Business, Entertainment, Sports & Technology (B.E.S.T.) Law Blog

ARC Law Group: April Newsletter

Welcome to the month of May. 

Graduation season is here, and Jeff and I would like to send out big congratulations to law clerks Katherine West, Will Dugoni and Ben Shaw.  Enjoy the ceremony, the party and the short break…and then get ready to start studying for the Bar Exam.

A couple notes on this month’s podcast, which can be found below, and my conversation with Rebecca Brian the COO at NextSpace.  Our legal discussion had to do with business entities, but we failed to mention the newest form of business entity the Benefit Corporation. Why is this important to note?  Well, NextSpace just became a certified B-Corp, which is a Benefit Corporation that meets the B-Corp standards. Benefit Corporations are different from standard Corporations in that they are formed for a purpose that may or may not place the interests of the shareholders first.  For more info on Benefit Corporations and B-Corps check out our Benefit Corporation FAQ, and a hearty congrats to NextSpace on becoming a certified B-Corp.

During the conversation we make reference to the movie “The Lost Boys (1986)” which was filmed on-location in Santa Cruz, CA.  I couldn’t remember the stand in name used in place on Santa Cruz in the Vampire drama starring “The Coreys” (Feldman and Haim) and Kiefer Sutherland.  Of course, Santa Carla is the answer.  

For those of you who’ve already listened to the podcast, below is a picture of Rebecca donning the infamous orange NextSpace wig.  If you haven’t listened yet, this picture shall serve as a preview of the fun to be heard.

The British are Coming!  Yes, the Rolling Stones are on tour in celebration of their 50^th anniversary.  There has been a lot of talk about the ticket prices for the “50 & Counting….” tour, which have an average price of over $500 for the two Bay Area shows.  Many long-time fans are priced out of this go around.  Generally, speaking, ticket prices have gone up dramatically in the last decade.  There are a number of factors contributing to the rise in ticket prices for concerts, including the “360” Deal. 

Traditionally, a record company received income off the sale of master recordings by bands that it had under contract (see,  owned). The record company would pocket 80% of the profits from the sale of an album giving 20% to the band or artist. Things like touring, merchandise and publishing were usually not part the recording contract. However, once digital downloads hit the scene income from album sales dropped dramatically.  Record companies seeking to find profits where they could, started offering artists and bands “360” deals, meaning the record company got a financial piece of all activities in the entertainment industry.

While it may be the case that the Stones are simply big enough to command $500 ticket prices, the general increase we’ve seen in prices is partly due to the fact that bands and artist now have to share touring income with their record company.  If you want to find out more about recording contracts I’ll be speaking on the topic at this year’s California Music Industry Summit, happening the weekend of June 15^th and Laney College in Oakland.

Finally, an interesting ruling came down in the 9^th Circuit last month involving the Jersey Boys.  As part of the hit musical a clip form the old the Ed Sullivan Show was shown in connection with a segment showing the Four Seasons battling the British Invasion of the late 60s (another Stones reference?). The owners of the rights to the Sullivan Show sued the Jersey Boys producer for copyright infringement.  The producer countered with a fair use argument based on commentary and criticism (for more on fair use check out this podcast episode). The 9^th Circuit ruled that the use was, indeed, fair use as far as the stage play, but warned that the use might infringe should it ever be used in connection with a recorded (TV or Film) version of the Jersey Boys.  Interesting, at least for all us copyright lawyers.  

Until next month…

You understand and agree that use of this blog does not in any way create or establish an attorney-client relationship between you and any ARC Law Group attorney. You should recognize that the information provided on this blog is provided for your general information and should not be relied on as legal advice and is not a substitute for direct consultation with an attorney about a specific legal problem.

The Legal Ethics of Podcasting

by Leslie O'Callaghan 

The following article discusses the various legal issues related to online advertising for lawyers..

I.  Introduction

Radio and television advertising has often been mocked as sensationalist and dramatic.  Although these advertisements may seem trivial to viewers, the attorneys who create them must follow strict ethical guidelines.  Broadcasting advertisements on radio and television have already been widely addressed and accounted for by the ethical rules, but broadcasting has since expanded with the Internet.  Podcasting, specifically, uniquely involves a combination of the Internet and broadcasting.  The unique combination of mediums involved in podcasting begs the question of, what ethical rules apply to this modern medium? 

Broadcasting on television and radio has existed since the Supreme Court decided Bates v. State Bar of Arizona.[1]  Bates, held that a blanket restriction on legal advertisements violated attorneys First Amendment rights, and thus allowed for legal advertisements for the first time.[2]  The Bates case is the most seminal case on legal advertising but it was decided before the Internet existed. 

The Internet has a high information capacity, meaning users are unlimited in the content they put on the Internet.  Unlike advertisements on television and radio, lawyers advertising on the Internet are not charged by the length of time that their advertisement runs and they are not regulated by a third party such as a cable network.   For example, blogging is free to create and has an unlimited capacity for information.  A blogger can put as much information out on the web as they like with no limitations on content.  An advertisement broadcast on the radio or television does not have such freedom.  They are typically limited to minute long time segments, which are broadcast and then “disappear” whereas a blog can be left on a screen for unlimited periods of time.  Furthermore, an individual can create, distribute and update their blog on their own without any regulation by a third party.  Television and radio advertising requires their creators to follow guidelines provided by the individual that they are buying the advertising time from. 

Secondly, the Internet can be viewed worldwide.  Radio and television commercials are often limited to a certain demographic, this is economically feasible for an attorney and it also guarantees that laws specific to a state will stay within that state.  Laws are different from state to state and an attorney on radio or television can limit their message to providers within the state that they practice.  If an attorney wants to put out a television advertisement regarding a class action suit based on personal injury case in New York they can take precautions to try and limit their audience to New Yorkers and thus avoid presenting state specific laws to the wrong state.  Certainly, an individual visiting New York from out of state may view this commercial, but by targeting a geographical area the attorney is still taking measures to prevent as much misinformation as possible.   This level of control over who can view the advertisement is not present with the Internet, and is key to not “misleading” the audience.  The “misleading” standard is the crux of the ethical rules governing advertisements. 

Finally, there are many different mediums that attorneys can use on the Internet.  There is live chat, e-mail, video, audio and now podcasting.  These different mediums require different analysis, unlike television and radio, which is generally more limited in its capacity. 

There is little guidance in the model rules directly addressing the ethical rules involved with podcasting.  The word podcasting doesn’t appear in either the Model Rules, the comments on the Model Rules or in the California Rules of Professional Conduct.  Recently, application of the Model Rules to the Internet has caused revisions and new opinions; most notably blogging and social networking sites have received attention.  These revisions are included in the 2002 revisions of the Model Rules.  A closer look at these rules reveals how the Model Rules apply to podcasts.  Although the above-mentioned concerns are present with regard to advertising on the Internet, specifically podcasting, the Model Rules can still be applied to podcasts. 

II.  Podcasts and the Model Rules governing Advertisements

Historically, the Model rules stated that lawyers should not seek out clientele and should not advertise.  But, after the Bates case the court acknowledged that this historical concern was outweighed by the public interest, specifically, a need for individuals to be informed and thus able to receive legal services.[3]   This sentiment, that advertising is important to the legal profession, is reflected in the comments to Model Rule 7.2 on advertising.[4] 

There is no Model Rule, or California Rule of Professional Conduct that expressly defines what constitutes an advertisement.  However, caselaw addressing the ethical issues surrounding advertisements has included lawyers’ websites and blogs.[5]  Thus, it is safe to assume that a podcast would similarly be considered advertising that must comport with the legal rules of ethics governing advertisements.

In 2002, the ABA House of Delegates adopted changes to the Model Rules.  Many of those changes involve the addition of terms to govern the technology that the modern lawyer faces.  The rules have not been applied to the specific area of podcasting but the changes that have been made are indicative of how the court will respond to inquiries over podcasts in the future.  Most important to the issue of the regulation of podcasts, section seven of the Model Rules governing “Information about Legal Services” was revised.

Model Rule 7.1 is the first, and broadest rule governing information about legal services.  It states that, “a lawyer shall not make a false or misleading communication about the lawyer or the lawyer’s services.”[6]  This rule is applicable to all types of advertising, regardless of medium.  Many miscommunication issues that can arise when an attorney puts out information to a wide audience fall back on this rule.  Thus it is important, at the most basic level, that an attorney is clear and truthful in their podcast.   

