CDAS is production counsel for the Line By Line Media show “Instant Family” which was just ordered by the USA network as a half-hour reality series.
CDAS is pleased that Pulitzer Prize and Tony award-winning playwright August Wilson will be honored with a posthumous star on the Hollywood Walk of Fame. Fred Bimbler is counsel to the Estate of August Wilson.
Like most other providers of interactive computer services, such as websites or mobile applications that allow their users to post or contribute their own content, Twitter through its Terms of Service and community guidelines has long prohibited its users from posting or communicating, among other things, defamatory, profane, infringing, obscene, unlawful, exploitive, harmful, racist, bigoted, hateful, or threatening content through its service. Yet for many years, Twitter has declined to deactivate or take any further action against President Trump’s account, despite tacitly acknowledging that his tirades might very well violate these prohibitions, on the basis that the blusterous Tweets were nevertheless newsworthy. Facebook’s Marc Zuckerberg has similarly stood by his company’s decision not to fact check politicians on the platform, expressing concerns over free speech and democratic values and being an “arbiter of truth.”
That was until last week. On Wednesday, citing its civic integrity policy, Twitter added a label advising viewers to “Get the facts about mail-in ballots” from a page of curated news articles hyperlinked below two of President Trump’s Tweets that had falsely claimed California was “sending ballots to millions of people, anyone living in the state no matter who they are or how they got there” to seemingly undermine voter confidence in mail-in voting when, in fact, ballots were only being sent to registered California voters. Then on Friday, Twitter limited the viewability of President Trump’s Tweet about protestors in Minneapolis that contained the racially inflammatory trope “when the shooting starts, the looting starts” by placing the Tweet behind a notice stating the Tweet violated Twitter’s rules against glorifying violence before allowing viewers to click through to see it. In neither case did Twitter remove or delete the Tweets.
On Thursday, President Trump channeled his ire towards Twitter and other social networking platforms (namely, Facebook, Instagram, and YouTube) who he believes are censoring speech, particularly conservative speech, into a highly controversial executive order. The purpose of the order was to undermine the immunity from civil liability found in Section 230 of the Communications Decency Act (CDA), 47 U.S.C. § 230(c), which protects interactive computer service providers and their users from liability for certain types of content posted or transmitted by users through those services, websites, apps, etc. and any actions or harm resulting from that content so long as the service provider or user, as the case may be, does not exercise control over the content akin to that of the publisher or speaker. Specifically, the law says, a provider or user of an interactive computer service will not be “treated as the publisher or speaker of any information provided by another information content provider” or be liable for “any action voluntarily taken in good faith to restrict access to or availability of material that the provider or user considers to be obscene, lewd, lascivious, filthy, excessively violent, harassing, or otherwise objectionable, whether or not such material is constitutionally protected, or any action taken to enable or make available to information content providers or others the technical means to restrict access to [information provided by another information content provider].” Without this liability shield, operators of websites or mobile apps that contain user-generated content or facilitate communication between users will be open to civil liability for such causes of action as defamation, invasion of privacy, products liability and negligent design of the service, failing to screen users’ communications and protect them from one another, among others, for the content that they allow their millions of users to post, contribute, or transmit through their services, despite perhaps not having the resources—monetary, technological, personnel, legal, or otherwise—to police all user-generated content and communications flowing through their service.
The Executive Order on Preventing Online Censorship clarified the federal government’s interpretation of CDA Section 230 to say that “the immunity should not extend beyond its text and purpose to provide protection for those who purport to provide users a forum for free and open speech, but in reality use their power over a vital means of communication to engage in deceptive or pretextual actions stifling free and open debate by censoring certain viewpoints.” The executive order goes on to state that the safe harbor should not extend so far as to “provide liability protection for online platforms that—far from acting in ‘good faith’ to remove objectionable content—instead engage in deceptive or pretextual actions (often contrary to their stated terms of service) to stifle viewpoints with which they disagree.” The executive order directs the Federal Communications Commission (FCC) and Federal Trade Commission (FTC) to propose new administrative regulations to narrow the scope of immunity provided under the CDA’s safe harbor in a manner that would, among other things, draw greater scrutiny to the alleged misalignment between these companies’ stated policies and “good faith” enforcement and their algorithms for the content and users they promote or do not promote. The administration framed this alleged discrepancy as a deceptive trade practice, again, harkening back to the notion that social media platforms disfavor conservative voices and viewpoints (despite a lack of evidence of such bias).
