Entertainment & Media Law Signal 

This post is part of an occasional series highlighting the type of risks which film and TV producers face and which are supposed to be covered by “errors and omissions” (E&O) insurance.  The series aims to demonstrate that what might seem to a producer to be unjustified paranoia on the part of their lawyer is, on the contrary, well-founded paranoia.  These posts will point to actual lawsuits which have been filed against producers and distributors for various alleged rights infringements (whether copyright, trade-mark, right of publicity, or otherwise) – and which inform the nit-picking approach taken by producer’s counsel.

As reported by The Hollywood Reporter‘s entertainment law blog, Hollywood, Esq., the producers, distributors and broadcasters of the television series Southland are being sued by the family of a deceased individual whose autopsy photo is used in the opening credits montage of the show. The mother and daughter of the deceased individual claim that, as a result of the photo’s use, they have suffered “anxiety, anger, hopelessness, fear and distrust of authority” along with “physical and emotional discomfort, injury and damage,  apprehension, psychological trauma, loss of dignity, nightmares, loss of trust”.

The lawsuit raises an important practice point. Often when assessing whether the use of a photograph would infringe the rights of a third party, lawyers will focus on issues relating to the rights in the photograph: copyright in the photograph, copyright or trade-mark rights in any materials depicted in the photograph and personality rights attached to any individual depicted in the photograph. The lawsuit is a good reminder to also consider whether the use of the photograph could intersect with the rights of not only the people in the photograph, but with the rights of a third party: is the photograph being used in a way which could give rise to a defamation claim (e.g., a photograph of a person’s face is being shown to someone to see if they will identify the person depicted as having committed a crime) or to a more remote claim for trauma (such as that contemplated by the Southland lawsuit).

This post is part of an occasional series highlighting the type of risks which film and TV producers face and which are supposed to be covered by “errors and omissions” (E&O) insurance.  The series aims to demonstrate that what might seem to a producer to be unjustified paranoia on the part of their lawyer is, on the contrary, well-founded paranoia.  These posts will point to actual lawsuits which have been filed against producers and distributors for various alleged rights infringements (whether copyright, trade-mark, right of publicity, or otherwise) – and which inform the nit-picking approach taken by producer’s counsel.

Giving E&O “clearance” advice is usually a mix of substantive legal analysis (“does the proposed inclusion of this famous person’s image in this movie violate their publicity rights?”), practical risk assessment (“this is a film which seventeen people will see – how is the famous person going to find out about it?”) and instinct (“that famous person has a reputation for aggressively protecting their interests”). Producers, their lawyers and the lawyers of the E&O insurer often engage in a bit of hemming and hawing about how to handle a particular situation, and the final decision can come down to a frank financial judgment: the deductible on your E&O policy is $25,000 – are you willing to pay that amount if someone files a claim just because you think that including this possibly-violative image is critical to the “artistic” merit of the project?

Over time, most entertainment lawyers develop a bit of a sixth sense about what is and what isn’t advisable when it comes to E&O clearance (e.g., anything involving Disney, Coca-Cola or the Elvis Presley estate should be authorized). Sometimes, though, things just come out of a clear blue sky:

Manuel Noriega sues over ‘Call of Duty’ video game

Yup. 80-year old imprisoned former Panamanian strongman Manuel Noriega has filed a lawsuit in Los Angeles County against the publishers of Call of Duty: Black Ops II, one of the most successful videogames of the last few years, on the basis that one of the “missions” in the game requires players to capture an on-screen villain depicted as Noriega. Based on news reports, the lawsuit appears to allege defamation and infringement of Noriega’s right of publicity.

One can just imagine the discussions which took place about whether there was any risk in including Noriega’s image in the game (“dude, he’s 80 years old and he’s in prison in Panama - what’s he gonna do, sue us?”). For what it’s worth, I think an awful lot of entertainment lawyers I know would have counselled their client that there was risk in using Noriega’s image, but it was probably a pretty low practical risk. There are certainly defences which can (and will) be raised against the lawsuit (free speech being the most obvious; truth, lack of malice or fair comment as a defence to the defamation claim; the untenable nature of Noriega’s claim to be entitled to a share of the profits) – but it’s always best to avoid having to be dragged into court in the first place (which would certainly be the preference of the defendant’s insurer). Ultimately, just because a risk is awfully low doesn’t mean it doesn’t exist. I’m looking forward to dragging out the “Manuel Noriega sued for using his image” story in future discussions with clients.

