Tag: sanders long llp

Thank goodness for plain English.
By Ryan Long

Thank goodness for plain English.

Many love streaming their favorite artist’s songs over Pandora, Inc. (“Pandora”). Imagine a world where your favorite song, say “All Along the Watch Tower” by Bob Dylan, wasn’t listed on Pandora because the American Society of Composers, Authors, and Publishers (“ASCAP”) made his compositions unavailable to “New Media” outlets, even though his songs are available for license to traditional methods of distribution, like the radio. Keep calm. Thanks to a recent ruling by  the Southern District of New York, a federal court in New York, that won’t happen. And that’s primarily because of plain English.

In In Re Petition of Pandora, Media, Inc., ASCAP argued that it could not make all compositions available in its repertory to licensees like Pandora where the publisher of the song withdrew ASCAP’s right to license the compositions to “New Media.” In short, ASCAP argued to the Southern District of New York, that it cannot license what it does not have the right to license.

Since 1941, ASCAP has needed to comply with an antitrust consent decree. Luckily, it states in plain English that music users have the right to “perform any, some or all of the works in the ASCAP repertory.” If Mr. Dylan uses ASCAP to collect royalties for the public performances of “All Along the Watchtower,” that song is part of the ASCAP repertory. Under the decree, ASCAP must make the song available to all requesting music users, regardless of the type of medium they use to distribute the music.

The court correctly ruled that while Mr. Dylan may freely pull his song out of the ASCAP repertory and go to another performing rights society, ASCAP is restricted by the decree from offering Mr. Dylan the option of licensing his songs to some distributors but not to others in “New Media” — such as Pandora. But Pandora has only won half the battle with ASCAP. The decree still requires the court to determine the rate that Pandora will pay for using ASCAP’s stable of songs. If the court makes these rates cost prohibitively high, Pandora’s first half victory will be a moot one.

Just in the Nick of time: Nicky Winton — the English version of Oskar Schindler.
By Ryan Long

Just in the Nick of time: Nicky Winton — the English version of Oskar Schindler.

Have you ever heard of Nicholas (“Nicky”) Winton? Me neither. That was before I attended a screening of Nicky’s Family, at the UJA Federation in New York on July 16th. The movie is about Nicky, and why he is otherwise known as the English Oskar Schindler. Like Schindler, Nicky saved lives — that of 669 Czech and Slovak children just before and during World War II. Seeing that movie made me realize we all are, in some sense, in Nicky’s family. So what? Well, maybe his story will cast doubt on the selfish gene theory that many economists rely on in their rational choice models. At least that’s what I thought when I saw the movie.

Before the war, Nicky, now 104 years old, was a successful stockbroker in London. He traveled when he wanted. He ate what we wanted. He didn’t really have a concern in the world. So he was the perfect character in a story who would have had an interest in doing nothing at the sight of other people’s suffering.

Not Nicky.

After learning about the pending doom that Jewish Czech and Slovak children would face under German rule when he took a ski trip to Europe, Nicky started a campaign to have English families adopt Jewish children. When some Rabbis in England complained to Nicky that the children would be going to non-Jewish families, his response: “that’s your problem!”

The screening of the movie, which was chaired by Sanders/Long partner Adam R. Sanders, made me question the self-interested rational choice models that so many economists use. Nicky had everything to lose by helping the children. His only gain was the feeling of seeing that he had an impact on each child in need. And that he did. The movie shows that some 200 of the saved children have been found, and shows their grandchildren, too. Not only that, but Nicky has motivated a whole new generation of people who are trying to make an impact on the world — one child at a time.

Nicky Winton — arriving just in the Nick of time.

Take a bite out of crime — not Apple.
By Ryan Long

Take a bite out of crime — not Apple.

We all know the old saying: take a bite out of crime. Unfortunately, today a New York federal court took a bite out of Apple, Inc., instead. The court found that Apple violated antitrust laws when it entered into contracts with major book publishers to distribute e-books using the agency model. The opinion is misguided in failing to see these vertical arrangements as efficient and reasonable methods of competing against and responding to Amazon’s below cost e-book pricing, which the government has to date ignored.

The opinion says that two wrongs don’t make a right. On the one hand, Amazon has overwhelming market share in the e-book market. What is more, it can subsidize losses in that product market with profits it makes in other anything but the kitchen sink markets. On the other hand, book publishers don’t have equal e-book market power — nor do they have equal ability to finance below cost pricing of e-books with profits from other diversified product markets.

