan Web Sites and Copyright
Enforcement
Fan sentiment
distribute images, songs, and
video of a quality that rivals the
originals can align that fan, howmust be
ever well-intentioned, with the
digital pirates and street corner
considered in
salesmen who undermine the
creative arts. Fans may be minors
planning for
and may not intend to cause damage, however, so should celebrienforcement
ties and movie studios enforce
their rights against infringers
fan of Britney Spears who are otherwise an active part
establishes a Web site in of their fan base? The best option
her honor, never imagin- for rights holders may be to strike
ing that the star, herself, would a balance with fan sites, perhaps
ever object. That assumption may by establishing a Fan Authorized
be unwarranted, however, unless Network (FAN), which would
the fan takes care about what provide authorized images for
appears on the Web site. What free to fan sites under terms that
can the fan post on the site with- are clear to everyone involved.
The issue of whether to
out having to worry? Is even one
picture of Spears too many? What enforce intellectual proper ty
about 10, or 1,000? Will it be rights against fans is a result of
acceptable to post the lyrics of the Internet. A broad spectrum of
one song or an entire CD? content is available on fan sites.
Similarly, what about audio and Some sites use only a few images
video clips? If the fan’s site does of a motion picture or celebrity in
not contain these items, can it order to provide a forum for dishave links to unofficial sites that cussion and noncommercial
do? Can a site have a chat room appreciation of films and stars.
for other fans to talk about The images on these sites are
Spears—and perhaps post files used without permission, but the
use is focused on
and links? Can the
Dennis L. Wilson is a
providing a forum
fan add some
founding partner of
for comment. The
humor to the site
Keats McFarland &
use is often nonby posting pictures
Wilson LLP, in Beverly
commercial, which
of Spear’s face on
Hills. Konrad Gatien
shields against
the bodies of other
is an associate at the
right of publicity
pop stars or pastfirm.
statutes1 and posing her image into
comical scenes?
sibly gains protecThe answer is
tion under the fair
that the adage that “all publicity use doctrine.2
is good publicity” is no longer
At the other end of the spectrue. The technological advances trum are sites that engage in
in the distribution of image, commercial copying of a film stuaudio, and video files have dio’s product or a celebrity’s likechanged the way that a fan can ness. Whatever the intentions of
express devotion. A fan’s ability to their operators may be, these fan
RICHARD EWING
A
sites directly target and trade
upon protected intellectual property rights. The unauthorized
material used by these sites can
include quotes, lyrics, text, graphics, video, and audio. They may
also include unauthorized image
libraries, episode guides, slide
shows, complete television
episodes or motion pictures, commercial exploitation of television
trivia, and video libraries that
include nearly every scene of an
actor’s filmography. In addition,
these fan sites often include unauthorized derivative works such
as video games or short films.
While individuals, and not corporations, may operate these
exploitative fan Web sites, direct
pecuniar y compensation is
involved in the form of paid memberships or unpaid memberships
in which users are required to
submit personal contact information (which can later be sold).
Some so-called fan sites charge
for downloads of music or video
clips, using online payment methods. Many fan sites frequently
contain banner adver tising,
which benefits either an individual fan site operator, the site’s
Internet service provider, or both.
In order to protect their financial
interests, the identity of the operators and ISPs for these fan sites
are often concealed by false or
LOS ANGELES LAWYER / MAY 2004 15
incomplete information on Web page owner
and operator lists. Clearly, the term “fan” is
misapplied to these commercially exploitative sites.
Ultimately, fan sites diminish the value of
copyrighted or protected work, whether they
are nonprofit or commercial. First, fan sites
saturate the market and devalue the worth of
protected work. If a celebrity image in a calendar is posted on a Web site accessible at no
cost to the consumer, sales of the calendar will
decrease. If clips or entire episodes of a popular television program are available online,
it will diminish the syndication or DVD sales
value of that program. Fan sites also diminish
the value of official Web sites, directly competing in search engine results and distracting or even blocking consumers from finding
licensed and authorized content.
Fan sites also often use celebrity images
in a manner unintended by the celebrity. The
most egregious form of misappropriation of
a celebrity’s likeness is the unauthorized
copying and distribution of an image out of
context. For example, Halle Berry received
an Academy Award for her performance in
the film Monster’s Ball. Her performance was
recognized for the way Berry portrayed her
character’s loss of husband and son and the
character’s subsequent relationship with a
man whose background was steeped in
racism. Within days of the film’s release on
DVD, nude images and video clips of Berry
taken from the film appeared on Internet fan
sites without the requisite context of the film.
Obviously, actors do not consent, merely
by their agreement to participate in a motion
picture with sexual content, to have fan sites
distribute nude photos and video clips of
themselves to the world. The actions of fan
sites in such cases, however, has the effect
equivalent to an actor’s posing for sexually
explicit photos without pay and agreeing to
unlimited distribution. This example is indicative of the price that all copyright holders
and owners of individual rights of publicity pay
when their property is used with impunity.
Copyright Violations
Legal enforcement of intellectual property rights is, therefore, a fact of life. The primary legal basis for suing fan sites is copyright infringement. Since the first Copyright
Act was enacted, Congress has attempted to
strike a balance between rights holders, for
whom ownership of intellectual property is
necessary for continued productivity, and the
public, which is entitled to benefit from the
free exchange of information and ideas.3 On
the one hand, continued productivity is
ensured through copyright protection for 70
years beyond the lifetime of the individual
creator or 95 years from the publication of a
16 LOS ANGELES LAWYER / MAY 2004
work for hire. On the other hand, First
Amendment protection and the free exchange
of information and ideas are ensured by the
fair use doctrine, which provides for unauthorized use of copyrighted material under
certain circumstances.4
Too often, the content of fan sites goes
beyond fair use and infringes on one or more
of the six exclusive rights that the Copyright
Act grants to copyright holders: reproduction, adaptation, distribution, public performance, public display, and public performance
by digital audio transmission of sound recordings.5 For example, in order to place an image
on a fan site, its operator must upload that
image to the Internet or take an image from
another source and place it on the fan site. In
either case, the site operator is making a copy
of the work and is therefore subject to liability under 17 USC Section 106(1).6 To establish
unlawful reproduction, a plaintiff must prove
that a defendant had access to the original
work and that there is substantial similarity
between the original work and the defendant’s work.7 This burden is easily met in the
case of nearly all fan sites.
Courts have found unlawful copying of
entertainment and celebrity products in a
wide variety of contexts, all of which have
relevance to fan site reuse. Repeatedly, for
example, courts have held that reworked plot
summaries are copyright violations. In Twin
Peaks Products, Inc. v. Publications International, Ltd.,8 the Second Circuit found copyright infringement in the unauthorized publication of detailed plot summaries of the
popular television show Twin Peaks. And in
Castle Rock Entertainment v. Carol Publishing
Group, Inc.,9 the same court found liability for
the unauthorized publication of Seinfeld trivia
in the book the Seinfeld Aptitude Test, a commercial attempt to trade upon both the popularity of the television program and the familiarity of the SAT. Additionally, in Paramount
Pictures Corporation v. Carol Publishing Group,
Inc.,10 liability was found for the unauthorized
use of images and plot details of Star Trek in
an unauthorized book purporting to explain
the popularity of the show.
Similarly, the unauthorized use of video
clips is held to be infringing even when defendants claim to be using the clips in a documentary or newscast. In Elvis Presley Enterprises v. Passport Video,11 the Ninth Circuit
found infringement for the unauthorized publication of a video purporting to explain the
popularity of Elvis Presley, and in Los Angeles
News Service v. CBS Broadcasting, Inc.,12 the
court found infringement in the unauthorized
copying of the videotape of the beating of
Reginald Denny during the 1992 riots.
Perhaps it should go without saying that
the unauthorized copying of entire television
programs is actionable infringement, but to
leave no doubt, in Columbia Pictures Television
v. Krypton Broadcasting,13 a court upheld a
record-setting jury award of $32 million for the
defendant’s willful reproduction of 440 television shows. Courts have also found liability
for unauthorized copying from books, calendars, or Web sites of images protected by
copyright. In Playboy Enterprises, Inc. v.
Frena,14 a court found vicarious liability for a
Bulletin Board Ser vice operator who permitted the unauthorized uploading of images
from Playboy magazine to the Internet for
commercial gain. Another case, Religious
Technology Center v. F.A.C.T. Net,15 holds that
scanning copyrighted works and uploading
the scans onto a server for subsequent downloading by consumers is infringement. In
another case involving Playboy Enterprises,
Playboy Enterprises, Inc. v. Webbworld, Inc.,16
a federal court in Texas similarly held a defendant liable for creating downloadable copies
of protected works.
The second claim copyright holders can
level against fan sites is for unlawful adaptation. To do so, a plaintiff must prove that a
defendant has made a derivative work.
According to the Copyright Act, a derivative
work is “a work based upon one or more preexisting works, such as a translation, musical
arrangement, dramatization, fictionalization,
motion picture version, sound recording, art
reproduction, abridgment, condensation, or
any other form in which a work may be recast,
transformed, or adapted.”17 Because fan sites
collect, modify, compile, and often vary or
create new works based on the original copyrighted materials, the images on fan sites,
and even the fan sites themselves, may be
considered adaptations or derivative works of
the underlying copyrighted subject matter.
This finding subjects a fan site to liability
under 17 USC Section 106(2).
Two noteworthy cases that may be applicable to Internet fan sites have found liability
for the making of unauthorized derivative
works. In Mirage Editions, Inc. v. Albuquerque
A.R.T. Co.,18 the Ninth Circuit found liability
for removing prints from a book, pasting
them on tile, and framing them. In Greenwich
Workshop, Inc. v. Timber Creations, Inc.,19 a
federal district court in California found liability for framing bookplates cut out of copyrighted books containing reproductions of
original works of art, transposing them onto
canvas, and matting and framing them.
Although at least one other circuit court has
come to a different result on similar facts,20
these cases should be applicable to fan sites,
because fan sites often copy and paste protected images into new digital settings.
Perhaps the most novel issue regarding
the unauthorized creation of derivative works
is digital manipulation. The first case dealing
with this increasingly popular activity has yet
to be litigated. However, it is likely that a
defendant in such a case will claim that the
new work is a parody and therefore protected
by the fair use doctrine. An analogous case
along these lines was Leibovitz v. Paramount
Pictures Corporation, 21 which concerned
defendant Paramount Pictures’ use of a pregnant model photographed against a backdrop
similar to that used by Annie Leibovitz when
she photographed an eight-months-pregnant
Demi Moore for the cover of Vanity Fair.
Paramount, however, replaced the model’s
face with that of male actor Leslie Nielson in
order to promote the release of its film Naked
Gun 3313⁄ : The Final Insult. The Leibovitz court
held the use to be parody, protected by the
First Amendment, even though the use was
commercial.
To prove the third claim, unlawful distribution, a plaintiff must show that a defendant has disseminated a copyrighted work
without consent of the copyright owner.
Although the Copyright Act provides no definition of “distribution,” the term is synonymous with “publication” and requires the dissemination of a material object.22 Because
the Internet reaches millions of consumers
who can create a material object from downloaded data, a protected work is distributed
to consumers when a fan site places the copyrighted work on the Internet. Accordingly, a
fan site may be subject to liability under 17
USC Section 106(3) for unauthorized distribution of a copyrighted work without the
owner’s permission.23
To establish the fourth claim, that a copyrighted work has been unlawfully publicly
performed, a plaintiff must prove that a defendant has performed a copyrighted work without consent of the copyright owner. To perform a work to the public means to recite,
render, play, dance, or act it either directly or
by means of a film, slide, television image, or
any other device or process at a location that
is open to the public or at any place where a
substantial number of persons outside of a
normal circle of a family and its social acquaintances is gathered or where such work is
transmitted or otherwise communicated to
the public.
This may be accomplished by means of
any device or process, whether the members
of the public capable of receiving the performance or display receive it in the same place
or in separate places and at the same time or
at different times.24 For motion pictures or
other audiovisual works, this means to “show
images in any sequence or to make the
sounds accompanying it audible.”25 A protected work is performed on a fan site when
it places a copyrighted work to which this
definition is applicable on the Internet.
Accordingly, a fan site displaying such works
may be subject to liability under 17 USC
Section 106(4). This is in line with the cases
that include Columbia Pictures Industries, Inc.
v. Aveco, Inc.,26 in which the Third Circuit
found liability when a defendant allowed
patrons to rent videos and watch them in private rooms on the defendant’s premises without paying the copyright holders for the performances.
To establish that a copyrighted work has
been unlawfully displayed to the public—the
fifth possible claim—a plaintiff must prove
that a defendant has shown a copyrighted
work to the public without consent of the
copyright owner. To display a work to the
public means to show “a copy of it, either
directly or by means of a film, slide, television
image, or any other device or process”27 at a
public location. The right to display a work
extends to literary, musical, dramatic, choreographic, pictorial, graphic, and sculptural
works.28 Because fan sites provide viewable
images and sounds to millions of consumers,
a protected work is displayed when a fan site
places this form of copyrighted work on the
Internet. Accordingly, a fan site displaying
such works may be subject to liability under
17 USC Section 106(5).29
The final copyright claim deals with public performance by digital audio transmission of sound recordings. In this regard, the
Digital Performance Right in Sound Recordings Act of 1995 provides protected sound
recordings with a limited public performance
right by means of digital audio transmission.
Accordingly, fan sites that provide unauthorized downloading of copyrighted sound clips
and music may violate the public performance
right under 17 USC Section 106(6) when they
do not first obtain a license from the copyright
owner for interactive services in which consumers select and receive transmissions upon
request.30
A fan site operator’s best defense against
copyright infringement claims is fair use.
Operators can claim that they are entitled to
use photographs, reviews, image libraries,
audio files, video clips, derivative works, or
other proprietary material in order to provide a complete and interesting fan site or to
provide commentary. The Copyright Act’s
fair use exception creates a safe harbor from
liability for unauthorized use of a copyrighted
work for a limited set of purposes.31
However, the fair use exceptions are
unlikely to shelter fan sites, which generally
are not really engaged in one of the enumerated exceptions (“criticism, comment, news
repor ting, teaching…scholarship, or
research”) provided in Section 107 of the
Copyright Act. The sites are not designed to
report news or critique their subjects and do
not use the least material necessary to discuss
a film or celebrity but rather engage in general copying of catalogs and libraries of protected materials. Without an applicable fair
use defense, liability is easily established.
Other Causes of Action
In addition to copyright infringement, a
plaintiff may bring an action for federal trademark infringement under 15 USC Section
1114. This requires that the plaintiff show
ownership of a trademark that is valid and
legally protectable, and that the defendant’s
use of the mark to identify goods or services
is likely to create confusion as to the source
of origin of the goods or services related to the
trademark.32 However, such an action may
not be brought after the copyright for the
underlying work has passed into the public
domain. In Dastar Corporation v. Twentieth
Century Fox Film Corporation,33 the U.S.
Supreme Court recently held unanimously
that defendant Dastar was not liable under a
theory of trademark infringement. In this
case, Dastar had repackaged and sold a 1949
Twentieth Century Fox television series based
on General Dwight D. Eisenhower’s best-selling book Crusade in Europe. Because Fox
had neglected to renew its copyright registration on the series, it had fallen into the public domain. The Court determined that, once
a copyrighted work enters the public domain,
trademark law could not be used as an end run
around copyright law to continue to protect the
work, because the public owns the public
domain and may therefore be properly attributed as the source of the work at that time.
Another possible cause of action is found
under federal unfair competition. In Video
Pipeline, Inc. v. Buena Vista Home Entertainment, Inc.,34 a New Jersey federal court found
that the unauthorized use of movie trailers
online violated federal unfair competition law.
Similar causes of action also exist under state
unfair competition laws,35 as was the case in
MGM Studios, Inc. v. Grokster, Ltd.,36 in which
the unauthorized copying of music files online
was held to violate California’s unfair competition law. It should be noted that, if a plaintiff simultaneously brings a cause of action for
copyright infringement, it is likely that this
cause of action will be preempted.37
Individual celebrities may also allege violation of rights of publicity under common law
and various state laws.38 The definitions of
celebrity and fame have been broadened by
cases such as Downing v. Abercrombie &
Fitch,39 which found that the unauthorized
use of the names and likenesses of popular
surfers in a clothing catalog violated common law and state law rights of publicity.
Ultimately, the dilemma for rights owners
LOS ANGELES LAWYER / MAY 2004 17
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OVER 30 YEARS EXPERIENCE IN THE
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Telephone: 310-247-1883
Fax: 310-247-1888
E-mail: [email protected]
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CORPORATE
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18 LOS ANGELES LAWYER / MAY 2004
tokyo washington dc
is not whether they have a legal basis to stop
fan sites but whether they should expend
their resources doing so and face a potential
public relations backlash. The potential for
damage caused by fan sites with comprehensive catalogs of unauthorized materials
requires action by rights holders. However,
universal enforcement through cease-anddesist letters and civil actions requesting
injunctive relief and damages can result in fan
backlash and potentially unflattering media
coverage.
Many rights owners have addressed fan
infringement with a two-pronged approach—
first, acting to restrain the breadth of infringing materials available on sites, while second, providing fans with authorized images
and short video clips under a free licensing
program. This approach allows film studios
and celebrities to avoid controversy by freely
licensing authorized images under terms that
are clear to everyone involved. While limiting
distribution of the most damaging files, rights
owners are able to partner with fans by providing a limited librar y of materials from
which to choose. These files can easily be
downloaded in a matter of seconds. When
approached in this manner, fans are often
more agreeable about removing objectionable materials, and studios and celebrities
benefit from concurrent promotion.
If studios follow this methodology and
supply willing fans with officially licensed
images through a Fan Authorized Network,
and a fan site uses unauthorized images, the
fan site will likely be seen as a renegade that
is causing harm to the studio or celebrity. If
that fan site is then served with a cease-anddesist letter or perhaps sued by a film studio
or celebrity, then there will be no outcr y
because the core fan base will be undisturbed
and will see such legal action as justifiable.
This is especially true if the artist at issue promotes and endorses the FAN program.
The first steps toward FAN programs are
already evident in statements made by musical artists such as OutKast, when André 3000
lambasted the unauthorized downloading of
the hit song “Hey Ya!” off the multiplatinum
SpeakerBoxxx compact disc. He called such
downloading “straight stealing” at the
Billboard Music Awards in 2003. If celebrities
are not afraid to speak out to protect their
intellectual property rights, which have traditionally been associated only with wealthy
corporate entities for which fans feel little
loyalty or sympathy, it is possible for rights
holders to invite compliance and to continue
to protect their works without heavy-handed
legal enforcement that more often than not
has resulted in an unwarranted backlash
against the rights holders.
The Internet poses a dilemma in which
intellectual property rights holders must
choose between enforcement against or promotion of fan sites that, collectively, can
destroy the market for a product overnight.
Given the potential backlash resulting from an
enforcement campaign, establishing a FAN
program may be one way of finding a middle
ground between rights holders and fans. ■
1
See CIV. CODE §3344(a).
See 17 U.S.C. §107.
3
Recently, the constitutionality of the Sonny Bono
Copyright Term Extension Act of 1998, granting copyright protection to individuals for the life of the author
plus 70 years, retroactively, was upheld by the U.S.
Supreme Court. See Eldred v. Ashcroft, 239 F. 3d 372
(D.C. Cir. 2001), aff’d, 537 U.S. ____ (2003).
4
See 17 U.S.C. §107.
5
See 17 U.S.C. §106.
6
See MAI Sys. Corp. v. Peak Computer, Inc., 991 F. 2d
511 (9th Cir. 1993).
7
See Arnstein v. Porter, 154 F. 2d 464, 468 (2d Cir.
1946); Castle Rock Entm’t, Inc. v. Carol Publ’g Co., 150
F. 3d 132, 138 (2d Cir. 1998).
8
Twin Peaks Prods., Inc. v. Publications Int’l, Ltd., 996
F. 2d 1366 (2d Cir. 1993).
9
Castle Rock Entm’t, 150 F. 3d 132.
10
Paramount Pictures Corp. v. Carol Publ’g Group, Inc.,
11 F. Supp. 2d 329 (S.D. N.Y. 1998).
11
Elvis Presley Enters. v. Passport Video, 349 F. 2d
622 (9th Cir. 2003), amended and aff’d, Case No. 0257011
(9th Cir. 2004).
12
Los Angeles News Serv. v. CBS Broad., Inc., 305 F. 3d
924 (9th Cir. 2002).
2
13
Columbia Pictures Television v. Krypton Broad., 106
F. 3d 284 (9th Cir. 1997).
14
Playboy Enters., Inc. v. Frena, 839 F. Supp. 1552
(M.D. Fla. 1993).
15
Religious Tech. Ctr. v. F.A.C.T. Net, 901 F. Supp.
1519 (D. Colo. 1995).
16
Playboy Enters., Inc. v. Webbworld, Inc., 991 F. Supp.
543 (N.D. Tex. 1997).
17
17 U.S.C. §101.
18
Mirage Editions, Inc. v. Albuquerque A.R.T. Co., 856
F. 2d 1341 (9th Cir. 1988).
19
Greenwich Workshop, Inc. v. Timber Creations, Inc.,
932 F. Supp. 1210 (C.D. Cal. 1996); see also Munoz v.
Albuquerque A.R.T. Co., 829 F. Supp. 309 (D. Alaska
1993).
20
The Seventh Circuit disagreed based on the same facts
presented in the cases mentioned in note 19, supra, in
Lee v. A.R.T. Co., 125 F. 3d 580 (7th Cir. 1997).
21
Leibovitz v. Paramount Pictures Corp., 137 F. 3d 109
(2d Cir. 1998).
22
See Agee v. Paramount Comm., Inc., 59 F. 3d 317 (2d
Cir. 1997).
23
See, e.g., Playboy Enters., Inc. v. Webbworld, Inc., 991
F. Supp. 543, 551 (N.D. Tex. 1997); Playboy Enters., Inc.
v. Russ Hardenburgh, Inc., 982 F. Supp. 503, 513 (N.D.
Ohio 1997) (defendant distributed over the Internet).
24
See 17 U.S.C. §101.
25
Id.
26
Columbia Pictures Indus., Inc. v. Aveco, Inc., 800 F.
2d 59 (3d Cir. 1986). In addition, for cases finding
infringement of the right of public performance for
transmission of an image from a computer bulletin
board, an online service, or the Internet, see Playboy
Enters., Inc. v. Frena, 839 F. Supp. 1552 (M.D. Fla.
1993) and On Command Video Corp. v. Columbia
Pictures Inc., 777 F. Supp. 787 (N.D. Cal. 1991).