The executive order will surely be challenged in court and the long line of caselaw reinforcing the safe harbor in the interest of protecting freedom of expression on the Internet and service providers and their users from liability therefrom, as well as recent lawsuits alleging political bias by social media platforms, will likely render the executive order unenforceable. However, until then, the executive order has the force of law and the FCC and FTC will commence their rulemaking processes so, this policy shift is something every website or mobile app provider whose service contains user-generated content or communications—and the lawyers who represent them—should pay close attention to.
Earlier this week, the Industry-Wide Labor-Management Safety Committee Task Force released proposed policies and guidelines for the recommencement of productions, known as the White Paper. As of June 1, the White Paper was submitted to New York Governor Andrew Cuomo and California Governor Gavin Newsom for review.
The Task Force, comprised of the Alliance of Motion Picture and Television Producers, major studios (e.g., Amazon Studios, Apple Studios, HBO, Netflix, Sony, Walt Disney, Warner Bros. Entertainment, Fox), and many guilds and unions (i.e., Director’s Guild of America, I.A.T.S.E. and its West-Coast Studio Local Unions and New York Local Unions, the International Brotherhood of Teamsters, the Basic Crafts Unions, and SAG-AFTRA), sought expert advice from the U.S. Centers for Disease Control and Prevention, the Occupational Safety and Health Administration, health care professionals, and industry professionals who know the ins and outs of production working conditions.
The White Paper is meant to be fluid and will evolve over time in conjunction with governmental suggestions and requirements. As of now, the White Paper is intended to create the initial road map to a safe return to production, which provides guidelines with respect to, for example, “regular, periodic testing of cast and crew for Covid-19,” “universal symptom monitoring, including temperature screening,” providing disposable masks which will be replaced each day, social distancing, as well as suggestions for access to mental and physical health resources.
While the White Paper will directly affect the productions produced under the studio and network system, it also provides a framework for independent films to follow (which frame work will have to comply with governmental requirements and protocols in the jurisdiction of production, and will have to be approved by the applicable guild(s)/union(s) of the production).
It should be noted that the White Paper is a set of recommendations for government authorization to commence production and has yet to be commented on by any governmental authority or department. The White Paper can be found here.
In this increasingly competitive media landscape, companies are seeking to create entertainment brands that can endure, serve as the basis for dozens of hours of content on the new generation of owned-and-operated premium platforms, and extend across various forms of media. However, transmedia deals are seldom straightforward, and may create issues that one is less likely to encounter when negotiating a relatively simple deal for a book-to-film adaptation.
One such issue is character exclusivity – the idea that when an entertainment property has multiple rightsholders, certain characters (or, in hyper-complex instances, certain characteristics of certain characters) are owned exclusively by only one rightsholder. The phenomenon of character exclusivity (and the schism in a property that it tends to create) tends to arise from one of three main deal-making circumstances, as follows:
Traditionally, a purchaser in a rights deal acquired only one “installment” of a property, such as a novel. In the event that the author of that novel decided to write a sequel, the film and television rights in that sequel would typically be “held back” for a period of time (usually between three and seven years), and the purchaser of the first book would have a first negotiation right and some kind of matching right to acquire the rights in the sequel.
That structure is fine when one is acquiring a discrete novel for which a sequel is a hypothetical future possibility, and which would be (if written) a direct continuation of the original story. It works less well when a property is conceived from the ground up as a series, an anthology, or a shared universe (more on that below). However, even this relatively simple traditional structure begs the question: what happens if the original purchaser does not acquire a sequel?
Most studios include some form of the below language in their option agreements with respect to the creator’s reserved sequel rights:
“If Purchaser does not acquire any Author-Written Sequel, then Owner’s right to dispose of any rights in such Author-Written Sequel shall not include the right to produce or cause the production of any audiovisual production which contains any of the characters or incidents contained in the original Property.”
