Practices

Navigating NFTs: Considering Best Practices and Avoiding Pitfalls

By Sarah Conley Odenkirk, Partner

All of a sudden, no one can talk about anything but NFTs!  For those people who have used up all of their tech tolerance on Zoom meetings this year, understanding this latest frenzy can seem like an insurmountable task.  But FOMO tends to be very motivational!  Given that the value of the crypto art market has now reportedly surpassed $200 million, the fear of missing out may very well be warranted.  And actually, as it turns out, NFTs really aren’t that difficult to understand.  If you can shop online, then you can understand NFTs.

Let’s start with the 30,000-foot-view of what exactly is going on:  NFTs—or non-fungible tokens—are a mechanism to make digital files into a unique asset, created and sold on the blockchain using cryptocurrency.  If you only understood one or two words in the previous sentence, everything will be explained shortly.  In the meantime, as you may be aware, an important event happened few weeks ago when Christie’s auction house sold an NFT for $69 Million and everyone went crazy.  Now that it looks like there is a market with real money for digital assets, people are creating NFTs by the thousands in an effort to participate in the gold rush.  While this frenzy will likely settle down sooner than later (predictions of a bursting bubble are already circulating), there is technology here that is evolving, and almost certainly some version of what is happening now will endure into the future.  So, it is definitely worthwhile to become at least somewhat familiar with what this is all about.

There is a large quantity of incredibly complex information, and those with advanced crypto-savvy will want to interject all of the various nuances and details into the somewhat simplified explanations here, but this is crypto-triage.  If at the end of reading this article, your interest is piqued and you’re hungry for more, there is an entire (ever-expanding) universe of information online just waiting for you to dive in.  Hopefully, with the information here, you can at least doggie paddle your way through some of the more sophisticated information waiting for you in the digital ocean.

Part of the challenge for those trying to catch up is that the acronym “NFT” has been layered on top of “blockchain” and “cryptocurrency” and since many people are still struggling with those concepts, one more new tech term can easily lead to panic and surrender.  So let’s start at the beginning and break it down a piece at a time with some extremely simplified explanations in plain(ish) English.  Along the way, questions and considerations are highlighted so that you can start thinking about how to position yourself and hopefully avoid any big blunders.

Blockchain.  (If this is the 600,000th time you’ve heard this foundational element described, skip down to Cryptocurrency). The blockchain is an immutable ledger that stores information on a network of computers (each is called a “node”).  It is considered to be a secure system because once the information is entered into the blockchain, it cannot be changed.  One of the biggest pitfalls of the blockchain is a “garbage in, garbage out” problem.  In other words, if incorrect information is entered into a blockchain—intentionally or not—it cannot be edited or corrected. 

Best Practice:  Look before you leap!  Make sure that your information is correct and that, if applicable, you have all underlying rights, titles, permissions, and licenses before entering anything onto the blockchain.

Cryptocurrency.  (If you have cryptocurrency all figured out, skip down to NFTs).  Cryptocurrency is digital currency, or tokens, for which transactions are verified and maintained on the blockchain.  Cryptocurrency may be acquired three basic ways:  Mining, baking, or purchasing.

The most well-known and widely-used currency is Ethereum, which is based on a Proof of Work (POW) system. Mining is required for POW currencies.   Mining means having computers (often enormous groups of computers) solve complex algorithms to add blocks to the chain and in the process earn currency.  Whoever solves the algorithm first, wins the tokens as a reward.  The big criticism of this process is that it uses an enormous amount of carbon-based resources in powering the computers which are all competing to solve the algorithms first, making the whole process ridiculously harmful to the environment. 

Additionally, the transaction validation process of POW systems involves all nodes on the blockchain.  This creates a structure that is not easily scalable.  As it grows (ie. more blocks on the chain are added), more computational power is required, and thus more resources are used.  As a result, payments (called “gas”) are charged to users to compensate for the energy required to process and validate transactions on the blockchain.  These fees may change depending on the congestion on the blockchain at the moment that the user wishes to enter information onto the chain. 

The alternative cryptocurrency system is called Proof of Stake (POS).  With POS, tokens are earned by depositing an amount of that currency in an account where it is essentially an investment in the system.  Based on the value of the stake (and sometimes other factors as well), the owner staking the currency will be assigned blocks to solve and receive new tokens without competing.  This process is called “baking”, requires far less computing power, and is therefore a much more environmentally sound system.  Since transactions do not rely on computational power, gas is not an issue and transactions are extremely inexpensive.

While POS currencies are lagging behind their POW siblings, in the last few weeks, the chorus of environmentally-conscious cryptoverse voices has grown louder and is putting pressure on the entire ecosystem to embrace more earth-friendly solutions.  There is no question that as the NFT market evolves, the POS systems will gain traction and stability.  Certainly if this new frontier is to continue to develop in a sustainable manner, POS will have to lead the way.

Finally, you can, of course, simply purchase crypto with your debit or credit card online.  There are over 1500 currencies to choose from, and many fluctuate in value tremendously.  While you can always exchange currencies on exchange platforms, be aware of the fees and costs of buying with fiat and making exchanges.

Best Practice:  Understand the environmental consequences of your choices in cryptocurrencies and, of course, never invest more than you can afford to lose!  Also, it is important to note that there are potential tax consequences relating to exchanging crypto into fiat, so proceed with caution when pulling value out of cryptocurrencies to make use of it in dollars.

Wallets.  Cryptocurrency and the digital assets you purchase with it are stored in a “wallet”. This might be called a cryptocurrency wallet, or a blockchain wallet.  The password for a wallet is incredibly important to keep someplace safe as there is no way to retrieve a password (or in some cases a “seed phrase” consisting of a string of random words) if it is lost or forgotten.  If you lose the password, you lose your wallet.  As you can imagine, there have been some incredible, if not heartbreaking, stories of enormous amounts of cryptocurrency and digital assets lost when the holder of the password loses it or dies without storing the information someplace discoverable. 

Best Practice:  Hope for the best, but plan for the worst.  It is always good to keep your password someplace secure, but make sure that it is safely accessible in the event you forget it, or meet an untimely demise.  

NFTs.  (If you’ve already spent your mad money collecting the latest that Nifty Gateway has to offer, you can either skip to the last few paragraphs of this article, or go finish binging Cobra Kai, which I predict will be selling its own NFTs shortly).  So finally, we get to the heart of the matter:  NFTs.  Non-fungible token is just a fancy term for a unique item—in this case a unique digital asset.  This is in contrast to a fungible item such as currency where one item is interchangeable for another . . . like a dollar bill or Ethereum.  

NFTs are “minted” by using an online platform that creates the NFT by customizing a “smart contract” to include specific information pertaining to a particular asset.  In the case of artwork, music, or other creative endeavors contained in a digital file, the NFT includes metadata that points to the file containing the artwork.  The file might be “baked into” the NFT, but given the limited storage on the blockchain, the actual artwork most likely “lives” on an Interplanetary File Server (IPFS) off of the blockchain on which the NFT exists.

“Smart contract” is actually a somewhat inaccurate term to describe the coding that underpins NFTs.  Anyone who was first introduced to computer coding in the after-school classes at Radio Shack in the early 1980s, knows that the simplest form of coding relies on “if-then” propositions.  This is all that an NFT is—a series of “if-thens” that determine what happens when an NFT is bought or sold. 

NFTs can nevertheless be quite powerful in creating new standards for art world transactions.  Currently, one feature that often is included is a built-in resale royalties term.  This is one way that NFTs could potentially create real long term disruption in art market transactions—at least those happening online (we’ll have to see how well these new practices translate to non-digital transactions).  Some people minting NFTs are adding other terms as well, such as dedicating a portion of the sales to carbon offsets—presumably to make up for the horrendous toll all of this digital transacting is taking on our planet.

With the potential to be creative in customizing some of the transaction terms, NFTs could provide an interesting testing ground for new business models.  It is important to understand, however, that the terms embedded in the NFT are fairly limited currently due to the cost involved with creating elaborate and new structures.  The more elaborate, the more likely there will be problems in the ability of the NFT to interact in the digital ecosystem.  Until this environment has evolved quite a bit further, off-chain contracts—meaning agreements that are not embedded in the NFT itself—will still need to be integrated into the promotion and sale of NFTs.  These off-chain contracts can be pointed to in the metadata in the same way the NFT links to the artistic asset.  Thus, making sure that an NFT asset is protected over the long term will require a balancing of embedded language and referenced documents.   