Nonetheless, in the court’s view, the fact that Amazon was pricing e-books below cost didn’t justify Apple’s contracting with the settling book publishers to stabilize the price of print and e-books at above cost levels. The reason: Apple or the publishers could have either reported Amazon to the Department of Justice, or could have filed their own lawsuit.

The court’s argument assumes that the government is an impartial observer who doesn’t favor one entity over others in this grudge match. Objections to the government’s settlement with the book publishers raised concerns that the Department of Justice was and has been aware of Amazon’s below cost pricing of e-books but didn’t lift — and hasn’t lifted — a finger to address it.

Given the inability of Apple — and the publishers — to get the police officer to take action, they took matters into their own hands. As previously explained in this blog, the market should decide who wins this billion-dollar fight between Godzilla and King Kong — not one judge sitting in the Southern District of New York.

Naked economic protectionism — constitutional?
By Ryan Long

Naked economic protectionism — constitutional?

Many of us like certainty. Death and taxes are two things we can be certain about. But should our choice of who we buy our casket from, if we buy one, when we die be dictated by the state? No, says the New Orleans based Fifth Circuit Court of Appeals in its March, 20, 2013 decision in St. Joseph Abbey v. Paul Wes Castille, et. al. This is a good thing. It means the state cannot protect an industry from competition without justification. What implications, if any, the decision on has on similar federal laws remains to be seen.

A group of Louisiana priests brought suit against members of the Louisiana State Board of Embalmers and Funeral Directors because of a law that prohibited the priests from making, and selling, caskets. According to the law, the priests needed to be funeral directors to do that. But becoming a licensed funeral director in Louisiana is expensive and time consuming. The priests claimed that the law violated the equal protection clause because it had no rational basis to a legitimate government interest, and that it was an unconstitutional taking of property without due process.

The Fifth Circuit agreed. Louisiana, after all, allows anyone to build their own casket for personal use, and doesn’t even require a citizen to be buried in a casket at all. The state also allows its citizens to buy caskets out of state. In any event, the Court reasoned, the requirements to become a funeral director have nothing to do with casket making. Thus, there was no rational relationship between the law and a legitimate government interest.

The most important part of the Court’s ruling is its rejection of naked economic protectionism. Under this view, the state has a legitimate government interest in the protection of a particular industry from competition even when there is no corresponding benefit to the public interest or general welfare. The Court said Louisiana could not protect funeral directors from competition by the priests merely because, say, they have a stronger lobby in Baton Rouge.

It remains to be seen whether the case goes to the Supreme Court. If it does and is affirmed, some federal laws and regulations may be in greater danger of being invalidated as naked wealth transfers to a special interest with strong ties in Washington D.C.

Death of the thrift shop?
By Ryan Long

Death of the thrift shop?

We all know the thirft shop. You go. You buy The Great Gatsby. It is used. It is cheap. It is a great read. And potentially illegal contraband? That could be so. Under the Second Circuit’s ruling in John Wiley & Sons, Inc. v. Kirtsaeng, you may not resell copyrighted materials that are manufactured overseas in the U.S. The Supreme Court heard oral arguments in the case on Monday. Until Congress amends the Copyrigt Act to limit the first sale doctrine to copyrighted materials manufactured in this U.S., the Supreme Court should overrule the Second Circuit.

Under the first sale doctrine, you are permitted to buy a book and then resell it. The copyright owner no longer has a right to restrain your use of the book once you have paid for it. However, there is a provision in the Copyright Act which prohibits you from importing copyrighted works into the U.S. without first obtaining the copyright owner’s permission. The question is whether that provision of the Act applies to copyrighted works that are used.

In Wiley, the Second Circuit was asked to resolve the apparent conflict between these provisions of the Copyright Act. The defendant had family members buy academic books overseas and then send the books to him in the U.S. When here, he sold the books for a profit. The books were manufactured overseas, and were protected by U.S. copyright law. The plaintiff, a publisher of some of the books that defendant was importing, sued him for copyright infringement, claiming he was violating their right to decide what copyrighted goods to import, or not. His defense was that he was protected by the first sale doctrine because all of the books he was importing were used. The lower court refused to instruct the jury about the potential applicability of the defense, and the man was found liable for copyright infringment.