In essence, this language provides that a creator can sell sequel rights to a third party (subject to the holdback and first negotiation/matching right), but not rights to any characters that appear in the original work. So, to illustrate, the author of Bridget Jones could sell the screen rights to the second Bridget Jones book, but would not be permitted to grant rights to the character Bridget Jones (feel free to replace “Bridget Jones” with “Harry Potter,” “Harry Bosch,” “Frodo” or any other character of your choosing).
Suffice to say, this creates instant character exclusivity and in many instances makes the development of a sequel by a new buyer unworkable.
On the subject of “creator sequels,” it is also worth mentioning that contractual standards that were very simple when formulated to address the acquisition of discrete works such as novels or plays may be much less elegant in the modern world. For example, it may be difficult to discern the line between the “original property” and a “sequel” when you have an ongoing comic book series with multiple spinoffs. How about a true crime podcast anthology that presents multiple “seasons” focused on different crimes, under one united brand? Or what about a video game where updates are presented via a series of continuous downloadable updates, as opposed to individual and clearly separate releases at brick-and-mortar retailers?
These are issues that we are thinking about and addressing on a daily basis and should evidence why it is important that rightsholders and purchasers alike engage experienced rights counsel!
“Studio Created” Elements
Another provision commonly found in rights purchase agreements reads substantially as follows:
“The Reserved Rights do not include, and Owner will have no right to exploit or use, any new or changed element created by or for Purchaser and/or any new characters, new characterizations and other new elements from any production produced by Purchaser.”
Think of this as the “Daryl Dixon” clause. When AMC optioned and developed “The Walking Dead” comic books for television, they created Daryl as a new character. Daryl promptly went on to become one of the most popular characters in the series.
Because of the clause above, the comic book writer and publisher were not permitted to use Daryl in the source material – or in connection with any other reserved rights (such as video games and merchandising based on the comic book, as opposed to the TV series).
Historically, there were good reasons for this clause. It does not make sense for the author to be unjustly enriched by the studio’s creativity and investment, and the inclusion of a new character back in the original source material could trigger additional guild or contractual obligations (in essence, putting the purchaser on the hook for exploitation that it doesn’t control).
However, we are finally moving towards a paradigm where characters move fluidly across media and different forms of exploitation – where new movies are promoted in Fortnite, and where Freddy Krueger, the Demogorgon, and Michael Myers can all appear as killers in Dead by Daylight. In gaming in particular, there may be a compelling reason for a game publisher to be able to use a character in their games who initially appeared in a television series. Moreover, the expectation of audiences is increasingly that there will be some level of coordination and consistency across media, and so it may be necessary to reexamine the necessity of this clause in very specific circumstances.
The concept of character exclusivity becomes particularly complicated in the instance of a “shared universe” – a vast sprawling story world that may encompass dozens of separate narratives that could be tied together by relatively obscure or minimal narrative threads. Think Brandon Sanderson’s Cosmere or, of course, the Marvel Universe.
For a shared story universe, it is possible, or even likely, that different characters or story elements will be controlled by different rightsholders. This concept has become familiar to audiences due to the X-Men and Avengers living (up to now) in completely separate story universes – or via the high profile and very public negotiations that were necessary to bring Spider-Man to the Marvel Cinematic Universe. Absent special arrangement, characters are “stuck” in one universe and cannot “cross over” – even if they did so routinely in the source material. This may lead to audience confusion and frustration.
Of course, there are exceptions to every rule and in addition to the aforementioned Spider-Man example, two characters were “shared” by Fox and Disney pre-merger – Scarlet Witch and Quicksilver (who appeared in the X-Men franchise starting with Days of Future Past, and in the MCU starting with Avengers: The Age of Ultron (after a brief post-credits appearance in Winter Soldier). However, the two iterations of the characters were played by different actors and, there were purportedly very specific contractual stipulations on how they could be characterized in each universe.