Best Practice:  Understand the limits of NFT embedded terms and make sure to consider the entire scope of protection needed to ensure the sustainability of an NFT asset.  Figuring out how to dovetail “smart contacts” with off-chain contracts currently remains crucial.

If the NFT market can legitimately and sustainably grow beyond the group of crypto-bros who have made millions in the crypto market and need to circulate their inflated fortunes, NFTs could be the new gateway drug to developing new collectors of both digital and object-based art in the fine art marketplace.  Or NFTs might just evolve to be another world parallel to and only loosely affiliated with the fine art market. Given the flexibility of NFTs, it will likely be a little of everything, and without a doubt, the possibilities are endless.  For now, it is an exciting new frontier that offers a complex online laboratory for testing new business models in a wide range of creative practices.  While this digital frenzy sorts itself out, remembering to rely on common sense, well-drafted agreements, and traditional rights protection tools will be key in tempering the potential risks posed by this lightning-fast technological marketplace transformation.  Bottom line:  keep your crypto wallet close, and your legal counsel closer.

Congress Passes CASE Act Ushering in Crucial Copyright Reform

By Nancy E. Wolff and Elizabeth Altman

On December 21, 2020, Congress passed the long-awaited Copyright Alternative in Small-Claims Enforcement Act of 2019 (the “CASE Act”), as part of its omnibus spending and COVID-19 relief bill, H.R. 133. The law was enacted on December 27, 2020 and is poised to reform copyright litigation in the United States in the coming year, creating a centralized, voluntary, and affordable venue to bring claims of lesser value, without the need for attorneys or personal appearances. The Copyright Office has one year to implement the CASE Act, with an ability to extend the enactment for up to 180 days, if necessary.

Background

The CASE Act has been many years in the making, and is largely the result of prior recommendations by the Copyright Office, particularly its 2013 Copyright Small Claims Report, and the support of many creator groups. Recognizing the significant barriers of entry creators faced when attempting to bring small-value copyright claims in the federal court system—considering the substantial costs and time associated with litigation—the Office recommended establishing and housing an alternative, voluntary adjudicatory system. Honing and, now, codifying this recommendation with the CASE Act, Congress provides a solution for the many individual creators who wish to assert their rights but lack the financial wherewithal or high-value claim to make pursuing a federal case worthwhile.

Copyright Claims Board

Central to the Act is the creation of a centralized tribunal within the Copyright Office called the Copyright Claims Board (“CCB”). Presided over by qualified copyright attorneys, it will serve as a venue for claimants to bring copyright claims of lesser value, expanding upon the federal court systems’ otherwise exclusive jurisdiction for copyright infringement claims. Claimants may use the CCB to seek rulings on infringement, declarations of noninfringement, and to bring certain DMCA claims, such as claims that a party knowingly sent false takedown notices.

A. Process & Procedures

The copyright attorneys heading the CCB, called “Copyright Claims Officers,” will be experienced in copyright infringement, litigation, and alternative dispute resolution, and appointed by the Librarian of Congress for renewable terms. As copyright claims come in—brought by claimants who file a certified statement of material facts and submit the requisite filing fee—the Officers will review them for compliance with the Act. The filing fee is still unknown, but it will be at least $100 and no more than $400. Claims must be served upon the opposing party in accordance with the Act. Since the tribunal is voluntary, parties against whom an action is brought before the CCB will also have a 60-day “opt out” period after receiving notice of the claim, requiring the claimant to bring its claim in federal court (or abandon it). Libraries and archives who qualify under Section 108 of the Copyright Act will also have the opportunity to preemptively opt out, by filing a notice with the Copyright Office.

During the hearing, the Officers will consider the evidence and arguments both parties present. The CCB will make certain formalities optional, such as representation by counsel and personal appearances; likewise, the CCB will provide a process for only limited discovery. Law students will be permitted to represent parties.

Creators must register their work with the Copyright Office before the CCB will hear the infringement claim. To facilitate the process, the Register of Copyrights shall establish regulations allowing the Copyright Office to make expedited registration decisions for any unregistered works appearing before the CCB. As in the federal courts, when a rightsholder has registered will also affect how much he or she can recover, although unlike claims brought in federal courts, owners of unregistered works at the time of the infringement can still obtain half the level of the capped statutory damages provided for by the CASE Act.

Where the CCB rules in favor of the copyright holder, a defendant may be required to remove infringing content and/or pay statutory or actual damages. Parties that wish to challenge a CCB decision will have the opportunity, though, first by seeking CCB reconsideration, and, if denied, by requesting the Register of Copyrights to review the ruling for abuse of discretion. If, in turn, the Register does not provide the requested relief, a party may seek an order from a federal court vacating or modifying the CCB’s decision where the CCB ruling was fraudulent, or where the CCB engaged in misconduct, exceeded its authority, failed to render a final determination, or made a default determination or determination based on a failure to prosecute due to excusable neglect.

B. Damages

True to the Act’s name, eligible claims that go before the CCB should be small, with damage awards capped at $15,000 per claim, with a case maximum of $30,000 (with claims for untimely registered works capped at $7,500). The Act envisions an even more streamlined process for claims seeking damages of $5,000 or less. As in federal court, the CCB will consider various factors in determining damages, such as the length of time the work was infringed, profits, lost income, and any steps the infringer or claimant may have taken to mitigate the infringement.

The Benefits of Electing to Bring A Claim Under the CASE Act

First and foremost, the Act will afford those in the creative community with more channels to protect their works and assert their rights, by allowing photographers, songwriters, authors, and other rightsholders to pursue infringers outside of the bureaucratic, often complicated, and expensive federal court system. Considering that lawsuits often last years and incur costs that soar into the six-figures, many creators would otherwise abandon valid small claims, risk their livelihoods to pursue them, or rely on questionable contingency fee lawyers, labeled “copyright trolls” by the federal courts, for their practice of aggregating unsustainable numbers of low-value claims—often related to single unlicensed uses of photography—for which they seek unrealistic maximum statutory damages. The Act will allow creators to bypass this melee by bringing their small-value claims in a straightforward manner directly before the CCB. This low-cost, streamlined tribunal could be an attractive forum for publishers and other businesses to efficiently resolve lower value claims, where the cost of defense can far exceed the value of the claim. The opportunity to resolve a claim, without the necessity of lawyers, can also benefit all parties by encouraging reasonable settlements. While this forum may not attract those that have turned to litigation as a business model to leverage the high costs of federal litigation, creators that are simply looking for fair compensation may welcome the opportunity to resolve disputes without the need to engage a lawyer and pay hefty contingency fees.

Overall, the Act presents an opportunity to rebalance a copyright regime that has, in recent years, provided insufficient redress for individual creators with legitimate, but small, claims, and which has, in the process, disincentivized them from putting forth new works of art that they believe they cannot protect. Instead, the Act levels the playing field, making valid copyright protection available to all strata of creators, and reinstituting confidence in copyright. The Act will also likely foster more robust licensing, decreasing the threat of rampant and unchecked small-value infringement that discourages this type of investment.

Addressing Concerns

In an effort to ward off misuse and address concerns over the new system, the Act includes numerous safeguards. With damages capped at $30,000, creators cannot bring claims for large groups of infringements.  Further, CCB officers may dismiss claims without prejudice that are not suited for this forum and may even dismiss claims filed for a “harassing or improper purpose.” Generally, damages do not include attorney’s fees and costs, except that in the event of cases brought for harassing purposes, the CCB may award up to $5,000 for respondents’ attorney’s fees and costs, and in the case of “extraordinary circumstances” of bad faith conduct, the CCB may increase this amount. Sanctions are also available against a party who uses the CCB to bring a frivolous or abusive claim. Further, repeat offenders may be barred from bringing claims before the CCB for up to a year. Copyright Claims Officers are themselves subject to sanction or removal by the Librarian of Congress for misconduct.

One of the primary concerns amongst critics is that providing an avenue for small copyright claims will actually drive up the overall number of claims, harming online creators behind generally insignificant content that has become a staple of Internet culture, such as memes, videos, etc. This outcome is unlikely, however, considering that CCB officers are tasked with evaluating claims for validity and must consider standard procedural defenses, affirmative defenses such as fair use, and other considerations like platform-type, audience size, and the purpose of the use. As in federal court, statutory damages are within the CCB’s discretion and the $7,500 or $15,000 maximum fee is an outer limit, meaning that awards could be less. What’s more, this amount is still far less than the $150,000 maximum statutory damages per infringed work for willful infringements often invoked in federal court—even where completely unrealistic and only meant to drive defendants to a higher negotiated settlement. As a model, the United Kingdom has had a similar copyright small claims court since 2012, which has often worked to curb the bringing of claims, as would-be infringers are aware that creators have a real recourse to pursuing a small-value payment that may be higher than a mere license fee, and so pay for the work they use at the outset.