Using some mental gymnastics, the Second Circuit held in Wiley that the first sale doctrine did not apply to the books in question because they were manufactured overseas, whereas there would have been a defense had the books been manufactured domestically. The Second Circuit came to this decision after reading a concurrence by Justice Ginsberg in Quality King, a previous Supreme Court decision in which the court held that the first sale doctrine applies to copyrighted products produced in the United States and resold here after being re-imported. Even though the majority opinion in Quality King didn’t peg its first sale doctrine holding to the fact that the product in question was domestically produced, Justice Ginsberg suggested a different outcome could result if a product were produced overseas and then imported.

It seems if Congress wanted to expand a copyright holder’s rights beyond the first sale depending on whether the product in question was produced oversears, it could easily do so by amending the Copyright Act. Until then, it seems the best way to keep cool local thrift shops (and others) from getting sued and put out of business by major book publishers (or others) for selling used books (or other copyrighted items) manufactured overseas is for the Supreme Court to reverse the Second Circuit.

You’re fired! (But I still have to pay you?)
By Ryan Long

You’re fired! (But I still have to pay you?)

We often think that if we fire someone, they are no longer entitled to be paid. But that is not always so. This is especially true in Hollywood, as can be seen from the recent ruling in the litigation between Lisa Kudrow and Scott Howard, her former manager, reports the Hollywood Reporter. While Ms. Kudrow fired Mr. Howard, he claims he is still entited to a percentage of her income even though they had no written agreement giving him such a right. Is this is a stretch? Yes and no.

Generally speaking, agreements can be for a term or at will. If they are for a term, say five years, they cannot usually be terminated before the term unless it is for cause — which means one of the parties breached the contract. If the agreement is at will, it can be terminated at anytime. Most agreements are at will. Regardless of which agreement you enter into, you can always negotiate for residual rights that exist after termination. For example, if you manage Mick Jagger and give him a management agreement which gives you the right to 5% of this income for five years even after the term of the agreement is over, which is called a “sunset clause,” then you get paid even when he is touring and you are no longer his manager.

The crinkle in Ms. Kudrow’s case is that there is no written agreement. Instead, the parties only had a verbal understanding of their relationship. This makes for tough proof at trial concerning the contours of this agreement. That’s why Mr. Howard sought to introduce what is called “custom and usage” evidence in the trial court. This evidence basically shows that some rule is so widely known in an industry and accepted that a party consents to the rule in any contract even if it isn’t explicitly written — or said — in the contract. The lower court rejected this argument because, in its view, the proffered expert in the case only entered the industry in 1998, which is after the parties made their agreement in 1991. The appellate court reversed and allowed the testimony.

Whether Mr. Howard wins at trial remains to be seen. However, in allowing the testimony of a custom and usage expert such as this one, the appellate court signaled to the entertainment industry that it is better to specifically contract out of these type of sunset clauses or else they may be presumed to exist in your contract even if it is not so written.

Aereo’s service — a public performance?
By Ryan Long

Aereo’s service — a public performance?

Recently, in American Broadcasting Companies, Inc., et. al., v. Aereo, Inc., the Southern District of New York denied the plaintiff’s motion to immediately stop Aereo, Inc. (“Aereo”), from retransmitting television programming, like NBC’s Saturday Night Live, to its users. While the Court took great pains to justify its conclusion that Aereo was not publicly performing, or “transmitting,” plaintiff’s copyrighted works within the meaning of the Copyright Act, its reasoning is likely flawed.

The best place to begin is the Copyright Act’s definition of “public performance.” Section 101 of the Act gives a copyright holder a government condoned monopoly to “perform or display a work ‘publicly,'” which means to “transmit or otherwise communicate a performance or display of the work to the public, by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or different times.”

In its decision denying the plaintiff’s motion for preliminary injunction, the District Court found that Aereo’s method of distribution is similar to Cablevision’s Remote Storage DVR (“RS-DVR”) device. In Cartoon Network LP, v. CSC Holdings, Inc., 546 F.3d 1212 (2d Cir. 2008) (“Cablevision“), the Second Circuit Court of Appeals held that the RS-DVR device did not publicly perform copyrighted works. As the reader may know, the RS-DVR device allows users to save their favorite programming for viewing at another time. If I am not home when Saturday Night Live is on, I can set my RS-DVR to record the program, in whole or in part, so that I can watch the program later on. And so the RS-DVR is similar to the Betamax recording device — which is like a VCR that allows you to record programs — that was upheld as a “fair use” of copyrighted materials in Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417 (1984).