While the concept of a “shared universe” applies mostly to superhero and fantasy worlds, there are still potential repercussions for creators in other genres. For example, an author who writes crossovers between two book series (as Michael Connolly has done with the Bosch and Lincoln Lawyer books), or includes an Easter egg type cameo in their romance novel with a character from another book may be inadvertently creating rights and contractual issues that must be carefully addressed (and may be potentially headache inducing). Of course, the most successful US author of all – Stephen King – does this routinely. But creators must be careful because it is unlikely that they have the leverage that King does over his intellectual property!
Briana Hill represented Blumhouse in the deal to adapt sci-fi thriller feature “Upgrade” as a TV series. Leigh Whannell, who wrote and directed the movie, is set to direct the series.
How do you square Psihoyos with Petrella, two of the most significant copyright statute of limitations cases in recent years? Courts and attorneys alike have struggled with that question since the Second Circuit and the Supreme Court, respectively, handed down these two copyright decisions within the span of a month in 2014. For the most part, courts have read the decisions separately, acknowledging the Petrella court’s three-year look-back period for a plaintiff’s recovery of monetary damages in a copyright action, while continuing to apply the Psihoyos court’s “discovery” rule, which extends the time when the Copyright Act’s statute of limitations period starts to run based on when the copyright owner “discovers” the infringement.
It was not until earlier this month that the Second Circuit took up the damages question in Sohm v. Scholastic Inc., No. 18-2110, 2020 WL 2375056 (2d Cir. May 12, 2020), and decided that, though the discovery rule is binding precedent in the circuit, the Supreme Court’s decision in Petrella counsels that there is a only a three-year lookback period from when suit is filed to determine the extent of monetary damages available. Reversing the lower court’s decision on this point, the Second Circuit determined that a copyright plaintiff’s recovery is limited to damages incurred during the three years prior to filing suit. The decision lends an advantage to copyright defendants where plaintiffs delay in bringing suit, yet still seek to recover expansive damages dating back as far as they can count.
In the case, a photographer, Joseph Sohm, brought a copyright infringement action against Scholastic Inc., which had used 89 of Sohm’s photographs in various publications, outside the limited license granted by Sohm’s third-party licensing agent. On cross-motions for partial summary judgment, the district court dealt with a host of copyright issues, ultimately finding that Scholastic only infringed the copyrights in six photographs. Notably, the district court considered Scholastic’s arguments that the Copyright Act’s three-year statute of limitations barred Sohm’s claims as to certain uses of the photographs, and that Sohm’s damages should be limited to those incurred during the three years prior to filing suit. The court rejected both of Scholastic’s arguments, finding the discovery rule adopted by the Second Circuit in Psihoyos v. John Wiley & Sons, Inc., 748 F.3d 120 (2d Cir. 2014), was still good law and that the Supreme Court’s decision in Petrella v. Metro-Goldwyn-Mayer, Inc., 572 U.S. 663 (2014), should not be read to establish a time limit on the recovery of damages distinct from the discovery-based statute of limitations.
On cross-appeal to the Second Circuit, Scholastic urged the court to forego the discovery rule, and to instead adopt an “injury rule” (i.e., so the three-year statute of limitations period starts to run from the time of the copyright owner’s injury), to determine when Sohm’s claims accrued for statute of limitations purposes. Citing Psihoyos as binding precedent in the Second Circuit that had not been overturned, the court disagreed with Scholastic’s position and affirmed the discovery rule, sticking with the majority of the circuit courts that have adopted the rule. Scholastic’s second argument, however, fared better.
Asserting that, even if the discovery rule applies, Scholastic argued that Sohm still should not be able to recover damages for more than three years prior to commencement of the action, relying on language from Petrella. Specifically, Scholastic noted that the Petrella court stated: “[u]nder the [Copyright] Act’s three-year provision, an infringement is actionable within three years, and only three years, of its occurrence” and that “the infringer is insulated from liability for earlier infringements of the same work.” Though Sohm opposed Scholastic’s interpretation, calling it dicta, the Second Circuit disagreed, finding that this portion of the opinion was necessary to the result, so it acts as binding precedent. Accordingly, the Second Circuit concluded that, notwithstanding the discovery rule, the Supreme Court “explicitly dissociated the Copyright Act’s statute of limitations from its time limit on damages” and “delimited damages to the three years prior to the commencement of a copyright infringement action.”