Finally, it is worth noting that the Act is one of the rare pieces of litigation with bipartisan support among Congress, as well as many leading institutions, including the Authors Guild, Songwriters Guild of America, the Copyright Alliance, and many visual arts associations, who have supported it in order to give creators a streamlined, cost-effective way to enforce their rights.

Over the next year, the Copyright Office will be setting up procedures to implement the Act. We will continue to update you on further CASE Act developments, and we also recommend the Copyright Office’s NewsNet bulletin updates for further updates. Once implemented, we will know how well this voluntary tribunal is embraced by both the creative and media community.

California District Court Dismisses “Tiger King” Case, Citing First Amendment Interests

After captivating home-bound viewers earlier this year, Netflix’s documentary series “Tiger King” had its day in court recently when a California district judge dismissed a case brought by the publisher of Hollywood Weekly Magazine (“HW”) against the producers and distributors of the show.  See Prather Jackson v. Netflix, Inc., Case No. 2:20-cv-06354-MCS-GJS (C.D. Cal. Dec. 9, 2020).  The magazine complained that Netflix had used two of its trademarks in the show: (1) the magazine’s name, and (2) “Tiger King,” a term which HW claimed that it had coined in 2013 when it published a series of articles that profiled Joseph Maldonado-Passage a/k/a Joe Exotic, who is now widely known as the Tiger King.  On Netflix’s motion to dismiss, Judge Mark C. Scarsi of the Central District of California determined that First Amendment interests in the expressive work “Tiger King” outweighed HW’s Lanham Act claims.

The dismissal adds to a growing body of case law stemming from the Second Circuit’s 1989 decision in Rogers v. Grimaldi.  In that case, actress and dancer Ginger Rogers asserted Lanham Act claims against the producers and distributors of a film entitled “Ginger and Fred”; the court considered how the Lanham Act should be construed so that it does not intrude on First Amendment values.  The Second Circuit adopted a test to determine when the Lanham Act should apply to artistic or express works—namely, when the use has “no artistic relevance to the underlying work whatsoever,” or when it “explicitly misleads as to the source or the content of the work.”  Though the use in question before the Rogers court was the name of a celebrity in the title of a film, the Second Circuit’s test has been extended to apply when a Lanham Act claim is asserted against a use of a trademark within an expressive work. 

As the Ninth Circuit adopted the Rogers test in 2002, the California district court was obliged to apply it to HW’s four Lanham Act claims for trademark infringement of its two marks, dilution, and false designation of origin, and in doing so, rejected HW’s arguments.  Applying the first  “artistic relevance” factor, the court considered the use of term “Tiger King” as both the title of Netflix’s documentary and within scenes throughout the film.  Notably, the term was used to refer to Joe Exotic, as he himself used it on merchandise, in the name of his reality television show, and in his short-lived campaign for president, which the documentary detailed.  The series also depicted issues of the magazine, bearing HW’s name, as Joe Exotic proudly showed off the articles that dubbed him the “Tiger King.”  As artistic relevance is a low threshold—the use of the mark need only have “some relevance” to the work—the court determined that this prong was easily met, because the documentary chronicles the life and business of Joe Exotic, who is publicly known as the Tiger King.

For the second prong of the test, the court considered whether Netflix’s use of the unregistered “Tiger King” mark would make the public believe that HW was somehow behind the documentary or sponsored the work. Because the question is whether the work explicitly misleads—or as the Rogers court put it, the work contains an “explicit indication,” “overt claim,” or “explicit misstatement”—the court was not satisfied by HW’s inability to point to any statement in the series that explicitly misled about the sponsorship of the documentary.  In its complaint, HW relied upon conclusory legal statements, rather than any allegations of explicit deception that would satisfy the second prong of the Rogers test.  The court applied the same analyses on the first and second prongs for the “Tiger King” mark to the HW mark and determined that Netflix’s use of the magazine’s name in the series did not give rise to actionable Lanham Act claims.

Additionally, the court dismissed HW’s copyright infringement claim over Netflix’s depiction of certain issues of the magazine, citing the deficiencies in HW’s allegations regarding what works their cited registrations covered and which parts of the copyrights Netflix infringed.  Though Netflix had also briefed a fair use argument for this claim, the court did not reach it since it determined that HW’s copyright infringement claim failed on the face of HW’s pleading.

Although HW can assert Lanham Act claims regardless of the federal registration status of its two trademarks, it is worth noting that HW is also facing an uphill battle with the U.S. Patent & Trademark Office (“USPTO”) over the registration of the “Tiger King” mark, which has become quite popular over the past year.  Notably, while HW claimed to have coined the term in 2013, it did not file for federal registration until July 2020 after the Netflix series had debuted and a host of others had already filed applications for the same mark.  HW is currently facing an office action from the USPTO, which is refusing registration on numerous grounds including the words Tiger King’s failure to function as a trademark.

The dismissal in this case is the latest decision in a robust and growing line of case law balancing First Amendment interests against Lanham Act claims.  As most courts have adopted the Rogers test (or some iteration thereof), the “Tiger King” decision provides further armaments to litigants facing Lanham Act claims for their use of a mark or other protected designation in an expressive work.  Clients clearing rights in expressive works should remember to consider the Rogers test, in addition to other commonly used doctrines like classic or nominative fair use and, when in doubt, seek legal counsel.

New York Enacts a Post-Mortem Right of Publicity Law and Addresses Deep Fakes

Joining the majority of states, New York recently enacted a new right of publicity statute that extends the right past death.  New York Governor Andrew Cuomo signed the legislation on November 30, 2020, establishing a right of publicity (N.Y. Civ. Rights Law § 50-f) for deceased persons (and their descendants) domiciled in New York to protect against the commercial exploitation of the person’s name, voice, signature, photograph, or likeness after death.  However, unlike other post-mortem right of publicity laws that are broader in reach, New York’s statute carries a caveat—the post-mortem right only protects persons whose rights of publicity have commercial value either at the time of their death or because of their death.

In addition to the “commercial value” requirement, which the legislation employs by providing a definition of the qualifying person who is referred to as a “deceased personality,” Section 50-f also contains a few other restrictions.  Notably, the law only protects qualifying deceased personalities for a period of forty years after death.  As the legislation also makes clear, the statute will not have retroactive effect, and will not take effect until May 29, 2021. 

The legislation leaves New York’s other rights of privacy/publicity statutes for living persons—N.Y. Civ. Rights Law § 50 and § 51—untouched yet goes further than Section 50, by extending the right to protect against exploitation of a deceased person’s “likeness, whereas the statute applicable to the living only protects “name, portrait or picture.”  Additionally, the statute is one of the first to restrict “deep fakes” and provides protections to “deceased performer[s],” which is broadly defined, against deceptive use of their “digital replica[s] in a scripted audiovisual work as a fictional character or for the live performance of a musical work.”  Disclaimer language can be used to avoid liability.

The new post-mortem statute provides that these rights may be transferred by contract, license, trust, or will, but successors in interest must register the right with the Secretary of State in order to be able to bring a claim.  Section 50-f also includes provisions authorizing statutory damages of $2,000, in addition to profit awards from attributable unauthorized use and punitive damages, but no attorneys’ fees.

Notably, the statute contains specific exceptions to provide First Amendment breathing room, for both newsworthy and expressive works.  As New York is home to many entertainment, broadcasting, publishing, sports, and arts industries, specific exemptions cover the publication of literary, educational, and other audio-visual and creative works for broad purposes including political, public interest, and newsworthy uses, such as for comment, criticism, parody, or satire.  Significantly, for the television and film industry, it clearly protects documentaries, docudramas, and historical or biographical works, regardless of the degree of fictionalization.

The enactment of Section 50-f is a win for celebrities, unions, and advocacy groups that have led efforts to expand the state’s right of publicity law to provide post-mortem rights, while at the same time giving the entertainment industry clear carve-outs from liability.  New York has for a long time remained a notable holdout, while other states have passed expansive descendible statutory rights of publicity, treating the right as a property right, transferable at death instead of a personal right that expires at death.  As New York does not recognize common law protection for rights of publicity, the passage of an enhanced statutory right was necessary to permit recognition of post-mortem rights in the state, which first passed its statutory right of publicity bill for living persons in 1904.