Model Rule 7.2 addresses advertisements specifically, and is the most important rule regarding the creation, and ethical implications involved with podcasts.[7]  Model Rule 7.2(a) states, “a lawyer may advertise services through written, recorded or electronic communication…”[8]  This section of the rule was revised from is pre-2002 version to include the word “electronic” communication.  Thus, this section of the Model Rules is what allows for advertising via podcasting.

Part (b) to the rule sheds light on the costs that attorneys are allowed to pay for advertisements or communications permitted by the rule.[9]  Lawyers are restricted in what they can pay individuals who recommend the lawyers services.[10]  Most commonly, this section applies to lawyer referral services.  But the rule is also applicable to paying advertisers who are, in a way, recommending the lawyers services by assisting them with their advertisement.  Comment five to Model Rule 7.2 states, “A lawyer may compensate employees, agents and vendors who are engaged to provide marketing or client-development services, such as publicists, public-relations personnel, business-development staff and website designers.”[11]  Comment 5 to rule 7.2 is key to the production of a podcast.  Podcasts require technical savvy and thus properly executing a podcast will often require lawyers to work with non-lawyers.  This comment to the rule allows for the attorney to compensate non-lawyer assistants who aid them in the creation of their podcast. 

Record Keeping

Podcasting, blogging and other sources of information on the Internet present a challenge to attorneys who are required to maintain records of their communications.  By it’s nature, the Internet is designed to function as an up to date, constantly evolving source of information.  It would be difficult for an attorney to save every version of a blog or website that is constantly being updated.  The sheer amount of information that can be conveyed on an Internet advertisement, coupled with the ease of editing this information would require attorneys to save every version of the content.  Furthermore, it would be a disservice to the consumer who could be presented with outdated information because an attorney could not easily update their information due to onerous record-keeping standards. 

The recording rules outlined in the pre-2002 version of the Model Rules required that an attorney keep a copy or recording of an advertisement or communication for two years, as well as a record of when and where it was used.[12]  But in 2002, the ABA House of Delegates deleted this record keeping provision from the Model Rules previously found at Model Rule 7.2(b).  The recording requirement included in the pre-2002 version of the Model Rules existed as a means to “facilitate enforcement” of the Model Rules governing advertising.[13]  In coming to the conclusion that the provision should be deleted the Ethics 2000 Committee recognized that this was an onerous standard that had “become increasingly burdensome” and that such records were “seldom used for disciplinary purposes.”[14]  This alleviates the challenges that attorneys face when attempting to record information on the Internet.  However, California still has a recording requirement.  Rule 1-400 of the California Rules of Professional Conduct requires an attorney keep records of their advertisements for two years.[15]  

Information conveyed on the Internet can still be maintained.  Attorneys can archive posts or save data to a hard drive.  It is important that attorneys recognize that legal blogs, websites or podcasts require special care and are subject to regulations that non-legal blogs, websites or podcasts are not.  An attorney should be careful to only publish well thought out information.  Then, if this information requires updates or edits a note could be made at the bottom of the content signifying the change.  This would solve the issue of having to save multiple versions of content.  

Avoiding Confusion over Jurisdiction

New additions to the Model Rules help protect attorneys from misleading consumers across the multijurisdictional reach of Internet advertising.  As an advertisement, a podcast must include the name and office address of at least one lawyer or law firm responsible for its content.[16]  The previous Model Rule regarding these disclosures did not require the lawyer to include an address.  According to the recommendations of the Ethics 2000 Commission this addition to the 2002 version of the Model Rules was a direct response to the multijurisdictional nature that the Internet presents.[17] 

A television or radio broadcast can be limited in scope with regard to the specific audience that it reaches.  Lawyers practicing California law can take precautions to try and limit their television or radio audience, geographically, to California.  The Internet does not provide this geographical limitation.  This could potentially cause great confusion among individuals who read, or listen to information presented on a podcast by a lawyer that may be inaccurate due to the state in which the lawyer’s practice relates.  By providing an address the Model Rules seek to avoid this problem by clearly identifying to individuals where the information pertains.  The disclosure of an address may not be clear enough to a layperson to inform them of the different state and federal jurisdictions.  Thus, it may be advisable for an attorney to be even more clear by including a disclaimer about where the specific laws they are talking about control. 

III.  Content of the Podcast

The above-mentioned guidelines govern what an advertisement is and the format requirements that those advertisements must meet.  The following rules focus on the content of those advertisements.   What is said in an advertisement is just as important as the format of the advertisement.

Client Confidences and the First Amendment

Under ABA rule 1.6(a) a lawyer “shall not reveal information relating to the representation of a client unless the client gives informed consent.”[18]  There are a few exceptions outlined in this rule but they relate to breaking confidence out of necessity such as when it is in the public interest.  The comments note, “…trust…is the hallmark of the client-lawyer relationship.”[19]  It is imperative to effective representation for clients to be entirely truthful to attorneys without having to worry about confidentiality. 

Model Rule 1.6 applies, specifically, to information relating to the representation of a client during the lawyers representation of that client.[20]  However, the Model Rules also provide similar standards of confidentiality to prospective clients and former clients.  Model Rule 1.18(b) makes the duty of confidentiality applicable to information conveyed by prospective clients.[21]  A prospective client is someone who “discusses with a lawyer the possibility of forming a client-lawyer relationship.”[22]  Furthermore, the duty of confidentiality continues after the client-attorney relationship ends.[23] 

Rule 3-100 of the California Rules of Professional Conduct is similar but stresses the importance of confidentiality even more, referring to Business and Professions Code section 6068 (e)(1), which states that it is a duty of a member to “maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client.”[24]  This rule also allows for informed consent by the client for a breach of confidentiality. 

These rules may seem straightforward but, recently, in the context of blogs there has been conflict about client confidences.  It is common for attorneys to refer to cases that they’ve worked on or won as evidence to future clients that they are competent.  Attorneys can publish this type of information if the client consents.  Attorneys may also publish this content if the information is public.  A lawyer’s ability to speak about public information from cases is protected by the First Amendment but, if the speech is identified as commercial speech, it can be regulated.  This First Amendment justification for breaking a client’s confidences is controversial. 

Recently, the Virginia Supreme Court addressed the issue of client confidentiality in the context of blogging.  In Hunter v. Virginia State Bar, an attorney blogged about some of his closed cases revealing client names and case outcomes without obtaining consent from his clients.[25]  The attorney argued that he had a First Amendment right to reveal this information because it was public.[26]  The Court held that the attorney did have a First Amendment right to discuss public information, however, the Court also ruled that his speech constituted commercial speech, which could be regulated by the Bar.[27]  In Virginia, that meant that the attorney had to publish a disclaimer on his website.[28]  The conflict that arose in Virginia could easily be avoided by keeping client anecdotes limited to those who consent or by using other means to keep clients anonymous.    

Attorneys can use hypotheticals or other means to keep their clients identity disguised, in which case they would not need consent to discuss a case.[29]  Comment four to Model Rule 1.6 cautions against this, clarifying, if a third party could reasonably determine whom the information pertains to it is in violation of the rule.[30]  Simply changing a name or a fact in an anecdote may not be enough to disguise a client’s identity and can still be considered a breach of confidence.  Blogs, websites and podcasts are a unique area where attorneys can share long stories about the representation of their clients.  Attorneys must be careful to maintain client confidences in these anecdotes unless they have informed consent. 

In conclusion, the Model Rules may never mention the term podcast but they certainly govern attorneys’ use of podcasts.  Recent changes in the rules to account for technology show the Ethics Committees recognition that the rules need to be updated to allow for new technology.  Podcasts are no exception to this view that the use of the Internet by the legal profession only aids in providing qualified legal service to as many individuals as possible.  Nonetheless, attorneys must be careful to treat their professional use of the Internet as an area that is uniquely regulated.  Although, blogs, websites, and podcasts are generally unregulated forms of communication, the legal profession is subject to different standards.  The standards of ethics determined by the ABA must be abided by, even for this freeform type of communication.     

Leslie O'Callaghan is a contributor to the B.E.S.T. Law Blog published by ARC Law Group. She's a recent graduate of  the University of San Francisco School of Law, where she was the Executive Articles Editor of the USF Maritime Law Journal. Leslie can be reached at lcocalla@gmail.com.

You understand and agree that use of this blog does not in any way create or establish an attorney-client relationship between you and any ARC Law Group attorney. You should recognize that the information provided on this blog is provided for your general information and should not be relied on as legal advice and is not a substitute for direct consultation with an attorney about a specific legal problem.

[1] Bates v. State Bar of Arizona (1977) 433 U.S. 350. 

[2] Ibid.

