IP/Internet Transactions

Second Circuit Finds Warhol Artwork of Prince Infringing: Drawing a Line Between Infringing Derivative Works and Transformative Fair Use with Appropriation Art

By Elizabeth Altman

Andy Warhol Foundation for the Visual Arts, Inc. v. Goldsmith, 992 F.3d 99 (2d Cir.), opinion withdrawn and superseded on reh’g sub nom. Andy Warhol Found. for Visual Arts, Inc. v. Goldsmith, 11 F.4th 26 (2d Cir. 2021)

The Second Circuit recently upheld its earlier March 26 decision in Warhol v. Goldsmith, following the recent Supreme Court decision in Oracle v. Google.  The Warhol estate had asked for a rehearing after Oracle, which marked the Supreme Court’s first fair use foray in over 25 years, specifying that Google’s copying of Oracle’s Java API code to develop its Android mobile operating systems was fair use. Ultimately, however, and notwithstanding the Estate’s attempt to frame Oracle as broadening the scope of transformative use, the Warhol results remained unchanged. The Second Circuit affirmed its holding that artist Andy Warhol’s famed Prince series, based on a photograph by Lynn Goldsmith, was not fair use, limiting the Oracle decision to cases involving software code, particularly considering that code serves a utilitarian, not artistic, function. Reiterating its application of the four fair use factors, the court found Warhol’s use of Goldsmith’s photograph an infringing derivative work rather than a transformative fair use.

The Warhol dispute itself centered around a 16-work series by Warhol—silkscreen prints and pencil illustrations—which he based on Goldsmith’s 1981 black-and-white photographic portrait of Prince. Goldsmith, who had originally licensed the photo to Vanity Fair for use as an artist reference, was apparently unaware for decades that the artist behind the subsequent work was the famed Warhol. Further, Warhol had exceeded the intended scope of the license, creating not just one image, as he was commissioned to do by the magazine, but 15 additional ones, that became his well-known Prince series.

Goldsmith first learned of the series following Prince’s death in 2016, and notified the Andy Warhol Foundation for the Visual Arts, Inc. (“AWF”) that she believed it violated her copyright in the original photograph. Seeking to ward off prospective litigation, AWF initiated a suit against Goldsmith’s studio for a declaratory judgment that Warhol’s works were non-infringing, or alternatively a fair use. Goldsmith countersued for infringement.

The case had a few twists and turns as it first passed through the Southern District of New York, which held that it was “plain” that Warhol’s series was protected by fair use. Driving this decision was the court’s finding that under the first fair use factor, which addresses the purpose and character of the secondary artist’s use, Warhol’s use had been transformative, changing the character of the original image by “transform[ing] Prince from a vulnerable, uncomfortable person to an iconic, larger-than-life figure.” This finding in turn swayed the remaining second and third factors, addressing the nature of the work and the amount of the work used, and as to the fourth, which addressed the potential for market harm for the original, the court believed that Warhol’s art and Goldsmith’s prints operated in separate markets that would not affect each other.

The Second Circuit’s reversal marked a departure from both this holding and its own precedent on transformativeness with respect to appropriation art, particularly from its 2013 ruling in the Cariou v. Prince, which had addressed another famous artist’s—Richard Prince’s—alteration of a photographer’s work, finding it to be transformative and fair use.Although the Second Circuit took pains to note that it would remain bound by Cariou as precedent, it did single out the decision, seeking to clarify—and for all intents and purposes gut—the case’s application of transformativeness with respect to appropriation art.

Transformativeness derives from an earlier a Supreme Court decision, Campbell v. Acuff-Rose Music, Inc.,and directs courts to examine the degree to which a secondary work transforms the original, imbuing it with a new meaning or message, or a further purpose or different character. Courts consider whether a work is transformative by how it may be reasonably perceived. Works that are found to be transformative often sway the first factor towards a fair use finding. The Second Circuit’s particular concern over the application of Cariou’s transformativeness approach was that the Southern District had read it to support a rule that any secondary work is transformative if, compared with the original, it displays a different character, new expression, or employs new aesthetics with creative, communicative results. However, just because a secondary work adds new expression or aesthetics, does not necessarily mean it has transformed the original, cautioned the court. Where the work “does not obviously comment on or relate back to the original or use the original for a purpose other than that for which it was created,” it should not be deemed transformative. The court compared the works deemed to be fair use in Cariou with the ones that could not be determined to be fair use as a matter of law and noted that those that were considered fair use were more collage-like and consisted of many elements, in contrast to works in which the artist had only added a few elements to the photograph, which were remanded to the district court.