But unlike the RS-DVR in Cablevision or the Betamax in Sony Corp., Aereo’s system not only allows the user the option of recording a program on its system for later viewing. It also permits the viewer to watch Saturday Night Live contemporaneously with its distribution from NBC. Because Aereo’s system doesn’t only permit their viewers to time shift their viewing of Saturday Night Live, but acts as a substitute for viewing the program live on NBC, its method of distribution looks, talks, and acts like a public performance.

Stick and stones may break my bones, but calling me gay when I’m not doesn’t — or can it?
By Ryan Long

Stick and stones may break my bones, but calling me gay when I’m not doesn’t — or can it?

We were all told when we were younger that sticks and stones can break our bones, but that words could not. While it is still true that words cannot break our bones, words can be actionable as defamation under the law. Until recently, it was defamation per se in New York to falsely accuse someone of being a homosexual. This means that all one needed to prove was that the statement was made and that is was false. Special damages were assumed. The recent decision by the Appellate Division, Third Department, in Yonaty v. Mincolla, changed all of that.

In Yonaty, the plaintiff, a male, alleged that a defendant, a female, falsely accused him of being a homosexual. As a result, the plaintiff alleged, he lost his girlfriend. The defendant moved to dismiss the plaintiff’s defamation claim on the ground that he did not allege special damages, such as lost profits or revenues, even assuming he was not a homosexual. The lower court denied the motion because of long standing law in New York, such as in cases like Klepetko v. Reisman, 41 A.D.3d 551, 552 (2d Dep’t 2007), which have held that falsely accusing someone of homosexuality was defamation per se, which means that damage was assumed. Examples of other defamation per se categories include accusing someone of being a felon or having a loathsome disease, such as herpes.

The Third Department in Yonaty ordered the dismissal of the plaintiff’s complaint because he did not allege damages. In so holding, the Court contravened cases like Klepetko. That’s because, these prior decisions were, in the words of the Court, “based upon the flawed premise that it is shameful and disgraceful to be described as lesbian, gay or bisexual. In fact, such a rule necessarily equates individuals who are lesbian, gay or bisexual with those who have committed a ‘serious crime’  – one of the four established per se categories.”

Nevertheless, the Court’s ruling still leaves the door open for defamation claims arising from false allegations of homosexuality that may, in fact, involve special damages. Assume, for example, that someone falsely claims a boy scout leader is a homosexual. Under the Court’s ruling in Yonaty, the leader may be able to claim defamation if he can show that (1) he is not a homosexual and (2) that he lost his job because of the false statement. The Boy Scouts of America currently prohibit homosexuals from occupying positions of leadership. Thus, the Court’s reasoning accepts that while society has changed in some areas concerning stereotypes surrounding sexual preference, it has not changed in others.

The unofficial Department of Justice guide to officiating Apple et al. (Godzilla) v. Amazon (King Kong)
By Ryan Long

The unofficial Department of Justice guide to officiating Apple et al. (Godzilla) v. Amazon (King Kong)

Wouldn’t you want to see who wins a cage match between Godzilla and King Kong? We certainly would. Until recently, that fight was under way. Major book publishers (“publishers”) and Apple, Inc. (“Apple”) (collectively “Godzilla”) were chipping way at the 90% market e-book share held by Amazon (“King Kong”). And yet on April 11, 2012, the Department of Justice (“DOJ”) sued Godzilla alleging that it violated the antitrust laws. In light of the potentially tenuous merit of the lawsuit, it seems only fair that that the DOJ would investigate potential predatory pricing of e-books by King Kong, too.

The DOJ’s lawsuit is potentially tenuous because the publishers and Apple are not garden variety horizontal competitors fixing prices, as was the case when Sotheby’s and Christie’s, the famous auction houses, agreed to fix their commissions. Instead, the contracts between the publishers and Apple (“agency agreements”) are more akin to a vertical distribution agreement between a manufacturer and a retailer. The DOJ’s allegations, even if true,support this view.