[3] Bates v. State Bar of Arizona (1977) 433 U.S. 350

[4] ABA Model Rules Prof. Conduct, rule 7.2

[5] Hunter v. Virginia State Bar (Va. Feb. 28, 2013) 121472, 2013 WL 749494

[6] ABA Model Rules Prof. Conduct, rule 7.1

[7] ABA Model Rules Prof. Conduct, rule 7.2

[8] ABA Model Rules Prof. Conduct, rule 7.2(a)

[9] ABA Model Rules Prof. Conduct, rule 7.2(b)

[10] Ibid.

[11] ABA Model Rules Prof. Conduct, rule 7.2, comment 5

[12] ABA Model Rules Prof. Conduct (1983), rule 7.2(b)

[13] ABA Model Rules Prof. Conduct (1983), rule 7.2, comment 5

[14]Ethics 2000 Commission Report, Reporter’s Explanation of Changes, rule 7.2(c)

[15]CA Rules Prof. Conduct, rule 1-400

[16] ABA Model Rules Prof. Conduct, rule 7.2(c)

[17]Ethics 200 Commission Report, rule 7.2(c)

[18] ABA Model Rules Prof. Conduct, rule 1.6(a)

[19] ABA Model Rules Prof. Conduct, rule 1.6, comment 2

[20] ABA Model Rules Prof. Conduct, rule 1.6, comment 1

[21] ABA Model Rules Prof. Conduct, rule 1.18(b)

[22] ABA Model Rules Prof. Conduct, rule 1.18(a)

[23] ABA Model Rules Prof. Conduct, rule 1.9(c)(2)

[24] CA Rules Prof. Conduct, rule 3-100

[25] Hunter v. Virginia State Bar (Va. Feb. 28, 2013) 121472, 2013 WL 749494

[26] Ibid.

[27] Ibid.

[28] Ibid.

[29] ABA Model Rules Prof. Conduct, rule 1.6

[30] ABA Model Rules Prof. Conduct, rule 1.6, comment 4

February Newsletter

Greetings from all of us here at ARC Law Group.

Late last month I had the privilege of moderating a panel on Music Licensing at this year's California Lawyers for the Arts, Music Business Seminar.  This is my fifth time speaking at the annual event, and each year has been better than the last.  I want to thank my esteemed panelists Erik Metzger from Intel, Brooke Wentz from the The Rights Workshop and Keith Cooper from de la Pena & Holiday, LLP. We had a lively discussion and it was great having Brooke on the panel to offset us lawyers.  Brooke and The Rights Workshop do wonderful work finding music to place in movies, television programs and other licensing avenues.

California Lawyers for the Arts: MBS 2013

An issue that seems to come up a lot, both when speaking at events and in general practice, is music copyright.  It can be a confusing topic, because there are two separate and distinct copyrights associated with creating music.  There are also a number of distinct revenue streams specific to each copyright.  On this month's B.E.S.T. Law Podcast we spend some time breaking down the two music copyrights and explaining how they work.  If this is an area of interest to you, it's worth a listen.

 Also, on the Podcast is musician Anna Carow.  

 

It's February, and that means that love is in the air, especially here at ARC Law Group.  Partner Jeff Farr, our resident live music expert, tells us that he loves Day on the Green, Power to the Peaceful and the Black Sheep Family Reunion music festivals.  All great choices, but I was surprised he didn't go with Lilith Fair.

When it comes to musicians, Law Clerk Ben Shaw loves him some Duane Allman, The Beatles and First Aid Kit.  Duane must have inspired Ben's fantastic slide guitar work and the Beatles are always an obvious choice when it comes to most loved bands.  However, I must admit that I was not familiar with First Aid Kit.  Thank you for turning me on to something I hadn't heard before. (Bye the way, this month's Podcast guest Anna Carow often uses Ben's slide guitar work when playing live.) 

Law Clerk, Katherine West, says that when it comes to eating out she loves Mio Vicino in Santa Clara, Fontina Ristorante in Pleasanton and Campo di Bocce in Pleasanton (a fun place to actually play Bocce Ball).  I'm guessing she's also a fan of the Godfather, Goodfellas and The Sopranos.  Pass the pasta Ms. West.

Speaking of genre movies, Law Clerk (and self-proclaimed cinephile) Will Dugoni says he loves watching Gladiator, 300 and The Lord of the Rings: The Two Towers.  Glad to see he was specific with his LOTR film choice, and if anyone out there wants to be Will's Valentine he'd love a pair of sandals or a sword.

 As for me, I love television.  I couldn't go on living without Breaking Bad and The Walking Dead, but my true love will always be Lost (even if the ending left a little to be desired).

 When it comes to entertainment, what do you love?

 Until next month.

Related articles

Podcast: Working With Children

Podcast: Music Copyright

Join Mark & Jeff This Weekend at the California Music Industry Summit

ARC Law Group attorney's Jeff Farr and Mark A. Pearson will be speaking at the California Music Industry Summit this weekend.

Hosted by TraMaí Entertainment it's the 3rd Annual California Music Industry Summit (CMIS) at The Hilton Hotel in Oakland on June 8 –9, 2012. Beginning with the conference Kickoff TONIGHT @ The Stork Club 2330 Telegraph Avenue, Oakland, CA 6pm-9pm.

Jeff and Mark will be hosting two informative lectures for music industry professionals.  On Friday at 2:45 PM ARC Law Group Presents: Music Copyright and at 11:00 AM Saturday morning it's ARC Law Group Presents: The Recording Contract. 

If you have any questions about either program feel free to email us at info@arclg.com.

Click here for the full schedule of events.

Tickets are still available for the event by clicking here.

We hope to see you there! 

Terms of Service, Privacy Policy, DMCA Notice FAQ

by Mark A. Pearson

This FAQ is intended to shed some light on issue surrounding website Terms Of Service/Use, Privacy Policy and DMCA Safe Harbor Notice and Takedown provisions.

What is a website’s Terms of Service?  

Terms of Service (commonly abbreviated as ToS or TOS) are rules that must be agreed to by users of a website in order to use the site or the services on the site.  You usually find a link to the website’s Terms of Service at the bottom of the homepage.  Here are a few examples of standard website Terms of Service:

ARC Law Group

Fashion Biscuit

Amazon.com

Are Terms of Use and Terms of Service the same thing?

Simply put, Yes.  They are synonymous with one another.  The Terms of Service might also be referred to as a Disclaimer (of Liability). 

Do I have to sign anything to be legally bound by a website’s Terms of Service?

No, there is no requirement that a user “sign” the website’s Terms of Service.  In some instances there may be a click though requirement, but it’s rare.  

The onus is on the user to find and abide by the Terms of Service.  So, if you’re visiting a website you might want to look for the link to the site’s ToS.  In fact, unless the ToS somehow violates a law (i.e. consumer protection laws) the user will be legally bound to its terms even if the user never saw or read the ToS.

Usually, a user’s only recourse if they don’t want to abide by a site’s ToS is to stop using the site.  It’s not a negotiable agreement. 

If I own and operate a website as part of my business, do I have to have Terms of Service?

Generally, it’s not a legal requirement.  However, in most instances it makes whole lot of sense to incorporate even a basic ToS into your website. 

If you operate a website that involves the sale of goods, like eBay or Amazon.com, you should consider a more complex ToS that covers issues related to e-commerce and marketing policies.

If your site incorporates a forum or other pace where users can leave comments your ToS will likely include terms that govern acceptable behavior and language, and what happens if a user posts copyright protected material (see, below).

What if I develop iPhone or Android Apps, do I need a Terms of Service? 

Again, Apple and the Android Marketplace don’t generally require a Terms of Service.  However, as with websites, it makes sense for a developer to include a ToS specific to the type of App. 

The industry is ever-changing and recently both Apple and Android have discussed making the Privacy Policy mandatory.  As we discuss below, the Privacy Policy and ToS work hand-in-hand to protect the Online Service Provider (OSP) or website owner. 

I recently bought a video game and had to agree to an End User License and Terms of Service, please explain.

Many video games utilize online services as part of the game-play experience.  These types of games, called massively multiplayer online role-playing game (MMORPG), involve almost all of the issues that a good ToS was meant to cover including protecting the OSP and to preventing a player from disrupting another player's game experience. The ToS for an MMORPG might also cover use of in-game currency and trading. 

Along with the ToS covering the terms under which a player can operate within the game, there is also an End User License Agreement (EULA) that covers use of the actual software needed to play the game.  The EULA usually covers issues related to copyright of the game software, and how the software can be used.