New York Passes Anti-SLAPP Legislation to Protect Speech Rights

On November 10, 2020, Governor Cuomo signed into law a robust expansion to New York’s existing anti-SLAPP legislation, in a significant effort to curb lawsuits filed with the goal of intimidating and suppressing free speech. Amending New York’s current statute—Sections 70-a and 76-a of the New York Civil Rights Law—the law addresses the problem of “strategic lawsuits against public participation,” which threaten burdensome, costly, and time-consuming litigation in order to chill defendants’ speech.

Although New York has had anti-SLAPP legislation on the books since 1992, its provisions were narrow, protecting only against lawsuits brought by a “public applicant or permittee” against defendants who had spoken out against an application or permit, such as a real estate developer that sued a citizen who opposed a project. Under the prior enactment, free speech in a broader context was unprotected, leaving defendants who work within the media or entertainment fields without much recourse against speech intimidation suits, a particularly troubling oversight for the nation’s media capital.

However, the signing of the new legislation, which passed the New York legislature in July, broadens New York’s approach considerably, bringing it into line with a growing number of states, including California, Nevada, Georgia, Colorado, Oregon, Louisiana, Tennessee, and Oklahoma, as well as Washington D.C., that have also worked to enact or strengthen anti-SLAPP laws. New York’s law now covers any speech or other lawful First Amendment conduct that relates to an issue of public interest. The law specifically applies to “any communication in a place open to the public or a public forum in connection with an issue of public interest” or “any other lawful conduct in furtherance of the exercise of the constitutional right of free speech in connection with an issue of public interest, or in furtherance of the exercise of the constitutional right of petition.” The law commits to broad speech protection, providing that “public interest” should be broadly construed to mean any subject other than a purely private matter.

In practice, the New York law provides defendants an effective, powerful tool by allowing them to file an anti-SLAPP motion to dismiss. Upon such a motion, the court must stay discovery, as well as pending hearings and motions while it makes its determination, although a court may order limited discovery to allow a plaintiff to respond to the motion. During this time, a court must also consider supporting and opposing affidavits—meaning that a defendant need not solely base his or her motion to dismiss on the pleadings or items for judicial notice—and a court must grant preference in the hearing of the anti-SLAPP motion. A judge must dismiss a case where a defendant has shown that the claim surrounding his or her speech or conduct lacks “a substantial basis in law or is [not] supported by a substantial argument for an extension, modification or reversal of existing law.” In such cases, the plaintiff must cover the defendant’s legal fees. These provisions undercut the luster of SLAPP lawsuits in the first instance, as defendants can potentially stop a case early in its tracks—filing a motion to dismiss prior to discovery, in fact—and saddle plaintiffs with mandatory fees, should the motion be successful.

Although it remains to be seen how the law will be interpreted and carried out by New York courts in practice, other states with similar anti-SLAPP laws provide some guidance. For instance, other states to consider the meaning of “public forum” under their legislation have extended the designation to websites accessible to the public, as well as blogs and email listservs. California courts have held that determining whether a communication has been made in connection with an issue of public interest requires a consideration of the context of the statement, as well as its content. Litigants in other states have invoked anti-SLAPP statutes in a wide variety of cases, from business disparagement and tortious interference with contract or business relations to false light, false advertising, malicious prosecution, intentional and negligent infliction of emotional distress, and breach of contract.

One of the bill’s drafters commented that it was indeed President Trump who had provided an impetus for the bill, considering his history of filing frivolous lawsuits against critics, in order to harass, intimidate, and bankrupt them. With the law’s signing this November, New York is poised to curb such meritless litigation and may serve as a model for other states, as it ascends the ranks to have one of the strongest anti-SLAPP laws nationwide.

Homeowner Turns to Copyright to Protect Against Unauthorized Use of Home in Adult Films

What recourse exists when a tenant hands over a rental home to an adult film production company, which proceeds to film fourteen feature-length adult movies onsite, without the owner’s knowledge or permission, over the course of five months? Turns out, copyright law.

This was the crisis facing Martha’s Vineyard homeowner Leah Bassett in 2015, when she discovered that a tenant, in violation of his lease, had handed over her property to adult film producer Monica Jensen and her Canadian distribution company, Mile High Distributions, which proceeded to use the personal residence as the shooting locale and backdrop for an extensive series of pornographic films. Bassett sought redress via 11 legal claims, including a claim for copyright infringement, filed in the U.S. District Court for the District of Massachusetts in March 2018 (captioned Bassett v. Jensen, 1:18-CV-10576).

Why turn to copyright? Considering that Bassett had leased her home willingly, the court refused to permit a number of Bassett’s original claims, of particular note, trespass. Lacking real property protection, Bassett focused on other avenues of relief, including intellectual property, asserting protectable ownership of the rights to art that she had created that was situated within her home and depicted, by consequence, in the films.

Bassett’s copyright claim surrounded alleged copyright violations from the use of her own artworks in the background of the films, including sketches, hand-stitched pillows, a fireplace, and a hand-painted table. Although Mile High’s attorney argued that he “would bet [his] life savings . . . if you polled every juror in the world, not one would say, ‘I saw this film and focused on the etching or the stitching on the slipcover,’” Bassett nonetheless argued—prior to an official accounting—that the total time for the works on film was not insignificant under copyright law, ringing in at 473 seconds, or a little under eight minutes.

To combat a de minimis use defense, Bassett ultimately provided a detailed accounting of the duration of the works’ onscreen appearances to the court, which had itself declined to watch—or require a jury to watch—the films. Citing the Second Circuit’s seminal Ringgold v. Black Entertainment Television, Inc.,which had also addressed the depiction of a copyrighted work used as set decoration in a filmed program, the court noted that copyright owners could enforce the use of works featured in the background of a shot provided they are clearly visible, such that the medium and style of the work may be discerned by the average lay observer. The court considered the benchmark for quantitative significance to be the point at which an artwork had appeared, clearly visibly, for at least 30 seconds on film, whether at one time or in the aggregate. Upon reviewing Bassett’s accounting, the court determined that at least one work was clearly visible for this timeframe in each of ten films at issue, taking the uses outside of the realm of a de minimis defense. The uses included, for example, “colorful geometric paintings above a couch” that appeared, “prominently and often fully, for over four minutes” onscreen, as well as “green wall hangings above [a] bed appearing throughout [a] nine-minute scene.”

In granting Bassett’s summary judgment motion on infringement, a ruling which occurred in early August, the court also denied the defendants’ motion for summary judgment on fair use under copyright law, which would have allowed the works’ depiction, even without Bassett’s permission. Undertaking the four-factor fair use analysis and rejecting the defendants’ arguments, the court noted that Bassett’s belongings in the film were artistic works that had not been used in a transformative way, and indeed had sometimes been featured in full.

Although the copyright prong of the lawsuit has been resolved, the court will still permit Bassett’s claims on unfair trade practices, civil conspiracy, business interference, and emotional distress, in an upcoming trial slated for the summer of 2021. The court must also determine damages owing for the copyright infringement, and to this end recently confirmed that Bassett is entitled to profits.

A key takeaway from the intellectual property portion of this dispute is the way in which copyright may serve as an unlikely remedy where unauthorized use of a physical property occurs pursuant to a lease, failing to rise to the level of actionable trespass. Should use of the property include copyright-protected works, a homeowner who owns the copyrights in those works may have recourse to recover damages, including profits, under copyright, particularly, in the context of film productions that, unwittingly or otherwise, misuse copyrighted artworks as mise en scène.

SDNY Judge Dismisses “Hustlers” Invasion of Privacy and Defamation Claims

By: Sara Gates


In an opinion rife with references to adult entertainment and drugs, a judge in the Southern District of New York recently dismissed an invasion of privacy and defamation case over a plaintiff’s apparent depiction in the 2019 film “Hustlers.”  See Barbash v. STX Financing, LLC, Case No. 1:20-cv-00123-DLC (S.D.N.Y. Nov. 10, 2020).  For the uninitiated, the film was based on a 2015 article in New York Magazine that described a scheme undertaken by a group of adult entertainment hosts and dancers at two clubs in Manhattan who allegedly drugged patrons and stole large sums of money while they were incapacitated.  The plaintiff, Samantha Barbash, along with several others were charged for their roles in the scheme, and Barbash ultimately pled guilty to conspiracy, assault, and grand larceny. 