When, if ever, can “industry practice” be used in interpreting contracts? That question is of particular relevance in the entertainment industries, as each facet of those industries (such as film, TV, music, book publishing, videogames, etc.) has their own jargon, standards and conventions, some of which are, if not contradictory, at least not obviously compatible (as an example, the term “publishing” has very different connotations as between the “worlds” of music, book publishing and film). If the parties to a contract come to the contract from different “worlds”, and they have different understandings of what a term in a contract means, whose understanding should prevail?

A couple of years ago, in a post entitled Leuthold v CBC: Damages for Copyright Infringement, I noted the Federal Court decision in Leuthold v CBC (2012 FC 748). As the title of that post indicated, the post focused on how the court in that case calculated the damages payable for copyright infringement when the CBC made unauthorized use of photographs in a documentary. I wrote at the time that the “decision goes into great detail about the various negotiations and conflicting understandings of the parties – potentially interesting in their own right but of limited application beyond the bounds of these particular disputants.” I think I got that wrong, and I’d like to re-visit the case now with particular reference to the issue of industry standards. A couple of weeks ago the Federal Court of Appeal released its decision in the appeal of the matter (2014 FCA 173) (spoiler alert: the CBC won again), and in reading the decision of the appeals court, I was struck by the fact that a portion of the decision seems to turn in large part on how to handle “industry practice” when interpreting contracts.

To refresh our memories, here are the relevant facts in the case (taken from the 2012 post):

The CBC commissioned a documentary entitled As the Towers Fell, about the September 11, 2001 terrorist attacks on New York City’s World Trade Center. Four different versions of the documentary were aired multiple times on the CBC main network and on the CBC Newsworld channel (since re-branded as CBC News Network). In most of the versions which were aired, still photographs which had been taken by and which were owned by the plaintiff appeared on-screen for a total of 18 seconds. Efforts had been made by CBC employees to “clear” (i.e., obtain permission to use) the photographs in the documentary – which is where the dispute arose.  The plaintiff originally faxed a short letter indicating authorization to use the photos – but the parties disagreed on the scope of the authorization and whether any conditions attached to it.  Eventually, following further discussions between the plaintiff and various CBC representatives, a license agreement was signed by the plaintiff.  Critically, the documentary had been broadcast on a number of occasions throughout the discussion/negotiation process (including at least one broadcast which occurred before the first faxed authorization had been received from the plaintiff).  Of relevance to the plaintiff’s position, the broadcasts took place on both the CBC main network and the Newsworld channel and was broadcast in all Canadian time zones, at the applicable local time, directly by the CBC or through affiliated stations.

Thus far, here is the nub of the case: a photographer gave authorization to the CBC to make use of her photographs in a documentary – but when the CBC broadcast the documentary on its “main” network and also on the CBC”s “Newsworld” channel, they did so in a way which did not accord with the photographer’s understanding of the scope of authorization she had given. Here is the relevant language of the license agreement:

[Plaintiff] hereby grants to CBC the non-exclusive and limited right to incorporate the Stills in the Production. CBC shall have the right (but not the obligation) to broadcast the Stills on Canadian television for one broadcast on CBC’s Network & Regional TV stations. [emphasis added]

The evidence at trial indicated that the plaintiff/photographer did not know about CBC’s Newsworld channel, and did not think that her license entitled the CBC to broadcast the documentary (containing her photographs) on the Newsworld channel. The CBC, by contrast, did think that the words “CBC’s Network & Regional TV stations” included both the CBC’s “main” channel and the Newsworld channel. How to resolve this disconnect?

The trial court decided in favour of the CBC, and provided the following reasons:

1. “when clearing rights, the CBC always included Newsworld”
2. the plaintiff’s expert evidence (to the effect that for purposes of the CRTC’s regulatory regime, Newsworld was indeed a separate “network” from the CBC’s main channel) was irrelevant because it spoke to regulatory matters, not copyright matters
3. “industry usage clearly favors the defendants” and ”in considering what is commercially sensible, the Court cannot accept Miss Leuthold’s interpretation whereby the CBC would have agreed to terms that ran against their normal usage, that is to exclude Newsworld and affiliated stations”
4. the contra proferentum rule of contractual interpretation (roughly, that ambiguous wording in a contract should be construed against the party that drafted it) did not apply because there was no need to apply it