In the case at hand, conceivably, any photograph of Prince would have sufficed to meet Warhol’s purposes, not merely Goldsmith’s particular work, and as such, the court declined to treat his output as more than a derivative work, for which he would owe a licensing fee. Notwithstanding the fact that a derivative work will likely look at least somewhat dissimilar or altered when compared to the original, because Warhol had not undertaken the alterations to comment on the underlying work, it could not qualify as transformative, which the court stressed requires much more in the context of appropriation art to qualify as fair use, so as not to deprive the original creator of their owed license.

Revisiting the first factor analysis, the Second Circuit held that the purpose and function of the two works in Warhol was one and the same, as both were works of visual arts that portrayed Prince. Any deviations Warhol made to imbue the print with his signature style did not transform the work in the fair use sense of the term, but merely adapted it by removing some of the image’s depth and heightening its contrast with loud, unnatural colors. The photograph remained the recognizable foundation of the work. The amended decision did note, however, that in the context of visual artworks, purpose is “perhaps a less useful metric” considering both the original and secondary work take as their purpose the aim of serving as visual art. The deciding factor, the court advised, was a comparison of the secondary work with the source material. In Cariou, for example, fair use arose for those works that were most collage-like and most rendered the original unrecognizable. The main test, therefore, is whether the secondary work’s use of the source material serves a fundamentally different and new purpose and character, rendering the work unique from its raw material. It is not enough, as in Warhol, for an artist to merely impose his style on the primary work, leaving the essential elements of both intact. While such an undertaking may serve as an adaptation or derivative, it is not transformative.

Further, it would not suffice to allow Warhol a “hall pass” merely because the work he created was immediately recognizable as a “Warhol,” as such a standard risks creating a “celebrity-plagiarist” loophole, where, in actuality, Warhol had the same responsibility to license the original as any less famous artist. Nor would it suffice for the artist to merely state that the series was transformative, or for the court to discern such intent.  

As to the second and third factors, which typically hold less sway in the overall analysis, the court, with the blinder of transformativeness removed, found that the amount and substantiality of the portion used strongly favored Goldsmith, considering that Warhol had copied the photo wholesale. Diverging again, from the district court’s view, the Second Circuit believed it irrelevant that Warhol had made certain alterations, like cropping and flattening the photo. And, contrary to the district court’s view of the fourth factor’s effect on the market for the original, the Second Circuit did believe that the series could threaten Goldsmith’s licensing markets, considering that fair use examines potential, as well as existing markets. The court believed the works shared the same secondary licensing markets, as both appealed to magazines and other publications providing content relating to Prince. This emphasis on the fourth factor further departed from Cariou, which had placed the greatest weight on the transformativeness analysis; in giving the fourth factor its fair due, the Second Circuit joined the growing number of courts reemphasizing the fourth fair use factor as primary, or at the very least, not a factor to be subsumed into shadow of transformativeness.

Overall, the key Warhol lesson that artists should take away is to be aware that courts have grown less inclined to permit fair use to safeguard wholesale copying, or appropriation, where a new work does not truly transform the original by incorporating a new message, even if visual elements of the original have been substantially modified. In cases where the second work does not comment directly on the original, as in Warhol where the works remain visually substantially similar, fair use is less of a given, and the work will instead likely be deemed derivative. Although Warhol’s use of photographs aimed to effect social commentary, the Second Circuit now requires appropriation art to actually change the underlying work (if not commenting on the underlying work), which disfavors conceptual art that comments more broadly on society, such as Warhol’s commentary on celebrity icons with his series on Marilyn Monroe, versus collage artists such as Richard Prince who combine many elements of published works. Since the selection of the underlying image was not relevant to Warhol, he could have licensed any photograph of Prince’s image to use as a derivative work. Although Cariou remains good law, its approach to transformativeness no longer applies; instead, the burden of showing transformativeness is now set at a higher bar. It’s also possible that other photographers will see this case as an open door to bring suit, where the statute of limitations allows, against artists, even Warhol, who arguably applied a light hand in creating secondary works from their material. Yet, it’s important to remember that, for better or worse, fair use cases tend to be very contextual, and may depend on the type of work infringed, as demonstrated by the Second Circuit’s refusal to apply Oracle’s holding on code to appropriation art. Finally, as discussed in the latest Warhol decision’s concurrence, although galleries, art dealers, and museums that acquired the appropriation art should not be affected by the case (i.e., they would not owe damages or royalties to plaintiff), its holding may apply to entities like magazines, that commercially license the work. This is so because, as the concurrence observed, Warhol’s series and Goldsmith’s photograph shared overlapping licensing markets owing to their similar expressive capacity as Prince portraiture.