Though Barbash herself spoke with the New York Magazine reporter, and later gave other interviews, and published a memoir on the subject, she did not consent to Jennifer Lopez’s depiction of her character in “Hustlers,” so she filed suit against the producers and distributors of the film earlier this year for invasion of privacy, under N.Y. Civil Rights Law § 50 and § 51, over the use of her identity, likeness, and character in the film and marketing materials.  She also alleged that six statements and scenes in the film, primarily regarding the preparation and possession of various drug cocktails, were defamatory. 

On the defendants’ motion to dismiss, District Judge Denise Cote considered whether New York’s statutory right to protect an individual’s “name, portrait, picture and voice” from commercial appropriation—in the absence of a common law right, which New York does not recognize—also protects an individual’s likeness and character.  Looking at the legislative intent that the statute be construed narrowly, and prior case law, the court determined that Barbash’s allegations in her amended complaint that the film’s use of her likeness and character was insufficient to support a claim under N.Y. Civil Rights Law § 50 and § 51.

Turning to the defamation claim, the court considered whether Barbash had alleged the requisite elements for such a claim, focusing on (1) whether the film was “concerning the plaintiff,” (2) whether the statements and scenes were false, and (3) whether, as the defendants argued, Barbash was a limited-purpose public figure, which would require her to allege a higher burden of fault.  For the first point, the court questioned whether the plaintiff is recognizable in the film, such that someone who knows her would be able to make her out.  Based on the allegations in the amended complaint, which the court accepted as true on the motion to dismiss, this element was satisfied. 

For the second point, the court evaluated each of the six statements, one by one, to determine whether Barbash alleged that the statements were “substantially” false, given that “substantial truth” or that the overall gist or substance of the statement is true, is the benchmark to avoid defamation liability in New York.  Five of the statements (and accompanying scenes) were drug-related, namely, alleging that the character (1) concocted, (2) manufactured, (3) possessed, (4) used, and (5) provided drugs to individuals without consent.  The sixth statement concerned the character’s personality, describing her as cold and indifferent.  As the court was able to take judicial notice of Barbash’s guilty plea, in which she pled guilty to conspiracy for providing victims with illegal drugs to gain control of their credit cards, the court determined that her provision of drugs to unconsenting victims was substantially true, and drug possession could be inferred, so these two statements could not support a defamation claim.  The court also determined that the sixth statement regarding the character’s personality was non-actionable opinion.  The court, however, could not make a determination about the other drug-related statements at this early stage in the case.

Finally, the court turned to the question of whether Barbash was a limited-purpose public figure, which would heighten the level of fault that Barbash would need to prove in order to succeed on her defamation claim.  For private persons, a plaintiff litigating a defamation claim in New York (and most other jurisdictions, for that matter), need only show that the defendant was negligent in making the alleged defamatory statement.  For celebrities and public figures, however, the plaintiff must demonstrate that the defendant had acted with “actual malice” (i.e., knowledge that statements were false or reckless disregard as to their falsity) in making the statement.  The higher burden for public figures serves an important First Amendment purpose and provides breathing room so that people and publishers may engage in free public debate about people in the public eye, that may include some inadvertently false factual assertions without being subject to liability (and, consequently, chilling free speech).  Actual malice has also been applied in limited circumstances to private persons who become limited-purpose public figures where they voluntarily inject themselves into a public controversy or issue, seek media attention, and assume a position of prominence in relation to the particular issue.

Arguing for dismissal of the defamation claim, the defendants asserted that, based on Barbash’s criminal conduct, in which she voluntarily injected herself into the public arena, she should be treated as a limited-purpose public figure.  The court agreed, relying on Barbash’s 2015 guilty plea, her continued cooperation with the press, including for the 2015 New York Magazine article and 2019 and 2020 Vanity Fair articles after the film was released, both of which included portraits of Barbash, and her 2020 memoir on the events depicted in the film.  In opposition, Barbash argued that she should not be required to meet the higher standard because she was unwillingly dragged into the public arena, and that her later interviews were an attempt to set the record straight.  The court disagreed, noting that while Barbash is entitled to tell her side of the story, her engagement rendered her a limited-purpose public figure.  As such, Barbash would have had to plead actual malice, which she did not do in her amended complaint.  For these reasons, the court granted the defendants’ motion to dismiss without resolving whether the remaining statements were legally defamatory.

The Barbash decision adds to a growing body of case law in the Southern District on the proper application of N.Y. Civil Rights Law § 50 and § 51 and the analysis of defamation claims involving films based on prior public articles or records.  Barbash confirms that New York’s right of privacy statute remains limited in scope. As to defamation, the plaintiff’s use of the media worked against her, as it provided grounds for the defendants to argue that she rose to the level of a limited-purpose public figure.  That may not be available in every case involving prior reports and guilty pleas, especially where the individual did not continue to make themselves available to the media. 

In any case involving the use of a person’s likeness and character, filmmakers, producers, and distributors should ensure that they are consulting counsel about rights and clearances, especially because other states’ right-of-publicity laws may have a broader statute or recognize common law privacy rights, and courts in other parts of the country will likely have diverse views on who constitutes a public figure for purposes of defamation. 


Five Qualities of Next Generation Entertainment Platforms

By Simon Pulman, Partner

If your only exposure to TikTok is seeing the occasional funny video pop up on Facebook or watching your nieces studiously rehearse one of Charli D’Amelio’s signature dances, then you could be forgiven for wondering what all of the fuss about a potential ban is about. Likewise, if you’ve heard of Fortnite but you have no idea how Twitch works, you might not be aware of the degree to which Twitch is disrupting the audience for traditional television and even live sports.

Irrespective of whether TikTok survives (at least, in its present form), the impact that it has had on the future of entertainment consumption is immeasurable. And likewise, having fended off competition from the likes of Mixer, Twitch is poised for further extreme growth. Both platforms have lessons that those in traditional media would do well to heed when seeking to identify (or perhaps create) the next major media platform.

1. They Are A Culture And A Language: TikTok is not merely a video sharing platform. It is its own discrete culture and language that is impenetrable to those who are not on the platform. In essence, TikTok is an extreme evolution of “meme culture,” and without familiarity with the various “trends” that move rapidly through TikTok and the key creators and personalities who often create them, it is impossible for a viewer to understand many TikTok videos in isolation. Like all languages, TikTok builds upon itself, as users create videos that mimic, parody or comment upon an existing popular video. None of this is explained to the user upon joining the app. It has to be absorbed and understood by interacting with videos. This means that for Gen Y and college students, it is simply essential for them to be on TikTok in order to communicate with and relate to each other. It’s the concept of tuning into an old broadcast “watercooler show,” just amplified exponentially.  Likewise, Twitch has its own “language” in the form of “emotes” that viewers can post in chats while watching videos. Like memes, emotes require an understanding of context and meaning – and a shared understanding of emotes can create a common bond between the user base.

It is not an exaggeration to state that TikTok in particular is the single biggest communication and culture platform for Gen Y, and accordingly, is also the easiest way to mobilize young people. If TikTok still exists, it could have a significant impact on the upcoming US election – which is perhaps why President Trump is so keen to shut it down. We have already seen the influence of TikTok in action when TikTok users apparently reserved tickets to Trump’s June rally in Tulsa Oklahoma, falsely giving the impression that the event was a sellout. TikTok content is also highly shareable, meaning that content can live and spread off of the platform. This helps to bring new users into the platform. Compare with Quibi, which launched with zero sharing or social capability whatsoever, and a rigidly old-world walled garden approach.

2. They Have Their Own Stars: To millions of teenagers, the biggest celebrities on the planet are not actors or pop stars, but rather two sisters from Connecticut – Charli D’Amelio and Dixie D’Amelio. The D’Amelio sisters built a presence on TikTok at an astoundingly fast rate (at the time of writing, Charli alone has almost 86 million followers and over 6.6 billion “likes”). The D’Amelios have parlayed that platform into myriad commercial endorsements (Charli has her own drink at Dunkin Donuts) and, in Dixie’s case, a singing career. Likewise, within the world of Twitch, the likes of Ninja and Pokimane are bona fide stars, often attracting millions of fans for their “streams.” Like the D’Amelios, big Twitch influencers monetize their profiles in multiple ways, ranging from traditional product endorsements, to sponsored content, to Twitch “donations” whereby fans can simply donate cash to the influencers to thank them for their content (and for a moment of fleeting recognition).

These new influencers operate differently to celebrities of old. While they still have managers and publicists, and seek to curate a brand, they are generally more open about their personal lives because “authenticity” is highly valued by their audiences. With that said, several influencers have publicly articulated their struggle at maintaining a distance between their public persona and private life, most recently Twitch streamer Pokimane, who has been unfairly accused of concealing that she has a boyfriend in order to maintain her fanbase. Maintaining a level of distance can be difficult for influencers whose livelihoods depend on interacting regularly and directly with fans. Indeed, there are many “gossip accounts” that focus on the rumors surrounding influencers and their personal lives.