Taken together, those four points really distill down to two points – we can discard 2 and 4 because they are negative arguments for not accepting the plaintiff’s position, not positive arguments for why we should accept the defendant’s position. Points 1 and 3 really boil down to something which is quite a bit different than “industry practice”: instead, 1 and 3 are effectively “the CBC normally conducts itself in a certain way, and how the CBC ‘normally’ conducts its business should be determinative when there is a dispute between CBC and another party over how to interpret the CBC’s contracts”. Really, “industry practice” in this decision meant “CBC practice” (although the court used the phrase “industry usage” in point 3, the court did not identify any producer or broadcaster other than the CBC who made use of language in a similar fashion).

The Court of Appeal affirmed the decision of the trial judge, but not because the trial judge was correct on this point: rather, the Court of Appeal declined to overturn the lower court’s conclusion because it was not a “palpable and overriding error” – rather, the trial judge’s decision, even if wrong, was “reasonably open to him” based on the evidence before him.

If we are to take the Leuthold decision at face value, then, it’s not necessarily the practice of the “industry” which can be determinative in a contract dispute, but rather the past practices of one of the contracting parties which can be determinative. In Leuthold, because the CBC was of the view that the phrase “CBC’s Network & Regional TV stations” included the CBC main network plus Newsworld, and because, in other situations, the CBC had always taken pains to “clear” materials for use on both the CBC main network and Newsworld (though it had not done so here) that was sufficient – irrespective of what the other party to the contract thought she was agreeing to and irrespective of the fact that the point was clearly an open one given the ambiguity of the contract’s wording.

So what is the importance of all of this? It means that it is much riskier to enter into short-form contracts in the entertainment industries which contain “terms of art” or terms which carry some kind of “industry accepted” meaning. It is critical that terms in contracts either be defined with specificity or, failing that, be illustrated with examples; failure to do so could mean that one party to the contract will be subject to the greater contractual interpretational “weight” accorded to the practices of the “institutional” party. Here’s an example: a film producer and a distributor enter into a distribution agreement under which the producer grants the distributor the exclusive right to distribute the producer’s file “by means of home video and the internet”. The producer thinks that means  that the producer has retained the rights to exploit the film by means of, for example, digital downloads on iTunes and by means of streaming via Netflix. The distributor thinks otherwise. Who wins in a dispute? On the basis of Leuthold, it seems that the controlling factor may be what the distributor has done in the past – has the distributor historically conducted its business such that in contracts with that wording (or similar wording!) it has exploited the films on iTunes and Netflix? That might be all that is required – it doesn’t appear that anything more than that decided the point in Leuthold.

In short: resist short-hand in contract drafting; insist on specificity when describing the scope of rights which have been granted; avoid ambiguity or assurances that “everyone knows what this means”; otherwise, contracting parties may find themselves giving up much more than they (thought they) bargained for.

On June 17, 2014, the Canadian government announced that the “notice-and-notice” provisions contained in the Copyright Act (Canada) will be coming into force in January 2015. (The precise date they will come into effect is still a bit uncertain: the government’s “Backgrounder” on the topic says “The Notice and Notice regime will come into force six months following publication of the Order in Council. The Copyright Modernization Act will be fully in force by January 2015″. As of the writing of this post, the Order in Council does not appear to have been published yet – so long as it is published before July 1, 2014, the government will be able to meet the deadline of the provisions coming into force by the end of January 2015.

The “notice-and-notice” mechanism is contained in  Sections 41.25 – 41.27 of the Copyright Act (Canada) and creates a process by which copyright owners can send a notice of claimed copyright infringement to online service providers (such as ISPs, site hosting services and search engine providers). When a recipient receives a notice of infringement, the recipient must “as soon as feasible forward the notice electronically to the person to whom the electronic location identified by the location data specified in the notice belongs and inform the claimant of its forwarding or, if applicable, of the reason why it was not possible to forward it” and must also retain records for specified periods of time to enable the sender of the notice to identify the ultimate recipient of the notice (i.e., to enable the copyright owner to identify the service user who uploaded the purportedly infringing content). Online service providers will still retain the discretion to remove purportedly infringing content, but the Copyright Act will not require them to do so.