27
17 U.S.C. §101.
See Burwood Co. v. Marsel Mirror & Glass Prods., Inc.,
468 F. Supp. 1215 (N.D. Ill. 1979).
29
See, e.g., Playboy Enters., Inc. v. Webbworld, Inc., 991
F. Supp. 543, 551 (N.D. Tex. 1997).
30
See 17 U.S.C. §114(d)(3)(C).
31
See 17 U.S.C. §107, which enumerates the four fair use
factors:
1. The purpose and character of the use,
including whether such use is of a commercial nature or is for nonprofit educational purposes;
2. The nature of the copyrighted work;
3. The amount and substantiality of the portion used in relation to the copyrighted work
as a whole; and
4. The effect of the use upon the potential
market for or value of the copyrighted work.
32
15 U.S.C. §1125. See Checkpoint Sys., Inc. v. Check
Point Software Techs., Inc., 104 F. Supp. 2d 427, 456 (D.
N.J. 2000) (citing Fisons Horticulture, Inc. v. Vigoro
Indus., Inc., 30 F. 3d 466, 473 (3d Cir. 1994) (noting that
this standard applies to claims under 15 U.S.C. §§1114
and 1125)), aff’d, 269 F. 3d 270 (3d Cir. 2001).
33
Dastar Corp. v. Twentieth Century Fox Film Corp., 123
S. Ct. 2041 (2003).
34
Video Pipeline, Inc. v. Buena Vista Home Entm’t,
Inc., 275 F. Supp. 2d 543 (D. N.J. 2003).
35
See BUS. & PROF. CODE §§17200 et seq.
36
MGM Studios, Inc. v. Grokster, Ltd., 269 F. Supp. 2d
1213 (C.D. Cal. 2003).
37
See Kodadek v. MTV Networks, Inc., 152 F. 2d 1209,
1212-13 (9th Cir. 1998).
38
See CIV. CODE §3344.
39
Downing v. Abercrombie & Fitch, 265 F. 3d 994 (9th
Cir. 2001).
28
LOS ANGELES LAWYER / MAY 2004 19
tax
tips
By Barbara Rosenfeld
A Tax Anomaly That Penalizes
Actors Working Abroad
Article 17 of the
United States. The tests of physical connection to justify host
country taxation are a “permaModel Tax
nent establishment” or “fixed
base,” or a physical presence that
Convention may
continues for a period in excess of
183 days.5
result in double
Article 15, however, does not
protect actors. They are subject to
taxation
a provision common to most tax
treaties, Article 17,6 which govncome from services is gen- erns the tax treatment of “artistes
erally taxable where they are and athletes.” Article 17 shifts an
rendered, including foreign actor’s income tax liability from
countries. The rationale is that the United States to the host (or
the compensation is drawn from source) country, creating potenthe wealth of the host country, tially significant tax and reporting
and, consequently, it is the appro- obligations. This anomaly may
priate tax locus. There are, how- create tax liabilities that tax attorever, a number of exceptions that neys can help their actor clients
are intended to encourage inter- address.
The United States taxes the
national commerce by focusing
worldwide income of its citizens
taxation on residence.1
Article 15 of the Model Tax and residents7 and specifically
Convention of the Organization requires that they repor t all
for Economic Co-Operation and income, wherever earned, on the
Development (OECD), which is U.S. income tax return.8 If income
found in many
has already been
Barbara Rosenfeld is
treaties,2 is one partaxed where it was
vice president and
ear ned, a credit
ticular exception to
general tax counsel
can be claimed for
the general rule of
for the Motion
the foreign taxes
host country taxaPicture Association of
paid. 9 While this
tion. Transferring
America, Inc., and
tax liability to the
foreign tax credit
the Motion Picture
service provider’s
eliminates double
Association. She
countr y of resitaxation in theory,
wishes to acknowdence, Ar ticle 15
it does not necesledge the assistance
protects the direcsarily eliminate
of her paralegal,
tors, producers,
double taxation in
Milissa Brockish.
and crew members
practice. The U.S.
who are working
foreign tax credit
outside the United
may not fully offset
States from source country taxa- the foreign taxes paid, and
tion whenever there is a limited whether or not the credit elimiphysical connection3 in the for- nates double taxation, potentially
eign locale.4 In addition, Article complex reporting obligations
15 protects attorneys, accoun- remain for U.S. actors working
tants, and business managers outside the United States.10 An
who are working outside the examination of this state of affairs
I
20 LOS ANGELES LAWYER / MAY 2004
begins, however, with the treaties
that make such a notable exception for actors and other performers.
Income tax treaties are bilateral agreements that create a set
of adjustments and concessions
between the tax laws of two countries. Each treaty is negotiated
to avoid double taxation, which is
generally accomplished by relieving taxpayers of liabilities they
would other wise have in the
source countr y and enforcing
them in the residence country.
Model treaties serve as a starting
point for each bilateral treaty
negotiation, and the most commonly used of these is the Model
Tax Convention of the OECD.11
As noted by the Committee on
Fiscal Af fairs, the model was
drafted to clarify, standardize, and
confirm the fiscal situation of taxpayers engaged in cross-border
transactions.12 It is intended to
provide a uniform basis for
addressing, for the benefit of taxpayers and taxing authorities,
common problems of international taxation.13
Model tax treaties traditionally address prevention of international double taxation, tax
avoidance, and tax evasion.
Additional objectives include 1)
removal of the barriers to trade,
capital flow, and commercial
travel that result from the overlap
of two countries’ tax jurisdictions,
and 2) reduction of the burdens
of compliance upon taxpayers
who have minimal contacts and
earnings in a host country.14
Model treaties are ambulator y documents. The drafters
update and revise them periodically to address experience;
changes in economic, judicial,
legislative, and regulatory developments; new issues; and,
changes in the nature or significance of transactions between
the host country and foreign persons.15 Thus, it is possible that
Article 17 of the OECD Model
Convention could be narrowed
or eliminated.
Arbitrary Distinctions
Commentar y to Ar ticle 17
attempts, with limited success,
to define who is subject to its
exception. It includes a list of
“artistes” but concedes that the
term is not capable of a precise
definition.16 While film actors are
artistes, the commentar y says
that producers, directors, and
camera operators, among others
who are employed in the same
production as film actors, are
not.17 In 1987, the OECD Committee on Fiscal Affairs published
a lengthy report analyzing the
taxation of entertainers, artistes,
and sportsmen.18 The report examines the definition of “artistes
and athletes” and concludes that
the words refer to any person
engaged in “public enter tainment.”
It appears, however, that the
definition of “public entertainment” includes a film actor but
not a model, painter, or writer.
While a fashion model is definitely per forming in public,
Article 17 has been found not to
apply when the “primar y purpose” of the activity was the promotion, sale, and marketing of
products.19 On the other hand,
while the film actor is merely providing services that will ultimately
result in a product to be made
available to the public for entertainment (in a theater or at
home), in the same way as a painter, recording artist,20 or author, Article 17 applies to
the income of the film actor alone.
As a result of the vagaries in the definition
of “artiste” and “public entertainment,” the
OECD’s main principles, “that the income
from entertainment and sporting activities
should be taxed in the same way as income
from any other activities,” and that “artistes
and athletes” are “fully liable to tax…in their
country of residence and, ideally, should be
taxed accordingly,” are defeated.21 Article 17
creates uncertainty, confusion, and inconsistent results rather than promoting the objective of having a uniform means for addressing common problems in inter national
taxation.22 Understandably, U.S. actors may
wonder how they came to be singled out by
this article.
Ostensibly, the rationale for Article 17 is
the ephemeral nature of public performance
and the profit made from it. An excerpt from
the OECD Fiscal Affairs Committee demonstrates inherent inconsistencies in the justification for the adverse treaty treatment given
“artistes,” especially filmed entertainers. The
committee obser ves, “[T]he problems of
effectively taxing artistes and athletes are
rooted in the diverse forms their activities
take. Success can be sudden but ephemeral.
Relatively unsophisticated people—in the
business sense—can be precipitated into
great riches.…Travel, entertainment and various forms of ostentation are inherent in the
business and there is a tendency to be represented by adventurous but not very good
accountants.”23 Today, however, it is difficult
to claim that these criticisms apply more to
movie stars than they do to corporate executives. Moreover, the basis for the observations in the report was pop music concert
tours, not filmed entertainment.24
Excerpts from 1946 hearings before the
Senate Foreign Relations Subcommittee on
the 1945 treaty between the United States
and the United Kingdom further reflect the
absence of a factual basis to support the exclusion of film actors from the treaty protection
afforded other professionals.25 Although the
exclusion was justified in view of the supposed high income of film actors, statistics of
the time indicated that only 5 percent of the
members of the Screen Actors Guild (SAG)
earned more than $15,000 annually, with less
than 2 percent making $50,000 a year or more.
In 2002, SAG membership stood at 196,000,
with less than 2 percent of its members earning $100,000 or more per year.26 There are
professionals in other industries whose work
takes them outside the United States who
are at least as highly paid.
What emerges from review of the hearings
is the level of advocacy that was required to
overcome antipathy toward film actors. John
Dales Jr., executive secretary of SAG, asked,
“[W]hat is there different about our profession that we alone should continue to carry
the burden that our Government proposed to
lift from the backs of everyone else—doctors, lawyers, salesmen, businessmen, government representatives, and all other professions, businesses, and activities?” Dales
also argued: “[A]ctors as a class have proved
their desire, worthiness, and ability to take
their place in civic, community, and national
affairs, and in fact in times of emergency or
need are particularly called upon by their
National Government…to give freely of their
time and talents.”27
In 1946, industry groups ultimately persuaded the Senate and the T reasur y
Department that it was wrong to discriminate against actors, but the United States
began doing just that in the 1970s by including the “artistes and athletes” provision in
its tax treaties.28 This new U.S. treaty policy
may have been the result of Ingemar
Johansson’s efforts to bypass the effect of
the “artistes and athletes” provision in the
treaty between the United States and Sweden
on his earnings from three heavyweight world
championship boxing matches with Floyd
Patterson in the early 1960s.29
Johansson unsuccessfully attempted to
utilize a Swiss loan-out corporation to invoke
the treaty between the United States and
Switzerland, which provided for taxation of an
employee’s income in the country where a
corporation’s “business seat” was located
rather than where the ser vices were rendered. The Fifth Circuit ruled in 1964 that the
Swiss treaty protection was inapplicable and
did not exempt Johansson from a U.S. tax
liability of close to $1 million.
Article 17 Continues
As recently as 1987, an OECD report justified the continuing existence of Article 17 by
explaining that public performers are difficult
to track, often visit on a short-term basis (e.g.,
for a single concert or performance), and
reap large revenues from ticket sales at the
gate.30 While these reasons may justify applying Article 17 to public performers such as
boxing champions, they clearly do not apply
to film actors. Film actors are not difficult to
track, and they are likely to shoot for many
days or weeks in a given country, rather than
appearing for a single event.
In addition, payroll records track the duration and location of their services. Film actors
do not reap large revenues from ticket sales
at the gate but rather are paid salaries in the
same way as all the others who are involved
in a production. These fundamental distinctions between film actors and public per-
formers should justify narrowing the scope of
the “artistes and athletes” provision. Until
this occurs, however, tax attorneys with
clients who are affected by Article 17 will
need to plan the steps that are necessary to
minimize the article’s effects.
Dealing with Article 17
The anomaly of Article 17 creates complexity and potential additional tax costs for
actors. Apart from the inconvenience of compliance with a foreign countr y’s tax and
reporting obligations lies a more significant
issue—whether the foreign tax credit eliminates double taxation. The answer, in many
cases, is no.
While the foreign tax credit is designed to
prevent the double taxation that would occur
if the actor were to pay tax on income earned
outside the United States, in the other country and in the United States, the credit is limited. The foreign tax credit31 is limited to the
amount of federal taxes that would have been
paid on the same income.32 Consequently, in
some situations only part of the foreign taxes
paid for the year can be taken as a credit on
the taxpayer’s U.S. income tax return. The
portion of the foreign tax that is paid and
“creditable” that exceeds the amount of foreign tax credit that is “allowable” for the year
effectively increases the actor’s tax cost.33
The actor pays tax at a rate higher than the
U.S. rate and must use the excess credit in
another year.
An excess credit situation could arise by
either of the following: 1) the allowance of a
greater number of deductions in the United
States than in the foreign jurisdiction, effectively reducing the amount of foreign source
taxable income usable in the foreign tax credit
limitation calculation, or 2) higher personal
income tax rates in the foreign jurisdiction.
The most costly situation, however, is one
in which an actor’s personal service (or loanout) corporation contracts for the actor’s services outside the United States, and the foreign tax credit gets trapped in the corporation.
Since the loan-out corporation paid the foreign
tax, only the loan-out corporation can claim
the credit. The actor, who may be the sole
shareholder, will be taxable on his or her
income but will not be able to claim the credit
unless it flows through. Only use of a corporate structure that permits the foreign taxes
paid to flow through34 to the U.S. actor will
eliminate or minimize the potential for double
taxation.
To further complicate matters, Article 17
may not apply to all income that is payable to
a film actor. Royalties and sponsorship or
advertising fees, for example, may be governed by other articles of the treaty (e.g.,
Article 7, business profits; Article 12, royalties;
LOS ANGELES LAWYER / MAY 2004 21
or Article 15, employment income).35 Treaties
contain different rules for different types of
income. The OECD model treaty eliminates
source country taxation on business profits,
royalties, and employment income, unless
there is a sufficient physical connection to justify deviation from the residence rule. Issues
such as these can complicate tax matters significantly.
Moreover, since personal service income
is generally not subject to source country
taxation under Articles 7 and 15, but is under
Article 17, a clear apportionment is necessary when an actor performs in a dual capacity, such as acting and directing. The directing services are protected, while the acting
services are not.36 If the services to be provided do not fall clearly within one article or
another, the “predominant purpose” and
“proximate relationship” tests will likely be
used.37
Therefore, a clear allocation is important
when an actor’s activities generate multiple
types of income. For instance, when contracting for use of “name and likeness” and
acting services, the nature of each payment
should be clarified in the contract. The former
type of payment generates royalty income,
which is generally protected from source
countr y taxation38—unlike the acting services, which are subject to source country taxation and (as a result) potentially to double
taxation. In addition, many countries have
special rules for the taxation of “artistes and
athletes,” including special withholding mechanisms.
While model treaty review is an ongoing
process, and existing treaties are renegotiated
periodically, it is unlikely that Article 17 of the
OECD model will soon be changed or eliminated. In the absence of change to the OECD
model, there is little likelihood that a treaty
partner will give up a current benefit without
asking for something in return. Consequently,
it is important for tax advisers to recognize the
anomalous status of actors under tax treaties
and to minimize the complexity and costs of
compliance.39
■
1
See Johansson v. United States, 336 F. 2d 809, 814 (5th
Cir. 1964).
2
1 OECD C OMM . ON F ISCAL A FFAIRS , M ODEL T AX
CONVENTION ON INCOME AND ON CAPITAL M-1-60, summary of the convention (OECD, 2000) [hereinafter
MODEL TAX CONVENTION].
3
Id. at M-34. Paragraph 2 creates an exception to the
general rule if 1) the recipient is present in the other
country for a period not exceeding 183 days in the
aggregate in the relevant 12-month period, 2) the payments are made by or on behalf of an employer who is
not resident in the other country, and 3) the payments
are not borne by a permanent establishment that the
employer has in the other country.
4
Article 7 protects the “business profits” of a company, and Article 15 protects an individual’s “income
from employment.” MODEL TAX CONVENTION, supra
22 LOS ANGELES LAWYER / MAY 2004
note 2, at M-18-19-34.
5
Id. See also id. at M-13-14.
6
The model treaty provision applies to actors working
individually or through personal service corporations.
The original Article 17 was titled “Artistes and Athletes,”
and renamed “Artistes and Sportsmen” by the OECD
in 1992. The U.S. Treasury Model, in its 1996 version,
conformed to the OECD’s renaming. In the Treasury
Model, treaty protection is lost only after a $20,000
threshold is met. This is the most noteworthy difference
between the U.S. and OECD model provisions. The
threshold has not been increased since 1996.
7
See I.R.C. §§61, 7701(a)(30).
8
Id. See also I.R.C. §§894(a), 7852(d)(1) (establishing
the relationship between internal tax law and the treaty).
9
I.R.C. §901.
10
The United States has signed tax treaties with 54
countries. More than two-thirds of those treaties contain a provision subjecting actors to source country
taxation. See D ANIEL S ANDLER , T HE T AXATION OF
INTERNATIONAL ENTERTAINERS AND ATHLETES 287-299
(1995) [hereinafter SANDLER].
11
The Organization for European Economic
Cooperation (OEEC), the OECD’s predecessor, established a Fiscal Committee in 1956 to submit a draft convention for the avoidance of double taxation. Four
reports were prepared between 1958 and 1961 before
the final report was submitted in 1963, titled “Draft
Double Taxation Convention on Income Capital.”
MODEL TAX CONVENTION, supra note 2, at I-2. The OECD
currently has 30 member countries.
12
MODEL TAX CONVENTION, supra note 2, at I-1.
13
Id.
14
1 JOINT COMMITTEE ON TAXATION, 107TH CONG., STUDY
OF THE OVERALL STATE OF THE FEDERAL TAX SYSTEM AND
RECOMMENDATIONS FOR SIMPLIFICATION, PURSUANT TO
SECTION 8022(3)(B) OF THE INTERNAL REVENUE CODE OF
1986 97 (2001).
15
2 id. 445-446.
16
MODEL TAX CONVENTION, supra note 2, at C(17)-1.
17
See id. See also Priv. Ltr. Rul. 8339012 (June 23, 1983)
(holding that a U.K. director’s U.S. income was protected under the U.S.-U.K treaty, Article 14, independent
personal services), and Priv. Ltr. Rul. 8614021 (July 29,
2003) (holding that Articles 7 (business profits), and 14
(independent personal services), exempted payments
to a U.K. resident for development and directorial services rendered in the United States).
18
The Taxation of Income Derived from Entertainment,
Artistic and Sporting Activities, in 2 OECD COMMITTEE
ON FISCAL AFFAIRS, MODEL TAX CONVENTION ON INCOME
AND ON CAPITAL R(7)-1-41 (2000) [hereinafter Taxation
of Entertainment].
19
Field Service Advice 199947027 (Sept. 30, 1999)
(describing a test to determine whether an actor/model’s services fell within Article 17 and concluding that
they did not, since the primary purpose was promotion,
marketing, and sale, not entertainment). See also Tech.
Adv. Mem. 199938031 (Sept. 24, 1999) (establishing the
“proximate relationship” test for determining whether
endorsement income will fall within Article 17).
20
Taxation of Entertainment, supra note 18, at R(7)-5.
21
See id. at R(7)-6-7.
22
MODEL TAX CONVENTION, supra note 2, at I-1.
23
Taxation of Entertainment, supra note 18, at R(7)-4.
24
Id. at R(7)-5-9.
25
Conventions with Great Britain and Northern Ireland
Respecting Income and Estate Taxes: Hearing Before a
Subcommittee of the Committee on Foreign Relations
United States Senate, 79th Cong. (1946) [hereinafter
Conventions with Great Britain and Northern Ireland].
See generally Joel Nitikman, Article 17 of OECD Model
Income Tax Treaty—an Anachronism?, TAX NOTES INT’L,
May 21, 2001, at 2637-45.
26
Figures based on reports contributed by signatory
production companies to the Screen Actors Guild—
Producers Pension and Health Plan, Feb. 22, 2003.
27
Conventions with Great Britain and Northern Ireland,
supra note 25, at 84-85.
28
SANDLER, supra note 10. See also IRS, Income Tax
Treaties, available at http://www.irs.gov/businesses
/corporations/article/0,,id=96739,00.html.
29
Johansson v. United States, 336 F. 2d 809 (5th Cir.
1964).
30
Taxation of Entertainment, supra note 18, at R(7)-4.
31
I.R.C. §901.
32
I.R.C. §904(a).
33
I.R.C. §904(c) provides a three-year carryback and
five-year carryover for excess taxes paid, so the
increased cost is the lost time-value of money until the
credit can be used.
34
I.R.C. §1366 provides a pass-through of tax credits for
shareholders of S corporations.
35
MODEL TAX CONVENTION, supra note 2, at C(17)-3.
U.S. Treasury Department, Article 17—Artistes and
Sportsmen, in TECHNICAL EXPLANATION OF THE UNITED
STATES MODEL INCOME TAX CONVENTION ¶1 (Sept. 20,
1966). See also Priv. Ltr. Rul. 8339012 (June 23, 1983)
and Priv. Ltr. Rul. 8614021 (July 29, 2003), supra text
accompanying note 17.
37
Field Service Advice 199947027 (Sept. 30, 1999);
Tech. Adv. Mem. 199938031 (Sept. 24, 1999), supra
text accompanying note 19.
38
See MODEL TAX CONVENTION, supra note 2, at M-28.
39
See generally Alan J. Epstein, International Tax
Planning for Entertainment Industry Talent, in 1998
MEETING OF THE CALIFORNIA TAX BARS (1998); Paul A.
Sczudlo, U.S. Tax Planning for the Cross-Border Services
of Entertainers, Athletes and Other EntertainmentIndustry Service Providers, in 2003 I NSTITUTE ON
ENTERTAINMENT LAW AND BUSINESS (2003).
36
LOS ANGELES LAWYER / MAY 2004 23
By Mark Litwak
Runaway
Home
Production incentives from foreign jurisdictions
ven before globalization became a hot topic, California-based
movie industry workers complained that their jobs were
being exported. Producers seeking to reduce their expenses
were moving their productions to distant locations and leaving many potential cast and crew members behind. What really
irked the pool of highly skilled and trained industry workers
in California were the generous production incentives—
some enshrined in programs and others a by-product of
a different economic climate—offered by other nations
and even other U.S. states to lure producers away. This
trend was confirmed by several studies. One study
concluded that Canadian subsidies alone cost the
U.S. economy 25,000 entertainment industry jobs per
year.1 The U.S. Department of Commerce estimated in
2001 that foreign entertainment industry tax incentives
cost the U.S. economy more than $10 billion per year.
Despite this unfortunate impact on the U.S., California, and Los
Angeles economies, production incentives for “runaway productions”
are a reality. Entertainment lawyers and producer representatives need
to be aware of their existence, as well as the pros and cons of taking
advantage of them. A look at the more popular locations to which producers are shifting their work will illuminate the motivation behind
runaway productions. These locales are attracting productions with
E
24 LOS ANGELES LAWYER / MAY 2004
the promise of reduced costs because of economic conditions as well
as specially tailored incentive schemes, to which the California and
U.S. governments are now attempting to respond.