The challenge for traditional entertainment executives is that the new era of talent does not necessarily need to crossover into traditional media. While it was recently announced that Addison Rae Easterling has accepted a role in “He’s All That” (a reimagining of the Rachael Leigh Cook/Freddie Prinze Junior romcom), most TikTok influencers, and certainly most leading Twitch influencers can make more money, more quickly simply sticking to their core platforms (or other media that they can exert more control over, such as podcast).

Moreover, as an attorney who has negotiated many deals to hire Twitch influencers for “traditional media,” it is important to note that new media influencers, and their reps, value different things to traditional talent and are not always prepared to agree to otherwise accepted “industry norms.” For example, we typically see a lot of pushback against “options” in TV or anything that could lock the talent in for an extended period of time. Additionally, the concept of providing free promotional services (including by social media) as part of the engagement is totally foreign to influencers used to being paid on a “per post” basis.

3. They Are Broadcast Platforms: While platforms such as Instagram and particularly Snapchat have leant into the concept of users sharing content with people that they already know, TikTok and Twitch are broadcast platforms on a massive scale. They operate on a “one to many” model, whereby an individual user can theoretically reach millions of total strangers all across the world from their own home. TikTok in particular is probably the biggest and most effective broadcast ever built, with its “your page” discovery algorithm allowing hit videos to potentially reach billions of users. Many Gen Y users want to experience stardom above all else, and while TikTok’s incumbent “stars” (such as the D’Amelios, Addison Rae, the inhabitants of Hype House, and now Bella Poarch) certainly have a leg up, TikTok remains the only platform in the world where a user can potentially acquire half a million followers in a day. Twitch is a harder platform to crack, and many streamers labor away streaming for few viewers. However, there are still opportunities to rapidly grow a userbase on Twitch – especially around the launch of a new game. For example, multiple Twitch users gained over one hundred thousand followers in the month following the release of the hit battle royale game “Fall Guys,” with the user “MrKeroro10” gaining almost 400,000 users.

4. They Are Highly Personalized. At first glance, there may be little that seems to differentiate TikTok from predecessors such as Vine, or its many clones. It’s a platform for short videos, right? Well, yes and no. The strength of TikTok is actually in its algorithm, which by tracking user behaviors and habits in many ways (some no doubt concerning to privacy advocates), is simply the most accurate recommendation engine ever created in a media app. As a result, within a few hours of using TikTok, the algorithm will learn an individual’s preferences – whether that’s music, cooking, dancing or humor. Thus, while it is likely that most TikTok users will see videos from the megastars (Charli, Addison Rae, etc.) at some point, it is not unusual for the “for you page” of two users to be completely different.

It’s quite fascinating to see the differing approaches of two media companies through 2020 so far. Quibi bet on extremely expensive, traditional television or film content chopped up into smaller chunks and, presumably, aimed at a broad audience. TikTok focused on serving up an endless stream of short, user generated, highly personalized content. It’s not a secret that one company’s approach was more successful than the other. Media companies need to accept that the future of media is personalization – which is perhaps why Netflix has invested so heavily in a diverse range of scripted and unscripted content, often internationally focused.

5. They Can Create New Hits – And Revive Old Ones: The power of TikTok to create hits and stars (it is now the essential driver for creating new music hits) is well documented, as is the influence of Twitch in popularizing new video games. However, both platforms have the capability to revive catalogue titles as well. On TikTok, a popular influencer posting a lipsync to a scene from an old movie, or a dance to an old song (which will inevitably lead to thousands of copycat videos) may lead to millions of users discovering that piece of content for the first time -essentially introducing it to an entirely new audience and increasing its value significantly. For that value, media companies may wish to advise their legal departments to be judicious in policing content that could arguably be infringing (whether TikTok videos are sufficiently “transformative” to be fair use is a discussion for another day), because the halo effect of trending on TikTok could be significant.

Disclaimer: While our firm does not represent either Twitch or TikTok, we do represent multiple clients active on both. We also represent Triller, a TikTok competitor.

The Copyright Discovery Rule: Living on Borrowed Time?

By Alex Gigante

A statute of limitations is often called a statute of repose, “repose” meaning the “elimination of stale claims, and certainty about a plaintiff’s opportunity for recovery and a defendant’s potential liabilities.”1 By mandating “repose,” a statute of limitations expresses the judicial system’s understanding that, despite its “instinct to provide a remedy  for  every  wrong[,] . . . the passage of time must leave some wrongs without a remedy.”2

Before 1957, the Copyright Act did not have its own statute of limitations. Instead, each federal court applied what it deemed to be the applicable state-law statute of limitations of the State in which that court sat. This practice resulted in wide local variations in the implementation of the Copyright Act.3 In 1957, determining that “it is highly desirable to provide a uniform period throughout the United States,” Congress sought to remedy the inconsistency by enacting the three-year statute of limitations that is found today in Section 507(b) of the current Act. In settling on three years as the appropriate period, Congress observed that “due to the nature of publication of works of art . . . generally the person injured receives reasonably prompt notice or can easily ascertain any infringement of his rights.”4

Unfortunately, Congress’s desire for uniformity has not come to pass because of the widespread application in copyright cases of the discovery rule, a judge-made rule that suspends the running of a statute of limitations until the plaintiff learned or reasonably could have learned of the defendant’s violation of the plaintiff’s rights.5 Originally conceived for the limited instance where the defendant’s conduct concealed the violation from the plaintiff, federal courts now apply the discovery rule to virtually every kind of fact pattern absent express statutory language to the contrary.6 In the copyright context, because the Copyright Act does not expressly prohibit use of a discovery rule, courts have permitted plaintiffs to sue beyond the three-year statute-of-limitations period even for seemingly open and notorious acts: buildings in plain public view;7 public advertising and sale of sports memorabilia photographs;8 photographs displayed for years online by a major stock-photo agency.9

In TRW Inc. v. Andrews, the Supreme Court put into question the widespread application of the discovery rule in the lower federal courts, holding that the rule is not “applicable across all contexts.”10 However, because the statute of limitations before the Court in TRW could be interpreted without requiring a general decision on the discovery rule, the Court passed on the broader question as “a matter this case does not oblige us to decide . . . .”11 Also, while rejecting the presumption that a discovery rule applies absent express statutory language to the contrary, the Court left the issue ambiguous with its comment that the applicability of the discovery rule could be deduced “by implication from the structure or text of the particular statute.”12

Justice Scalia’s concurring opinion,13 joined by Justice Thomas, characterized the discovery rule as “bad wine of recent vintage,”14 and chastised the majority for not deciding once and for all that there is no presumption of a discovery rule generally applicable to federal statutes of limitation. According to Justice Scalia, “‘That a person entitled to an action has no knowledge of his right to sue, or of the facts out of which his right arises, does not postpone the period of limitation.’”15

In Auscape International v. National Geographic Society,16 an opinion that Prof. Patry describes as “an extremely thorough and well-reasoned review of the issues,”17 District Judge Kaplan of the Southern District of New York made a detailed analysis of the Copyright Act’s text and legislative history to conclude that in light of TRW, the discovery rule could no longer be applied to extend the limitations period under Section 507(b):

In a copyright infringement case, . . . in most cases, the infringement occurs in public. Thus, copyright infringement is not often an extreme situation crying out for a discovery rule.18

Several other judges in the Southern District, persuaded by Judge Kaplan’s reasoning, similarly ruled that TRW foreclosed application of the discovery rule under the Copyright Act.19 In contrast, the Third Circuit Court of Appeals, after making its own analysis of the Copyright Act’s “structure or text,” reached the opposite conclusion in Graham v. Haughey.20 However, in Graham the defendant had systematically concealed its infringement for years, a fact setting that TRW acknowledged always would be appropriate for the discovery rule.21 Nonetheless, although Psihoyos v. John Wiley & Sons, Inc., involved an open and notorious infringement – publication of photographs in a textbook – the Second Circuit Court of Appeals still applied the discovery rule with the brief, cursory statement that “the text and structure of the Copyright Act, unlike the [statute in TRW], evince Congress’s intent to employ the discovery rule, not the injury rule.”22