What happens if I violate a website’s Terms of Service? 

First and foremost, a user can be barred from using the service/website – aka kicked-off the site. If the violator is a registered user, his or her account might be frozen or deactivated.

In some instances, a user’s actions might be criminal (e.g. violation of an online privacy law or cyber theft law). 

Finally, a user might be subject to a claim of breach of contract.  A famous ToS breach of contract case occurred last year, Sony vs Hotz, et al.  In that case Sony claimed several users breached the ToS with the Playstation Network when they hacked the network.  Sony filed an actual claim for damages in civil court against Hotz and several others.

What’s the difference between the website’s Terms of Service and its Privacy Policy?  

Where the ToS governs the use of the website or service, the Privacy Policy is a statement that tells the users all of the ways the OSP gathers, uses, discloses and manages a user’s data. Personal information is anything used to identify an individual including name, address, date of birth, marital status, contact information, financial records, credit information, medical history, where you travel, and intentions to acquire goods and services.

The ToS and Privacy Policy work hand-in-hand (and links to both documents are usually located next to one another on a website’s homepage) to set expectations for both the OSP and user.

There are a number of different laws and regulations that govern the collection and use of information gathered from users.  An OSP must take into consideration jurisdictional concerns when deciding what information to collect from users, as the laws from state-to-state and country-to-country may vary widely. 

What if my website caters to children, and I collect information from them?

The Children's Online Privacy Protection Act (COPPA) affects websites that knowingly collect information about or target at children under the age of 13. Any such websites must post a Privacy Policy and adhere to strict information-sharing restrictions. 

It is highly advisable to consult with an attorney knowledgeable in online privacy issues before operating a web based service that collects information from child users.

Do I have to have a Privacy Policy on my website? 

Not necessarily, but like having a ToS it’s a probably a good idea to consider using s Privacy Policy. 

That having been said, some states have implemented regulations for privacy policies. In California for instance, The California Online Privacy Protection Act of 2003 requires "any commercial websites or online services that collect personal information on California residents to conspicuously post a privacy policy on the site". 

The Terms of Service on my website prohibit users of the site from posting content that doesn’t belong to them.  This means I can’t be sued for copyright infringement, right?

Wrong.  However, an OSP can take advantage of “Safe Harbor” against liability by following some fairly simple rules. 

The Online Copyright Infringement Liability Limitation Act (OCILLA), part of the Digital Millennium Copyright Act (DMCA), is a federal law that creates a conditional safe harbor for OSPs and other Internet intermediaries by shielding them for their own acts of direct copyright infringement (when they make unauthorized copies) as well as shielding them from potential secondary liability for the infringing acts of others.

In order to take advantage of this safe harbor the OSP must follow certain rules set forth in OCILLA. 

For context, websites like YouTube could not exist if not for OSCILLA’s most common safe harbor found in § 512(c).  Much of the content posted on YouTube is done so without the permission of the copyright holder, but by complying with OSCILLA YouTube is able to avoid liability for hosting the infringing content.

If simply prohibiting users of my site from posting infringing content doesn’t protect me, what can I do to avoid liability for copyright infringement? 

First, the OSP must “adopt and reasonably implement a policy” of addressing and terminating accounts of users who are found to be “repeat infringers.” Second, the OSP must accommodate and not interfere with “standard technical measures.” An OSP who complies with the requirements for safe harbor is not liable for money damages, but may still be ordered by a court to perform specific actions such as disabling access to infringing material.

In addition to the two general requirements listed above, § 512(c) also requires that the OSP: 1. not receive a financial benefit directly attributable to the infringing activity, 2. not be aware of the presence of infringing material or know any facts or circumstances that would make infringing material apparent, and 3. upon receiving notice from copyright owners or their agents, act expeditiously to remove the purported infringing material. 

The scope of first two additional requirements is beyond this FAQ, however with regard to the third requirement a copyright holder will give the OSP written notification (which includes specific information) of claimed infringement which will then prompt the OSP to remove the infringing content.

It’s important to note that in order to “reasonably implement a policy” regarding how to contact the OSP, the policy must be easy to find on the website.  Thus, this notice and takedown policy is often found as part of the ToS, of course. 

I posted a video on YouTube.  Today I received a notice that the video violated the site’s copyright policy and was going to be taken down unless I submit a counter-notice.  What does all of that mean?

If an OSP receives notice from the copyright owner that content posted on the website is not authorized, the OSP, as part of OSCILLA, is required to notify the user who posted the content and offer them a chance to file a counter-notice. 

If the user files a counter-notice, claiming they do have the right to post the content on the website, the OSP will restore the content to the website, unless and until the party that is claiming infringement files a complaint in federal court.  If there is no counter-notice filed, then the content is taken down and removed from the website.

Sounds confusing, but it’s really quite simple. 

What is a designated copyright agent?

OCILLA requires OSPs seeking to utilize the safe harbor provisions to designate an agent to which notices of copyright infringement will be sent.  This agent registers with the US Copyright Office, and will be listed on the notice and takedown policy (usually in the ToS) and on the Copyright Office website. 

Still Have Questions?

Protecting an online business with a solid ToS, Privacy Policy and Notice and Takedown provision has become an increasingly important part of operating a website or online service.  We here at ARC Law Group can help assist you if you have questions about use of these online protection tools, and can even serve as your designated copyright agent. You can contact us at info@arclg.com. 

Mark A. Pearson is a founding partner at ARC Law Group. He's helped license music, film, and technology rights on behalf of his clients. Mark can be reached at mark@arclg.com.

You understand and agree that use of this blog does not in any way create or establish an attorney-client relationship between you and any ARC Law Group attorney. You should recognize that the information provided on this blog is provided for your general information and should not be relied on as legal advice and is not a substitute for direct consultation with an attorney about a specific legal problem.

Benefit Corporation FAQ

by Matt Dedon 

The following post answers some of the frequently asked questions surrounding Benefit Corporations.

On January 1, 2012, a new law went into effect in California that made it possible to form "Benefit Corporations".  The new law also allows existing corporations to become benefit corporations. 

What is a Benefit Corporation?

A benefit corporation is a corporation that has been formed for the purpose of creating general public benefit.  “General public benefit” has been defined as: a material positive impact on society and the environment.  This public benefit is measured against a third-party standard.  A benefit corporation may also be organized for a specific public benefit, such as:

•           Providing low-income or underserved individuals or communities with beneficial products or services.

•           Promoting economic opportunity for individuals or communities beyond the creation of jobs in the ordinary course of business.

•           Preserving the environment.

•           Improving human health.

•           Promoting the arts, sciences, or advancement of knowledge.

•           Increasing the flow of capital to entities with a public benefit purpose.

•           The accomplishment of any other particular benefit for society or the environment.

What is the “Third-Party Standard” That a Benefit Corporation is Measured Against? 

The “third-party standard” is a standard developed by an entity that has no material financial relationship with the benefit corporation or any of its subsidiaries.  No more than one-third of the members of this entity may be businesses that are held to the third party standard.  The standard used by the entity must be made public and must allow for a public comment period of at least 30 days when developing the standard.

The standard itself must be a comprehensive assessment of the impact of the benefit corporation’s operations upon:

1.         The employees and workforce of the benefit corporation and its subsidiaries and suppliers.

2.         The interests of customers of the benefit corporation as beneficiaries of the general or specific public benefit purposes of the benefit corporation.

3.         Community and societal considerations, including those of any community in which offices or facilities of the benefit corporation or its subsidiaries or suppliers are located.

4.         The local and global environment.

Are There any Requirements for a Benefit Corporation to Satisfy?

Yes.  The directors of a benefit corporation must consider the impact of their actions upon:

1.         The shareholders of the benefit corporation.

2.         The employees and workforce of the benefit corporation and its subsidiaries and suppliers.

3.         The interests of customers of the benefit corporation as beneficiaries of the general or specific public benefit purposes of the benefit corporation.

4.         Community and societal considerations, including those of any community in which offices or facilities of the benefit corporation or its subsidiaries or suppliers are located.

5.         The local and global environment.

6.         The short-term and long-term interests of the benefit corporation, including benefits that may accrue to the benefit corporation from its long-term plans and the possibility that these interests may be best served by retaining control of the benefit corporation rather than selling or transferring control to another entity.

7.         The ability of the benefit corporation to accomplish its general, and any specific, public benefit purpose.

A director of a benefit corporation is not required to give priority to any of the above factors unless that is the specific public benefit the benefit corporation has chosen.