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.

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.

CDAS IP Group and Partner Nancy Wolff Recognized in Chambers USA 2020


The highly regarded “Guide to the Top Lawyers and Law Firms” described CDAS as a “highly skilled boutique offering excellent capabilities handling trademark and copyright infringement cases, as well as substantial portfolio management matters. [CDAS] exhibits expertise acting for market-leading entertainment, media and digital platform clients.” In addition to recognizing the firm for Intellectual Property: Trademark, Copyright & Trade Secrets (New York), Nancy Wolff was also recognized as “a leading attorney in IP issues relating to digital media, counseling clients in a broad range of matters including disputes and licensing.”


Contractual Disruptions: How They Arise and How to Prepare

By Elizabeth Altman and Tyler Horowitz

With the recent spread of the novel coronavirus COVID-19 and its unprecedented precipitation of social-distancing, work-from-home policies, shelter-in-place orders, and limitations on foreign travel, many individuals may be questioning whether certain contractual obligations are excused. This article provides a primer on the contract concepts of force majeure, impossibility and impracticability, and related provisions that affect, and may in certain instances excuse, performance of contractual duties owing to changed circumstances outside any signatory’s control.

Force Majeure

A force majeure clause is a contract provision that excuses a party’s performance of its obligations under a contract when events beyond the party’s control make performance impossible. To invoke a contract’s force majeure clause, a party must typically demonstrate that (1) a disruptive event enumerated by the force majeure clause has occurred; (2) the risk of nonperformance was not foreseeable; and (3) that the event has rendered the party’s performance impossible.

A party looking to invoke a force majeure clause must follow several steps:

First, a party must examine the contract’s definition of what constitutes a “force majeure” event and demonstrate that the change in circumstances was included within the definition. Force majeure events will have been enumerated within a force majeure clause and generally include: Acts of God; severe acts of nature or weather events including floods, fires, earthquakes, hurricanes, or explosions; war; acts of terrorism; epidemics; acts of governmental authorities such as expropriation or condemnation; changes in laws and regulations; and strikes and labor disputes.

Determining whether a force majeure clause applies is a highly fact-intensive exercise, because whether a party is excused for non-performance stems from the specific contractual language used within an agreement. For example, some contracts’ force majeure provisions may specify disease, epidemics, or pandemics as cause for non-performance, while others may only refer to disease-related disruptions by reference to “Acts of God” or catch-all phrases such as “any event or circumstance beyond the reasonable control of the affected party.”

Where disease-related occurrences have been specifically enumerated, a party may find it easier to invoke its force majeure clause in the context of COVID-19. It may be more challenging where, instead, there is only catch-all language in place; however, a catch-all phrase, or similarly broad language (such as a force majeure clause that begins its list with “including, but not limited to”), may provide some protection, particularly if courts relax their traditional preference for excusing performance solely based on clearly enumerated circumstances, in response to an onslaught of COVID-19 related contract disputes. Additionally, where a party can point to a governmental restriction in place because of COVID-19, it may have additional grounds to defend nonperformance. 

Second, an affected party must demonstrate a causal link between the force majeure event and its failure to perform. In other words, a party’s performance must be impossible because of the changed circumstances surrounding the contract. For example, in light of COVID-19, the owner of a performing arts venue may successfully argue that recent government orders in his or her state have made it impossible to continue under contract with scheduled performances and obligations to performers, considering the widespread uptick in closures of non-essential businesses. On the other hand, should both parties to a contract be capable of conducting transactions online and/or having a history of remote online transactions, it may be more difficult to argue that COVID-19 has rendered performance impossible (at least without demonstrating other exigent circumstances).