Meanwhile, in two decisions after TRW the Supreme Court continued to tiptoe around the discovery-rule question. In Petrella v. Metro-Goldwyn-Mayer, Inc., the Court eliminated the defense of laches against copyright-infringement claims and held those claims restricted only by the statute of limitations, but as to the applicable limitations period, the Court pointedly observed that it had “not passed on the question” of the “use [of] discovery accrual in copyright cases ”23 In a subsequent patent case that again did not require the Court to address the discovery rule head on, Chief Justice Roberts nonetheless commented that it “is not ordinarily true” that a statute of limitations is triggered only when the plaintiff knows of the cause of action and that a discovery rule “is not a universal feature of statutes of limitations.”24

In Rotkiske v. Klemm, decided in December 2019, the Supreme Court finally confronted the discovery rule directly in an opinion by Justice Thomas, who nearly 20 years before had joined Justice Scalia’s concurring opinion in TRW.25 Reprising Justice Scalia’s pithy characterization of the discovery rule as “bad wine of recent vintage,” Justice Thomas – joined by six other Justices plus Justice Sotomayor concurring – held that a federal statute of limitations is to be interpreted as written. “Atextual judicial supplementation [with a discovery rule] is particularly inappropriate” because

It is not [the Supreme Court’s] role to second-guess Congress’ decision to include a “violation occurs” provision, rather than a discovery provision The length of a limitations period “reflects a value judgment concerning the point at which the interests in favor of protecting valid claims are outweighed by the interests in prohibiting the prosecution of stale ones.”26

To emphasize that a court should not read a discovery rule into a statute of limitations, Justice Thomas cited several federal statutes that expressly provide for the limitations period to run on discovery. Because “Congress has shown that it knows how to adopt [such] language or provision,” it is improper for a court to supply discovery language when Congress has, by its silence, manifested a different intent.27

It now appears likely that the copyright discovery rule will not survive the strict interpretation of statutes of limitation mandated by Rotkiske. Section 507(b) of the Copyright Act states that an action must be “commenced within three years after the claim accrued.” A cause of action “accrues” when it comes into existence, not when the plaintiff learns of its existence.28 Conceptually, “accrues” is no different from “the date on which the violation occurs” that Rotkiske held to mean when the “violation actually happened.”29 Either the courts of appeal will revisit their prior adoptions of the discovery rule in light of Rotkiske or the right case will present the issue squarely to the Supreme Court.30

The demise of the rule will be salutary. The discovery rule elevates the “instinct to provide a remedy for every wrong” over the  principle of  repose embodied in a  statute  of limitations. To require a defendant to defend against a “stale” claim is not merely a matter of semantics.  A “stale” claim often arises after the documents and files needed for the defense have been misplaced or destroyed, individual memories lapsed, witnesses become unavailable, and corporate memory lost because of employee turnover. Moreover, invocation of the rule immediately puts into issue the plaintiff’s knowledge and diligence in discovering the cause of action, which means another layer of litigation with costly and time-consuming discovery requests and depositions. Faced with these additional litigation expenses, and without the assurance of the successful outcome that would result if the statute of limitations were applied strictly, many defendants make the understandable decision to settle a claim that should have been in repose years before. Elimination of the discovery rule will redress this unfairness and restore the balance between plaintiff and defendant that Congress intends when it enacts a statute of limitations.

1 Gabelli v. Securities and Exchange Commission, 588 U.S. 442, 448 (2013) (quoting from Rotella v. Wood, 528 U.S.549, 555 (2000)).

2 Pearl v. City of Long Beach, 296 F.3d 76, 77 (2nd Cir. 2002), cert. denied, 538 U.S. 922 (2003).

3 Sen. Rep. 85-1014 (1957)

4 Id.

5 TRW Inc. v. Andrews, 534 U.S. 19, 27 (2001). The nine federal circuit courts of appeal that have addressed the issue have held that the discovery rule applies to claims under the Copyright Act. Petrella v. Metro-Goldwyn-Mayer, Inc., 572 U.S. 663, 670 n. 4 (2014).

6 Id.

7 Design Basics, LLC v. Roersma & Wurn Builders, Inc., 2012 WL 1830129, report & recommendation adopted, 2012 WL 1830103 (W.D. Mich. 2012).

8 Boehm v. Heyrman Printing, LLC, 2017 WL 53296 (W.D. Wisc. 2017).

9 Cooley v. Penguin Group (USA) Inc., 31 F.Supp.3d 599 (S.D.N.Y. 2014); Mackie v. Hipple, 2010 WL 3211952 (W.D. Wash. 2010). One treatise argues that the discovery rule is appropriate for the on-line world because “[t]he owner of a copyright simply cannot know of every infringement when it occurs, particularly in today’s world of a global internet which can hide either the infringement or the infringer or both.” 2 H.B. Abrams & T.T. Ochoa, The Law of Copyright § 16:16 (2019). To the contrary, the digitization of information has made detection easier through services  and  applications  that  are  able  to  search  the  internet  for  infringing  uses.  See, e.g., https://www. imagerights.com/; https://tineye. com/; https://support.google.com/youtube/answer/2797370?hl=en.

10 534 U.S. at 27.

11 Id.

12 Id. at 28.

13 Id. at 35-6.

14 Id. at 36.

15 Id. (quoting 2 H. Wood, Limitation of Actions, § 276c(1), at 1411 (4th ed. 1916)).

16 409 F.2d 235 (S.D.N.Y. 2004).

17 6 Patry on Copyright § 20:20 (March 2020).

18 409 F.2d at 247.

19 See Muench Photography, Inc. v. Houghton Mifflin Harcourt Publishing Co., 2013 WL 4464002, *5 (S.D.N.Y. 2013), and cases there cited.

20 568 F.3d 425 (3rd Cir. 2009).

21 534 U.S. at 27.

22 748 F.3d. 120, 124 (2nd Cir. 2014).

23 572 U.S. 663, 670 n. 4 (2014).

24 SCA Hygiene Products Aktiebolag v. First Quality Baby Products, LLC, 137 S.Ct. 954, 962 (2017).

25 140 S.Ct. 355 (2019).

26 Id. at 361 (quoting Johnson v. Railway Express Agency, Inc., 421 U.S. 454, 463–464 (1975)).

27 Id.

28 Gabelli v. Securities and Exchange Commission, 588 U.S. 442, 448 (2013).

29 140 S.Ct. at 360.

30 In Sohm v. Scholastic Inc., 959 F.3d 39, 50 (2nd Cir. 2020), a copyright-infringement case argued before the decision in Rotkiske, but decided after, the Second Circuit Court of Appeals “decline[d] to alter this Circuit’s precedent mandating use of the discovery rule . . . .” In just a footnote, the Court stated that Rotkiske “does not persuade us to depart from this holding.” Id. at 50 n. 2. However, Sohm can be explained as falling within the narrow discovery- rule exception still recognized by the Supreme Court, as the defendant in Sohm concealed the evidence of its infringement from the plaintiff. Hopefully, the Second Circuit, which decides many important copyright cases, will address the issue with greater analysis when presented with application of the discovery rule in a suit involving an open and notorious infringement.

Copyright Office Procedures During COVID-19

By Elizabeth Altman

As COVID-19-related disruptions and social distancing measures continue across the country and throughout the summer, many public institutions are seeing continued curtailment to their operations. It can be overwhelming to parse through ever-changing, institution-specific pandemic protocols, which is why we have put together an overview of the Copyright Office’s current practices in response to the COVID-19 pandemic. This guide explores the safety and efficiency measures adopted by the Copyright Office to mitigate effects from the national emergency, and explains what that means for your registrations, recordations, research, and other copyright-related concerns.

General Background

First and foremost, the Copyright Office’s physical offices remain closed, as they—along with all Library of Congress buildings—have been since March 13 of this year. The Office is actively teleworking, however, with staff and registration specialists operating remotely to continue core Copyright Office activities, such as reviewing and processing of registrations. The Copyright Office’s emergency modifications, implemented on March 31, 2020, and discussed further below, have currently been extended through September 8, 2020.

Registrations

A central function of the Copyright Office is registering copyrighted works. During the pandemic, the Office has continued to provide this service via its online registration portal, eCO. Examiners continue to review online registrations remotely, processing electronic applications in the order in which they are received (except with respect to special handling, discussed further below). The Copyright Office strongly encourages online registration, especially considering that, given today’s copyright technology and the Copyright Office’s current procedures, most works are fully registerable online.