While the Second Circuit did not adopt Scholastic’s proposed injury rule, its holding severely limits the copyright owner’s recovery when the discovery rule is applied. For example, if an infringement occurred ten years ago, but was only recently discovered, prompting the copyright owner to file suit, the copyright owner would only be able to recover damages for the three years prior to filing, and would not be able to “look back” through the ten years since the infringement.
In deciding that Sohm could not recover damages more than three years prior to filing suit, the Second Circuit became the first circuit to adopt this interpretation of Petrella. Though other district courts outside the Second Circuit have addressed the issue—including a district court in the Ninth Circuit, Johnson v. UMG Recordings, Inc., No. 2:19-cv-02364-ODW, 2019 WL 5420278 (C.D. Cal. Oct. 23, 2019), which took the opposite position and permitted damages outside the three-year period—until other circuits weigh in, it is unclear whether the Second Circuit’s interpretation will become majority rule or whether a circuit split again destined for the Supreme Court is on the horizon.
While certain states have started to ease lockdowns and shelter-in-place limitations, the COVID-19 pandemic’s effects have taken a toll on many lives, communities, and small businesses. One of the many challenges this unprecedented situation has spawned is how small business will weather the economic downturn it has caused. This situation has been particularly dire for the entertainment industry and businesses that are in early start-up stages as well as early stages of financing.
On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) to provide emergency financial and health care assistance for individuals, families, and businesses affected by the coronavirus pandemic. On the financial side, the Small Business Administration (SBA) received funding and authority through the CARES Act to modify existing loan programs and establish a new loan program to assist small businesses nationwide that have been adversely impacted by the COVID-19 emergency.
For those small and medium-sized businesses who are unfamiliar with, or haven’t applied to, the Paycheck Protection Program (PPP) or other similar state and federal relief programs, this post will provide a high-level overview of what such businesses need to know to pursue monetary relief.
Paycheck Protection Program
What is the PPP?
The CARES Act, in Section 1102, authorizes the SBA to temporarily guarantee loans in accordance with the terms and conditions of Section 7(a) of the Small Business Act. This relief program provides loans designed to incentivize small businesses to keep their workers on the payroll. Small businesses receive funds to pay for up to eight weeks of payroll costs including benefits, and the SBA will forgive the loan if all employees are kept on the payroll for that time and the money is only used for payroll, rent, mortgage interest, or utilities. Applicants are required to submit a good faith certification stating the following:
- The loan is needed to support ongoing operations;
- The loan will be used to retain workers, maintain payroll, and pay for mortgage, lease, and utility payments;
- The borrower does not have a pending application for a similar loan; and
- The borrower did not get a similar loan between February 15, 2020 and December 31, 2020.
Who can apply?
A business is eligible for a PPP loan if the business has not more than 500 employees and if its principal place of residence is in the United States. A business’ principal place of residence is determined in accordance with the guidelines set out in the Code of Federal Regulations (“C.F.R.”) §1.121-1(b)(2). Similarly, PPP loans are also available to 501(c)(3) non-profit organizations with fewer than 500 employees and the self-employed, sole proprietors, and freelance and gig economy workers.
In order to qualify under the PPP, a business must have been in operation during the “Covered Period” of February 15, 2020 – June 30, 2020. The loan may be used to ensure that a business meets its payroll obligations as well as any costs related to family leave, sick or medical leave, insurance premiums, commissions, or rent that is incurred during the Covered Period.
How is the loan size determined?
The loan size is calculated on a case-by-case basis as follows and in accordance with the terms of 13 C.F.R. § 120:
- Add all payroll costs for all employees whose principal place of residence is in the United States.
- Subtract any compensation paid to an employee in excess of a salary of $100,000.00 annually and/or any amounts paid to an independent contractor or sole proprietor in excess of $100,000.00 annually.
- Calculate the average monthly payroll costs (divide the number from Step 2 by 12).
- Multiply the average monthly payroll costs, calculated in Step 3 above, by 2.5.