Upon successfully invoking a force majeure provision, a party may either suspend performance or terminate the contract outright, depending on the scope of its force majeure clause. It is thus important to verify the terms of the clause, which may also dictate that force majeure coverage will only kick in after a certain period has elapsed, such as 90 days.

If the contract does not contain a force majeure clause, a party may turn to the common law defenses of impossibility or impracticability to excuse performance (though note that New York only recognizes impracticability in rare circumstances, such as in connection with sales of goods under the Uniform Commercial Code). A party may also invoke additional contract provisions where present, such as the “Material Adverse Effect” provision common to many commercial contracts.

Impossibility & Impracticability

Impossibility and impracticability exist where circumstances extraneous to a contract render a party’s performance either impossible or impractical. Although the contract itself was adequately formed and would otherwise maintain its binding effect, these defenses recognize that a post-formation change in circumstances has fundamentally altered the ability of the parties to perform under it. A party’s performance will be excused if the following elements are met:

  • An unforeseen event has occurred. Akin to the events enumerated in force majeure clauses, these may include natural disasters, strikes, and other major events.
  • The nonoccurrence of this event was a basic assumption of the contract. At the time of contracting, the parties did not foresee the event that has since occurred, regardless of whether it was theoretically “foreseeable”. This assumption of nonoccurrence need not be explicitly outlined within the contract, but must be generally apparent from the nature, terms, and purpose of the contract. Under the Uniform Commercial Code, which governs sales of goods, a “[d]elay in delivery or non-delivery in whole or in part by a seller . . . is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made.” U.C.C. § 2-615. For example, this provision may apply in the event of a labor dispute where striking workers fail to deliver a shipment of the seller’s goods. In such cases, a seller must seasonably notify the buyer of the delay or non-delivery, and, where a seller may still partially perform, must allocate production and deliveries among customers in a “fair and reasonable” manner.
  • The effect of the event has rendered the party’s performance impossible or impracticable. The changed circumstance must be extreme, such that it is unduly burdensome or impossible for the party to comply as originally planned; where impossibility is concerned, under New York law, the subject matter of the contract must have been destroyed or the means of performance must have been rendered objectively impossible. The party seeking relief from its obligations under the existing contract must also show that it was not at fault in causing the event. The reasoning behind this requirement is clear: a party should not be able to take advantage of his or her own misconduct. Here, it is also important to determine how risk has been allocated between the parties under the contract. Even where the other requirements are met, if the adversely affected party assumed the risk of the occurrence of the changed circumstances during contract formation (impliedly or explicitly), it will not be able to invoke impossibility or impracticability. To gauge risk allocation, a party should examine the express language of the contract (i.e., what disruptive events the parties contemplated, and which party was to bear the associated loss and expense), or even the parties’ course of business and dealings. Industry customs may also provide clues to proper risk allocation. For example, industry custom in property rentals is for a premises owner to obtain casualty insurance rather than the party hosting its event on site. As such, risk for the loss of the property would flow more naturally to the owner.

Other Contract Clauses

Various additional contractual provisions may relate to an unexpected event like COVID-19.

  1. Material Adverse Change (MAC) Clause

Many commercial contracts include a material adverse change clause (otherwise known as “material adverse effect”). Where present, this clause could excuse performance or allow a party to suspend performance should a materially adverse change occur. Events constituting a materially adverse change are, as with force majeure provisions, commonly enumerated specifically within the contract and typically also involve wide-scale disruptions.

Historically, MAC clauses have been difficult to enforce, as courts are wary of excusing contractual performance for short-term changes in circumstances, but as is possible with force majeure and related defenses, courts may shift their stance in the coming months. For example, following the September 11, 2001 attacks, New York courts were more amenable to viewing declining rental prices in Manhattan as grounds to declare a material adverse change (See In re Lyondell Chem. Co., 567 B.R. 55, 123 (Bankr. S.D.N.Y. 2017), aff’d, 585 B.R. 41 (S.D.N.Y. 2018) (citing River Terrace Assocs., LLC v. Bank of N.Y., 10 Misc. 3d 1052(A), 2005 WL 3234228 (N.Y. Sup. Ct.), aff’d, 23 A.D.3d 308 (N.Y. App. Div. 2005))). Further, New York courts have allowed commercial parties to cease contractual performance based on demonstrated extensive financial losses during the pendency of a merger (see Katz v. NVF Co., 100 A.D.2d 470, 471 (N.Y. App. Div. 1984)).