Apple separately transacted with several book publishers to distribute their titles. In exchange, Apple received a 30% commission off the price of the book, which was negotiated between the publishers and Apple. This agency model replaced the wholesale model, in which publishers would sell to Apple at half of the retail price, and then let Apple sell at whatever price it wished. As any distributor with power would do, Apple obtained assurances in the agency agreements that the publishers would not do an end run around Apple and distribute via others, including Amazon, for less.

Even though the agency agreements are vertical, the DOJ is treating the them as though they were horizontal. The characterization makes a legal difference. On the one hand, courts review agreements (and conspiracies) among horizontal competitors to fix prices under the per se illegal standard. Once the agreement is proved, it is deemed illegal, regardless of its potential pro-competitive benefits or the market power of the competitors. On the other hand, courts review vertical resale price maintenance agreements among a manufacturer and a retailer, for example, under the rule of reason. Under this test, the court weighs the pro-competitive benefits of the agreement with its anti-competitive effects. Because the agency agreements are more akin to resale price maintenance contracts, they should likely be judged under the rule of reason, which makes the DOJ’s case tougher.

But regardless of which way the court ends up characterizing the relationship between the publishers and Apple, it seems at the very least that the DOJ should have investigated King Kong — that is, Amazon — for potential predatory pricing, too. Pricing below cost is unlawful if “it is part of a strategy to eliminate competitors, and when that strategy has a dangerous probability of creating a monopoly for the discounting firm so that it can raise prices far into the future and recoup its losses.” This sounds very similar to what King Kong has been doing by selling major titles below cost through its Kindle device, which currently occupies roughly 90% of the distribution market for e-books. It seems that publishers felt the only way to fight back was to agree to Apple’s agency agreements, which it demands of all content providers, so that the publishers could then withhold titles from Amazon unless it agreed to the same pricing structure they gave to Apple.

In the end, it might have been wrong for Godzilla to blow fire into King Kong’s face. But then it might have been wrong for King Kong to throw acid into Godzilla’s eyes. Either both sides should be scrutinized for their potential wrongs, or the referee — the DOJ — should stay out of the match and let the market decide who to favor.

CrestCare — Constitutional?
By Ryan Long

CrestCare — Constitutional?

The Obama administration recently passed CrestCare. Never heard of it? It is a new federal law which requires every citizen to brush their teeth with Crest brand toothpaste. Certainly, the law must be unconstitutional, although it would be nice not to smell bad breath on the elevator ride up to the office, or on the construction site, in the morning. And yet maybe, just maybe, the law would be upheld by the Supreme Court if it was ever challenged.

Of course, there is no CrestCare. It is a wonder whether the federal government would be empowered to pass such a law if the United States Supreme Court upholds the constitutionality of ObamaCare’s requirement that all citizens have health insurance. On Monday, the high Court began hearing oral arguments to determine whether that part of ObamaCare, in addition to others, are constitutional. In the case, titled Department of Health & Human Services, et. al. v. States of Florida, et. al., No. 11-398, the attorney generals of various states have brought suit to bar enforcement of ObamaCare, the details of which have been covered ad nausea elsewhere, and which I will leave for your musings.

The marrow of the government’s argument as to why ObamaCare should be upheld is the Commerce Clause, which gives Congress the exclusive authority to “regulate commerce . . . among the several States.” That is my emphasis. Over the years, the Supreme Court has read “among” to include anything that could affect interstate commerce, even if the conduct in question is wholly intrastate in character. In Wickard v. Filburn, for example, the Court held in 1942 that the federal government could regulate a farmer’s growth of wheat in his own backyard even though it was for his own consumption. The reason: the farmer’s growth would affect the interstate flow of wheat. Then, in Gonzalez v. Reich, the high Court in 2005 held that the feds could regulate wholly intrastate consumption of marijuana under California’s Proposition 215.

While the Court’s decisions in both Wickard and Gonzalez stretch the limits of “among the several states” to their intellectual limits, neither decision dealt with a federal law compelling someone to do something. Instead, both decisions involved a federal law prohibiting someone from doing something. Whereas part of ObamaCare compels every living citizen to buy health insurance. This seems to stretch the Commerce Clause so far that it has no limits left. Even if you like the idea of nationalized healthcare, this is not a constitutionally permissible way to go about it.

If the Court upholds the part of ObamaCare mandating health insurance for all citizens on Commerce Clause grounds, there is nothing barring the feds — or Crest — from mandating CrestCare.