The main COVID-19-related disruption to registration involves physical deposits and applications, which some people prefer to use, and which are required for certain categories of works and applications as discussed below. Although the Copyright Office is still accepting physical submissions, it is currently storing them in an offsite facility, regardless of whether they were submitted by USPS, courier, or delivery service. The Copyright Office will only process these submissions when the Library of Congress reopens, for which there is presently no timeline. To date, the Library of Congress has stated that all events at its buildings are cancelled until September 1 and that all facilities remain closed “until further notice.” When the Copyright Office does resume reviewing physical materials, it will do so in the order in which they were received, as submissions have been date-stamped.

The Copyright Office therefore strongly encourages applicants to take advantage of electronic filing options. To this end, the Office has expanded its electronic submissions programs, to accommodate applications that would normally require a physical deposit copy. Below is a summary of the available submission options, depending upon the deposit requirements for the type of work:

a) Registration Where No Physical Deposit is Required:

For applicants not required to submit a physical deposit copy of the work, the Office strongly encourages uploading one electronic copy of the work after completing the electronic application and paying the required fee. No other declaration form or special procedure is required.

b) Registration Where Physical Deposit is Required:

Physical deposit copies are required for certain kinds of work, including vessel designs and mask works. They are also required when:

  • A work was first published in the U.S. before the applicant submitted an application claim to the Copyright Office, and the work was published in physical form, like a CD, DVD, or paperback book;
  • A work was first published in the U.S. before the applicant submitted an application claim, and the work was published both in a physical and an electronic form (like a song released on CD and as a download); or
  • A work was first published abroad before the applicant submitted an application claim to the Copyright Office, and the work was first published in a physical format like CD, DVD, or paperback book.

Applicants that must submit a physical deposit copy should mail it to the Copyright Office, including the shipping slip, which provides the mailing address. Although the physical deposit will not be processed until the Office returns to normal operations, applicants who also follow the Office’s special pandemic procedures—as outlined below—will receive remote examination of the electronic application: 

  1. Complete an electronic application and submit the filing fee through the online registration system.
  2. Upload an electronic copy of the work that is identical to the physical copy.
  3. Print the shipping slip generated by the eCO system and attach it to the physical deposit copy of the work that is mailed to the Copyright Office.
  4. Complete and upload a Deposit Ticket Declaration Form certifying that the physical deposit and electronic copy contain identical content.
  • Include the title of the work, which the registration specialist will use to confirm that the information in the declaration matches that in the application.
  • Sign the declaration; typed signatures suffice.
  • You need not notarize the form or have a witness.

The Copyright Office advises that where an applicant has filed an application electronically but has only submitted a physical deposit, the examiner assigned to the claim may send an email with the option of uploading an electronic copy of the work and the Deposit Form, where the option is available. Emails send from cop-ad@loc.gov. However, applicants taking note of the Copyright Office’s building closures and hold on inspections of physical material are advised to proceed with this process from the start.

Where applicants follow this procedure, the effective date of registration will be the date the Copyright Office receives the completed application, fee, and deposit in its proper form, regardless of whether the physical or electronic version first reaches the Office. Claims submitted in this manner should be examined within 30 days after the Office receives the electronic copy, although the Copyright Office generally advises that the average time to process a registration is presently 3.2 months.

The Copyright Office directs that applicants that have only submitted a paper application should not resubmit an online application; in such cases, the Copyright Office will examine the application when the building reopens and staff returns.

c) Where Applicants are Unable to Submit an Application, Fee, and/or Deposit During COVID-19

Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed on March 27, 2020, the Register of Copyrights has the temporary authority to extend certain filing deadlines and procedural requirements if she determines that a national emergency is disrupting Copyright Office practices. The Register quickly used this authority to establish a procedure to extend the window for registrations under Section 710 of the Copyright Act, which authorizes her, on a temporary basis and subject to certain exceptions, to “toll, waive, adjust, or modify any timing provision . . . or procedural provision” in the Copyright Act if she determines that a national emergency declared by the President “generally disrupts or suspends the ordinary functioning of the copyright system . . . or any component thereof.” Considering the difficulties of prompt registration, which is generally required in order to ensure the availability of statutory damages and attorney’s fees should an infringement dispute proceed to litigation (these legal remedies are only available for works registered before infringement or, if after infringement, within three months after first publication), the Office is now allowing applicants to toll the registration window based on fulfillment of certain conditions:

  • Applicants who are unable to submit an application, fee, and/or required physical deposit copy should fill in and upload a Section 710 Declaration online (the form applies to applicants who declare that due to the pandemic they either could not submit an application fee, and/or deposit copy or could not submit a required physical deposit copy though they did submit an online application and fee; it also contains a section for the applicant’s statement supporting the declaration, and an acknowledgement of the penalties associated with making a false representation in an application for copyright registration). When possible, applicants should proceed to complete an electronic application, submit a filing fee, print a shipping slip, and mail the required deposit with the shipping slip to the address on the slip. Applicants must mail these materials within 30 days after the date that the COVID-19 disruption has ended, as announced by the Register of Copyrights.
  • Applicants that are prevented from submitting a paper or electronic application, fee, and/or required deposit may do so after the end of the national emergency, provided that they include a Section 710 Declaration with their application materials.

Section 710 Declarations must be signed—either handwritten or typed signatures suffice—and include satisfactory evidence to support the claim that the pandemic prevented the applicant from submitting required materials. The following would be suitable justifications:

  • A statement that you are/were subject to a governmental stay-at-home order.
  • A statement that you are/were unable to access required physical materials due to a business closure at the site of the materials’ storage.
  • A statement that you were unable to access the internet.

Certificates of Registration

The Copyright Office has ceased printing certificates of registrations at present. If, however, your claim has been registered, it will appear in the Office’s online catalog. You may retrieve the registration number by searching using the title, author, or claimant name. For registrations processed through Special Handling, the Office will email an unofficial copy of the registration certification that includes the registration number. If the Copyright Office refuses your claim, it will email you a copy of the refusal letter.

Special Handling

The Copyright Office’s “special handling” procedure allows applicants to expedite the registration process for an additional fee. Presently, the Copyright Office will only receive and process requests for special handling that are submitted online.

The following steps ensure special handling:

  1. Submit an electronic application completing the special handling screen.
  2. Pay the filing fee and additional special handling fee.
  3. Upload an electronic copy of your work.

If the application would ordinarily require a physical deposit, you may use the Deposit Ticket Declaration Form option to qualify for special handling.

After you complete these steps, the Office will typically examine your claim, or contact you with questions within five business days. If, however, you submit physical copies or a paper application, the Copyright Office will neither examine your materials nor implement special handling until the Library of Congress reopens. As of May 2020, the Office now also permits applicants to submit requests for special handling of document recordation submissions, including notices of termination, by email.

Requests for Reconsideration of Registration Refusal

Requests for reconsideration are typically filed by mail, but as an alternative during the pandemic, the Copyright Office will allow you to submit your request to copreviewboard@copyright.gov. After receiving your request, the Copyright Office will contact you with instructions to pay the required filing fee electronically. The request and fee must be received by the Office within three months from your refusal date.

Requesting Cancellation of Registration

To seek a voluntary cancellation of a registration, as the author or claimant of record, you may submit your request to copreviewboard@copyright.gov. A staff member will contact you about submitting the required fee.

Research & Updates

a) Library of Congress

As noted, all Library of Congress buildings and facilities have been closed to the public, including researchers and those with reader identification cards, which are required to access the Library’s research areas, including Computer Catalog centers and Copyright Office public service areas. Access to the Library of Congress is currently limited to a small number of necessary persons, although the Library notes that, as of June 22, 2020 it will implement “Phase One, Part One” of its plan to gradually restore on-site operations. This plan involves recalling around 200 staff members—approximately 5% of all staff—to onsite operations. Neither the Library of Congress nor the Copyright Office have provided a timeline for how long Phase One will last, when “Phase One, Part Two” is likely to commence, nor a prospective implementation date for Phase Two. The duration of each phase will be determined based on local conditions and the Library’s operations at each stage. All public events at the Library of Congress have been cancelled through September 1, 2020.

The public may still access Library of Congress resources at:

Copyright Office

Copyright.gov remains, of course, the main starting point for keeping up to date on copyright matters. To stay current with Copyright Office COVID-19 news, in particular, visit https://www.copyright.gov/coronavirus/. The Office’s Coronavirus FAQ, which outlines specific questions regarding registration and deposit copies, may also be of use. Subscribe to updates regarding COVID-19, as well as other copyright matters, at the Office’s NewsNet service: https://www.copyright.gov/subscribe/. Finally, the Copyright Office’s up-to-date filing options are available in chart form at https://www.copyright.gov/coronavirus/filing-options/.

We will update this post from time to time with further developments.

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