Many countries consider their production incentives to be a reasonable and equitable device to level the playing field and enable
their producers to compete against Hollywood. While some
incentives are designed to attract production dollars from
abroad into the local economy, other programs exist
solely to protect local filmmakers and their native
industry. Many countries believe that U.S. movies
unfairly dominate their domestic box office, thus
making it difficult for indigenous movies to attract even
local audiences.2 Indeed, the United States has some
distinct advantages in regard to the production and distribution of motion pictures. With a home market of 250
million people, most of whom speak the same language,
American producers have a substantial outlet for their movies even
if they fail to attract foreign audiences. But beyond their own domestic advantages, many American movies are very popular worldwide.
The U.S. movie industry is unique among American businesses in that
Mark Litwak is an entertainment attorney and producer representative
based in Beverly Hills, California.
KEN CORRAL
are playing an increasing role in
determining where films are made
it has a balance-of-trade surplus with every single country in the
world.3
Recently the French film industry proudly announced that French
films had briefly captured more than 50 percent of the French domestic box office. This was considered a significant feat as the French box
office, like those of many other countries, is dominated by Englishlanguage (mostly U.S.) films.4 If France, with a rich culture and language that it shares with many former colonies, cannot withstand the
onslaught of U.S. films, one can understand how many smaller countries find it difficult to challenge U.S. films in their own markets as
well as in the international arena.5
In 2002, U.S. films attracted 70 percent of all moviegoers in the
European Union.6 There were 665 million European admissions to U.S.
films in 2002, compared to 182.3 million admissions to European
films in their own market. Ticket sales for European films outside their
domestic market amounted to only 73.8 million.7 At the same time, foreign language cinema captures a mere one-half of 1 percent of the U.S.
box office.8
The domination of American films is not purely an economic and
trade issue. Foreign governments consider movies part of their culture, not just another export product. Motion pictures promote a
country’s language, customs, and attractions to audiences worldwide. Consequently, many governments encourage their citizens to
create films, especially those with local content.
As a result of this competitive disadvantage and desire to promote
their culture, many countries directly subsidize local film producers.
Some have negotiated coproduction treaties to encourage their producers to collaborate with producers of other nations and pool their
resources. (Not surprisingly, none of these treaties is with the United
States.) While these coproduction agreements have undoubtedly
helped some national cinemas survive, they have had unintended consequences as well. Because treaties require that technical and artistic participation be allocated among nationals from different countries,
this can distort the creative process. An Italian actor, for instance, might
be cast because of his nationality rather than because he is the best
person for a part. European movies that become a mishmash of
incongruous elements are sometimes referred to as Euro-pudding.
Many of these films have been criticized for their lack of artistic
merit as well as their dismal box office performance.
Subsidy incentives come in a variety of forms. Location-based
rebates are given to producers based on the amount they spend in a
community. Canada, Luxembourg, Iceland, and Australia, among
others, offer such subsidies. While the rebate may not be disbursed
until after production has been completed, sometimes funds will be
advanced to the producer with the anticipated benefit as collateral.
Similar incentives consist of free or reduced prices for locations,
facilities, police, or permits.
Some incentive programs seek to support filmmaking by encouraging investors. The German film funds, the Netherlands’ CV system
of limited liability partnerships, French SOFICAs, and U.K. sales
leasebacks are examples of this kind of incentive.
Some countries, U.S. states other than California, and foreign
entities under the auspices of regional governments are offering
loans on attractive terms as a means to encourage filmmakers. The
United Kingdom and Italy have such programs, as does the state of
New Mexico. Germany also offers this type of support on a regional
basis. The European Investment Bank, an institution backed by the
European Union, offers loan guarantees.
France, Spain, and the Nordic countries have schemes in which
a small slice of box office revenue is siphoned off to be used to
encourage future production. The EU’s MEDIA Plus program uses
box office revenue to assist distributors and exhibitors. Many
European countries also provide subsidies and grants to films on
26 LOS ANGELES LAWYER / MAY 2004
cultural grounds. The Nordic countries provide significant support to
encourage native filmmakers. The MEDIA Plus program provides
script development and training funds.
Evaluating Benefits and Drawbacks
While many of these initiatives are for local filmmakers, some can be
utilized for foreign productions. Moreover, producers usually consider
other benefits that can arise from moving a production outside of the
United States. In Eastern Europe, South Africa, and China, the wage
scale is so low that crews, extras, and actors can be hired for a fraction of their rate in the United States. Likewise, food, lodging, and construction can be a bargain. If a producer can purchase services for 20
percent of their customary price, then the producer receives the
equivalent of an 80 percent subsidy without the burden of completing complicated paperwork and incurring legal and accounting fees.
Another factor to consider is the currency exchange rate. Canada
and South Africa are attractive locations in part because the U.S.
dollar is strong compared to the local currency.
By international treaty, some countries encourage their nationals
to collaborate with others by allowing them to aggregate incentives.
Canada has treaties with 60 countries. These agreements allow its producers to pool financial, creative and technical resources with producers from other nations. The treaties lower the requirements that
normally must be met in order for the producers to access incentives
in their native lands and may reduce administrative burdens.
While the United States is not a party to any international coproduction treaties, U.S. filmmakers can contract on their own with foreign nationals. Even if no incentives are available, a local coproduction partner may have the savvy and relationships needed to secure
the best deals and ensure compliance with local regulations. Moreover,
a U.S. movie filming in another country that includes a local director
or star may enhance the commercial appeal of the film in that country and thus increase the film’s license fee.
Despite these financial attractions, distant locations may also present drawbacks and complications. Savings may be offset by increased
travel and lodging expenses. Moreover, if a camera or critical piece
of equipment fails in a remote location, it can take days to fly in a
replacement. If a crew member becomes disabled, there may be a limited pool of skilled workers to draw upon for a substitute.
To be eligible for an incentive, a film may need to employ cast members from certain countries. It is not unusual for a U.S. producer to
film abroad and bring one or two U.S. actors to star in the movie. These
actors frequently are members of the Screen Actors Guild (SAG), while
resident actors may be members of their local union. SAG’s Rule One
does not allow SAG members to work for producers that are not
SAG signatories. In the past, SAG didn’t enforce this rule when a SAG
actor worked abroad, but on May 1, 2002, SAG announced that it
intends to strictly enforce Rule One, and threatened disciplinary
action against any SAG actors who work for nonsignatory companies.
This policy is designed to force producers who are shooting abroad
to become SAG signatories—with the accompanying obligations,
including rules on working conditions and contributions to pension
and health insurance plans—or to employ exclusively local, non-SAG
actors.
When parties from different nations collaborate, they need to
carefully consider the tax consequences. Careful structuring can
minimize taxes. For example, a coproduction may be considered a partnership for tax purposes. As a partner engaged in a trade or business
in the United States, a foreign national may be subject to U.S. income
tax, and the partnership may be required to pay withholding tax on
the foreign national’s share of income. Since the U.S. tax rate may
exceed what the foreign national is taxed in his or her country, this
may be an undesirable consequence. On the other hand, if the deal
is fashioned so that the foreign investor is not a partner but instead
licenses distribution rights for territories outside the United States,
and if the foreign investor has no U.S. trade or business, it might avoid
paying U.S. tax on income derived from the film outside the United
States.
Conversely, an American individual or company may be subject to
foreign taxes. Many countries withhold tax on income paid from
sources in those countries to residents of other countries. The United
States, however, has tax treaties with many countries that may reduce
or eliminate such taxes. U.S. entities generally need to prove that they
are U.S. residents to receive the treaty-reduced tax rate.9
Popular Incentive Programs
With these general considerations in mind, it is clear that certain incentive programs have been more successful than others in enticing
U.S. producers to move the production of their films and television
shows abroad. Canada, the United Kingdom, Australia, Germany,
Ireland, and New Zealand have particularly popular production incentive programs. While foreign productions have been lured to these
countries, some of the incentive programs offered by these locales are
designed more with the aim of fostering and bolstering home-grown
film industries.
Canada has been particularly successful in attracting U.S. producers. Toronto and Vancouver have deep reservoirs of skilled and
experienced crew members, enabling numerous U.S. productions to
choose these locations for their productions. A favorable exchange rate
with the U.S. dollar provides another inducement.
Canada offers a variety of programs designed to support both
Canadian and foreign producers. A distinction is made between
Canadian content films, which receive a generous tax credit, and
those films that do not possess Canadian content, which are eligible
for a substantial but lesser credit. Both programs are jointly administered by the Canadian Audio-Visual Certification Office (CAVCO)
and the Canadian Customs and Revenue Agency (CCRA). Producers
Melissa Gilbert: Bringing It All Back Home
T
he business reasons behind the decisions of foreign governments to lure Hollywood’s motion
picture and television production industry to their countries with tax and other financial incentives
are obvious. But for Melissa Gilbert, the current president of the Screen Actors Guild, runaway
production has become personal. “During the nine years I was on Little House on the Prairie, we were
home. We filmed in Los Angeles and slept in our own beds,” she recalls. “The Little House remake is slated
for Canada. It’s a sad commentary when even American stories are made outside the United States.”
SAG has been an industry leader in keeping production in Los Angeles. Much of its efforts have focused
on educating federal, state, and local legislators on the palpable impact that the entertainment industry has
on the local and national economies. These initiatives undoubtedly have had resonance, as indicated by a
recent letter, signed by more than two dozen members of Congress, requesting that the upcoming Universal
Pictures feature Cinderella Man not be filmed in Canada.
SAG’s educational campaign goes beyond lawmakers. “One of our problems is our image,” says Gilbert.
“When people outside the industry think of entertainment, they think of stars who make $20 million per
picture riding in a limo. One thing we need to do is to remind people that the majority of our members
struggle daily just to keep food on the table.” With this in mind, SAG has begun a campaign to put a “worker’s face” on local filmmaking. Using
public service announcements and billboards, SAG hopes to make residents of Los Angeles more receptive to having movies and TV shows shot
on their streets and in their communities by emphasizing the jobs and economic opportunities that filming provides.
Another essential effort to counter runaway productions has been directed at SAG’s own members. By making a public campaign out of
enforcement of a union rule called Global Rule One, SAG has ensured that its members still get SAG contract protection wherever they work in the
world. In the two years since its implementation on May 1, 2002, there have been some 200 foreign theatrical productions shot under SAG terms
and conditions that traditionally might not have fallen under signatory agreements. These productions represent member earnings in excess of
$100 million, plus vital pension and health contributions. Even more importantly, this initiative has worked to stem the tide of productions moving
overseas just to save money on nonunion acting talent.
But SAG is not blind to the benefits of sharing production with other states. Working closely with SAG (and its sister union AFTRA), the Illinois
legislature recently passed legislation designed to encourage more film and television production in its state. The Film Production Services Tax
Credit Act allows for a credit of labor expenditures made by an entity for film or television production, including commercials, in Illinois. Similar
SAG/AFTRA efforts have met with success in the development of favorable legislation in several other states, including New Mexico and Hawaii.
SAG also is a vocal member of the California Coalition for Entertainment Jobs, a group of labor unions working to combat runaway production.
SAG and other coalition members—including the American Federation of Musicians, AFTRA, the Directors Guild of America, IATSE, the Teamsters,
and the Writers Guild of America, west—have all made efforts and sacrifices to keep production at home. The coalition has been working
diligently for the passage of wage-based tax incentives that will allow California to remain competitive when vying with other states and countries
for motion picture and television productions.
Martha Coolidge, former president of the Directors Guild, assesses the impact of runaway production on her fellow unions by noting, “The
issue of runaway production is of primary importance to all of us. We know the economic problems that our state and our country face, and
entertainment brings in tremendous income.” AFTRA President John Connolly goes further: “We are interpreted as whining babies who are
overpaid and spoiled. The fact is that the vast majority of people working in this industry are hard-working people with skills and crafts who
receive middle-class wages.”
In summing up the advantages of keeping production at home, Melissa Gilbert says, “There is an emotional attachment to entertainment that
you don’t get with any other product or industry. We provide escape, education, information—the emotionality attached to what we do that is
almost unquantifiable.” What is quantifiable, in her view and the view of other entertainment union leaders, is the cost of runaway production in
lost jobs and economic activity. It is a cost that they are not willing to pay.—Editors
LOS ANGELES LAWYER / MAY 2004 27
cannot receive benefits under both programs simultaneously, but
they may combine these incentives with those offered by Canada’s
provincial governments.
To be eligible for Canadian content incentives the company must
be owned or controlled by Canadian citizens or permanent residents.
Also, either the director or screenwriter, and one of the two highestpaid actors, must be Canadian. Moreover, the production must employ
a certain amount of Canadian personnel, and 75 percent of production
costs must be paid to Canadians.10 A qualified applicant can receive
a tax credit of 25 percent of labor expenditures (which usually amounts
to 12 percent of total production costs.) Labor expenditures exclude
payments to non-Canadians.
For productions that do not meet the criteria for Canadian content, the Production Services Tax Credit is available. This is a federal refundable tax credit to promote production in Canada. The
applying corporation can be a production services company that
has contracted with the copyright owner. The credit was recently
raised from 11 percent to 16 percent of the amounts paid to Canadian
residents for services that are rendered in Canada. U.S. film companies can benefit from this credit, but it only applies to movies
with budgets of at least CAN$1 million (approximately US$678,000.)
Some financiers will advance monies to a producer on the basis of
this tax credit.
Although U.S. producers do not benefit from any coproduction
treaties with Canada, their productions may be certified as a “CoVenture,” which is eligible for the enhanced broadcast license fees that
are paid for Canadian programs. To be certified, the Co-Venture
must meet the employment and production spending requirements
for Canadian content films.
Canadian provinces provide their own incentives. For example,
British Columbia offers a variety of benefits, including a production
services tax credit of 11 percent of qualifying wages paid to residents of British Columbia.11 There is also a regional incentive of 6 percent to encourage production outside of the Vancouver area. These
incentives, combined with physical proximity, have made Canada an
immensely popular place for U.S. producers to take their projects.
Further away geographically, but offering a familiar language
and a sympathetic culture, is the United Kingdom. The United Kingdom provides an array of production incentive programs, including
funds for education and training, lottery monies for production, and
tax credits. The United Kingdom also participates in the European
MEDIA Programme.12
The United Kingdom provides incentives in the form of sale-leaseback transactions. A U.K. taxpayer can qualify for a 100 percent capital allowance in the year in which production expenditures are
incurred for British films. To qualify, the film must be made by a company that is registered and managed in the United Kingdom, the
European Union, or certain countries that have signed an association
agreement, and 70 percent of production costs must be spent in the
United Kingdom. These deals are structured so that the U.K. taxpayer
purchases a qualified British film from the seller (i.e., the production
company), and then the U.K. taxpayer leases it back to the seller, who
then arranges for its distribution. The seller is required to deposit with
a bank most of the purchase price as security for the rental payments due under the lease, which may extend for up to 15 years. A
qualifying film can earn a benefit of approximately 10 percent of its
budget through a sale and leaseback transaction.
The British government created the Film Council in April 2000 to
provide public funding to assist British film production. The Film
Council has supported such recent films as Gosford Park, Bloody
Sunday, and The Magdalene Sisters. The Film Council has established three lottery-based funds for production and development:
the Premiere Fund, the New Cinema Fund, and the Development
28 LOS ANGELES LAWYER / MAY 2004
Fund. The film Bend It Like Beckham received £1 million from the lottery. There is also a Training Fund for scriptwriters and producer/filmmakers and a United Kingdom-wide First Light film production initiative for young people.13
Another lotter y fund distributor is Scottish Screen, which is
responsible for developing the film industry in Scotland.14 It provides about £3 million per year for film production. Feature funding
is available for up to £500,000 per project. Funds are also available for
the production of shorts, script development, and other activities
such as a script polish, preparation of a film schedule, budget and casting, and print and advertising costs. Funds of up to £75,000 are available as working capital for companies to support a slate of projects.15
In Ireland, filmmaking has been on the rise thanks to a good currency exchange rate and what is known as the Section 481 initiative.16
Under Section 481 of the Revenue Code, producers can reduce their
budgets by about 12 percent by selecting Ireland for location work.17
In 2005, Section 481’s cap on investment will be increased to 15 million euros from the previous limit of 10.48 million euros. Section 481
applies only to qualifying films, which are those deemed by the government to develop the Irish film industry and promote Irish culture.
Ireland also offers an artists exemption to people relocating to
Ireland. Under this program, individuals who become residents are
entitled, upon request, to tax-free income if the income is derived from
the publication, production, or sale of books, screenplays, plays, and
musical compositions deemed original and creative and possessing
cultural or artistic merit.18
Ireland’s relatively low 10 percent income tax rate provides a
stimulus for foreign investment in Ireland. It can apply to film production companies, and film finance, distribution, and licensing companies located in designated areas. Certain double taxation agreements
permit foreign owners to receive after-tax profits without incurring
tax liabilities in their home country or allow them to defer further taxation.19 When a double taxation agreement applies, dividends, interest, or royalties paid to an Irish company will incur minimal, if any, withholding tax. The tax rate payable by companies on Irish profits is 12.5
percent for 2003 and beyond.
Ireland has entered into coproduction treaties with Canada and
Australia. In addition, the countr y has ratified the European
Convention on Cinematic Co-Productions. The aims of this convention are to promote the development of European multilateral cinematographic coproduction, to safeguard the creation of works and freedom of expression, and to defend the cultural diversity of the various
European countries.20
Elsewhere in Europe, Germany has promulgated incentives,
though they are not designed specifically for the motion picture
industry but are part of Germany’s general tax law. An amendment
to the German tax law in 1999 was responsible for the tax-sheltered
film fund explosion that attracted scores of investors in the last several years. These funds offered investors in a film an immediate
deduction of the entire invested sum for the film from their annual
German income. By classifying the investors as “producers,” the law
allowed the investors a 100 percent deduction as a “business expense.”
This created an attractive climate for film financing, in which investors
were less concerned with the economic performance of their films,
and there were no legal or administrative restrictions on where or how
the raised money needed to be spent.
Concerned with the increasing amount of local tax money directed
toward foreign projects, the German government initiated a review
of their media funds system and relieved an anxious film industry by
putting to rest any concerns that the future of the funds might be in
jeopardy. In a statement dated August 5, 2003, the German government validated the continued existence of the funds but detailed a
reform of the relevant rules, including a stricter interpretation of the
circumstances under which an investor will be classified as a producer.
Under the amended rules, an investor claiming to be a producer
must be “in a position, both legally and factually, to determine essential aspects of production,” particularly “plot, screenplay, cast, budget,
film plan and financing.”21
These amendments mean that decisions by investors must now
proceed through an investor committee, which must be established
after 50 percent of the fund’s capital has been raised. Since many
investors are inclined to invest during the last two months of each fiscal year, there will not be much time available before the end of the
year for the investors to make project decisions. Of potentially greater
concern is the possibility that increased investor participation could
expose investors to liability. Since the fund’s initiator traditionally
assumed the risk of liability, private investors may find the new
process to be unacceptable. Finally, by placing investors in the process
of determining elements of a production, film producers will be forced
to compromise their level of autonomy, a circumstance that is fraught
with the potential for battles and other difficulties.
Favorable tax treatment is not the only lure that Germany provides
for film producers. Germany also offers a national film fund as well
as a large network of regional film funds for each state, with money
accessible to producers on the condition that they reinvest the money
in the region extending the funds.
Beyond Europe is Australia, whose federal government has offered
a variety of incentives to encourage production in that countr y.
Australia offers a tax offset for big-budget films (above AUS$15 million) shot in Australia. This benefit (known as 10B under the tax
code) is equivalent to 12.5 percent of a film’s qualifying Australian production expenditure. The offset amount is applied against Australian
federal tax liabilities accrued in the production of the film, with any
excess refunded. This program is not for low-budget independent films,
and since the benefit is in the form of a tax credit, it does not provide
actual cash to make the movie. Unless a bank or other lender is willing to lend against this tax offset, the producer has to find another way
to finance production.
Several U.S. studios have taken advantage of the 10B tax offset for
their movies, including The Matrix. However, the Australian government has been concerned that producers may no longer be eager to
film in Australia after investors were denied deductions on two recent
movies, Moulin Rouge and Red Planet, because of allegations of tax
evasion.
The 10BA program aims to encourage private investment in culturally relevant, high-quality Australian film and television productions
by providing an accelerated tax deduction of 100 percent in the year
the investment is made. To be eligible, the film needs to be certified
as a “qualifying Australian film.” This means that the film is substantially made in Australia, or is an official coproduction, or has significant Australian content. Projects certified under this program
can also apply for investment by the Film Finance Corporation
Australia (FFC).22
The FFC received AUS$50 million from the Australian government
for financial year 2002-03 to support a variety of Australian films, TV
movies, miniseries, and documentaries. The FFC invests in projects
that are cofinanced by private investors and/or other partners, such
as a distributor. For feature films, the FFC will generally invest no more
than 50 percent to 60 percent of the budget. The FFC requires producers to demonstrate that there will be a market for a project when
it is completed. Consequently, as a prerequisite to providing financing, the FFC expects a producer to enter into one or more arm’s length
transactions with third parties, such as a television license, or guarantees, advances, or pre-sales from distributors.
Most government incentives available to non-Australian films are
made pursuant to an official coproduction treaty. Australia has entered
into such treaties with the United Kingdom, Canada, Ireland, Italy,
Israel, France, and New Zealand.23
Producers may be eligible for various incentives offered by
Australian state governments as well. For example, Queensland
offers a payroll tax rebate, a cast and crew salary rebate (8 percent
to 10 percent of weekly wages), an internship scheme (that pays for
80 percent of wages), and a traf fic and fire ser vices rebate. 24
Immigration laws in Australia are exacting, however, so a producer
may experience difficulty in obtaining permission to bring in an actor
from abroad.
Well before the massive success of The Lord of the Rings trilogy,
New Zealand was interested in assisting films with local content as well
as foreign productions that would spend large sums in the country.
Private investors in New Zealand films can take advantage of special
tax incentives available as a result of the Income Tax Act 1994. To qualify for these tax incentives, a film must first be certified as a New
Zealand film. The New Zealand Film Commission is authorized to certify a film or television program as a New Zealand film if the film contains significant New Zealand content, as described in Section 18 of
the New Zealand Film Commission Act 1978.
New Zealand also has adopted a Large Budget Screen Production
Grant scheme.25 The program provides a rebate for major film and television productions of 12.5 percent of their New Zealand-based expenditure. Major productions are defined as those spending at least
NZ$15 million (US$10 million) in New Zealand. For productions
spending between NZ$15 million and NZ$50 million, the New Zealand
portion of the spending must also be at least 70 percent of total
spending. Productions spending more than NZ$50 million are not subject to such a requirement. For television series, the average production spending in New Zealand must be at least NZ$500,000 per
episode, with a minimum NZ$15 million required within one year of
the commencement of the series. The program is administered by the
New Zealand Film Commission. The scheme does not apply to documentaries, and it will be reviewed in 2006.