  • Covenants

Commercial contracts commonly contain covenants obligating parties to undertake or refrain from certain behavior. While it is unlikely that parties would have allocated obligations or risk regarding COVID-19 in a covenant, it is worth revisiting covenants within a contract to gauge whether they will affect or be affected by current circumstances. For example, many agreements include covenants obligating parties to provide notice that they are invoking force majeure or that material events have occurred that could give rise to litigation or loss beyond the ordinary course of business.

  • Termination Provisions

Even if parties may not utilize force majeure or other contractual provisions to justify non-performance under a contract, there may be termination provisions that kick in based on the occurrence of certain contingencies, whether at-will or otherwise, such as for late delivery or a breach of a “time is of the essence” clause. It is worth viewing any such provisions within the context of the larger defenses of impossibility, impracticability, and force majeure excusal of nonperformance, in case the other party nonetheless attempts to invoke these doctrines to negate invocation of a termination provision.

This is not the law’s first brush with the unexpected, and although this is a time of wide-reaching uncertainty, woven into contract law, particularly, is a system to guide parties through the serious impacts that unexpected events may have. Our team at Cowan, DeBaets, Abrahams & Sheppard LLP will continue to provide updates on legal developments related to the present circumstances and we are available should you request further or specific guidance.

CDAS’ Nancy Wolff Examines the “Anatomy of an Ad” at the Cardozo Advertising Law Symposium

Join Nancy and other legal and advertising experts as they put advertising under a microscope, taking an in-depth view of the deals, the laws, the risks and the trends in today’s “ad biz.” Register here for the March 23rd event at the Cardozo School of Law.

CDAS Partners Briana C. Hill and Benjamin Jaffe Named Co-Chairs of the Entertainment and the Digital Media & Technology groups, respectively.

Briana Hill, Co-Head of the Beverly Hills office of Cowan DeBaets Abrahams & Sheppard LLP, joins Fred Bimbler and Simon Pulman in leading the firm’s Entertainment group, which includes televison (traditional to broadband), streaming, film, new media, talent, theatre and podcasting. The group assists clients with their entertainment projects through early development, the solicitation of investment, production and ultimate distribution, securing all necessary rights and negotiating agreements with top-tier talent.

Ben Jaffe joins Joshua Sessler in leading the Digital Media & Technology group that represents top digital talent, including game developers and distributors, digital agencies, production houses, broadband video networks, mobile app developers, podcasters and social media ventures. The group provides counsel to a wide range of social media, transmedia and mobile plays that are using emerging software and hardware technologies to create, develop and distribute content in new ways.

Top Five List: Protecting Your Podcast (and You)

By Scott J. Sholder

Although podcasts have been around in one form or another since the early aughts, their ubiquity and popularity has skyrocketed in recent years.  Apple, Spotify, Pandora, Google, and Stitcher, among other platforms, have changed the game when it comes to distribution, variety, and access.  Wildly popular programs like Serial, Pod Save America, My Favorite Murder, and The Daily have set the standard for content excellence across the news and mystery genres, while The Joe Rogan Experience, Comedy Bang! Bang!, WTF with Marc Maron, and Conan O’Brien Needs a Friend are leading the way in the comedy space.

If you want your dulcet tones to break into the digital airwaves and bring your audience information or entertainment and laughs (or maybe all three), you will of course need solid distribution and top-notch content.  But you also need legal protection both for you and for your content.  While podcasting may seem straightforward enough to not warrant the involvement of a lawyer, there’s more to it than you might think.  Here are five things to do to protect yourself and your content when entering the world of podcasting.