Perhaps most importantly, a benefit corporation must create a business report that sets out how the third-party whose standards they are using was selected, the ways that the company pursued a general or specific public benefit and the extent to which the company was successful, and any circumstances that hindered the creation of a general or specific public benefit.  This business report must be delivered not only to the benefit corporation’s shareholders, but must also post this report on the company’s website, or deliver a business report to any person that requests a copy.

What Happens if a Benefit Corporation Fails to Create a General or Specific Public Benefit?

The directors of a benefit corporation are not personally liable if a benefit corporation fails to bring about the general or specific public purpose for which it was created.  Furthermore, a director of a benefit corporation does not have a fiduciary duty to a person that is a beneficiary of the general or specific public benefit purpose that the corporation has selected in its articles of incorporation.  This allows the benefit corporation to pursue its selected public benefit, without the added hassle of maximizing the profits or benefits of any one party.

Is a Benefit Corporation the Same as a B Corporation?

No.  A “B corporation” is a regular corporation that has been certified by a third-party.  B Lab, a nonprofit entity, certifies corporations that meet certain requirements, such as greater public transparency and higher legal accountability.  While they may hold themselves to higher standards, B corporations must still put the greatest focus towards their shareholders, rather than a public benefit.

Why Were Benefit Corporations Created?

Modern-day corporations are usually run by a board of directors.  These directors must comply with specific obligations- called “fiduciary duties”- to the corporation and to the corporation’s shareholders that own stock in the company.  Courts have long recognized the fiduciary duty that directors in a regular corporation must maximize the profits of shareholders.  Dodge v. Ford, 204 Mich. 459, 507 (1919)

This emphasis towards profit and care for the shareholders may conflict with a corporation that wishes to focus on benefitting the surrounding community and the environment.  Protecting the interests of the public may not always bring in profit and thus, directors would be liable for failing their fiduciary duties to shareholders.

The benefit corporation is an effort to change the bottom line of profit to one of public benefit.  The most important change that is effected by the benefit corporation is that directors no longer have to account to shareholders.  This takes the focus away from monetary profits so the corporation may focus on public benefit goals.  Essentially the fiduciary duty of maximizing shareholder profit has been replaced by requiring the directors to consider non-financial interests when making decisions.

Can an Existing Corporation Become a Benefit Corporation?

Yes.  An existing corporation may become a benefit corporation by amending its articles of incorporation to include a statement that the corporation is a public benefit corporation.  This change must be approved by a member vote of at least two-thirds.

Can a Benefit Corporation Become a Regular Corporation?

If a benefit corporation decides to remove their benefit status, they may amend their articles of incorporation by deleting the language stating that the corporation is a public benefit corporation. This change must be approved by a member vote of at least two-thirds.

Have More Questions?  The ARC Law Group Can Help.

The benefit corporation is an exciting new form of doing business.  ARC Law Group understands that there will be many questions regarding this new type of corporation, and is ready to help.  If you have any further questions, you can contact ARC Law Group at info@arclg.com.

You understand and agree that use of this blog does not in any way create or establish an attorney-client relationship between you and any ARC Law Group attorney. You should recognize that the information provided on this blog is provided for your general information and should not be relied on as legal advice and is not a substitute for direct consultation with an attorney about a specific legal problem.

New CA Senate Bill Raises Questions on the Employment Status of Independent Contractors

by Matt Dedon 

The following article will try and explain some of the changes to contractor and employee status' under a new California law that went into effect in January 2012. 

On October 9, 2011, California enacted a new bill designed to enforce existing tax provisions regarding employment tax.  Senate Bill 459 is targeted at those who have misclassified employees as independent contractors in order to avoid paying employment taxes. 

What Does the Bill Do?

The bill creates a new law designed to prohibit willful misclassification of individuals as independent contractors.  The law also prohibits an employer from charging an employee mischaracterized as an independent contractor a fee or making deductions from compensation where those acts would have violated the law if the employee had not been mischaracterized

The law authorizes the Labor and Workforce Development agency to discipline employers violating these prohibitions.  This will include a fine and other penalties, and if the employer is a state contractor the bill requires the Contractors’ State License board to initiate an action against the licensee.

What Does “Willful Misclassification” Mean?

The law defines willful misclassification as: “avoiding employee status for an individual by voluntarily and knowingly misclassifying that individual as an independent contractor.”

How is the Law Enforced?

The law requires some participation from employees.  An employee can file a complaint to request the Labor Commissioner to issue a determination that a person or employer has violated the prohibitions of the law.  The Labor Commissioner may then assess both civil penalties and liquidated damages against the employer upon a finding that the employer has violated the law.

Besides Employers, Is Anyone Else Liable Under the Law?

Consultants may find themselves on the wrong side of this law.  The law imposes joint liability on any consultant or other person who “knowingly advises an employer to treat an individual as an independent contractor to avoid employee status” if an individual is found not to be an independent contractor.

However, the law exempts employees who provide advice to their employer, and a practicing attorney who advises an employer.

What Are the Financial Penalties for Violating the Law?

The financial penalties for violating the law can be steep.  A person or employer who has violated the law can be fined a minimum of $5,000 up to a maximum of $15,000.  An employer is fined separately for each violation.  In addition, if the employer is found to have engaged in a “pattern or practice” of the violations under this law, then can be fined a minimum of $10,000 up to a maximum of $25,000 for each violation. This may expose some businesses to massive financial penalties.

What Happens if a Licensed Contractor Violates this Law?

Licensed contractors can face additional penalties if they are found to have violated this law.  In addition to the financial penalties, the law requires the Contractors’ State License Board to initiate a disciplinary action against the contractor that may result in the loss of their license or further penalties.

Are There Any Other Penalties Under the New Law?

In addition to financial penalties, any employer who is found to have violated the law must display on their website, or any other area that is accessible to their employees or the general public, that The Labor Workforce Development Agency or a court has found that the person or employer has violated the law by misclassifying employees.  The notice must also state the employer is changing their business practices in order to avoid committing further violations.

Which Businesses Should Take Notice of the New Law?

There are three types of employers that should especially take notice of this new law, they are: 

1. Employers who willfully misclassify employees.
2. Employers who have not properly documented and structured their independent contractor models, and may not pass scrutiny under the new law for determining whether a worker is an employee or independent contractor
3. Employers who pay workers on a 1099 basis where such workers may be found to have been misclassified as independent contractors instead of being treated as employees.

Under California Law, How do I Know Whether to Classify a Worker as an Employee or Independent Contractor?

Unfortunately there is no set definition of when a worker is classified as an independent contractor.  Where status is an issue, the Division of Labor Standards Enforcement (DLSE) starts with the presumption that the worker is an employee.  Cal.Labor Code § 3357.  This is a rebuttable presumption.  The CA supreme court has adopted an “economic realities” test in S. G. Borello & Sons, Inc. v Dept. of Industrial Relations, 48 Cal.3d 341 (1989).  This is a multi-factor test, of which the most significant factor is whether the person to whom service is rendered (the employer or principal) has control or the right to control the worker both as to the work done and the manner and means in which it is performed.   As it is a fact-based inquiry, additional factors that may be considered depending on the issue involved are:

1. Whether the person performing services is engaged in an occupation or business distinct from that of the principal;
2. Whether or not the work is a part of the regular business of the principal or alleged employer;
3. Whether the principal or the worker supplies the instrumentalities, tools, and the place for the person doing the work;
4. The alleged employee’s investment in the equipment or materials required by his or her task or his or her employment of helpers;
5. Whether the service rendered requires a special skill;
6. The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the principal or by a specialist without supervision;
7. The alleged employee’s opportunity for profit or loss depending on his or her managerial skill;
8. The length of time for which the services are to be performed;
9. The degree of permanence of the working relationship;
10. The method of payment, whether by time or by the job; and
11. Whether or not the parties believe they are creating an employer-employee relationship may have some bearing on the question, but is not determinative since this is a question of law based on objective tests.

Although there may be a lack of control over work details, an employer-employee relationship can still be found if (1) the principal retains pervasive control over the operation as a whole, (2) the worker’s duties are an integral part of the operation, and (3) the nature of the work makes detailed control unnecessary. Yellow Cab Cooperative v. Workers Compensation Appeals Board, 226 Cal.App.3d 1288 (1991).

It is important to note that the existence of a written agreement purporting to establish an independent contractor relationship is not determinative.  Borello, 48 Cal.3d at 349.
The fact that a worker is issued a 1099 form rather than a W-2 form is also not determinative of independent contractor status.  Toyota Motor Sales v. Superior Court, 220 Cal.App.3d 864, 877 (1990).  (Source: http://www.dir.ca.gov/dlse/FAQ_IndependentContractor.htm).