Production Incentives in the United States
With all of the efforts being made by foreign governments to enhance
their own film industries and entice foreign productions, and the
obvious impact these initiatives have had on U.S. domestic employment and spending in the entertainment industry, the U.S. government
has been slow to respond. Unlike nations with significant programs
for filmmakers, the United States does not provide specific tax benefits or incentives to encourage motion picture production. The
United States also is not a party to any international coproduction
treaties. Perhaps because U.S. films are such a successful export, generating more revenue than films exported from any other country, the
federal government has not felt much need to assist or protect its producers. However, as the global marketplace for production has
become increasingly competitive, there are indications that this
hands-off policy may change.
Lawmakers have introduced legislation to create U.S. production
incentives. One bill, the “U.S. Independent Film and Television
Production Incentive Act of 2001,” was designed to attack the problem of “runaway film and television production.” The legislation aims
to keep more production in the United States by creating a targeted
tax credit for low-budget, independent film and television projects
filmed in the United States. The bill proposes a wage tax credit for any
public entertainment or educational motion picture film, television,
or cable program—including miniseries, episodic television, movies
of the week, or pilots—produced in the United States with total wage
costs between $200,000 and $10 million. The credit would be a “general business credit” in the tax code, a dollar-for-dollar offset against
federal tax liability in the amount of 25 percent of the production comLOS ANGELES LAWYER / MAY 2004 29
pany’s total wages and salaries.26 This credit
would only be available on the first $25,000 in
wages per employee. When the bill was originally proposed, it did not move for ward
because there was no relevant tax legislation
to which it could be attached.27 The bill was
re-introduced in 2003,28 and in September
2003 it was referred to the Senate Committee
on Finance.29
Despite the absence of federal incentives,
Resource Guide for International Production Incentives
Australia
Australian Film Commission: http://www.afc.gov.au/filminginaustralia/taxfins/federal/fiapage_56.aspx
Film Finance Corporation Australia: http://www.ffc.gov.au/
Department of Communications, Information Technology and the Arts
(for information about 10BA and 10B taxation incentive schemes: http://www.dcita.gov.au
• State Government Incentives
New South Wales: http://www.fto.nsw.gov.au/fund.asp?id=193&content=2
Queensland: http://www.pftc.com.au/shootInQLD/tax_assistance.asp
South Australia: http://www.safilm.com.au/content.aspx?p=16
Tasmania: http://www.screen.tas.gov.au
Victoria: http://www.film.vic.gov.au
Western Australia: http://www.screenwest.com.au
Canada
Canada Revenue Agency: http://www.ccra-adrc.gc.ca/taxcredit/ftc/questions-e.html
• Provincial Government Incentives
Alberta: http://www.cd.gov.ab.ca/affta
British Columbia: http://www.bcfilm.bc.ca
Manitoba: http://www.mbfilmsound.mb.ca
New Brunswick: http://www.nbfilm.com
Newfoundland and Labrador: http://www.newfilm.nf.net
Nova Scotia: http://www.film.ns.ca
Ontario: http://www.omdc.on.ca
Prince Edward Island: http://www.gov.pe.ca and http://www.techpei.com
Quebec: http://www.investquebec.com and http://www.sodec.gouv.qc.ca (for dubbing tax credit)
Saskatchewan: http://www.saskfilm.com
Yukon: http://www.reelyukon.com
Ireland
Film Institute of Ireland: http://www.fii.ie
Irish Business and Employers Confederation: http://www.ibec.ie
Irish Film Board: http://www.filmboard.ie
Irish Film Board Incentive information: http://www.filmboard.ie/incentives.php
Irish Revenue Office: http://www.revenue.ie/services/film.htm
Minister for Arts, Culture and the Gaeltacht: http://www.ealga.ie
Tax relief for investment: http://www.boylandodd.com/film.html
New Zealand
Incentive information: http://www.filmnz.com/pguide/shooting/taxation/index.html
Film Commission: http://www.nzfilm.co.nz
Film Factory New Zealand: http://www.filmfactorynz.co.nz/film_factory_news.htm
United Kingdom
British Film Commission: http://www.britfilm.co.uk
British Film Institute: http://www.bfi.org.uk
British Film Office (Los Angeles): http://www.britfilmusa.com
The Film Centre (lists U.K. funding agencies): http://www.filmcentre.co.uk/faqs_fund.htm
Film Council: http://www.filmcouncil.org
Media Agency for Wales: http://www.sgrin.co.uk
Northern Ireland Film and Television Commission: http://www.nifc.co.uk
Scottish Screen: http://www.scottishscreen.com
Ingenious Media: http://www.ingeniousmedia.co.uk—M.L.
30 LOS ANGELES LAWYER / MAY 2004
numerous states have instituted programs to
attract productions away from Southern
California. New Mexico and Hawaii have
been innovative leaders in this effort.
New Mexico offers producers a choice of
two incentives. The first is a gross receipts tax
deduction allowing filmmakers to avoid sales
tax (of 5 percent to 7 percent, depending on
the locality) for certain production costs,
including those incurred for the script, talent,
construction, wardrobe, sound and lighting,
and editing, as well as location fees. Sales
tax can be avoided for renting facilities and
equipment but not for lodging costs, the rental
of vehicles, or catering. Alternatively, a filmmaker can elect to receive a 15 percent film
production tax credit. This credit applies
against the filmmaker’s New Mexico income
taxes and to New Mexico-based production
expenditures that are taxable in New Mexico.
In order to qualify, production companies
need to register with the New Mexico Film
Office, and they may only take advantage of
one type of incentive for each purchase. New
Mexico also waives location fees for the use of
its 800 state-owned buildings (including a nowshuttered 1940s era maximum-security prison
facility). The state also is willing to invest in productions or loan funds to producers meeting
certain criteria. Under the New Mexico Film
Investment Program, up to $7.5 million can be
invested in a New Mexico film private equity
fund or New Mexico film project.
Hawaii recently enacted some ver y
impressive and generous tax incentives.
Hawaii’s high tech investment tax credit provides a 100 percent return on cash investments in a qualified high tech business
(QHTB) over 5 years (35 percent credit in the
year of investment, 25 percent in the following year, 20 percent in the third year, then 10
percent each in the fourth and fifth years).
Qualified research activities include performing arts products, such as motion pictures. The credit is designed to give a 100 percent return for investments up to $2 million
per year per taxpayer. The credit applies only
against Hawaii income tax liability. The credit
can be taken by individuals or corporations
paying Hawaii income tax, and by banks and
insurance companies against their franchise
and insurance premium taxes.30 Studio movies
made under the QHTB program include Blue
Crush and The Big Bounce.31
California has attempted to address the
issue of runaway productions with its own
incentives. The problem with devising a program to encourage production in California is
determining how to tailor it so that it attracts
producers who are inclined to shoot elsewhere rather than subsidizing producers who
intend to shoot in California notwithstanding any incentives.
Under the Film California First program,
which is not currently available, filmmakers
could have received reimbursement of up to
$300,000 for qualified productions that film on
public property in California. Rebates were
given for public labor costs and location fees
for the use of public properties. The program
reimbursed the cost of local law enforcement
at a rate of up to $750 per day, with a maximum cap of $3,000 per production. 32 Reimbursements from the fund were on a firstcome, first-served basis. The funds available
fluctuated depending on annual allocations in
the state budget. A production company was
required to complete production before applying for benefits under the program.33
The State Theatrical Ar ts Resources
(STAR) program provides filmmakers with
the use of state-owned surplus, such as vacant
buildings, at little or no charge. The properties that are available can be viewed online by
the use of the CinemaScout locations database.34 California also offers some other incentives. There is no state hotel occupancy tax.
There are no sales or use taxes on production
or postproduction services on motion pictures or TV programs. There is a 5 percent
sales tax exemption on the purchase or lease
of postproduction equipment for qualified
persons. Recent Assembly Bill 2747 would
create a 15 percent wage-based tax credit for
the first $25,000 paid to each employee
involved in California films with budgets
between $200,000 and $10 million beginning
in 2004, but its passage is far from assured.
It is still unclear what effect the election of
Arnold Schwarzenegger as governor may
have on runaway production. As the star of
Terminator 3: Rise of the Machines, Schwarzenegger played an influential role in encouraging the producers of the film to shoot it in
California. However, the state’s fiscal crisis
has made it difficult for the state to offer
incentives in an environment in which massive cuts to existing programs are needed to
balance the budget. As a result, the California
Film Commission has been nearly gutted,
and the existing Film California First incentive program has been discontinued. The program’s fate, along with the Independent Film
and Television Production Incentive Act,
remains as unpredictable as next week’s box
office returns.
Production incentives in California and
throughout the world frequently change, so
it is important to gather the most up-to-date
information regularly through direct contact
with appropriate agencies regarding eligibility and rules and regulations and also through
Web sites containing the latest details.35 (See
“Resource Guide for International Production
Incentives,” page 30.) One fact will remain
unchanged: In the competitive and high-risk
business of motion picture production,
investors, producers, and government agencies worldwide will continue to rely on incentives to help themselves garner a share of
the lucrative global film market.
■
1
THE CENTER FOR ENTERTAINMENT INDUSTRY DATA AND
RESEARCH, THE MIGRATION OF FEATURE FILM PRODUCTION
FROM THE U.S. TO CANADA AND BEYOND: YEAR 2001
PRODUCTION REPORT, available at http://www.ceidr.org.
2
It can be difficult to characterize films according to
nationality in an age of multinational corporations and
producers with dual citizenship. For example, the Harry
Potter movies are based on a book by an English author
and shot in the United Kingdom with a British cast.
Even so, they are produced by a U.S.-based studio and,
therefore, considered to be U.S. films. Twentieth
Century Fox is considered to be a U.S. company, but
it is controlled by Rupert Murdoch, an Australian who
became a U.S. citizen. Sony has Japanese owners, but
it produces mostly English language films with U.S.
actors. Universal has had successive owners from different countries: the United States, followed by Canada,
Japan, and France. At present there is a merger pending with NBC, a U.S. company.
3
Testimony of Jack Valenti, Executive Director, MPAA,
before the U.S. Senate, Feb. 28, 2002, available at
http://www.canadianembassy.org/trade/filmfacts-en
.asp.
4
By the fall of 2003, French films accounted for 42.3 percent of admissions compared to 47 percent for U.S.
films. Fiona Vanier, Market Share of U.S. Films in
Europe Increases by 5%, SCREENFINANCE, Oct. 22, 2003,
at 5 [hereinafter Vanier].
5
In 2003, Hollywood had captured 82 percent of the
British market and 65 percent of the Italian market. In
Germany, local pictures constituted approximately 18
percent of their own market. Japanese movies had an
unusually strong year, with 40 percent of their market
share. Local films in France secured 38 percent of the
box office for the first 11 months of the year. In Spain,
local movies captured 15 percent of their box office, but
local Australian films grossed a mere 3.7 percent of their
market. Elizabeth Guider, Pix Suffer from Audience
Deficit Disorder, WEEKLY VARIETY, Jan. 5-11, 2004.
6
Vanier, supra note 4, at 5. Because the origin of a film
is not always obvious, for the purposes of this calculation, the two Harry Potter films each captured about 5
percent of the market and were considered U.S. films
despite their distinctly British pedigree.
7
Vanier, supra note 4, at 5.
8
Steven Gaydos, European Cinema, WEEKLY VARIETY,
Dec. 1-7, 2003, at 47.
9
The Internal Revenue Service will certify U.S. residency using Form 6166, which is a computer-generated
letter on Treasury Department letterhead. This document, and any application forms required by a foreign
country, will need to be sent to the appropriate agency
in the foreign country in order to claim the benefit of
a tax treaty. See IRS Publication 686, available at
http://www.irs.gov.
10
Certain costs are excluded from this total, such as
postproduction costs, amounts paid to key creative
personnel covered by the point system, and legal,
accounting, insurance, and financing costs.
11
See http://www.bcfilm.bc.ca.
12
Web sites offering information on British incentive
programs include the British Council, http://www
.britfilms.com; the British Film Commission, http:/
/www.bfc.co.uk; the British Film Institute,
http://www.bfi.org.uk; the UK Film Council US,
http://www.britfilmusa.com; the Department for
Culture, Media and Sport, http://www.culture.gov.uk;
and The Film Centre (which lists UK funding agencies),
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http://www.filmcentre.co.uk/faqs_fund.htm.
13
More information about the Film Council and the
funds it administers can be found at http://www
.filmcouncil.org.uk.
14
For more information, see http://www
.lotterygoodcauses.org.uk/scottishscreen.htm.
15
See http://www.scottishscreen.com.
16
See http://www.revenue.ie/publications/leaflets
/it_57.htm. Section 481 was formerly Section 35.
17
See http://www.filmboard.ie/template.php?id=9.
18
The scheme guidelines are available from Michael
Howard, Ext: 24106, Revenue Commissioners, Dublin
Castle, Dublin 2, telephone +353 1 679 2777, fax +353
1 679 9287. See also http://www.revenue.ie.
19
Ireland has entered into comprehensive double taxation agreements with Australia, Austria, Belgium,
Bulgaria, Canada, China, Cyprus, the Czech Republic,
Denmark, Estonia, Finland, France, Germany, Hungary,
India, Israel, Italy, Japan, Latvia, Lithuania, Luxembourg,
Malaysia, Mexico, Netherlands, New Zealand, Norway,
Pakistan, Poland, Portugal, Romania, Russia, South
Africa, South Korea, Spain, Sweden, Switzerland, the
United Kingdom, United States, and Zambia.
20
Additional information on Irish incentives is available
from the Film Institute of Ireland, http://www.fii.ie; the
Irish Business and Employers Confederation,
http://www.ibec.ie; the Irish Film Board, http:/
/www.filmboard.ie, with incentive information at
http://www.filmboard.ie/incentives.php; the Irish
Revenue Office, http://www.revenue.ie/services
/film.htm; and the Minister for Arts, Culture and the
Gaeltacht, http://www.ealga.ie. For further information
on tax relief for investment, see http://www
.boylandodd.com/film.html .
21
Hammonds, Reform of the Taxation of German Media
Funds, available at http://www.hammonds.com
/Default.aspx?sID=17&cID=20830&ctID=21.
22
The 10B program is more liberal than 10BA in that
it accepts more formats, including series, multimedia,
and educational programs. It requires first ownership
of the copyright to the production and offers a tax
deduction over two financial years. 10B films are not eligible for FFC financing.
23
For coproduction program guidelines, see http://
www.afc.gov.au/filminginaustralia/copros/fiapage_2
.aspx.
24
See http://www.pftc.com.au/shootInQLD/qld
_film_incentives.asp#payroll.
25
For more information, see http://www.filmfactorynz
.co.nz/FilmGrantGuidelines.DOC.
26
In qualifying low-income areas, the credit would be
35 percent.
27
See http://www.dga.org/news/pr_expand.php3?331.
28
Senate Bill S1613, House Bill HR715.
29
The text of Senate Bill S1613 is available at
http://thomas.loc.gov.
30
For additional information about Hawaii’s tax incentives, see http://www.state.hi.us/tax/hi_tech.html.
31
The grant of tax credits for Blue Crush was controversial because this Imagine/Universal production was
already planning to shoot in Hawaii. The producers
received an estimated benefit of $15 milllion to $18
million. Moreover, while the intent of this law was to
build a movie industry infrastructure in Hawaii, Imagine
and Universal shot the picture and left without putting
down any roots. As a result, the tax department will no
longer provide QHTB status for one-picture deals.
32
See http://www.film.ca.gov and http://www
.film cafirst.com.
33
For additional information about California incentives, see http://www.film.ca.gov.
34
See http://www.cinemascout.org.
35
See Entertainment Legal Resources, available at
http://www.marklitwak.com, for an extensive listing of
domestic and worldwide production incentives.
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By James D. Nguyen
Code Breaking
The DMCA provides a powerful tool for content
owners to thwart the circumvention
of antipiracy technology
he advent of the Internet and other digital distribution
technology dramatically changed the realm of entertainment. Consumers can now receive, share, copy, and distribute digital files of motion pictures, music, and other
entertainment content, and they can do so instantaneously, across
the world, and with near-perfect duplication. While consumers may feel empowered, those within the entertainment industry fear losing control over their intellectual property rights. Some in the industry hope
that the Digital Millennium Copyright Act (DMCA)
will be the magic weapon to protect their treasures.
In 1998, the U.S. Congress enacted the DMCA to
address and strengthen copyright protection in the
digital age. At first, much attention was focused on the
DMCA’s defensive shield. This portion of the law includes
safe harbor provisions that immunize online service providers
from copyright infringement for certain passive acts (such as an
Internet service provider’s hosting a Web site that displays an infringing photograph).1
More recently, the DMCA’s offensive sword—its anticircumvention provisions—has seized the spotlight. These provisions make it
unlawful to bypass or disable technological measures designed to
impede unauthorized access to, or the copying of, a copyrighted
T
work. The provisions also prohibit trafficking in devices or technology designed to circumvent protections against access and copying.
By making these activities illegal, the DMCA empowers copyright owners to protect content with encryption codes, passwords, or other digital walls. The prohibitions against circumvention conduct and trafficking are often referred to as the anticircumvention
provisions of the DMCA.
The anticircumvention provisions are far-reaching.
They affect any product that can be distributed digitally, such as films, music CDs, e-books, and video
games. Indeed, even intellectual property owners
outside the entertainment realm are wielding the
DMCA sword. In the past year, manufacturers have
used the anticircumvention law to protect encryption
systems for products ranging from printer toner cartridges to garage door openers.
Some have lauded the anticircumvention provisions as a key
weapon in the war on digital piracy. Others have reviled them for stifling free speech, obstructing innovation, and thwarting competition. As the debate continues, the DMCA will profoundly affect the
James D. Nguyen, a partner in the Los Angeles office of Foley & Lardner
LLP, specializes in copyright, trademark, and entertainment litigation.
LOS ANGELES LAWYER / MAY 2004 33
entertainment and intellectual property landscape, especially in
California, where many legal battles in the digital wars are fought.
The anticircumvention provisions are contained in 17 USC Section
1201, subsections (a) and (b).2 Section 1201(a) focuses on the circumvention of technologies designed to prevent unauthorized access
to a copyrighted work. 3 It has two components. First, Section
1201(a)(1) prohibits the conduct of circumventing “a technological
measure that effectively controls access” to a work. Specifically, it is
unlawful to descramble a scrambled work, decrypt an encrypted
does). However, if a consumer uses that device to copy a DVD, that
conduct is lawful if: 1) the consumer lawfully gained access to the DVD
(such as by purchasing it at a retail store), and 2) the consumer
pleads and proves a traditional infringement defense (such as a
defense of fair use based on making one copy for personal use).
To address fears that the DMCA would stifle innovation and competition, Congress included several exceptions to the anticircumvention provisions. The most notable exception is for certain types of
reverse engineering. Individuals may use circumvention technology
In providing civil remedies for an anticircumvention
violation, the DMCA authorizes a copyright
owner to receive either actual or
statutory damages—but not both.
work, or otherwise avoid, bypass, remove, deactivate, or impair a technological protection.4 Congress analogized these acts as the electronic equivalent of “breaking into a locked room in order to obtain
a copy of a book.”5
However, Section 1201(a)(1) does not apply to the subsequent
actions of a person who has already obtained lawful access to a copyrighted work. In its report discussing these provisions, Congress
explained its intention that a person who has authorized access would
be permitted to circumvent other technological measures designed
to protect the work (such as those designed to prohibit copying or distribution of the work).6 Nevertheless, the traditional defenses to
copyright infringement, including fair use, remain fully applicable.7
Thus a person cannot circumvent a protection to gain unauthorized
access to a work but can circumvent other protections to make fair
use of a work that he or she has lawfully acquired.8
Second, Section 1201(a)(2) prohibits trafficking in devices with the
capability to circumvent access controls. “Trafficking” is defined to
include manufacturing, importing, offering to the public, or providing a circumvention device.9 A device can violate the antitrafficking
provisions if it: 1) is primarily designed to circumvent protective
measures, 2) has only limited commercially significant purposes
other than circumvention, or 3) is marketed for use in circumvention.10
Section 1201(b) applies when a consumer already has obtained
authorized access to a work but the copyright owner has put in place
technological measures to prevent copying or other acts that infringe
a copyright.11 (In contrast, Section 1201(a) applies to unauthorized
access to a work). This provision prohibits trafficking in devices to
circumvent controls against copying or other violations of a copyright,12
notwithstanding whether consumers of the copyrighted work have
authorized access to it.
For example, in applying Section 1201 to circumstances involving
a circumvention device that breaks DVD encryption codes and permits copying of DVDs, a company that manufactures and sells the
device would violate the trafficking provisions of Section 1201(b)
(and possibly also Section 1201(a)(2), depending on what the device
34 LOS ANGELES LAWYER / MAY 2004
“for the sole purpose” of trying to achieve “interoperability” between
computer programs through reverse engineering involving, for example, the creation of computer programs that are compatible with a dominant software program.13 Congress also exempted encr yption
research aimed at identifying flaws in encryption technology if the
research is conducted to advance the state of knowledge in the field.14
In providing civil remedies for an anticircumvention violation,
the DMCA authorizes a copyright owner to receive either actual or
statutory damages—but not both. Statutory damages are $200 to
$2,500 per violation, which are considerably less than those for traditional copyright infringement. Copyright infringement yields statutory damages up to $30,000 and up to $150,000 with proof of willfulness.15 Like damages for a traditional copyright claim, damages under
the DMCA can be reduced with a showing of innocent intent.16 Unlike
traditional copyright damages, DMCA damages are not enhanced with
proof of willfulness,17 but they can be tripled for a repeat offense
within three years.18
The anticircumvention provisions do not replace the traditional
claim for copyright infringement; they are additions to a copyright owner’s arsenal. Consider a situation in which a counterfeiter cracks the
code for a copy-protected music CD in order to copy it and sell counterfeits. The record company may sue for infringement of its recording copyrights and also, under the DMCA, for circumventing the
encryption code. In fact, the anticircumvention provisions can be
more powerful than an ordinary copyright claim because they authorize preemptive action. Instead of waiting until after infringement
occurs to sue, copyright holders can implement and legally enforce
mechanisms to prevent infringement before it happens.
Adding significant implications to the power of the DMCA is the
fact that a party also can be criminally liable under the act. The standard of proof for a criminal charge is higher than for a civil claim: The
violation must be both willful and “for purposes of commercial advantage or private financial gain.”19 However, the penalties are also
higher. A first offense carries a fine of up to $500,000 and imprisonment for up to 5 years. For repeat offenders, the penalties increase
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to a potential $1 million fine and up to 10
years’ imprisonment.20
Critics have mounted three main constitutional challenges to the anticircumvention
provisions. First, opponents charge the
DMCA violates the U.S. Constitution’s copyright clause, which gives Congress the authority to grant copyrights for a “limited time.”