- Add the resulting number to any outstanding amount of an Economic Injury Disaster Loan (“EIDL”; discussed below) made between January 1, 2020 – April 3, 2020 and subtract the amount of any EIDL advance.
On April 24, 2020, the SBA issued further guidance on how to calculate maximum loan amounts for each type of applicant (available here).
How to apply?
You can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. A list of participating lenders as well as additional information and full terms can be found here. These loans are first-come, first-served and the Government will continue to make disbursements so long as Congress provides funding.
Economic Injury Disaster Program
The EIDL Program is another option for small businesses administered by the SBA under Section 7(b) of the Small Business Act. EIDLs are lower interest loans of up to $2 million, with principal and interest deferment available for up to 4 years, that are available to pay for expenses had the pandemic not occurred (e.g., payroll and operating expenses).
To qualify for an EIDL, your business must have suffered “substantial economic injury” from COVID-19. EIDLs are based on a company’s actual economic injury determined by the SBA (less any recoveries such as insurance proceeds) but the amount of the loan may not exceed $2,000,000.00.
- The eligibility period commences January 31, 2020 and ends December 31, 2020;
- Any small business (including sole proprietorships, with or without employees) with 500 or fewer employees;
- The interest rate on EIDLs is 3.75% fixed for small businesses and 2.75% for nonprofits. The EIDLs have up to a 30-year term and amortization (determined on a case-by-case basis);
- The money can be used for payroll, rents or mortgages, or other operational costs;
- Up to $200,000 can be approved without a personal guarantee; and
- No collateral is required for loans of $25,000 or less. For loans of more than $25,000, a general security interest in business assets will be used for collateral instead of real estate.
The EIDL Program provides an emergency advance of up to $10,000 to small businesses harmed by COVID-19 within three days of applying for an EIDL. To access the advance, you must first apply for an EIDL and then subsequently request the advance. The advance does not need to be repaid under any circumstance, and may be used to keep employees on the payroll or pay business obligations, including debts, rent and mortgage payments.
Applications and more detailed information can be found here.
Snapshot differences between PPP and EIDL
|Maximum Loan Amount||$2,000,000||$10,000,000|
|Interest Rates||3.75%, up to 30 years (2.75% for non-profits)||Any portion of the loan not forgiven will be treated as a two-year loan with a 1% fixed interest rate|
|Forgivable Amount||Only $10,000 of the emergency advance is forgiven||100% forgivable provided employees are kept on the payroll for eight weeks and the money is only used for payroll, rent, mortgage interest, or utilities|
|Approved Uses||Rent, payroll, accounts payable, and any other expenses that could have been met had the pandemic not occurred||Payroll expenses, rent, mortgage interest and utilities|
|Collateral and Credit Check Requirements||Yes||No|
Can I Apply to Both?
Yes! However, it is important to note that you cannot use funds from both loans for the same purpose.
For example, you can’t use both EIDL and PPP funds towards payroll.
Additional Resources and News
In addition to PPP and EIDL, private companies have lent support for members of the entertainment industry. For example, Sony Music announced a $100 million Global Relief Fund to support not only medical workers, but also creators, artists, and other partners in the entertainment community who have been impacted by COVID-19. Similarly, Live Nation Entertainment’s Crew Nation Fund is currently providing financial support to music crews who have been directly impacted by suspended or cancelled shows.
Further, U.S. Senators Amy Klobuchar, Chris Coons, Tim Kaine, and Angus King introduced the New Business Preservation Act . This legislation would create a new $2 billion program at the Treasury Department that would partner with states to invest in promising start-up businesses in areas of the country that do not currently attract significant equity investment and who are particularly vulnerable to the current economic crisis as a result of COVID-19.
Cowan, DeBaets, Abrahams & Sheppard LLP will continue to provide updates on legal developments related to the present crisis and we are available should you need further guidance.
CDAS represented producer Blumhouse in its deal to acquire rights to the James McBride book, the deal with Ethan Hawke (who stars as abolitionist John Brown), and the deal with Showtime where the miniseries will premiere on August 9. Watch the trailer here.