The “notice-and-notice” regime is the last of the major elements of the Copyright Modernization Act (once known as Bill C-11) to come into force – most of the other provisions of the CMA came into force in November 2012. The coming into force of the “notice-and-notice” provisions had been delayed pending consultations with stakeholders which most people thought would lead to the implementation of regulations which would accompany the statutory provisions. However, according to the government Backgrounder, the government has “determin[ed] that the Act provides sufficient flexibility for the regime to function without regulations”.

The lack of regulations has two consequences:

• online service providers are not allowed to charge a fee to copyright owners for “passing along” the notice
• there is no prescribed form for delivering a notice of claimed infringement – however, any such notice must still contain the elements set out in Section 41.25(2)

Failure to abide by the obligations imposed in the “notice-and-notice” regime (i.e., failing to pass along a notice or explaining why they were unable to do so or failure to maintain the requisite records) can result in liability for statutory damages between $5,000 – $10,000 (as set out in new Section 41.26(3)).

One other element of the “notice-and-notice” regime merits attention: how it treats providers of “information location tools” (what most of us would call “search engines”). Section 41.27 says that an injunction is the only remedy which a copyright owner has against a search engine (subject to certain conditions set out in Sections 41.27(2) and (4)); however, the search engine provider must remove any cached copies of the infringing work within 30 days of receiving the notice of claimed infringement – any copies which remain after 30 days can give rise to a claim for monetary damages.

We inch closer to certainty regarding what royalty rates are payable in Canada by online webcasting services such as Pandora, Songza and Last.fm.

On May 16, 2014, the Copyright Board of Canada released Re:Sound Tariff 8, applicable to non-interactive and semi-interactive webcasts for the years 2009-2012. Re:Sound is a collective which collects “equitable remuneration” payable to performers and the owners of sound recordings for the public performance or telecommunication to the public of sound recordings on which performances of musical works are embodied.

The Board released the tariff itself, a 227-paragraph decision, and a plain English “fact sheet”.

Before setting out the rates themselves, a few notes:

• as the Board describes in para. 7 of its decision, streaming music over the internet can involve “as many as six rights or sets of rights”; which is to say: this is complicated stuff, and should not be navigated without the assistance of someone with a solid understanding of the various rights at play, who owns/administers those rights and what the current state-of-play is with respect to the various proposed and certified Copyright Board tariffs which might apply
• Re:Sound Tariff 8 covers only “equitable remuneration to which performers and makers are entitled when a published sound recording of a musical work is communicated to the public by telecommunication”; which means that…
• Re:Sound Tariff 8 does not cover “the right to communicate a musical work to the public by telecommunication; the right to reproduce a musical work; the right to reproduce a sound recording; the right to reproduce any reproduction of an authorized fixation of a performer’s performance for a purpose other than that for which the authorization was given; the rights granted, on November 7, 2012, to Canadian performers and makers over the communication resulting from making available a sound recording to the public”; all of those rights might (or might not!) be the subject of a different tariff which might (or might not!) be in some stage of proposal, discussion, certification, appeal, etc.; tread carefully!
• as much grief as I sometimes give the Copyright Board, the reasons for the decision actually make for some interesting reading (well, relatively speaking, of course – I’m sure you’ve got better things to do with your time, but I don’t)

Without further ado, the rates payable to Re:Sound by non-interactive and semi-interactive webcasters, set for 2009-2012 by Re:Sound Tariff 8:

Two additional points to consider, both taken from the Board’s “fact sheet”:

• “In the United States, for 2012, the rate that webcasters must pay for the same rights when their sole business is webcasting is $1.10 per thousand plays” – so, basically, the Canadian rate, “for the same rights” is roughly 10% of the US rate; make of that what you will. The Board spends a fair amount of time in its decision (see paras. 119ff) explaining why the Board arrived at a such a strikingly different rate as compared to the US rate.
• the Board’s “fact sheet” contains a very interesting table (see question 7 in the “fact sheet”) which sets out how much the Board anticipates certain users will pay under the certified tariff; most noteworthy: the Board’s estimate is that Pandora, classified as a “very large webcaster”, with 3 billion plays per year, would pay around $306,000 per year to Re:Sound under Tariff 8 as certified, and the Board estimates that a “very large webcaster” would reap annual revenues of $5.8 million – so a little over 5% of annual revenues would be payable to Re:Sound; again, note that Tariff 8 covers only a subset of all the rights which Pandora would need to clear