They contend the DMCA allows copyright
holders to forever lock up works (even those
in the public domain) with technological protection measures. Second, computer programmers and hackers who crack encryption codes claim their code-cracking software
is protected speech under the First
Amendment. Third, critics argue that the
DMCA eliminates the fair use of copyrighted
materials. For example, some have charged
that copy-protected music CDs will curtail
the ability of consumers to make personal
copies of the CDs they have purchased. To
date, the courts have rejected all of these
constitutional challenges.21
Civil and Criminal Actions under
the DMCA
Just a year after the DMCA was enacted,
RealNetworks, Inc. became the first entertainment company to file an anticircumvention
action when it sued Streambox, Inc. over
streaming technology.22 RealNetworks offers
technology for streaming audio and video
content over the Internet. Streaming content
cannot be downloaded to the end user’s computer, which gives the publisher of the content
control over the distribution of the content.
For example, after listening to a song via a
streaming digital file, a user cannot save a
copy for later listening or sharing.
Copyright owners can encode their content into RealNetworks’ RealMedia format. If
the copyright owner distributes files using
RealNetworks’ RealSer ver software, as
opposed to simply posting the content on the
owner’s Web site, the end user can play the
audio or video only with RealPlayer, a software
program that resides on the end user’s computer. However, with a feature called Copy
Switch, copyright owners can allow consumers to download content files for future
use. These mechanisms allow entertainment
companies to control how consumers use
and pay for RealMedia files.
Streambox provided two software programs that disabled the streaming protections of RealNetworks. First, Streambox VCR
disabled Copy Switch and allowed users to
download RealMedia files. The second,
Streambox Ripper, allowed users to convert
already downloaded RealMedia files to other
formats such as WAV and MP3. The program
also could convert a file in one of these formats to the other.
36 LOS ANGELES LAWYER / MAY 2004
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MCLE Test No. 126
The Los Angeles County Bar Association certifies that this activity has been approved
for Minimum Continuing Legal Education credit by the State Bar of California in the
amount of 1 hour.
1. Which provision of the Digital Millennium
Copyright Act (DMCA) prohibits trafficking in
devices used to circumvent technological measures that protect access to a copyrighted work?
A. Section 1201(a)(1).
B. Section 1201(a)(2).
C. Section 1201(b).
D. Section 501.
2. Even if a person has lawfully obtained access
to a copyrighted work, Section 1201(a)(1) of the
DMCA prohibits that person from circumventing technological protections in order to copy
and distribute the work.
True.
False.
3. Section 1201(b) of the DMCA prohibits trafficking in devices that circumvent controls against
copying or other violations of a copyright.
True.
False.
4. If a company sells a device that breaks DVD
encryption codes in order to permit the copying of DVDs, that company violates Section
1201(b) of the DMCA.
True.
False.
5. Which of the following is a statutory exception to the anticircumvention provisions of the
DMCA?
A. Technology that is covered by First
Amendment free speech rights.
B. Reverse engineering to achieve
interoperability between computer
programs.
C. Devices that are not marketed for use
as a circumvention tool.
D. Technology that does not involve
digital entertainment content.
6. Which of the following is not a remedy available under the DMCA for a civil anticircumvention claim?
A. Statutory damages.
B. Actual damages.
C. Treble damages.
D. Constructive trust.
7. What is the range of statutory damages
available for a civil anticircumvention claim?
A. $0 to $5,000.
B. $200 to $2,500.
C. $1,000 to $10,000.
D. $30,000 to $150,000.
8. In a civil action for anticircumvention violations, damages can be reduced if the defendant
proves innocent intent.
True.
False.
9. In a criminal prosecution for anticircumvention violations, the prosecution must prove
the violation is both willful and which of the
following?
A. With intent to interfere with the
copyright owner’s rights.
B. For purposes of harming the financial
interest in the copyrighted work.
C. For purposes of commercial advantage
or private financial gain.
D. With intent to displace the market for
the copyrighted work.
MCLE Answer Sheet #126
10. For a first-time violation of the anticircumvention provisions, what is the range of criminal penalties that may be imposed?
A. A fine up to $50,000 and imprisonment for up to 2 years.
B. A fine up to $100,000 and imprisonment for up to 3 years.
C. A fine up to $250,000 and imprisonment for up to 4 years.
D. A fine up to $500,000 and
imprisonment for up to 5 years.
11. To date, which of the following has been
recognized by a court as a valid constitutional
challenge to the anticircumvention provisions
of the DMCA?
A. The DMCA violates the copyright
clause of the U.S. Constitution.
B. The DMCA violates First Amendment
free speech rights.
C. The DMCA eliminates fair use of
copyrighted materials.
D. None of the above.
12. A device violates the antitrafficking provisions of the DMCA if it:
A. Is primarily designed to circumvent
technological protection measures.
B. Has only limited commercially
significant purposes other than
circumvention.
C. Is marketed for use in circumvention.
D. Any one of the above.
13. In Real Networks, Inc. v. Streambox, Inc., the
court found that Streambox VCR violated how
many of the DMCA’s antitrafficking prongs?
A. None.
B. 1.
C. 2.
D. 3.
14. In Universal City Studios, Inc. v. Corley,
how did the Second Circuit rule on Corley’s
defense that he could distribute the DeCSS
code based on his First Amendment rights?
A. The DeCSS code was not protected
speech and entitled to no First
Amendment protection.
B. The DeCSS code was protected speech,
but the injunction issued by the district
court properly targeted only the
nonspeech component of the code.
C. The DeCSS code was protected
speech, and the injunction issued by the
district court violated Corley’s free speech
rights.
D. The First Amendment has no
applicability to the DMCA.
15. The United States v. Elcom Ltd. case involved
what type of copyright protection system?
A. The DeCSS code to encrypt DVDs.
B. An encryption code for CDs.
C. Access controls for JPG files.
D. Adobe’s eBook format.
16. In Lexmark International, Inc. v. Static
Control Components, Inc., the district court
found that SCC’s SMARTEK microchips violated which DMCA antitrafficking prongs?
A. The microchips were primarily
designed to circumvent technological
protections.
B. The microchips had no commercial
purpose other than circumvention.
C. The microchips were marketed for use
in circumvention.
D. All of the above.
17. In the Chamberlain Group, Inc. v. Skylink
Technologies, Inc. garage door opener case,
the district court rejected the plaintiff’s anticircumvention claim under the DMCA.
True.
False.
CODE BREAKING
Sponsored by COURTCALL LLC
Name
Law Firm/Organization
Address
City
State/Zip
E-mail
Phone
State Bar #
Instructions for Obtaining MCLE Credits
1. Study the MCLE article in this issue.
2. Answer the test questions opposite by
marking the appropriate boxes below. Each
question has only one answer. Photocopies of
this answer sheet may be submitted; however,
this form should not be enlarged or reduced.
3. Mail the answer sheet and the $15 testing fee
($20 for non-LACBA members) to:
Los Angeles Lawyer
MCLE Test
P.O. Box 55020
Los Angeles, CA 90055
Make checks payable to Los Angeles Lawyer.
18. The Lexmark court found that the DMCA’s
anticircumvention provisions apply only to digital entertainment content and not to other
kinds of copyrighted works.
True.
False.
4. Within six weeks, Los Angeles Lawyer will
return your test with the correct answers, a
rationale for the correct answers, and a
certificate verifying the MCLE credit you earned
through this self-assessment activity.
19. How often is the Office of the Librarian of
Congress instructed to review whether certain
classes of works should be exempted from the
anticircumvention provisions?
A. Annually.
B. Every 2 years.
C. Every 3 years.
D. Every 4 years.
Answers
20. In October 2003, the Office of the Librarian
of Congress approved anticircumvention exemptions for which of the following classes of
works?
A. Software or video games distributed in
obsolete formats.
B. Technology to allow users to skip
commercials on DVDs.
C. Software to allow users to play CDs on
personal computers.
D. Devices that allow e-books to be read
on a personal digital assistant (PDA).
5. For future reference, please retain the MCLE
test materials returned to you.
Mark your answers to the test by checking the
appropriate boxes below. Each question has
only one answer.
1.
■A
2.
■ True
■B
■C
■ False
■D
3.
■ True
■ False
4.
■ True
5.
■A
■B
■C
■D
6.
■A
■B
■C
■D
7.
■A
■B
■C
■D
8.
■ True
9.
■A
■B
■C
■D
10.
■A
■B
■C
■D
11.
■A
■B
■C
■D
12.
■A
■B
■C
■D
13.
■A
■B
■C
■D
14.
■A
■B
■C
■D
15.
■A
■B
■C
■D
16.
■A
■B
■C
■D
17.
■ True
18.
■ True
19.
■A
■B
■C
■D
20.
■A
■B
■C
■D
■ False
■ False
■ False
■ False
LOS ANGELES LAWYER / MAY 2004 37
In 1999, RealNetworks sued Streambox under the DMCA for circumventing its content protections. Streambox countered that both
copyright owners and end users can use Streambox to convert their
content from RealMedia to other formats, so Streambox’s software
provides a legitimate function.
In January 2000, the Western District of Washington issued a
preliminary injunction to stop the distribution of Streambox VCR. The
court found that Streambox VCR violated two of the three prongs of
Section 1201(a)(2)’s antitrafficking provisions: 1) The program “is primarily, if not exclusively” designed to circumvent the copy protections
of Copy Switch,23 and 2) its only commercial purpose was to allow users
to access and download protected content.
Notably, the court did not enjoin distribution of the Streambox
Ripper (which converts digital formats). It found that Streambox
Ripper had legitimate purposes and commercially significant uses,
such as allowing copyright owners to convert RealMedia files to
other formats.24
RealNetwork’s experience provides two lessons. First, it is important to evaluate whether a product that disables copy protections has
a legitimate purpose. If so, it is more likely to survive an anticircumvention attack. Second, it reinforces the pivotal roles that streaming and
downloading will play in the future delivery of digital content. For an
entertainment company, streaming may be the more attractive choice,
because the company can better control whether digital files are copied
and distributed. However, consumers may want the option of downloading and keeping files and seek out products like Streambox VCR.
The next major anticircumvention case, Universal City Studios, Inc.
v. Corley,25 was a battle over DVD encryption. When DVDs came to
prominence, the motion picture, computer, and consumer electronics industries banded together and agreed to the Content Scrambling
System (CSS) as a standard to encrypt DVD content. This encryption
system allows consumers to play a DVD but prohibits copying or
manipulating the DVD’s digital content.
On his Web site for computer hackers, Eric Corley posted a copy
of DeCSS, a program written by a Norwegian resident to circumvent
the CSS encryption system. A group of movie studios sued Corley in
New York for violating the DMCA’s antitrafficking provisions. The studios obtained an injunction prohibiting Corley from making DeCSS
available on his Web site or providing links to other Web sites containing the software. The case made its way to the Second Circuit,
which affirmed the injunction in 2001.
The Second Circuit’s decision focused on Corley’s constitutional
challenges to the DMCA, which were rejected. Corley claimed the
DeCSS program was protected speech and the injunction violated his
First Amendment rights. The Second Circuit agreed that the program
was speech but held the program was entitled to limited protection
because it also encompassed nonspeech components and could
unlawfully access copyrighted works.26 The court found that the
DMCA, as applied to this case, targeted only the nonspeech component of DeCSS. It determined the injunction was content neutral and
served a substantial government interest without unnecessarily suppressing speech.27 The Corley decision is significant because, to date,
it is the only published anticircumvention case from a federal court
of appeals.
Notably, the Norwegian who helped write the DeCSS code, Jon
Johansen, fared better in Norwegian courts. At the request of the
Motion Picture Association of America, Norway’s Economic Crime
Unit criminally prosecuted Johansen in Norway for distributing the
DeCSS code on the Internet and enabling the unauthorized copying
of movie DVDs. Because Norway has no specific laws (such as the
DMCA) to protect digital content, the prosecutors relied on Norwegian
criminal theft laws. Johansen was acquitted, and in December 2003
a Norwegian court of appeal upheld his acquittal.28 The trial court ruled
38 LOS ANGELES LAWYER / MAY 2004
that it was lawful for Johansen to use DeCSS to copy DVDs that he
bought legally and saw no proof that Johansen used DeCSS for illegally acquired movies. In affirming this decision, the appellate court
found it was more reasonable to make a personal copy of a DVD than
a book under copyright laws because, for one thing, DVDs were
more fragile and could become unusable if scratched. The court also
observed that prosecutors failed to prove that other people had used
DeCSS to illegally copy DVDs.
The different results in the Corley and Johansen cases underscore the power of the DMCA sword. If Norway had a law equivalent to the DMCA, Johansen may have been convicted.
Even without actually filing a lawsuit, the entertainment industry
has been able to use the DMCA to halt activity that it believes
impinges on its rights. One notorious incident involves the Secure
Digital Music Initiative. In 2000 the SDMI, backed by the Recording
Industry Association of America, challenged computer programmers
to hack digitally watermarked audio content. A public relations nightmare ensued when Princeton Professor Edward Felten and a team of
researchers removed the watermarks in a matter of weeks. Felten and
his team tried to present their results at an academic conference, but
the SDMI sent a cease-and-desist letter asserting anticircumvention
violations. The researchers withdrew their paper from that conference.
(Later, after filing their own lawsuit, Felten and his colleagues published a portion of the research at another conference.)
In spring 2002, a similar result came in the world of online games.
Blizzard Entertainment, the online gaming arm of Vivendi Universal,
runs a service called Battle.net, which hosts multiplayer games that
can include thousands of players simultaneously. A group of opensource software developers created the Bnetd project, an alternative
service for hosting the Blizzard online games. Its creators claimed they
created Bnetd because Blizzard’s system was not dependable. Unlike
Blizzard’s system, the alternate service does not use CD keys to
confirm that players are using copies of games from authorized CDs.
In February 2002, Blizzard sent a cease-and-desist letter claiming
that the Bnetd project unlawfully bypassed Battle.net’s anticircumvention technology. The Bnetd team responded that it lawfully reverse
engineered the Battle.net program and was not required to include
every feature of the program, such as the CD keys. Nevertheless, the
Bnetd team took its ser ver and source code offline temporarily
but put the project back online in March 2002. Vivendi and Blizzard
ultimately filed suit, although without a DMCA cause of action.
Instead, they relied on a traditional copyright infringement claim,
alleging that their Battle.net code was copied byte-for-byte. Still, at least
in the short term, the DMCA threat was enough to take the competing
system offline.
The sharpest edge of the DMCA sword is its criminal sanctions.
The first published criminal indictment under the DMCA occurred
in 2002, United States v. Elcom Ltd.,29 a case involving Adobe Systems’
eBook format. Elcom, a Russian company, developed and sold software that allowed a user to convert Adobe’s eBook format into Adobe
Portable Document Format (PDF) files. This removed use restrictions
embedded by eBook publishers to limit the manner in which consumers can use an eBook. Those restrictions typically prevent consumers from viewing the eBook on multiple computers—which the
court found to be a fair use of an eBook—as well as copying, printing, or electronically distributing the eBook—which the court considered to be copyright infringement.30
The U.S. government indicted Elcom under the DMCA for trafficking in the software. Elcom raised constitutional challenges against
the DMCA that were rejected by the court. Just as in Corley, Elcom
argued that the DMCA violates the copyright clause by giving copyright owners the ability to extend their copyrights indefinitely, regardless of whether the works contain public domain, noncopyrightable,
or fair use material. The court was not convinced, finding that the copyright clause did not bar Congress from “extending copyright-like
protection” under other clauses, such as the commerce clause.31
After a two-week trial, the jury found that Elcom’s product was illegal. But it acquitted the company because it believed Elcom did not
intend to violate the law. Intent is a necessary element for a criminal
DMCA conviction. In an interview after the verdict, the jury foreman
commented that the jurors found the DMCA confusing, which made
it easy for them to believe that Elcom’s executives (who were from
Russia) might not fully understand it.32
Although Elcom was not convicted under the DMCA, a Florida man
named Thomas Michael Whitehead, also known as Jungle Mike,
was. In a case brought in Los Angeles,33 he suffered the first criminal conviction under the DMCA. Whitehead created and sold access
cards designed to unlawfully decrypt and receive DirecTV and DISH
Network satellite programming. Jungle Mike was one of 17 people
charged by the U.S. attorney’s office in February 2003 as part of
Operation Decrypt, an undercover FBI operation that targeted com-
puter programmers and hardware manufacturers who distributed
software and devices used to steal satellite service. In addition to three
DMCA counts, Whitehead was convicted on three non-DMCA
charges. With his conviction, Whitehead faces a maximum prison sentence of 30 years and fines up to $2.75 million. At press time, he had
not yet been sentenced.
Not surprisingly, both the Elcom and Whitehead criminal cases were
brought in California, where the entertainment industry is most powerful and most likely to garner support from federal authorities and
prosecutors. Entertainment companies will undoubtedly continue to
push for such prosecutions to deter other violators.
Beyond Entertainment
Other intellectual property owners outside the entertainment industry have realized the power of the DMCA as a legal and competitive
tool to protect their creations. It is possible that any technology with
electronic and software components may be able to invoke the anticircumvention provisions.
Tips for Counsel in DMCA Cases
hen enforcing intellectual property rights, attorneys should consider whether their clients have a viable cause of action under the
Digital Millennium Copyright Act. As anticircumvention law develops, courts will become more familiar with, and receptive to, this
cause of action.
One court has even raised the issue itself, without any prompting by the parties. In August 2003, Justice Moreno raised the potential for a DMCA
anticircumvention claim in his concurrence to the California Supreme Court’s decision in DVD Copy Control Association, Inc. v. Bunner.1 In that case,
the court was reviewing an injunction obtained by the DVD Copy Control Association, the trade association that controls DVD encryption. The association had requested the injunction to stop Web site operators from posting online the DeCSS code, which cracks DVD encryption. The complaint
alleged violations of California’s trade secret laws but raised no DMCA claim. Justice Moreno observed that, unlike trade secret law, the DMCA does
not require proof that the circumventing devices were acquired by improper means or based on secret information.
Before adding a DMCA claim, litigants should consider:
■ Whether they have a legitimate technological measure for protecting copyrighted material or whether such protection is de minimis.
■ Whether they will be subject to antitrust challenges for attempting to restrict competition in their marketplace.
When prosecuting or defending a DMCA claim, litigants should focus on:
The burden of proof. Although it may appear that the defendant must prove it had authority to circumvent a technological protection, the burden
is actually on the plaintiff to show that the alleged circumvention occurred without the plaintiff’s authority.2 While this procedural aspect of DMCA
litigation may seem like a technicality, it may be significant at the summary judgment stage, in which burdens of proof are critical.
Whether the accused circumvention device has a legitimate purpose. In most of the DMCA cases involving the entertainment industry, the legitimate purpose factor strongly favored plaintiffs because the accused devices were designed to copy entertainment content without permission. But
in Chamberlain Group, Inc. v. Skylink Technologies, Inc.,3 a case that focused on garage door openers, this factor was fatal to the DMCA claim because
the court believed that consumers have the right to buy a universal garage door remote.
Evidence about how the accused circumvention device is marketed to consumers. In Lexmark International, Inc. v. Static Control Components,
Inc.,4 a case in which technology for printer cartridges was at issue, the defendant’s case suffered a severe blow when the defendant admitted that
it marketed its replacement cartridges as being able to bypass Lexmark’s safeguards. Counsel representing a DMCA plaintiff should seek such evidence in discovery. Counsel representing a DMCA defendant should minimize the impact of this type of evidence by finding alternate explanations
for potentially damaging marketing messages.
Common sense. This lesson is clear from the Chamberlain case. The garage door opener at issue in that case did bypass Chamberlain’s rolling code,
but the court was persuaded by common sense: Consumers should be able to buy a replacement universal garage door remote if needed. Even if
there is a technical violation of the DMCA, persuasive arguments can be made based on the real-world impact of enforcing the DMCA in a particular situation.—J.D.N.
W
1
DVD Copy Control Ass’n, Inc. v. Bunner, 31 Cal. 4th 864 (2003), 116 Cal. App. 4th 241 (Feb. 27, 2004) (court of appeal dissolving the injunction on the ground that the
DVD association could not establish its trade secret).
2
Chamberlain Group, Inc. v. Skylink Techs., Inc., No. 02 C6376, 2003 WL 22697217, at *3, 68 U.S.P.Q. 2d 1948 (N.D. Ill. Nov. 13, 2003).
3
Chamberlain, 2003 WL 22697217.
4
Lexmark Int’l, Inc. v. Static Control Components, Inc., 253 F. Supp. 2d 943 (E.D. Ky. 2003).
LOS ANGELES LAWYER / MAY 2004 39
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The first notable nonentertainment case,
Lexmark International, Inc. v. Static Control
Components, Inc.,34 involved printer cartridges.
Lexmark manufactures and sells laser printers and toner cartridges. Its printers include
copyrighted computer software designed so
that the printers work only with Lexmark
toner cartridges. Each toner cartridge contains a microchip with software that sends an
authentication sequence to the printer to let it
know that a Lexmark cartridge is installed. If
an unauthorized cartridge (i.e., one from
another manufacturer) is installed, the printer
will not operate because the cartridge cannot access the software needed to control the
printer’s functions.
Static Control Components (SCC) sells
SMARTEK microchips, which the company
specifically designed to circumvent Lexmark’s
authentication sequence. The SMARTEK
microchips make Lexmark printers think a
toner cartridge is one of Lexmark’s, enabling
the cartridge to work with Lexmark printers. SCC sells its SMARTEK microchips to
companies that refill toner cartridges and
sell remanufactured toner cartridges to the
public at prices that generally undercut
Lexmark’s. SCC acknowledged that its
SMARTEK microchips copied Lexmark’s
computer program “in the exact format and
order.”35
In 2002, Lexmark sued SCC for antitrafficking violations. At the time, Lexmark’s suit
was novel because the DMCA was commonly
associated with prohibiting digital piracy of
entertainment products. SCC countersued,
arguing that Lexmark was improperly using
the DMCA for anticompetitive purposes.
Specifically, SCC claimed that Lexmark was
trying to shield itself from competition by
other manufacturers of toner cartridges and
to force consumers to buy Lexmark’s higherpriced cartridges. It also argued the DMCA
was not intended for the kind of technological measures used by Lexmark and was
instead meant to protect separately marketed
copyrighted works rather than software programs embedded in an electronic product.