  1. Form a Company:  You may have already done this, but setting up a company, whether a corporation, partnership, or LLC, is a smart first step in becoming a content provider.  Apart from tax implications (which your accountant can explain to you), the corporate form creates a shield around you to protect your personal assets from certain forms of liability (for instance, breach of contract), limiting legal exposure to the assets of the company where it can be said that the company is the liable party.  The corporate form may not protect you from torts such as defamation and copyright infringement if you (intentionally or not) slip up in your individual capacity, but the company can still potentially absorb the exposure for torts it is deemed to have committed.  You may also want to use a corporation or LLC to hold your intellectual property (more on IP below) or “loan out” your services as talent, which can be helpful from a financial standpoint (again, talk to your accountant).  Setting up a company can be simple enough to be a DIY project but might become more complicated, requiring professional advice, depending on the arrangement you want and if you have multiple shareholders or members.  But it’s generally not that expensive and could save you headaches in the long run.  Once you’ve formed your company, make sure that you assign any existing contracts to the company (an attorney can help you with this as well), and that future contracts are in the name of the company – not your own name.

  2. Obtain Copyright and Trademark Protection:  To protect your original content, you should apply to register copyrights in that content.  While ideas and concepts are not copyrightable, the tangible expression of those ideas is, including scripts, sound recordings, skits or sketches, songs, and even, in some instances, individual jokes.  If the content is original to you (i.e., not simply copied from someone else) and is in a “fixed” medium of expression, you can apply to register your work with the U.S. Copyright Office.  The application process is more straightforward than the trademark process (discussed below) and the basic fees are reasonable; the bar to obtaining a registration is also pretty low in that “originality” for copyright purposes requires only minimal creativity, and it is far less likely that another copyright owner will challenge your application.  While it may seem onerous to register each episode of a podcast – especially if you release episodes more than once a week – there are ways to potentially streamline the process and keep costs down, and copyright counsel can be helpful in this regard.  Registering copyrights will also help you if your podcast one day moves into other media, such as television or a published book.

    Have a clever name for your podcast?  You should consider applying for a trademark registration.  If you offer goods or services (including entertainment services like podcasts) using a name, logo, or short phrase as a source indicator, you may be eligible for federal trademark protection through the U.S. Patent and Trademark Office.  Simply using the word, phrase, or logo “in commerce” is enough to give you some rights to enforce against infringers, but registration gives you more rights and enhanced damages if someone tries to rip off your mark.  It’s important to note, though, that there are filing fees and other expenses involved in applying to register a trademark (and in maintaining a trademark once it is registered), and during the application process other trademark owners have a chance to challenge your mark if they think it is too similar to theirs.  The application process is also more complex than applying to register a copyright and it is usually advisable to seek legal counsel to help ensure your mark is not “blocked” or otherwise rejected. 

  3. Obtain Necessary Licenses, Releases, and Permissions:  If you are using third-party content (playing audio clips or music, reading from a script or a book, etc.), you should make sure you have permission to do so from the owner of the copyright.  Despite popular misconceptions, there is no magic percentage that you can use without consequence (e.g., 8 measures of a song, 30 seconds of a comedy bit, 5% of a book) and the question of whether something is “fair use” is complex, gray, and extremely fact sensitive.  The best practice is to make sure you have a license (whether written or oral) to use content that is not exclusively yours or seek out content from royalty-free libraries or that can be used under Creative Commons licenses.  And when that content includes the voice or other identifying aspect of a third party, you’ll need to get that person’s permission as well, separate from the necessary copyright permissions.  A person’s voice is part of their “right of publicity” which is distinct from copyright and generally (with some exceptions) requires permission to use.

    If you have guests appear on your podcast, make sure they sign an appearance release that allows you to use their names and likenesses (e.g., voices) including for commercial, advertising, and promotional purposes and that releases you from liability for the ways in which guests’ names and likenesses are used.  While the best practice is to get written permission, you can also secure this consent verbally by having the guest read a brief script on air.  There are special considerations when dealing with minors that are beyond the scope of this article, and in such situations, it is best to consult a lawyer familiar with minor talent. 

  4. Vet Your Content and Read Your Contracts:  Related to number 3, if you are using third-party content (assuming you have permission), you should make sure that content doesn’t infringe anyone else’s rights.  Issues in the podcasting space, especially in comedy, usually arise in the context of defamation.  For example, if you source a clip of another comedian’s latest standup special and that comedian makes a defamatory statement about another identifiable person, you may be liable for re-publishing that defamatory statement.  The best practice is to review content before using it and consult a lawyer if you have concerns about any piece of content. 