Here is are two examples of the California test

1. An employer runs a cleaning service.  He hires all employees himself, provides all equipment to his staff, meets with clients and then sends his staff to clean.  Although the employer does not personally oversee his staff, under California law the workers would be treated as employees.
2. An employer runs a small business that creates websites.  He advertises and meets with clients in order to ascertain project requirements.  When building the website, he gives assignments to programmers, with a general deadline.  The programmers work out of their own locations, using their own equipment, and have assignments from several businesses similar to that of the employer.  Under California law the workers would be treated as independent contractors.

Have Questions?  We Can Help.

ARC Law Group understands that this new California law can be intimidating to a business owner.  Employers should update and verify their independent contractor compliance to ensure that they do not fall victim to the serious penalties that the new law imposes.  If you have questions about employee or independent contractor status, or compliance with the new law you can contact us at info@arclg.com.

Matt Dedon is a law clerk at ARC Law Group and a 3L studnet at Santa Clara University School of Law.  Matt can be reached at matt@arclg.com.

You understand and agree that use of this blog does not in any way create or establish an attorney-client relationship between you and any ARC Law Group attorney. You should recognize that the information provided on this blog is provided for your general information and should not be relied on as legal advice and is not a substitute for direct consultation with an attorney about a specific legal problem.

California Lawyers for the Arts - 2012 Music Business Seminar

Join ARC Law Group partner, Mark A. Pearson on February 4th for this fun and informative event:

CALIFORNIA LAWYERS FOR THE ARTS PRESENTS

THE 29TH ANNUAL MUSIC BUSINESS SEMINAR

CLA is proud to announce the speakers for this year's Music Business Seminar which include Key Note Speaker Erik Metzger from Intel, as well as other industry's leaders from Google Music, Rhapsody, Pandora and more!

For more information and to register today and save, click here.

 

ARC Law Group can be contacted at info@arclg.com

Distinguishing Your Trademark

by Mark A. Pearson

We’ve recently noticed an increase in demand for our trademark prosecution and protection services here at ARC Law Group.  I suspect the economy has something to do with the uptick in trademark interest, as people are looking to protect their interests from those who might seek to profit of someone else’s goodwill.  It also appears that more people are starting their own small businesses because they are either out of work and/or taking advantage of taxation and other incentives for starting new ventures. 

If you’re thinking about starting a new business or expanding on something you’ve already created, you’ve probably already thought about the concept of trademark.  It’s important for anyone considering registration of their mark with the USPTO to understand the fundamental concept of trademarks: A trademark is a word, design or logo that indentifies the origin of goods and services. Simply put, it’s an adjective used to describe where something comes from.

A common question from clients is, “Is the word, logo or design that I chose eligible for registration?”

That question can often be answered by looking at the distinctiveness of the particular mark. Trademark distinctiveness can be broken down into several categoriess:

Fanciful Marks

A fanciful mark is prima facie registerable, and comprises an entirely invented word.  Fanciful marks are inherently distinctive and offer the owner an almost certain chance of gaining registration.  By example, "EXXON" had no meaning before it was adopted and used as a trademark in relation to oil related goods.

Arbitrary Marks

An arbitrary trademark is usually a common word which is used in a meaningless context.  The most often cited example is "Apple" for computers. Arbitrary marks consist of words or images which have some dictionary meaning, but which are used in connection with products or services unrelated to that meaning.  Arbitrary marks are also almost always immediately eligible for registration (absent someone else using the mark, which is another topic for another day).

Suggestive Marks

A suggestive trademark tends to indicate the nature, quality, or a characteristic of the products or services in relation to which it is used, but does not describe this characteristic.  Suggestive marks require imagination on the part of the consumer to identify the characteristic. An example of a suggestive mark is “Microsoft”, as software for computers. Usually, suggestive marks can be registered.

Descriptive Marks

A descriptive mark is a word with a dictionary meaning used in connection with products or services directly related to the defined term.  An example would be “Bright” used in connection with light bulbs. Other descriptive marks include those with geographic terms.  Descriptive marks are usually not registrable absent a showing of distinctive character having been established.  In the U.S. this is called gaining “Secondary Meaning”, and would allow for registration if the trademark owner demonstrates that consumers in the marketplace exclusively associate the mark with the trademark owner’s business.  The easiest way to establish Secondary Meaning is through continued use of the mark for a number of years.

Generic Marks

This is a fun area of trademark law, where a mark loses all protection as a trademark because the mark itself becomes a common name for some product or service.  Remember earlier when I mentioned that a trademark is an adjective.  Well, when a mark becomes generic it essentially becomes a noun or a verb.  Many people don’t know that “Salt” and “Aspirin” were once trademarks.  They served the same function as Microsoft until they became synonymous with sodium chloride and pain relief pills. Generic terms may generally be used by anyone (including other manufacturers) to refer to a product.

Some marks are on the verge of becoming generic, but the company that owns that mark is fighting like crazy to maintain its rights.  A great example is Band-Aid.  Most people associate the term Band-Aid with adhesive bandages, and the owner of the mark is dangerously close to seeing the Band-Aid name becoming generic (such that any company could market and sell Band-Aids).  To combat this issue, the famous Band-Aid jingle was changed from “I am stuck on Band-Aid, because Band-Aid’s stuck on me” to “I am stuck on Band-Aid brand, because Band-Aid’s stuck on me”.  A small attempt to maintain Brand status!

Another mark that is in danger of becoming generic is Photoshop, based on its use as a verb.   Altering photos with your computer is widely becoming known as having your picture “photoshopped”.  If Photoshopped becomes to o synonymous with the act of digitally manipulating pictures, then the mark Photoshop will become generic.

 But I digress.  The bottom line on this discussion is that you want to try and come up with the most distinctive mark possible if you’re looking to register your trademark.  Try to come up with something fanciful or arbitrary, if you can.  Otherwise it’s going to be much more difficult to gain rights to your trademark through registration with the USPTO. You also need to remember that your mark might become generic and you’ll want to do what you can to keep that from happening.

If you have any questions about trademark distinctiveness or have any other general trademark related questions, feel free to email ARC Law Group at info@arclg.com.

Mark A. Pearson is a founding partner at ARC Law Group. He's helped license music, film, and technology rights on behalf of his clients. Mark can be reached at mark@arclg.com.

You understand and agree that use of this blog does not in any way create or establish an attorney-client relationship between you and any ARC Law Group attorney. You should recognize that the information provided on this blog is provided for your general information and should not be relied on as legal advice and is not a substitute for direct consultation with an attorney about a specific legal problem.

Agreeing to License: How Do I Get Out Of This Mess? – License Duration and Termination

by Mark A. Pearson

The following article will try and explain some of the pros and cons of entering into a licensing agreement in today’s entertainment industry. 

Recently, we were approached here at ARC Law Group by a client wondering if she could terminate a licensing agreement she’d entered into without any penalty (i.e. without getting involved in litigation).  My first reaction was to grab a copy of her license and look for the stated ‘term’, or duration of the license.  Unfortunately, the license was silent as to the term.  Why, you might ask, was there no stated duration? Well, the license was oral. It turns out the parties had been working on a hand-shake agreement for years.

I suppose I should start by letting you know that you should always strive to get your agreement in writing, and in most cases there should be a stated duration.  Seems rather a basic idea, but often because of the nature of the parties involved and their relationships there is no written agreement. It happens.

Here are two examples of a situation where you might find Intellectual property, namely copyright rights, being licensed without a written agreement.  Two friends, one a producer and the other a singer, get together in the studio to record a few songs.  The producer brings with him a bunch of pre-recorded tracks he had put together several years earlier.  The singer records some new vocals.  The producer mixes the vocals with the tracks, and we have ourselves a new master recording.  There was no written agreement between the parties, but rather a handshake agreement that the singer could ‘own’ the new master recording.  Thus, the producer has licensed his tracks to the singer under an oral agreement. I should also mention that all of this happened in California.

The second example comes where two parties, a record label and a distributor, enter into discussions to release an album.  The parties, both based in Illinois, haven’t reached a formal agreement but decide to go ahead and get the album out in time for the Christmas season.  Subsequently, the parties never come to a formal agreement as there were ongoing disagreements on several terms.  However, the album was released under direction of both parties, and thus an agreement was formed.