The federal court in Kentucky, unconvinced by SCC’s arguments, granted a preliminary injunction to stop SCC from making
and selling SMARTEK microchips.36 The
cour t found that SCC’s SMAR TEK microchips satisfy all three tests under Section
1201(a)(2) for trafficking in devices that circumvent access controls. Indeed, SCC admitted that 1) its microchips are designed to
avoid or bypass Lexmark’s authentication
sequence, 2) the microchips have no commercial purpose other than to circumvent
that sequence, and 3) it markets the chips as
capable of circumventing Lexmark’s access
control.37
From toner cartridges, the battle turned
to garage door openers in Chamberlain Group,
Inc. v. Skylink Technologies, Inc,38 the first
major defeat for anticircumvention claims.
Chamberlain is a company that manufactures
garage door opener systems. Its systems use
a rolling code, which varies the signal used to
trigger the opener device each time a garage
door is opened or closed. The rolling code is
intended to thwart burglars from gaining
access to the garage. Other garage door openers use a fixed code, which a burglar can
record by using a code grabber when the
garage door is opened or closed. Chamberlain’s rolling code technology prevents
the use of code grabbers because a previously recorded code will not activate
Chamberlain’s system.
Skylink is a direct competitor of
Chamberlain. It markets a universal remote
that consumers can use to operate their
garage door openers, regardless of the openers’ original manufacturer. The universal
remote was capable of cracking Chamberlain’s rolling code. In Januar y 2003,
Chamberlain sued Skylink for violating the
DMCA’s antitrafficking provisions. Chamberlain claimed Skylink’s opener violated all
three access circumvention provisions of
Section 1201(a)(2) because 1) the opener
was primarily designed to circumvent
Chamberlain’s system, 2) it has a limited
commercial purpose other than to circumvent the system, and 3) it is marketed to circumvent the system.
The court disagreed. It denied a motion by
Chamberlain for summar y judgment and
invited Skylink to bring its own defense
motion for summary judgment. Skylink did
so, and in November 2003, the court dismissed the anticircumvention claim. It found
that Skylink had implied authority to make its
universal remote control. Consumers set up
the Skylink remote to be tuned into their specific opener’s signal, thus giving their authorization for Skylink to bypass Chamberlain’s
rolling code.39 The court also expressed its
view that homeowners have a legitimate
expectation to be able to access their garage
even if the original transmitter is misplaced
or malfunctions. It compared garage door
openers to television remote controls, which
consumers should be able to replace “with a
competing, universal product without violating federal law.”40
Certainly, the Lexmark decision will encourage manufacturers to embed technological protections in their products to obstruct
competition for replacement parts. However,
the Chamberlain ruling puts limits on the
power of the anticircumvention provisions.
Just because a device circumvents technological measures will not render it automati-
cally illegal. Instead, courts will likely evaluate the common sense implications of the
effect of the device on consumers and the
marketplace.
Antitrust Concerns
The tales of the printer cartridges and garage
door openers foreshadow a major fight for the
future: whether the DMCA can be abused
for anticompetitive ends. In the Lexmark
printer cartridge case, the defendant warned
that manufacturers in other industries may
use the DMCA as a means to thwart competition. For example, cell phone manufacturers
could embed microchips with copyrighted
software in their batteries, headsets, or car
adapters to force consumers to use only that
manufacturer’s replacement parts.
In the realm of entertainment, this strategy could be employed for a wide spectrum
of products: television remote controls, controllers for video game systems, parts for
digital music players, television sets, radios,
por table digital music players, wireless
devices, and others. In fact, any media hardware that contains electronic parts or even a
small amount of software can be embedded
with technological protections to trigger the
anticircumvention provisions. If they have
not already done so, manufacturers of entertainment and media hardware will inevitably
consider how to use the DMCA to advance
their competitive goals.
But the DMCA has implications for all
intellectual property owners, not just those in
entertainment. The Lexmark court confirmed
that the DMCA’s antitrafficking provisions
are not restricted to digital content piracy. It
stated, “Quite simply, if a work is entitled to
protection under the Copyright Act, trafficking in a device that circumvents a technological measure that controls access to such
work constitutes a violation” under the
DMCA.41 This opens the door for any copyright owner to invoke the DMCA’s anticircumvention provisions, although potential
abuse may occur as well.
Concerned about antitrust implications,
SCC, the defendant in the Lexmark case, petitioned the U.S. Copyright Office to exempt
toner cartridges, including its SMARTEK
microchip and related devices, from the
DMCA’s anticircumvention provisions. The
DMCA instructs the Office of the Librarian of
Congress to determine whether cer tain
classes of copyrighted works should be
exempted from the anticircumvention provisions—and to do this every three years.42 An
exemption is warranted if the DMCA prohibitions are likely to adversely affect users “in
their ability to make noninfringing uses…of
a particular class of copyrighted works.”43 In
October 2003, the Office of the Librarian of
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42 LOS ANGELES LAWYER / MAY 2004
Congress completed its triennial review of
the exempted classes, and rejected SCC’s
petition.44 For now, Lexmark and other manufacturers of toner cartridges can still invoke
the DMCA to protect their markets.
The Office of the Librarian of Congress
also rejected proposed exemptions that would
have allowed users to skip commercials on
DVDs, play CDs in their personal computers,
and read e-books on a PDA without fear of
violating the DMCA.45 In fact, only four classes
of works were recently approved for exemption, including software or video games distributed in formats that are have become obsolete and literary works distributed in an e-book
format when all existing e-book editions have
certain access controls.46 Because it is difficult
to get product classes exempted from the anticircumvention provisions, most copyrighted
material will remain subject to the DMCA.
As digital technology continues to evolve,
the DMCA’s anticircumvention provisions
will profoundly impact how, when and in what
form digital entertainment is enjoyed. One
area of intense debate is what right consumers have to shape their own entertainment experience. The key anticircumvention
cases deal with technology that either transforms content from one format to another
(such as RealAudio to MP3) or that allows
content to be saved for later and frequent
use (such as downloading audio files to a
consumer’s PC). Consumers like this kind
of technology because it allows them to customize their enter tainment experience.
Content owners fear the technology because
their business strategies depend on controlling their content. The steady pace of technological innovation shows no sign of abating,
so entertainment companies, courts, and legislators will continue their efforts to find an
appropriate balance between the protection of
intellectual property rights and the rights of
consumers.
■
1
The safe harbor provisions of the DMCA are contained
in 17 U.S.C. §512.
2
17 U.S.C. §1201(a) and (b).
3
Universal City Studios, Inc. v. Corley, 273 F. 3d 429,
441 (2d Cir. 2001).
4
17 U.S.C. §1201(a)(3)(A).
5
H.R. REP. NO. 105-551, pt. 1, at 17 (1998).
6
Id. at 18.
7
Id.
8
Id.
9
17 U.S.C. §1201(a)(2).
10
17 U.S.C. §1201(a)(2), (b)(1). Specifically, the
§1201(a)(2) antitrafficking provisions state that:
No person shall manufacture, import, offer to
the public, provide, or otherwise traffic in any
technology, product, service, device, component, or part thereof, that—
(A) is primarily designed or produced for the
purpose of circumventing a technological measure that effectively controls access to a work
protected under this title;
(B) has only limited commercially significant
purpose or use other than to circumvent a
technological measure that effectively controls
access to a work protected under this title; or
(C) is marketed by that person or another acting in concert with that person with that person’s knowledge for use in circumventing a
technological measure that effectively controls
access to a work protected under this title.
The antitrafficking provisions in §1201 (b)(1) are almost
identical.
11
H.R. REP. NO. 105-551, pt. 1, at 19.
12
17 U.S.C. §1201(b)(1).
13
17 U.S.C. §1201(f).
14
17 U.S.C. §1201(g).
15
17 U.S.C. §504(c).
16
17 U.S.C. §1203(c)(5).
17
17 U.S.C. §1203(c)(4).
18
17 U.S.C. §1203(c)(3).
19
17 U.S.C. §1204(a).
20
17 U.S.C. §1204(a)(1) and (2).
21
See, e.g., Universal City Studios, Inc. v. Corley, 273 F.
3d 429 (2d Cir. 2001); United States v. Elcom Ltd., 203
F. Supp. 2d 1111 (N.D. Cal. 2002).
22
RealNetworks, Inc. v. Streambox, Inc., No.
2:99CV02070, 2000 WL 127311 (W.D. Wash. 2000).
23
Id. at *8.
24
Id. at *10.
25
Corley, 273 F. 3d 429.
26
Id. at 449-50, 453.
27
Id. at 454.
28
Sunde (for Norway) v. Johansen, Case No. 02-507
M/94. The appellate court’s decision was reported by
various news outlets, including the Norwegian publication Aftenposten. See http://www.aftenposten.no
/english/local/article.jhtml?articleID=696330. An
English translation of the January 7, 2003, decision by
the lower Norwegian court is available online at the
Electronic Frontiers Foundation Web site, http:
//www.eff.org/IP/Video/DeCSS_prosecutions/Johansen
_DeCSS_case/20030109_johansen_decision.html.
29
United States v. Elcom Ltd., 203 F. Supp. 2d 1111
(N.D. Cal. 2002).
30
Id. at 1118-19.
31
Id. at 1138-39.
32
Lisa M. Bowman, ElcomSoft verdict: Not guilty, CNET
News.com, available at http://news.com.com/21001023-978176.html (last modified Dec. 17, 2002).
33
United States v. Whitehead (C.D. Cal. Sept. 19, 2003),
reported in U.S. Department of Justice Press Release,
Sept. 22, 2003, available at http://www.cybercrime
.gov/whiteheadConviction.htm.
34
Lexmark Int’l, Inc. v. Static Control Components,
Inc., 253 F. Supp. 2d 943 (E.D. Ky. 2003).
35
Id. at 955.
36
Lexmark also asserted that SCC infringed Lexmark’s
copyrighted computer programs.
37
Lexmark, 253 F. Supp. 2d at 969.
38
Chamberlain Group, Inc. v. Skylink Techs., Inc., No.
02 C6376, 2003 WL 22697217, 68 U.S.P.Q. 2d 1948 (N.D.
Ill. Nov. 13, 2003) (granting defendant’s motion for
summary judgment claims); 2003 WL 22038638, 68
U.S.P.Q. 2d 1009 (N.D. Ill. Aug. 29, 2003) (earlier decision denying plaintiff’s motion for summary judgment).
39
Chamberlain, 2003 WL 22697217, at *4-*5.
40
Id. at *5.
41
Lexmark, 253 F. Supp. 2d at 969-70.
42
17 U.S.C. §1201(a)(1)(C).
43
Id.
44
Exemption to Prohibition on Circumvention of Copyright Protection Systems for Access Control Technologies, 68 Fed. Reg. 62,011 (Oct. 31, 2003) (to be codified at 37 C.F.R. pt. 201).
45
Id. at 62,015-16 (rejected items nos. 9 and 15).
46
Id. at 62,013-14.
MOHAJERIAN
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copyright, trademark and entertainment law
LOS ANGELES LAWYER / MAY 2004 43
By Jeffrey S. Konvitz
Independent
Wealth
The best financing opportunities for independent films
involve complex relations with foreign
producers and governments
I
44 LOS ANGELES LAWYER / MAY 2004
ning films have sprung out of the mix, and many independently
financed films have been commercial successes. Major stars and
directors have gained entry into the mainstream from small, independently financed pictures cobbled together with mirrors—or so it
seems. The indie business has also been the victim of the most public of mistakes, the most wrong of turns, the most difficult of adolescences, and the worst of frauds.
Contemporary independent film financing is a legacy
of the late 1970s. To the extent that there was any independent financing before then, it was usually provided
by rich patrons or limited partnerships in which a
producer would sell units to dentists, doctors, and
other “civilians.” There was no institutional capital
marketplace. The financing market changed in the
early 1970s with the “negative pick-up,” whereby a studio, whether to avoid onerous union commitments or to
move bank debt off its balance sheets, would commit to acquire
a picture from an “independent” producer for the full amount of a negotiated budget. This model required a bank to finance the commitment
and a completion guarantor to “guarantee the completion and delivJeffrey S. Konvitz practices law in Century City through the Law Offices
of Jeffrey S. Konvitz. His practice specializes in motion picture and television financing, general entertainment law, and entertainment and complex business litigation.
RON OVERMYER
ndependent film financing is a hydra-headed mechanism so
inordinately complex that it can send grown men—including
pugnacious producers, bankers, sales agents, distributors, completion guarantors, bridge financiers, escrow agents, and structured-finance gurus—screaming into the night. The film financing playing field encompasses the entire world, though the game looks
very different depending on the identity and country of
origin of the players. For some producers, the prime
goal is just money, and they want to earn it in any way
possible. Others actually want to make a movie, and
then there are those few who want to make a good
movie as well.
Film financing attorneys in California (often
referred to as financing counsel) must thoroughly
understand contract law, secured transactions (UCC
Article 9 and its foreign counterparts) surety law, bankruptcy, general banking law, federal and state litigation, and
special arbitration mechanisms (such as those offered by the American
Film Marketing Association). In addition, they must have an appreciation of the currency markets, hedging mechanisms, and finance.
They also must know relevant international treaties (coproduction and
tax) and must understand in detail the purpose of each film and
sound element.
The independent film business is an important source of product
to major distributors/studios, exhibitors, and the public. Oscar-win-
ery” of the picture. The model, however, was really studio financing
in indie clothing.
When Netherlands Bank Slavenberg (later acquired by Crédit
Lyonnais) institutionalized the practice of financing pictures with
loans secured by individual, territorial distribution agreements in
the late 1970s, everything changed. As true then as now, the first
bankers (even though they later violated their own operating rules)
understood that the real collateral asset was the distribution income
stream, not the copyright. Foreclosing against the copyright, or any
distribution rights thereunder, would create damaged goods and
mutilate the potential income stream. Therefore, it was essential that
distributor-licensees were financially sound and reliable.
At the same time, new media, particularly video and cable, created
new worldwide markets. The appetite for product was initially so
huge that one could not only license a territory to a distributor but
also license individual media directly, creating the ability to design pictures to match the various media. This led to viable A-, B-, and C-level
picture markets.1
During the 1980s, the financing banks were almost wholly located
in Europe, and their financing criteria were generally similar. All
loans had to be fully collateralized by distribution contracts plus executed assignments of distributor/licensee gross receipts. The distribution contracts would then be given graded values based on distributor/licensee bona fides, financial integrity, and reputation. The
aggregate of the license values had to equal at least the budgets of the
pictures, as defined (less any equity), plus all financing costs and sales
costs, if permitted.
In principle, the finance model worked, provided each of the
banks exercised self-discipline. The film business, however, has long
devoured its own. Independent producers, ill-advisedly determined
to compete with the majors, cranked out budgets designed for the Alevel market that outstripped the availability of first-class collateral.
Without equity infusions to close deals, banks artificially increased
the collateral values from marginal distributors or otherwise fudged
the numbers. Discipline, in fact, became delusion. Add a couple of outand-out frauds (such as the Perretti gang fraud at Crédit Lyonnais),
and the seeds for an ongoing crisis were planted—and soon bore fruit.
By the mid-1990s, the business that had looked so promising was
on life support. European banks had fled. New financing mechanisms and media outlets were desperately needed. But nature abhors
a vacuum, and banks again came to the rescue—this time principally from the United States.
The financing tool that the banks created to jump-start the business was the gap loan, which worked as follows: A bank would lend
a portion of its production loan against sales estimates prepared by
what were euphemistically referred to as “acceptable sales agents”—
alleged experts in foreign sales, whose knowledge of the market
was supposedly so astute that the banks could rely on the estimates
as if they were hard contracts. The concept of gap lending was reasonably solid; however, its implementation was abused. The banks
began to make gap loans equal to 60 percent to 70 percent of budget,
instead of loans at lower and more justifiable levels.2 In reality, bank
loans were little more secure than equity. High gap loans, however,
were effective in jump-starting the industry; they got pictures produced. But if a picture turned out badly, the territorial distribution
rights could not be sold, penalties amassed, more often than not the
sales agent would be replaced and lose its fees, and the loan balances
would eventually have to be written off.
Stung by losses, the banks severely narrowed the gaps and financing became increasingly more difficult. Into this new vacuum jumped
insurance companies with a credit enhancement tool known as the
insurance guarantee, through which an insurance company issued an
insurance policy to a financing bank, guaranteeing recoupment of the
46 LOS ANGELES LAWYER / MAY 2004
bank’s loan. Like the gap loan, if properly utilized, insurance guarantees
could have worked. Unfortunately, pictures were financed by banks
in reliance on insurance guarantees that should never have seen the
light of day. Gaps were not covered. Loans defaulted. Insurance calls
were tendered. Insurers refused to pay. Litigation ensued—and continues.3
Then came the Germans. The first development was the creation
of the Neuer Markt, the German equivalent of NASDAQ, which led
to an investment frenzy in which German communications stocks mirrored the rise of dot-coms. Companies with marginal profitability
and suspect business plans raised fortunes from an unsophisticated
marketplace. To keep stock prices up, these companies entered into
expensive deals with U.S. film producers and then overbid the prices
for German rights to third-party pictures, assuming that the sale of
German television rights would bail them out. When that assumption
proved wrong, stock prices crashed, destroying any prospect of secondary stock offerings. The Neuer Markt film companies collapsed.
A second development was the creation of German film tax shelter funds. As the funds were originally organized, investors would contribute a sum that consisted of equity and borrowed funds (for example, 20 percent equity and 80 percent debt). The producer, usually a
U.S. major studio, would take about 10 percent, the fund promoters
would take their costs and fees (generally, another 10 percent), and
the remaining 80 percent of the fund would be invested in a locked,
interest-bearing bank account. The investors were then able to take
an immediate, first-year tax deduction on the full 100 percent contribution (both equity and borrowed monies). At the end of the multiyear lockup, the investors would receive back their original equity investment, cash to repay their debt plus interest, and cash to pay
deferred taxes.
German legislative authorities soon prohibited this form of shelter because it required no German production involvement and entailed virtually no risk. New shelters that entailed some level of risk
and production rights and obligations replaced them. These new
shelters consist of independent risk-equity and quasi-risk-equity
funds, which, in fact, are a better match for independent picture
financing structures.4 These funds, which require German producers,
German de jure control, and German copyright ownership, have provided equity that functions much as a gap loan. However, recent
media decrees have tightened the qualification rules regarding tax
writeoffs, and more tightening can be expected in the future.
Recent Independent Financing
The demise of institutional investment and insurance guarantees,
the reduction in available bank gap financing, the restrictions placed
on tax-based incentives, and the narrowing of available markets have
made the financing of independent pictures once again more difficult.
A producer still must arrange sufficient financing to cover the costs
of production, the delivery of the picture to licensees, and the payment
of financing costs and bridge costs. This requires the producer/financier, who invariably cannot finance a picture out of foreign sales
alone, to arrange for budget coverage from a U.S. domestic distribution financing arrangement in the amount of approximately 30 to 40
percent of the budget or for the producer to arrange for the investment of private equity or quasi-equity public subsidies. Many current
public subsidies are tied to treaty coproductions, whose rules mandate the expenditure of qualifying sums in the subsidizing territory.
(Most of these subsidy systems require postproduction audits to
sustain the grants.) Some of these subsidies are tax-based, others are
based on labor costs, while others (such as the leaseback in the
United Kingdom and the media funds in Germany, to some extent)
are structured on business leasing models.5
There are dozens of territories that provide for subsidies, the
foremost being the United Kingdom and
Canada. (See “Runaway Home,” page 24.)
Creating a U.K.-Canada coproduction has recently become a favored means of accessing
up to 45 percent of a picture’s budget in subsidies and has permitted the coverage of capital shortfalls.6 The rules governing coproduction qualification are complex, but they
can be navigated by financing counsel, usually
with the participation of local foreign counsel.
Invariably, a production financing bank will be
involved, and the financial and legal concerns
of the bank and the guarantors must be factored into the mix.
Currently, three independent financing
models predominate in the market:
1) The major studio negative pickup.
2) The split rights arrangement under which
U.S. and Canadian distribution rights are
licensed to one U.S. major or mini-major distributor, foreign rights are sold on a territoryby-territory basis, all contracts are financed by
one or more banks, and completion and delivery is guaranteed by a completion guarantor
to all licensees.
3) The treaty coproduction model, under
which two or more coproducers agree to
finance a motion picture within treaty parameters, a portion of the cost of financing is
provided by each coproducer in cash or services, each coproducer contributes territorial
subsidies, and the remainder is secured and
split between or among them by means of the license of territorial
rights plus the liquefaction of the security by a bank. The treaty
coproduction model includes virtually all the elements of the negative pickup model and the splits rights model and currently provides
the most viable mechanism to bridge the financing gap in the absence
of a U.S. studio partner or major equity donor.7
The two classic treaty coproduction variants are the CanadianEuropean Union coproduction and the straight EU coproduction
between or among EU member nationals—with the United Kingdom
somewhere in the mix. A Canadian-EU coproduction arises under a
series of separate treaties between Canada and individual EU countries, each treaty containing different rules. In any case, there must
be careful structuring to satisfy spending splits and other crew and
cast requirements. Also, the coproduction and the coproduction
agreements must be submitted to and approved by the appropriate
government organizations in each partner territory.8 The straight EU
coproduction may be formed under separate treaties per se, or may
arise under the European Convention on Cinematic Co-Productions9
and will also require government certification.
U.S. Involvement
The major studios are in Los Angeles. A majority of the sales agents
and financiers are in Los Angeles. Most of the stars, directors, and film
financing banks are in Los Angeles as well. The American Film
Market, one of the three major theatrical financing markets, is held
in Los Angeles. Invariably, A-level independent motion pictures have
their genesis in Los Angeles.
U.S. financing counsel, who generally represents a U.S. sales
agent/financier or a major producer or a core financier, is, therefore,
often the point person in a pyramid of multinational lawyers. Among
those stacked in the pyramid are the bank lawyers, who are charged
with documenting the bank loans and securing first position for the
bank’s production financing loan against all coproducers and sales
agents while effecting the assignment of all worldwide revenue to the
bank directly; counsel to the completion guarantor; and foreign counsel to each coproducer, who must effect the conclusion of formal coproduction agreements. However, it is financing counsel—often representing all nonbank and nonguarantor U.S. financing and production
interests (plus the coproducers in the negotiations with banks, the
guarantor, and any third-party financier with respect to the production bank loan)—who must take the global lead in perfecting the
financing plan.
Financing counsel usually will begin to construct a treaty coproduction plan with three instruments. The first is the formal financing
plan, a document that matches production financing to projected
budget and includes all forms of production revenue, including all available subsidies, bank gap financing, currency contingencies, and
equity. The second is the structural plan, a series of charts that map
out the corporate structure of the financing, the flow of funds, the
spending splits, the amount of budgeted capital that each coproducer
can export to the other,10 and the cast and crew qualifications that govern each coproducer. The third is a detailed master financing agreement among all the parties from which the less-detailed formal coproduction agreement is derived. All these documents are interrelated
and must evolve continuously as production parameters change.