    Also, if you sign any contracts, whether to acquire or license content, or for a third party to distribute or host your own content, read them before you sign them.  If you sign a contract you normally are bound even if you haven’t read it, so always understand what you are signing before you put pen to paper or fingers to keyboard.  When licensing third-party content, make sure you’re indemnified in case the person who provided you with the content didn’t have sufficient permission to do so, and when reviewing terms set out by hosting platforms, know who controls your RSS feed; typically, the host will control it for the period they host it, but unless your content is exclusive to one platform (for instance, Spotify), the platform should not own the stream or the content.  And note that in many jurisdictions, an email agreement is considered a binding contract – so be careful what you agree to via email.  Usually the best time to engage an attorney is when an offer is initially made to you – even if it takes the form of an email as opposed to a formal contract.  There are obviously more issues that may arise than just these, so don’t sign away your rights unknowingly!

  5. Get Errors and Omissions Insurance:  Many insurance companies offer E&O insurance for media and entertainment companies (such as AXIS Capital, AXA XL, QBE, and OneBeacon) and getting coverage is a smart idea particularly given how much litigation arises out of media and entertainment properties.  Media insurance policies often cover copyright and trademark claims, contract claims, defamation claims, and other risks that commonly arise in the media and entertainment space.  While this may seem like an unnecessary cost, especially for an individual or small business, those who make their living in media and entertainment should seriously consider it – and as the podcast business becomes more mature and sophisticated, insurance is increasingly being required in connection with certain forms of distribution.

Chambers USA 2018 Ranks Partners Lackman and Wolff as Top IP Attorneys; Recognizes Two Cowan, DeBaets, Abrahams & Sheppard LLP (CDAS) Practice Groups

Cowan, DeBaets, Abrahams & Sheppard LLP is delighted to announce that partners Eleanor M. Lackman and Nancy E. Wolff and both CDAS’s Entertainment and IP, Copyright and Litigation Practices have been recognized by Chambers and Partners in the Chambers USA 2018: America’s Leading Lawyers for Business guide.

Eleanor M. Lackman

Nancy E. Wolff

This is the fifth consecutive year Ms. Lackman and the second consecutive year Ms. Wolff have been ranked in the Chambers USA guide. They are both among just 41 New York lawyers ranked in the field of “Intellectual Property: Trademark, Copyright & Trade Secrets – New York.”

“Impressed sources” told Chambers that Ms. Lackman is “an absolutely incredible trademark litigator” and added: “She is very practical and always seems to make the right call.” She also has notable experience handling copyright matters, often advising clients across the media and entertainment industries.

Chambers describes Ms. Wolff as “very well-known and well-respected.” She receives plaudits for her expertise in a range of complex copyright matters and is highlighted for her particular skill across the photography and visual art industry.

CDAS’s Entertainment Practice was awarded a regional designation of “Noted Firm” in “Media & Entertainment: Film, Music, Television & Theater – New York” for the third consecutive year, while the Firm’s IP, Copyright and Litigation Practice received a  “Noted Firm” designation in “Intellectual Property: Trademark, Copyright & Trade Secrets – New York” for the second consecutive year.

The annual guide ranks law firms and lawyers based on in-depth interviews with clients and lawyers, technical legal ability, professional conduct, client service, commercial astuteness, diligence, commitment, and other qualities most valued by the client.

Nancy E. Wolff Named to 2018 Managing Intellectual Property’s “Top 250 Women in IP” List

Cowan, DeBaets, Abraham’s & Sheppard LLP (CDAS) Partner Nancy E. Wolff has been selected for inclusion in Managing Intellectual Property’s (IP) “Top 250 Women in IP” list.

The special publication recognizes female practitioners in private practice who have performed exceptionally for their clients and firms in the past year.

Managing IP explains that these leading female practitioners have been selected from the general “IP Stars” list, which will be officially announced next month. The list is based on information obtained during the research for this year’s edition of “IP STARS.” The research was concluded in February to 2018.

See the full list here: THE TOP 250 WOMEN IN IP (2018)

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