The first question is whether these agreements are, in fact, binding and legally enforceable. Under U.S. Copyright Law, "A transfer of copyright ownership, other than one by operation of law, is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed or such owner's duly authorized agent." 17 U.S.C. § 204(a).  This is the old Statute of Frauds concept, and seems to suggest the oral agreements in the examples, above, would be unenforceable.  However, almost across the board courts have ruled that oral or implied transfers of copyright ownership create a non-exclusive transfer of ownership. These non-exclusive transfers can be made without a written agreement and, most importantly, do not violate the Copyright Act.  Walthal v. Rusk, 172 F.3d 481, 1999 U.S. App. LEXIS 5455 (7th Cir. 1999), I.A.E., Inc. v. Shaver, 74 F.3d 768 (7th Cir. 1996).   

Therefore, in both examples, above, the oral transfer of copyright rights created an implied non-exclusive license.  It’s important to note the nature of non-exclusive licenses by pointing out that the producer in the first example could go ahead and use the tracks (i.e. license them to third parties) without getting the singer’s permission. This non-exclusive license created by the oral and implied agreement opens up a huge can of worms, and is a glaring example of why you should always seek to “get it in writing”.

Remember our client wanted to know if she could terminate her oral agreement without penalty.  The next question is: When can oral or implied licenses, or even ones that simply have no stated duration, be terminated?

There are several possible ways to terminate an oral or implied license.  The parties can simply agree to terminate the license.  This can be done by agreeing to an end date during the negotiations stage: In the second example, above, let’s say the parties had agreed that the distribution license was to last for three years, and had email messages supporting this point. It would then be arguable that the agreement duration was agreed upon as being three years. Termination can also be accomplished by agreeing to modify the oral or implied license at a later time: The parties agree that their relationship is not fruitful after six months, and agree in both words and performance to terminate the agreement.

Termination by agreement would also work where a written license states a termination date (i.e. language in the agreement stating, “This term of this agreement shall be perpetual” or “This agreement shall last for three (3) years from the date first stated above”, etc.), or the parties agree in writing at a future date to terminate earlier or later. Note that an oral agreement can amend a written agreement, thus it becomes important to always include a clause in your written agreements stating that the agreement cannot be modified except by an amendment executed by the parties.

Sometimes, termination can be implied by the conduct of the parties involved.  The label never sends any materials to the distributor for use in manufacturing the album, and the distributor never raises an objection.

What happens, though, if the license is silent as to the duration?  Most states have laws making any agreement that is silent as to duration terminable at-will whether written, oral or implied.  This is the case here in California, where absent language or a showing of an agreed upon duration, a contract can be terminated by either party.  Zimco Restaurants, Inc. v. Bartenders and Culinary Workers' Union, Local 340, 165 Cal. App. 2d 235, 331 P.2d 789, 792-92 (Cal. Ct. App. 1958). So, it appears that, in both examples, that the parties could just terminate the agreement by simply putting the other party on notice that they had elected to terminate. 

Not so fast.

In 1993, the Ninth Circuit in Rano v. Sipa ruled that under § 203 of the Copyright Act, non-exclusive licensing agreements silent as to duration are not terminable at-will from the moment of creation; instead, they are terminable at the will of the author only during a five year period beginning at the end of 35 years from the date of execution of the license (unless they explicitly specify an earlier termination date). 17 U.S.C.S. § 203(a).  Rano v. Sipa Press, 987 F.2d 580 (1993). For background purposes, under § 203 of the Copyright Act the copyright holder who has assigned or licensed their rights to a third party can reclaim their rights after 35 years as an operation of law.  § 203 applies to exclusive and non-exclusive transfers, and the only time it does not come into play is when the subject of the copyright was made as a Work For Hire.  . 

The bottom line is that the Ninth Circuit’s ruling means that in California, any state law regarding at-will termination of agreements silent on duration is trumped by federal law where the subject of the license is copyright transfers.  Thus the parties in the first example would not be able to terminate the license unilaterally until 35 years after the agreement was created.  Let’s say the singer never really did much with the master recording, but Dr. Dre heard the track and wanted to license it from the producer.  Obviously, the good Dr. would want an exclusive license on the track, which wouldn’t be available since the singer has a valid, oral, non-exclusive license that the producer couldn’t cancel.  I’m guessing the singer is going to get paid to get those rights back.  I’m also guessing the producer now wishes he had a written agreement.

Just so you are aware, there is plenty of debate on the Rano ruling.  Several jurisdictions have criticized Rano, and the Seventh Circuit rejected Rano; ruling that Illinois state laws allowing for at-will termination of non-durational copyright licenses are valid. Walthal v. Rusk, 172 F.3d 481 (1999).  In the second example, the record label, realizing their oral agreement with the distributor was not favorable and that the planned written agreement wasn’t going to happen, could simply terminate unilaterally by giving the distributor notice that the agreement was rescinded. Again, check your facts, because some jurisdictions hold that when an agreement does not contain an express statement as to duration, the court should determine the intent of the parties by examining the surrounding circumstances and by reasonably construing the agreement as a whole in determining the issue of duration. Sensormatic Sec. Corp. v. Sensormatic Elecs. Corp., 249 F. Supp. 2d 703, (D. Md. 2003).  It is also the case in California that the general rule increasingly has given way to courts' willingness to "gap fill" a reasonable duration. Foley v. Interactive Data Corp., 47 Cal. 3d 654, 765 P.2d 373, 385-86, 254 Cal. Rptr. 211 (Cal. 1988). The question in our second example then becomes whether the parties have acted in a way that would lead a court to determine a reasonable duration, or have inferred duration by some other means.

A final way of allowing a party to unilaterally rescind a contract regardless of there being a stated, implied or written duration is when the other party materially breaches the contract.  Under well-settled copyright law, a party would be able to claim copyright infringement if the other party exceeded the scope of the licensing agreement, see, e.g., S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081 (1989), breached a covenant or condition, see, e.g., Fantastic Fakes, Inc. v. Pickwick International, Inc., 661 F.2d 479 (1981), or breached the agreement in such a substantial and material way as to justify rescission. See e.g., Affiliated Hosp. Prod. Inc. v. Merdel Game Mfg. Co., 513 F.2d 1183, 1186 (2d Cir. 1975).  Thus, if the distributor in the second example fails to pay the label, the label could terminate based on a material breach of the contract.

At the end, or termination, of the day you always want to “get it in writing”, but if you don’t and you end up wanting to rescind (or wanting to stop the other party from rescinding), you need to be aware of the laws in your particular jurisdiction. It might not be as simple to terminate a licensing agreement as your standard, blanket, terminable at-will state law might lead you to believe. Oh yeah, it goes without saying, you might also want to avoid breaching your agreements, as a rule.

Mark A. Pearson is a founding partner at ARC Law Group.  He's helped license music, film, and technology rights on behalf of his clients.  Mark can be reached at mark@arclg.com.

You understand and agree that use of this blog does not in any way create or establish an attorney-client relationship between you and any ARC Law Group attorney. You should recognize that the information provided on this blog is provided for your general information and should not be relied on as legal advice and is not a substitute for direct consultation with an attorney about a specific legal problem.

Facebook's New Ad Program May Pose a Problem for Pitchmen

 By Mark A. Pearson

Facebook made an announcement today potentially turning average Joe's into pitchmen while confounding Joltin' Joe's marketing partners.

A new adverting model called “Sponsored Stories” is about to launch.  Sponsored Stories takes all of your "likes," check-ins and other actions and turns them into paid ads!

Here’s how it works, if you mention a business in your check-in and that business chose to become a “Sponsored Stories” partner with Facebook, then your status will be circulated as an ad to your friends (anyone who is allowed under your privacy settings).  The ads will show up on the right hand side of the page, like a normal ad.   The check-in would have a "Sponsored Story" tag at the top and the businesses logo. The idea is to highlight the check-in to give it more visibility, making sure it doesn't drop out of view quickly as it might in the regular feed. (If you’re familiar with Twitter’s Promoted Tweets, you get the drift, but if you don't click here)

Here comes the biggest understatement of this article: With nearly 600 million members posting on Facebook, “Sponsored Stories” could prove lucrative if it takes off.

Don’t worry, Facebook says all your regular privacy settings apply, so a “Sponsored Stories” post won’t appear to anyone who wouldn't have seen your regular status update. 

My theoretical question: What if I happen to check-in from the Oakland Coliseum, Home of the Raiders, because my friend gave me free tickets to watch the Silver-and Black lose to my 49ers.  The Raiders, a “Sponsored Stories” get my name, image and likeness pased on ads and sent to all my freinds essentially showing me as a supporter of Da Raiduhs.  I don’t think I’m going to like that.  Heck, I might simply “Like” a post that says “Raiders Suck” and end up an inadvertent marketing pawn for Al Davis.   