Invariably, the language of all three, plus others, will be finalized at
the closing of the bank production loan but might have to be reworked later to accommodate the unexpected.
Current Problems in Coproduction Financing
There are five major problem areas that have assumed particular
importance in independent film financing. All are particularly trouLOS ANGELES LAWYER / MAY 2004 47
blesome in coproductions.
Bridge financing. Every financing plan
must anticipate the expenditure of preproduction funds prior to the close of a master
production financing facility. In coproductions, the coproducing partners often advance
all these funds. On other occasions, these
funds are invested by bridge lenders and are
recoupable from the production financing
bank closing. When financing counsel also
represents the bridge lender, due diligence
responsibilities expand dramatically, because
financing counsel not only must be assured
there is sufficient capital to cover all preclosing costs but also must be confident that
the production bank loan will close. If it does
not, the bridge lender must be prepared to
fully fund the picture, collateralize the bank
loan itself, or foreclose, which results in the
ownership of a near-worthless screenplay. In
addition, when there are local coproduction
counsels, financing counsel also must understand ever y element of the coproduction
agreements and the qualifying budget allocations, because if any of the coproducers
fails to secure its government’s preliminary
approval, the coproduction will fail, there will
be no bank closing, and the bridge will collapse.
Escrow and securitization. A production
financing bank will require that every licensee
sign notices of assignment in favor of the
bank that direct all payments under license
agreements to the bank. The completion guarantor, if it has advanced completion funds,
will often piggy-back on these agreements
until it is repaid. It is at this point that gross
receipts can be imperiled.
Historically, gross receipts were paid over
to sales agents or to the borrower and they
were responsible for paying third parties.
This exposed the gross receipt income stream
to several risks: 1) the honesty of the recipient/payor, 2) untenable accounting delays, 3)
gross accounting irregularities, 4) simple
theft, 5) bankruptcy, and 6) attacks by liencreditors of the borrower or sales agent or
their affiliates (judgment and statutor y).
Though abuse by the primary recipient of
the gross receipts has been the most manifested risk, all risks have materialized.
To avoid these nearly inevitable risks, it is
imperative that financing counsel establish
appropriate arrangements through neutral
escrow agents under detailed escrow instructions. It is also important that the participants in the escrow understand that the funds
flowing to the escrow account are part of the
estate of the borrower or sales agent, as the
case may be, and are unsecured sums. A
properly structured financing should direct
the gross receipts to the escrow, where they
will be pooled. While such a plan is rarely
48 LOS ANGELES LAWYER / MAY 2004
implemented, it is likely that each escrow
participant would then have a properly perfected security interest in the funds at that
point.11 Finally, the escrow should immediately separate the funds into separate accounts
in the name of each participant, thereby
removing the funds, as much as legally possible, from the estate of the borrower or other
recipients. Thus, for example, if a borrower,
who is the majority coproducer, borrows
funds from a bank and licenses the financed
picture to a distributor, a properly structured
escrow account in a U.S. bank would not protect against accounting irregularities and/or
outright dishonest conversion by the distributor but would more effectively protect
against the coproducer’s bankruptcy or an
attack by a third-party lien creditor with
respect to gross receipts previously remitted into an escrow account.
Deliver y of the picture. This part of
film production, the process by which a picture’s film elements, sound elements, video
elements, and documentary elements are forwarded to a distributor in exchange for most
of its minimum guaranty, is the one least
understood by lawyers and bankers. Delivery
used to be simple: Deliver the materials; get
paid. When defective materials were delivered, both sides would work to fix them; then
delivery would occur, and everyone would be
happy.
Today, however, things are not so simple.
The deliver y/credit problem has become
extremely acute due to the nature of international film banking. Prior to the mid-1990s,
most of world’s film financing was provided
by European banks, which financed the U.S.
sales agents and producers. If there was a
problem obtaining payment from a territorial
distributor, the U.S. sales agent or producer
often called its European financing bank and
the bank could usually force compliance,
because the financing bank (or one of its syndicate partners) usually was the resisting foreign licensee/distributor’s bank. These banks
held tremendous leverage. However, once
bank production financing shifted to the
United States, the financing banks were no
longer banking the licensees as well, and
therefore became vulnerable to nonpayment.
The delivery game has also changed. Film
delivery specifications precisely limit objections to “technical quality” and objective criteria such as running time. However, in practice, licensees use delivery procedures to
shield themselves against the creative failure of a picture. Produce a terrific picture or
one that gets a successful major release in the
United States, and there is no delivery problem too big to fix. Produce a gobbler or a
picture that does not get a U.S. theatrical
release, and the delivery war could go on for
months, ultimately ending in a price reduction. Even if the dispute goes to arbitration
and is won, it is a brutal struggle to collect
from a foreign distributor without assets in
California.
Further, with gap financing, it is virtually
impossible to complete a film without defaulting under one or more loan provisions. With
default, the financing bank has the right to settle minimum guarantees to ensure the bank
recoups its loan and with each deliver y
rejected and reduction sought and achieved,
the income stream available to the subordinated lenders, equity partners, and participants becomes more and more attenuated.
Because of the potential problems, financing counsel should employ several strategies. Avoid licensing to those foreign distributors who constantly reject delivery and
resort to AFMA arbitration in an effort to
achieve minimum guarantee reductions.
Remove any language from license agreements that requires a picture to be substantially similar to the final approved screenplay
or limit the reach of this language (as this is
one of the main points of attack by licensees).
Require large minimum guarantee advances,
so if a licensee defaults, a termination will be
painful to it. Limit the type of film materials
that must be delivered to trigger payment.
Scrutinize the deliver y provisions of the
agreements as closely as the payment provisions. Build a relationship with the licensees’
bankers as soon as possible.
Though one might assume that bank
counsel is sufficiently sophisticated to deal
with these issues, this assumption is incorrect.
Though one might assume that the completion guarantor will be on top of these issues,
it is uniformly untrue until too late.
Litigation. The film financing environment has become increasingly litigious. In
the coproduction model there are more moving parts, more international jurisdictions,
and more things that can go wrong. A litigation fight may include all parties and all agreements. Without careful attention, the following scenarios can occur:
1) The coproduction agreement can apply
the law of the majority coproducer or minority coproducer’s territory and situs the litigation in either territory.
2) The master financing agreement may apply
a totally different law and different situs.
3) The loan agreements, assuming a
California bank, will apply California law and
may apply reference procedures.
4) In the aggregate, one dispute with multiple
heads may result in a clash of multiple litigations and conflicts of law.
When the production financing bank is
located in California, financing counsel must
attempt to apply California law throughout,
provided it is not inconsistent with the coproduction treaties and, where able, provide for
an arbitration mechanism in lieu of the courts.
Further, when financing counsel is dealing
with multiple foreign parties with no assets in
California, confirmation of arbitration decisions by the California Superior Court is basically worthless, as foreign enforcement and
collection will fall under the auspices of the
Convention on the Recognition and Enforcement of Foreign Arbitral Awards.12 Financing
counsel must therefore provide in advance
that each party waive any challenges under
the convention. Otherwise, collection actions
in the applicable foreign jurisdiction could
be foreclosed for long periods of time.
Shifting sands and shifting legislation. National legislative bodies are constantly
revising their nations’ subsidy systems. The
reasons are well known: Sometimes the systems are simply ill-conceived, but more often
than not they are abused. Most subsidies, no
matter the form and whether or not they are
tax based, are adopted to spur indigenous
film production, assist local labor, and spur the
local economy, in addition to aiding indigenous producers.
The principal beneficiaries of this subsidies, however, are often the major Hollywood
studios (who have the manpower and knowledge to exploit access to these new sources
of capital) and a tried-and-true group of independent producers who are well-versed in
feeding at the subsidy trough. The result is
often the export of capital to more favorable
production-cost locales or twisted financing
mechanisms that trigger never-intended
excess and self-serving yields that quickly
run afoul of the authorities.
The current state of affairs in the United
Kingdom is illustrative. Due to abuses, the
U.K. Department for Culture, Media and
Sport recently ruled that the United Kingdom
must be represented in at least 40 percent of
a Canadian/U.K. coproduction (rather than
the previous 20 percent, which led to the
export of capital to cheaper Canada). Moreover, Section 48 of the 1997 Revenue Act,
which has supported the most valuable production fund mechanisms, is scheduled to
expire in mid-2005, and Inland Revenue, the
U.K. equivalent of the IRS, has already advised
that Section 48 will not be extended, though
one or more subsidy formats will be put in its
place.13 In addition, right in the middle of this
year’s major film financing cycle, Inland Revenue ruled that certain forms of film financing
production shelters, which include shelters
based on GAAP accounting write-off models,
rather than Section 48 write-off models, are
improper.14 This has thrown the market into
disarray, stopping pictures in their tracks
(even though an effort is currently under-
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LOS ANGELES LAWYER / MAY 2004 49
way to exempt from the new ruling some pictures that are simply too far along). For producers who must be plan far in advance and
for financing counsel who have been attempting to marry U.K. production shelters with
extraterritorial shelters under coproduction
agreements, 15 this is unner ving and has
stalled entire segments of the indie financing
industry.
The recent U.K. actions are not unusual.
Similar reorganizations have taken place elsewhere. However, the messes that generally
cause them are unnecessary, as the underlying rationales behind tax and governmentbased subsidies can be respected and can
work for caring producers who actually want
to make a good film and keep greed in check.
Let greed loose, accompanied by manipulations and misrepresentations at all levels, and
these systems benefit the few. Invariably, the
golden goose is killed and everyone suffers.
Dedicated financing counsel can make a difference. Independent film financing is constantly evolving. The California attorneys
serving as financing counsel, particularly in
coproduction scenarios, will find themselves
confronting diverse problems and issues
across a broad section of legal disciplines
and jurisdictions. Careful attention to com-
plicated rules is a must, but financing counsel must be more than a scrivener or interpreter of rules. Financing counsel must be the
proactive, creative leader, the wrangler. It is
a daunting task.
■
1
The A-level market includes higher budget pictures
intended principally and initially for theatrical release
with video and television rights providing security for
acquisition costs and print and advertising cost shortfalls, plus profits. The B-level market principally includes
lower budgeted genre pictures directed toward initial
video and television distribution in most markets, but
with the possibility of selected theatrical release. The
C-level market consists of even lower budgeted fare,
directed solely to the video and non-primetime television markets.
2
In addition, the budgets shown to the banks and guaranteed by the completion guarantors were often much
higher than the true budgets required to finance the picture. The completion guarantors were, however, concerned only about budgets that were understated, and
the banks did not have the expertise to know the difference.
3
See, e.g., Silicon Valley Bank v. New Hampshire Ins.
Co., 203 F. Supp. 2d 1152 (2002).
4
Some are pure equity risk funds; some have quasi-leasing mechanisms by which part of the invested funds are
pooled for a period of years, earning interest under
forward contracts sufficient to pay off a predicted portion of the bank loans; and others are even more hybrid.
5
The U.K. leaseback model involves the sale of the master negative by the producer/owner to a funding party.
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The producer then keeps a portion of the purchase
price paid to him for the picture and uses the remainder to lease back the master negative. Qualifying the
film as a British film under The 1985 Film Act, or as a
treaty coproduction under bilateral treaties or under the
master European Convention on Cinematic Coproductions, is necessary to be entitled to these subsidies.
6
Revenue Act, 1992, §42 (U.K.) and Revenue Act, 1997,
§48 (U.K.) accord various accelerated write-off privileges to investors in qualifying British films. One way
to take advantage of §42 is the standard leaseback
structure, which provides for a partial first-year tax
deduction with the remainder deductible over the next
two years. This structure provides the producer with a
soft money infusion equal to approximately 10% of budget. Bigger budget films can use an even more favorable structure under §48, which allows investors a firstyear tax deduction of 100% of their investment. This
provides almost 16% of budget to the producer without
recoupment rights or points. Sections 42 and 48 have
also underpinned production tax/equity deals that
have provided another 15% to 25% of budget. Some of
these U.K. subsidies—depending on their structure
and size—can be combined with federal and provincial
subsidies in Canada to provide another 20% of budget
to the producer.
7
The United States has no coproduction film treaties
with Canada, the European Union, or any individual EU
country.
8
E.g., Telefilm Canada, the Centre National du Cinéma
in France, and the Department of Culture, Media and
Sport in the United Kingdom.
9
European Convention on Cinematic Co-Productions,
CETS 147 (Strasbourg, Nov. 2, 1992), available at
http://conventions.coe.int/Treaty/en/Treaties/html
/147.htm (Council of Europe Web site).
10
For example, under an 80/20 Canadian/German
coproduction, if the Canadian producer is committed
to contribute and spend 80% of the budget, the producer
can export to the German coproducer up to 25% of his
80% for expenditure by the coproducer on non-Canadian
costs. Further, each side can obtain one or more exclusions for the use of American stars, who generally are
necessary to support the sales values in the non-coproduction territories, including the United States.
11
In the United States, the perfection instrument would
be a mortgage of copyright (with a backup UCC filed
in the state of the secured parties’ incorporation).
12
The Convention on the Recognition and Enforcement
of Foreign Arbitral Awards was prepared and opened for
signature on June 10, 1958, by the United Nations conference on International Commercial Arbitration, convened in accordance with Resolution 604(XXI)1 of the
Economic and Social Council of the United Nations
adopted May 3, 1956. The United States and all EU
coproduction countries are signatories to the convention.
13
Revenue Act, 1997, §48 (U.K.). In its March 17, 2004,
budget, the Chancellor of the Exchequer announced
that Section 48 accelerated writeoff entitlements for
film investments will not be renewed, ending various
leaseback and production tax shelters. In addition, the
qualification for British film status will be tightened.
New rules to spur U.K. distribution of subsidized films
will be promulgated by this summer. See http://www
.inlandrevenue.gov.UK/budget2004/pn04.htm.
14
Letter from Inland Revenue, Inland Revenue Press
Office (Feb. 10, 2004) (on file with author); see the
newly proposed Inland Revenue rules at http://www
.inlandrevenue.gov.uk/ctsa/tackling-avoidance.pdf.
15
In principle these national shelters cannot be married
in one deal as both require 100% of the cash flow
through their mechanisms, which is impossible, and
one or both require that the fund entity be the controlling producer, which makes them incompatible
with the Canadian rules.
ethics
opinion
no.
511
Los Angeles County Bar Association Professional Responsibility and Ethics Committee
Sharing in Fees as Partner or
Employee of Two Law Firms
SUMMARY: An attorney may not concurrently serve as a partner or associate in two law firms and share in
the fees generated by each firm unless the attorney complies with California Rules of Professional Conduct,
Rules 1-400 and 2-200. The attorney must also address such matters as conflicts of interest and client confidences as a participant in each law firm.
AUTHORITIES CITED: Business and Professions Code Sections 6068(m) and 6106; California Rules of Professional
Conduct, Rules 1-100, 1-400, 2-200, 3-310, and 3-500; California State Bar Formal Opinion No. 1994-138; Los
Angeles County Bar Association, Formal Opinion No. 473; Bank of California v. Connolly, 36 Cal. App. 3d 350
(1973); Chambers v. Kay, 29 Cal. 4th 142 (2002); Martinez v. County of Los Angeles, 87 Cal. App. 3d 189 (1978);
Neel v. Magana, Olney, Levy, Cathcart & Gelfand, 6 Cal. 3d 176 (1971); People v. Speedee Oil Systems, Inc., 20
Cal. 4th 1135 (1999); Weiner v. Fleischman, 54 Cal. 3d 476 (1991).
FACTS AND ISSUES PRESENTED: Attorney is a partner in ABC law firm. Attorney has a longstanding professional relationship with Client. Client is about to embark on a project that requires certain expertise not
possessed by the lawyers in ABC. Client wants the benefit of Attorney’s counsel in connection with the project and to have Attorney work with lawyers with the expertise necessary for the project. Law firm DEF has
such expertise.
Attorney proposes to form a joint venture with DEF for such work and proposes to share in the fees generated at DEF from Client’s work, including matters at DEF in which Attorney does not provide services. Attorney
proposes to continue to serve as a partner at ABC and participate in its profits.
Alternatively, Attorney proposes to become an employee of DEF while at the same time continuing to serve
as a partner of ABC.
Attorney does not intend to provide Client with the disclosure concerning the division of fees or obtain the
written consent required by Rule 2-200(A).
DISCUSSION
The inquiry does not provide great detail concerning the proposed relationships, but the committee is of the opinion that in most
situations contemplated by the inquiry, Rule 2-200(A) requires disclosure of such an arrangement to the client and the client’s written
consent. The proposed arrangements also raise a host of potential
issues, including potential conflict of interest considerations and
lawyer advertising issues. These are discussed below.
California Rules of Professional Conduct, Rule 2-200(A) provides:
A member shall not divide a fee for legal services with a lawyer
The LACBA Professional Responsibility and Ethics Committee (PREC) prepares written opinions and responds to questions by lawyers concerning
lawyers’ ethical duties and responsibilities. You may access PREC's formal opinions through the LACBA’s Web site at http://www.lacba.org/showpage
.cfm?pageid=427. Formal opinions are completed within six months to a year. If you have a legal ethics issue (not currently in litigation), please
contact Grace Lee at (213) 896-6407 or [email protected]
LOS ANGELES LAWYER / MAY 2004 51
who is not a partner of, associate of or
shareholder with the member unless:
(1) the client has consented in writing thereto after a full disclosure has
been made in writing that a division of
fees will be made….
Rule 1-100(B) provides in part:
(1) “Law firm” means (a) two or more
lawyers whose activities constitute the
practice of law, and who share in its
profits, expenses, and liabilities; or (b)
A law corporation which employs more
than one lawyer….
(4) “Associate” means an employee or
fellow employee who is employed as a
lawyer.
In Chambers v. Kay, 29 Cal. 4th 142 (2002),
Chambers attempted to enforce an agreement with Kay for the division of fees received
by Kay from the successful prosecution of a
sexual harassment action on behalf of Kay’s
client. During the course of the litigation Kay
requested Chambers to act as cocounsel with
him. Chambers performed substantial services in connection with that action and
advanced several thousand dollars in costs.
Kay listed Chambers as an attorney of record
for the client on pleadings and disclosed to the
client the proposed division of fees between
them, but neither Chambers nor Kay obtained
the client’s written approval of the arrangement.
Kay and Chambers had separate offices at
different locations and used different letterheads. Kay paid Chambers a monthly fee to
use Chambers’s conference room and other
facilities and was listed as a cotenant in the
directory of the building in which Chambers
maintained his office. Chambers assisted Kay
with his work on several other cases as well.
During the course of the sexual harassment
litigation, Kay and Chambers disagreed on
certain matters, and Kay terminated their
relationship. After judgment in favor of Kay’s
client, Chambers attempted to enforce the
fee sharing agreement.
The supreme court held that their agreement violated Rule 2-200 and strictly enforced
the requirement of a partnership or employment relationship as a prerequisite to a permissible division of fees, unless both the disclosure and the written consent requirements
of Rule 2-200 were met.
The court held that a true partnership or
employment relationship was required to
allow fee sharing without meeting the disclosure and written consent requirements of
Rule 2-200. Chambers argued that work on
the case involved a joint venture in which
Chambers paid some of the expenses. As to
the claim that Chambers and Kay were joint
venturers in prosecution of the action, and
that a joint venture was a form of partner52 LOS ANGELES LAWYER / MAY 2004
ship, the court noted that although a partnership and a joint venture share many characteristics, Rule 2-200 spoke of a partnership
and not of a joint venture. The court noted that
the arrangement between the lawyers was
neither formal nor permanent but that they
merely worked together on a few cases. There
was no co-ownership of partnership properties or sharing of profits and losses on a continuous basis that the court found to be necessary for a partnership, as distinct from a
joint venture.
The Chambers court specifically overruled
a court of appeal decision that allowed fee
sharing without complying with the disclosure
and the consent requirements of Rule 2-200,
where both attorneys contributed substantial effort to the prosecution of the case that
generated the fees that were to be shared.
As to the claim that Chambers was an
“associate” as defined in Rule 2-200, the court
observed that Rule 1-100(D)(4) defines an
associate as an employee or fellow employee
and determined, in substance, that a common law employer-employee relationship was
required under Rule 1-100(D)(4).
The inquiry posits a fact situation that differs from the facts before the cour t in
Chambers. The extent to which a court determines such differences in facts to be controlling may determine the propriety of the
proposed arrangements.
In its Formal Opinion 1994-38, the Committee on Professional Responsibility and
Conduct of the State Bar (COPRAC) considered the propriety of certain fee arrangements under Rule 2-200. COPRAC opined
that an arrangement by which a lawyer billed
a firm in which he was not a par tner or
employee for his regular hourly rate, which
the firm then re-billed to the client and paid
over to the lawyer when paid by the client, did
not amount to a division of fees regulated by
Rule 2-200. In that opinion COPRAC was of
a view that, as the law firm was not retaining
any portion of the fee, there was no division
of fees, and the law firm acted merely as a
collection agent. If the arrangement proposed
in the inquiry contemplates that there will
be no retention by Attorney or the ABC law
firm of a portion of the fees charged, then the
facts of COPRAC opinion 1994-138 would be
present and there would be no improper division of fees.
The inquir y, however, appears to contemplate that Client will contract with ABC to
perform the requested services and Attorney
or ABC will then arrange with DEF for DEF
(or ABC and DEF acting together) to provide the representation of Client and that
there will be a retention of fees by Attorney
or ABC in excess of the fees charged Client
for Attorney’s services when only ABC per-
forms services.
The fact that both law firms will provide a
substantial contribution of services in the
representation, and that this contribution is
known to Client, is not sufficient to avoid
complying with the disclosure and consent
requirements of Rule 2-200. In overruling
prior case authority that allowed such fee
sharing without complying with the requirements of Rule 2-200, the Chambers court made
it clear that the prohibition of Rule 2-200 is not
directed only at referral fees and does not
depend on the quantum of work performed
by each of the lawyers.
Under Chambers, a joint venture between
lawyers will not satisfy the requirements of
Rule 2-200. According to case law, the principal difference between a joint venture and
a partnership is that a partnership ordinarily
involves a continuing business relationship,
whereas a joint venture is usually formed for
a specific transaction or a single series of
transactions. Weiner v. Fleischman, 54 Cal.
3d 476, 482 (1991) (noting that the distinction
between partnerships and joint ventures is not
sharply drawn); Bank of California v. Connolly,
36 Cal. App. 3d 350, 364 (1973). Here,
although the inquiry used the term “joint
venture,” the nomenclature may not be determinative. The first arrangement posited by
the inquiry looks to a continuing business
arrangement, not a specific transaction. On
the other hand, a string of proceedings for the
same client involving the same area of law
may be of the nature of a series of transactions. The inquir y does not fully reveal
whether there would be joint ownership of
assets, a right of joint control, and the sharing of profits and losses that are required for
both a partnership and a joint venture.
Similarly, while the posited “employment”
relationship may satisfy the language of Rule
2-200 and Chambers v. Kay, a common law
employee-employer relationship in which the
employee earns minimal wages but receives
substantial compensation by way of fee sharing may not be viewed as conforming with
Rule 2-200. Similarly, an arrangement in which
the “employee” controls the employer may
not be viewed as conforming with Rule 2-200.
The proposed arrangement also must take
into account matters of disclosure to the
client, client confidentiality, and conflicts.
Under the assumed facts that Attorney is
serving as a member or associate of two law
firms, Attorney must consider clients of both
ABC and DEF as Attorney’s clients for the
purposes of avoiding the representation of
adverse interests (Rule 3-310) and related
conflict issues. State Bar Formal Opinion
1994-138; People v. Speedee Oil Systems, Inc.,
20 Cal. 4th 1135 (1999).
The proposed arrangement must also con-
sider the effect of Rule 1-400(D), which prohibits untrue or false statements, including
statements that omit any fact needed to make
the statement not misleading. Under the
authority of Rule 1-400(E) the Board of
Governors formulated standards of communications that are a presumption affecting
the burden of proof. Standard (9) presumes
as violative of Rule 1-400:
A communication in the form of a firm
name…or other professional designation used by a member of law firm…
which differs materially from any other
such designation used by such member or law firm at the same time in the
same community.
While under the posited facts the member
will be practicing under two different firm
names, the arrangement may involve two
dif ferent law firms as defined in Rule 1100(B)(1), and the extent to which the
arrangement conforms to Rule 2-200 may
determine whether or not it is false or misleading. Thus, while concur rent use of
Attorney’s name in two different law firms
may be factually correct, if a disciplinary proceeding is commenced on this ground, it is
Attorney that will bear the burden of showing
that practicing under two firm names is not
misleading.
Attorney also must consider whether the
purpose or the effect of the arrangement is to
avoid or evade the disclosure obligations of
Rule 2-200(A). As a fiduciary, Attorney has
the obligation to render a full and fair disclosure to Client. Neel v. Magana, Olney, Levy,
Cathcart & Gelfand, 6 Cal. 3d 176, 188-189
(1971). Rule 3-500 provides: “A member shall
keep a client reasonably informed about significant developments relating to the employment or representation and promptly comply
with reasonable requests for information.”
Business and Professions Code Section
6068(m) similarly provides that an attorney
has the duty to “keep clients reasonably
informed of significant developments in matters with regard to which the attorney has
agreed to provide legal services.”
Attorney should consider whether the
structure of the law firm, the fee and fee sharing arrangements, and the identity of the
attorneys performing and supervising the
performance of services are of such importance that Attorney is obligated to disclose
that information to Client, and whether the
statements made (and not made) to Client
amount to deceit. Attorney may need to make
that determination on a case-by-case basis.
This opinion is advisory only. The committee acts only on specific questions submitted ex parte and the opinions are based
only on the facts set forth in the questions presented.
■
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computer
counselor
By Benjamin Sotelo and James A. Flanagan
Remote Computing Rules for
Attorneys
A few rules of
timedia graphics require large
amounts of hard drive space. It
thumb can increase does not make economic sense to
buy a laptop that lacks needed
hard drive features if the buyer’s
the benefits of
expectation is to upgrade the
machine later. Instead, if laptop
technology for
portability and multimedia are
required, the attorney or firm
mobile attorneys
should allocate the largest hardware budget possible toward the
ttorneys and law firms direct purchase of a top-of-theneed not only technical line laptop.
A second rule of the road is to
suppor t but mobility.
Word processing, document back up critical data. Too many
depositories, automation, and legal professionals do not even
legal research all become more have an established backup
difficult in courtrooms, hotels, method for the office, let alone for
and client sites. The result is akin the road. For most users, burning
to an arms race, in which win- disks with the computer’s DVDning a case can become a matter CD burner drive is a workable
of technical superiority. Add the data backup method. (Users with
need for portability, including computers lacking this drive
multimedia presentations in court should review the first r ule
and remote receipt of critical e- above.) When there is more data
mail, and the technical challenge to back up than what a DVD or
increases. Computer technicians CD burner can save, attorneys
can help lawyers concentrate on may also consider a USB or
practicing law, but having some Firewire external hard drive for
knowledge about the general high-volume data backup.
Rule number three: Commuprinciples of hardware and softnication is critical,
ware can help attorand with it comes
neys avoid defeat
Benjamin Sotelo is
the need for secuon the remote compresident of Legal
rity. The mobile
puting battlefield.
Friendly Technolcomputer’s moFirst, regarding
ogies and can be
dem, NIC port, and
hardware, attorreached at Benjamin
wireless por t are
neys should [email protected]
its connections to
nize that notebook
James A. Flanagan is
the outside world.
computers genera civil litigator.
Because dial-up
ally cannot be upspeed is unacceptgraded, so it makes
sense to buy one that already has ably slow, when renting a hotel
all the features that will be room request broadband access
needed. For example, if a note- at 10/100 speed and use your
book will be used for multime- computer’s NIC or wireless condia presentations, it will need a nection. If these two connections
removable hard drive bay and are not available, the dial-up
extra hard drives, because mul- modem should be. Make sure
A
54 LOS ANGELES LAWYER / MAY 2004
that whatever your destination,
you will have a toll-free dial-up
number to connect to your
Internet service provider and that
your user name and password
are already programmed into
your browser. Your hard drive
should be configured so that it
is not shared. When using a wireless connection, encrypt your signal. Remember to use the password protection that your screen
saver or hard drive has; otherwise, your work product could
be available to anyone with wandering eyes while you are away
from the computer.
Fourth, choose an appropriate
personal digital assistant (PDA).
For traveling attor neys, this
means a Pocket PC is likely to
be preferable to a Palm Pilot.
Most law office software is written with Microsoft in mind, and a
properly configured PDA can synchronize all your case management information, including contacts, calendaring, and document
data. With anything but Microsoft
software, however, you increase
the probability of having software
conflicts arise in the field, where
you are poorly equipped to solve
them. As with the computer,
remember to set a password on
your PDA so that its data will not
be available to the casual spy.
Rule five: When buying a
portable scanner, find one that
has a document feeder and
comes with Adobe Acrobat
Distiller. Copying documents during depositions or at client sites is
common practice. After one experience of having to feed documents onto a surface scanner one
by one, an attorney is not likely to
forget this rule. Pay extra for the
feeder.
The sixth r ule concer ns
another budgetary challenge: a
projector of suf ficient power.
Projectors are very expensive, so
look for one that has enough
brightness (which is often
expressed in lumens) for the
largest room in which you expect
to be making presentations but
that does not do (and cost) any
more than necessary. Additionally, make sure the projector will
plug into your notebook computer ports.
Software
A portable computing system
includes software as well as hardware. A PDA can handle many
case management functions, for
example, but as these functions
increase, so does the user’s
dependence on its software and
its interaction with other applications. Common problems with
legal software include overlapping features, incompatibility
between programs, and programs that do not deliver what
is promised.
Overlap and incompatibility
waste the technology budget. For
example, lawyers in the office
and on the road may have to purchase Word and WordPerfect
rather than be left without either.
Difficult choices also arise with
other software, and most computer users can recount at least
one experience with software
that, after purchase, proved useless. For these reasons, traveling
attorneys should use software
that has already proven itself in
the office and that can work with
the cornerstone of a mobile computing system for attorneys: the
database.
Accordingly, the seventh rule
of the road is: Avoid all applications that do not
synchronize with Microsoft Outlook. Away
from the office, access to data is paramount,
and that data may be updated by individuals
in different departments and may arrive via
e-mail and from there spread to updated calendar and contact information. If this rule is
overlooked, a mobile user who enters the
critical new cell phone number of a client on
a PDA while away from the office will not
update other databases in the firm or in the
PDA of outside cocounsel.
On the other hand, if you consider that
every aspect of your legal practice can be
automated, including document production,
accounting, and more, the value of a central
database with real-time remote access
becomes apparent. At least some of this
automation is possible with legal programs
that synchronize with Outlook as the controller of the central database.
In fact, in the near future, the general principle of shared, remotely accessible data will
lead to Outlook’s retirement as gatekeeper.
For word processing, time and billing, and
other legal data management needs, the key
application is soon likely to be a browser—and
in particular, Internet Explorer. You may have
already seen Internet sites that manipulate
and present data in what are called dynamic
Web pages. The great advantage of these
dynamic pages is that they can be accessed
via the Internet, and thus are available to an
attorney in another country as they are to
one in the home office. With this technology, mobile users will log onto the firm’s Web
site in order to open and store documents,
perform legal research, and check calendaring and billing information, all through
Internet Explorer. As long as a user has
access to a Web browser, every software technology can become homogeneous. Further,
as wireless access points to the Internet continue to be installed in coffee shops, gas stations, hotels, and airports, the usefulness of
browser-accessible data increases.
Practicing law today is dangerous. As
reliance on computers increases, viruses,
system failures, data loss, and unwieldy legal
software can cripple an entire firm. For attorneys who are traveling, this reliance on technology entails commitment to costly hardware and worries regarding data management
and security. The tantalizing simplification—
in the form of reliable database management
via PDAs and the Internet—of the present
state of affairs has yet to be realized. In the
meantime, lawyers can still attempt to do
what they do best—practice law—and keep in
mind only those rules of the road that are of
greatest importance, while leaving as many
technical details as possible to the technicians.
■
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by
the
book
Reviewed by Keith E. Cooper
Clearance and Copyright
This guide should
that “the question of whether a
given work is in the public
be used with
domain…is more often than not
a…question for which you should
caution by
receive the best possible legal
advice.” This is arguably the most
filmmakers and
important sentence in that discussion, but it is one lay readers
attorneys alike
may skip.
To his credit, Donaldson repeatedly admonishes his readers
Clearance and Copyright: to consult an attorney for help
Ever ything the Independent navigating the maze of legal
rights associated with filmmakFilmmaker Needs to Know
ing. However, the reality is that
by Michael C. Donaldson
Silman-James Press, 2003, 2d ed. most independent filmmakers
who read this book will use it as
$26.95, 398 pages
a substitute for legal counsel.
oward the end of Clearance Those who do consult an attorney
and Copyright: Everything will likely do so only after they
the Independent Filmmaker run into problems.
In some places in the book,
Needs to Know, author Michael
Donaldson, an enter tainment Donaldson seems to forget who
attorney, expresses his view that his intended readers are. Some of
current copyright law “is convo- his suggestions are beyond the
luted and often counter-intuitive.” reach of independent filmmakMost copyright lawyers would ers without lawyers—the preagree that copyright law is com- sumed target audience. To a
plex and cannot easily be distilled degree, Donaldson acknowledges
into a relatively thin volume this. After an explanation of music
geared to a lay readership. agreements, for example, he
admits that it is not
Nevertheless, DonKeith E. Cooper is a
likely to apply to
aldson attempts
sole practitioner
the deals most
this task.
specializing in
independent filmThe chapters
entertainment law.
makers will be
are arranged in the
He is a member of
doing.
chronological orthe Los Angeles
Attorneys may
der of the filmmakLawyer Editorial
sometimes use this
ing process. Their
Board.
type of book as a
structure could be
quick reference
improved. Donaldand substitute for
son buries essential information in discussions expensive practice guides. This
that oversimplify complex issues book’s usefulness for such a purand may give lay readers a false pose is limited. The book consense of security. For example, at tains factual errors, perhaps as
the end of a lengthy discussion of the result of careless editing. For
public domain and copyright peri- example, while listing copyods, he finally advises filmmakers rightable works, Donaldson notes
T
56 LOS ANGELES LAWYER / MAY 2004
“[a]rchitectural drawings, but not
the buildings created from them.”
In fact, buildings are protected
under 17 USC Sections 102(a)(8)
and 101, a change effected in
1990 to bring the
United States into
compliance with the
Berne Convention.
Donaldson also states
that a copyright on a
work for hire is “75
years from first publication.” Actually, it
is now 95 years.
In discussing reasons to register a work with the
copyright office, Donaldson says
that registration before infringement provides statutory damages
against an infringer (otherwise,
only actual damages are available). This is true. However, he
describes statutory damages as:
“awards granted by a court when
a copyright owner’s work has
been infringed, but the owner
cannot prove the actual losses.…”
This is somewhat misleading
because, in an infringement
action, a plaintiff with a registered copyright can choose between statutory or actual damages, even if actual damages can
be proven. These and other misstatements throughout the book
are relatively minor, but cumulatively they reduce its usefulness
as a legal research tool.
Also hampering its value as a
quick reference for lawyers is the
failure to provide citations for all
cases. Donaldson provides a table
of cases in an appendix, but it is
incomplete. In one chapter, he
discusses fact patterns for more
than 15 published cases, but for
that particular chapter the table
provides only two citations.
Like other legal self-help
books, Clearance and Copyright
contains samples of various
agreements that filmmakers may
use to secure rights. Donaldson’s
philosophy of drafting is admirable: “No
matter what the subject of a contract is or
how much money is
involved, a contract
ought to be well organized and easy to
read.” However, he
does not seem to take
his own advice.
The sample agreements provide adequate legal protection,
but Donaldson misses an opportunity to foster plain English in
agreements among filmmakers
who use standard forms. The
sample agreements are full of
legalese and convoluted writing
that includes many “shalls,”
“theretofores,” and phrases such
as “perpetuating agreement” and
“can be shown by you.” And in
some cases, the introductory discussion is not consistent with the
sample form. For example, in the
discussion of option/purchase
agreements, Donaldson advises
that the first option payment on a
script should be applicable to the
purchase price (an industry standard), but the form he includes
contains no such language.
What is worse, Donaldson
invites the lay user to “just make
any changes to the contract form
[samples] that suit your needs.”
This is a dangerous suggestion.
Even without such encouragement, too many filmmakers inexper tly edit legal forms—with
results that horrify the attorneys
who are subsequently hired to
repair the damage.
■
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MyCorporation.com, Inside Front Cover
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Aon Direct Administrators/LACBA Professional Liability, p. 1
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AT&T Wireless, Inside Back Cover
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Law Office of Donald P. Brigham, p. 42
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Tel. 323-939-3400 www.lawyers.com/ok&olaw
C2 Café & Kitchen/Patina Group, p. 9
Pacific Health & Safety Consulting, Inc., p. 10
Tel. 310-551-1600 www.patinagroup.com
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Commerce Escrow Company, p. 53
The Palazzo East at Park La Brea, p. 41
Tel. 213-484-0855 www.comescrow.com
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CourtCall, LLC, p. 35
QLTT International, p. 22
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Danz Gerber Employment Council, p. 55
Jan Raymond, p. 31
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CLE Preview
2004 Court of Appeal Walk-Through
ON MONDAY, MAY 10, the Association and the Barristers Section will present a court
of appeal walk-through for attorneys who are either general practitioners or new
attorneys who have not yet appeared before the California Court of Appeal. It will
also be of value to attorneys who are experienced in the practice of appellate law.
The first session will focus on the unique nature of appellate practice and will
feature speakers Justice Michael G. Nott, attorney Robin Meadow, and clerk of the
court Joseph Lane. Practical tips from an appellate judicial attorney will be provided
by Marilyn Alper. The second session will cover writs. A mock conference will be
presented by Pablo Drobny, Randee J. Barak, Gina M. Calvelli, Rita Gunasekaran, and
Christine Hoeffner. In the third session, covering oral argument, two appellate
practitioners will argue a case before a panel of four justices, followed by a panel
discussion. Panel members are appellate court justices Paul Turner, Patti S. Kitching,
Margaret M. Grignon, and Paul Boland, as well as attorneys Pamela Dunn and
Richard H. Nakamura Jr. This program offers 3.25 hours of legal specialization credit
in appellate law. The session will take place at the California Court of Appeal, 300
South Spring Street, third floor courtroom, Downtown. On-site registration will
begin at 4 P.M., with the program continuing from 4:30 to 8 P.M. The registration code
number is 008574.
$30—CLE+PLUS members
$45—LACBA members
$55—all at-the-door registrants
3.25 CLE hours
2004
Family Law
Walk-Through
ON TUESDAY, MAY 11, the
Family Law Section will
present its annual walkthrough program at the
Los Angeles Superior
Court. Judicial officers,
experienced family law
attorneys, and court staff
will describe the basics of
court procedures and
processes.
This program will take
place at the Los Angeles
Superior Court, 111 North
Hill Street, Downtown. Onsite registration will begin
at 4 P.M., with the program
continuing from 4:30 to
7:45 P.M. The registration
code number is 008572.
$15—CLE+PLUS members
2004 Bernard Witkin Lecture
ON MONDAY, MAY 24, the Litigation Section will host the 2004 Bernard Witkin lecture.
Witkin is a name known to every California lawyer. For almost 70 years he contributed to
the educational needs of the bench, bar, and legal organizations. The Witkin Legal
Institute is devoted to continuing his legacy of public service. With the institute’s
support, the Litigation Section is proud to participate in that effort through the
establishment of the annual Witkin lecture. The lecturer will be Erwin Chemerinsky, who
will speak at the Dorothy Chandler Pavilion’s Salvatori Room, on the fifth floor, 135
North Grand Avenue, Downtown. On-site registration, along with the meal and
reception, will begin at 11:30 A.M., with the lecture continuing from 12:30 to 1:30 P.M.
The registration code number is 008562. CLE+PLUS members may attend for free ($40
meal not included). The prices below include the meal.
$70—Litigation Section members
$700—law firm tables (groups of 10)
$90—LACBA members
$100—all others
1 CLE hour
$25—Family Law Section
members and Barristers
$35—all at-the-door
registrants
3.25 CLE hours
The Los Angeles County Bar Association is a State Bar of California MCLE approved provider. To register for the programs listed
on this page, please call the Member Service Department at (213) 896-6560 or visit the Association Web site at
http://forums.lacba.org/calendar.cfm. For a full listing of this month’s Association programs, please consult the May County Bar Update.
LOS ANGELES LAWYER / MAY 2004 59
closing
argument
By Bruce M. Ramer
Civility? Yes, Civility
The entertainment industry has an urgent need
to help restore civility to the national dialogue
e live in perilous times, unequaled in decades. Never has the
republic had greater need for civil discourse, for ordered
debate, for wise counsel, and the deliberate exchange of
ideas. And perhaps in no arena is the need more crucial than in our
popular culture, for this is precisely where we Americans tell one
another so much about ourselves, where we feed back images of ourselves not only to each other but, equally important, to the broader
world that watches our every move.
Yet wherever one looks—from home to school to workplace to,
quite clearly, the popular culture and, most glaring of all, the politics
of our time—civil dialogue has largely disappeared.
In its place we have slipped into a comfortable contempt for those
who hold contrary views; unease with people of other races, religions, colors, and creeds; disdain for lifestyles that are not exactly like
our own; and a crippling cynicism that isolates, embitters, and threatens to destroy old notions of neighborhood and nationhood. And in
this age of instant worldwide communications, this lapse has not
gone unexploited by those who long to see us reduced to a relic of history. It is therefore not merely a domestic social crisis but a matter
of national embarrassment.
We do not have to agree with one another. It is not the American
way to march in lock step. But we do have to learn to disagree with
civility. All of us.
And we in the entertainment industry, whether creative talent, executive, or lawyer, have an obligation to argue civilly and to foster civil
conduct among others. The first step is to recover the simple notion
of respect for our fellow citizens, of honoring the differences that make
this a strong nation and beacon to the world—diversity of ideas as well
as race, religion, and ethnicity. Perhaps we can begin to consider
whether the content of our product—music, film, and television—contributes in a serious way to the prevailing uncivil atmosphere.
My concern is not to avoid the tough questions or difficult issues
or even unpleasant subjects. Nor is it a call for mere politeness—civility requires more than just good manners. Nor is it a call to roll over
and play dead. It is a call to avoid name calling and smears and code
words. It is a call to avoid antigay, anti-Semitic, anti-Catholic, and
anti-Black attacks. It is a call to avoid racial slurs and disparaging personal remarks or acrimony. It is an insistence that those with differing views be viewed not as fools or immoral or subversive or cryptofascists/neocommunists (take your pick), but to value honest debate.
Look at Washington, D.C. One can attack the president’s policies
without attacking his integrity, his motives, or his intelligence or
likening him to Adolf Hitler. Look at the campaign trail. One can
challenge a candidate’s positions without attacking his or her integrity,
motives, or intelligence. Surely we can attack a position or challenge
W
60 LOS ANGELES LAWYER / MAY 2004
one without disparaging another or telling knowing lies about elected
officials or candidates or being disrespectful. To do otherwise is a bipartisan, indeed national, tragedy.
Look at rap lyrics. Is it not possible to write lyrics without denigrating women or employing hate-filled and racist phrases? At the 1992
Democratic Convention, the late Barbara Jordan proclaimed:
We are one, we Americans. We are one, and we reject any
intruder who seeks to divide us on the basis of race and color.
We honor cultural identity. We always have; we always will, but
separatism is not allowed.…Separatism is not the American way.
We must not allow ideas like political correctness to divide us
and cause us to reverse hard won achievements in human
rights and civil rights.…
Look at those films and television shows that feature gratuitous and
detailed violence—often in slow motion. Look at road rage, often
resulting in the death of innocent men, women, and children— even
helpless animals. Look at the habit of some to attribute false statements
to others and then attack them for what they did not say.
In a healthy community, we encourage vigorous debate. We welcome the opportunity to air competing interests, values, and taste in
the bright sunshine of the public square, the private square, the theater, and the air waves. We relish the opportunity to face our opponents,
our adversaries, our competitors to look them squarely in the eye and
utter the two most magical words in a free society: “I disagree.”
But not with words of disrespect,
ridicule, or contempt.
Perhaps when the esteemed Judge
Learned Hand spoke of the spirit of liberty in his 1944 Central Park speech, he
came the closest to lighting the way. He
said, “The spirit of liberty is the spirit
which is not too sure it is right; the spirit
of liberty is the spirit which seeks to
understand the minds of other men and
women; the spirit of liberty is the spirit
which weighs their interests alongside its
Bruce M. Ramer is a
own without bias.…”
partner at the enterOr, to paraphrase W. H. Auden’s great
tainment law firm of
poem, “September 1, 1939”: As I peer
Gang, Tyre, Ramer &
through the dark dishonesty of a low
Brown in Beverly
decade, I still see points of light flash out
Hills. He is also chair
wherever the just exchange their mesof the Entertainment
sages. May I, like them, cast yet an afLaw Institute of
firming flame.
U.S.C. Law School.
Let us all cast yet an affirming flame. ■
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