What if, instead, Bill Cosby has a hankering for some desert and checks-in that he’s eating at Ben & Jerry’s. Suddenly, Felicia Rashad gets an ad on her page with Bill sponsoring Vermont’s favorite cone.  How do you think the people over at Jello are going to feel? 

Could a celebrity's exclusive spokesperson deal be voided because of something like this?  Obviously Jello can't expect Bill to always choose puddin', but they probably also expect that he's NOT going to appear in an advertisment for a competing product.

Facebook’s Terms of Service aside, you’ve got to think there’s going to be a right of publicity challenge brewing when the "Sponsored Stories" program launches. 

Speaking of brewing, did the ghost of Joe Dimaggio just “like” Krupps?

For more on the Right of Publicity click here.

Mark A. Pearson is a founding partner at ARC Law Group. He considers counseling clients on starting new business ventures as one of his favorite things about being an attorney. Mark can be reached at mark@arclg.com.

You understand and agree that use of this blog does not in any way create or establish an attorney-client relationship between you and any ARC Law Group attorney. You should recognize that the information provided on this blog is provided for your general information and should not be relied on as legal advice and is not a substitute for direct consultation with an attorney about a specific legal problem.

Start Me Up! A Short Guide For Prospective Business Owners

 By Mark A. Pearson

One of the questions we here at ARC Law Group hear quite often is, “Can you help me start a business?”  The short answer; when Anne and I started ARC Law Group our main goal was offering access to legal advice for all entrepreneurs in every endeavor imaginable.  I think I speak for Anne when I say that we take a lot of pride in helping our clients start a business from nothing more than an idea. 

With that in mind, I thought it might be helpful to lay out a short outline of some issues you might encounter when starting a new venture, and how having an attorney and other professionals on your team often make the process a little easier. This article is by no means, all encompassing, and I encourage you to seek answers to your questions from a variety of sources.  I also highly recommend that you consult with professionals who are trained to help you maneuver through the process of starting a business.  Financial advisers, tax professionals, accountants, insurance brokers and lawyers are invaluable resources to anyone thinking about becoming a business owner.

First of all, congratulations on simply thinking about starting a new business; it’s a real challenge, but can be extremely rewarding. Business ownership can lead to financial rewards, creative freedom and a chance to be your own boss.  That having been said, there are a number of risks involved, and a huge time commitment is needed to get started.

Getting Started

Initially, you need to think about the type of business you want to start.  Get out a pen and notepad and start writing your ideas – brainstorm! You’ll use this information to form your initial plans and help give you guidance on what you want to do, and what you need to help you get there.

Once you’ve written out your initial plan, show it to your friends, colleagues, family and anybody you are thinking about partnering with.  See what they have to say; you’ll learn what gaps might need to be filled.  Next, meet with an accountant, various financial advisers and a lawyer, of course, to discuss the feasibility of your plan.

At this point you should have all of the information necessary to make the ultimate decision of starting the new business.  Often, it’s during this initial stage that you realize you’re not ready to start something new.  As a lawyer, I often have to give clients candid advice about their ideas.  Sometimes, it means counseling the client against continuing.  However, being advised not to start something new doesn’t mean you have to give up.  There are plenty of alternatives to starting a new business.

Buying an existing business or a franchise is an option.  Why re-invent the wheel, right?  Purchasing a business that is already operating takes some of the “guess work” of starting something new out of the equation.  Plus, you don’t have to worry about some of the startup issues like buying equipment or hiring employees. 

It’s All In the Name

Hopefully, this was one of the first things your brainstormed!  There's a lot riding on your decision; starting with picking something you’re going to want to say.  The name also needs to stand out among the competition, but don’t alienate potential customers with something to bizarre.

You’ll probably want to check and see if the Domain Name is available. Having a web presence is going to be important for just about every new business. Remember that there are various top level domains, like .org, .biz, and .us that might work if the traditional .com is taken. Domain names are not registered through state or local government; rather they can be obtained through numerous online businesses

Naming your business often requires following a formal process, which varies depending on the business structure you choose (see below), with most states having filing requirements for using a fictitious name. This does not apply to corporations doing business under their corporate name or to those practicing any profession under a partnership name

Finally, your name might infringe on a trademark, a true deal-breaker!

Choosing an Business Structure

Choosing the correct business structure is extremely important. At ARC Law Group we carefully counsel and educate our new business clients on the many factors to consider when choosing the best form of business ownership or structure. Ultimately, the choice will impact taxes, liability and ownership succession.

Business structures are broken down into four major categories: sole proprietorship, partnership, limited liability company (LLC) and corporation. Each category has its own risks, which can be explained further by contacting an attorney.

Sole Proprietorship

The simplest business structure and, by far, the least costly way of starting a business; a sole proprietorship can be formed by simply opening the doors for business. You are personally liable for all business debts, and can sell or transfer all or part of the business without much hassle. When it comes to taxes you will probably report profit or loss on personal income tax returns*.

Partnership

A general partnership can be formed simply by an oral agreement between two or more persons, but it’s best if a legal partnership agreement is drawn up by an attorney. Profit, loss and managerial duties are shared among the partners, and each partner is personally liable for partnership debts. Partnerships do not pay taxes, but must file an informational return; individual partners report their share of profits and losses on their personal return.

Limited Liability Company (LLC)

A limited liability company (LLC) is a structure that gives its owners limited liability for the entity's debts and obligations, similar to the status of shareholders in a corporation, and its income and losses are normally passed through to the owners as if it were a partnership. The LLC structure is created by filing a document (usually called Articles of Organization) with an officer designated by state law. Currently, the LLC is fast becoming the most used form of ownership for new small-businesses.  While it’s easier to form than a corporation, it’s still highly advisable to hire an attorney to file the Articles and draft your operating agreement.  Sometimes, it’s not as easy to fund a LLC as it is a corporation.

Corporation

A corporation is the most complex and most expensive way to organize a business, and it’s strongly recommended that you work with an attorney to form a corporation. Control of a corporation is dependant on stock ownership and is exercised through the board of directors and annual stockholders' meetings. Corporations must keep records and hold meetings.  Small, closely held corporations can operate more informally, but record-keeping cannot be eliminated. Officers of a corporation can be liable to stockholders for improper actions – think Enron. Liability is generally limited to stock ownership, except where fraud is involved. You may want to incorporate as a "C" corporation or "S" corporation, based on tax and funding plans.

Every Structure Needs Some Support

Now that you have picked a structure you’ll need a bunch of supporting documentation, licenses and tax related information to get you started.  This is a partial list of a few things that almost every new business needs to think about. 

Business Licenses

Your business will almost assuredly need to get a state or local business license to operate legally. Certain types of trades and services, ranging from being a barber to brain surgeon, also require state and local licensing. A good attorney can help you navigate through the, often confusing, state and local agency requirements.

Employer Identification Number (EIN)

To pay federal taxes, withhold Social Security contributions for employees and for other reasons, a business needs an Employer Identification number. You want to open a bank account, right?

Taxation

It's highly recommend that you seek out the assistance of a tax professional to assist with filing various important forms with the IRS.  The IRS itself has publications and information on its website, to get your started.

Insurance

Business insurance, secured through a broker or agent, protects the contents of your business against fire, theft and other losses. It is prudent for any business to purchase a number of basic types of insurance, and some businesses are required to carry insurance by law.

Trademark

We mentioned not wanting to infringe on someone else’s trademark when choosing a name, but you may want to secure your own rights in a mark. Registering a name or distinctive logo can be accomplished through state Secretary of State offices, and for wider marketplace protection, through the U.S. Patent and Trademark Office (USPTO).  ARC Law Group has helped a number of new clients secure trademark rights via the application process and by licensing rights in the event that a mark is already in use.

Money Money Money!

Probably the most important part of starting a new business is figuring out how to pay the bills! Capital can come from your personal savings, a bank loan, an investor, a credit card or a combination of all four. Consulting with financial experts to indentify all of the necessary costs associated with your project is a good first step.  Next, you’ll want to work with your attorney to make sure you’re equipped to secure capital.  Remember, the business structure you choose may dictate the way your raise funds.  For example, raising capital through the sale of stock can only be accomplished through a corporate structure.  Depending on your venture you might qualify for small business loans or even draw interest from angel investors.

A Note on IP

Since many of ARC Law Group’s clients start businesses that create or utilize Intellectual property it’s worth noting that you may want to start thinking about how to protect or secure rights during the startup process.  Your business name, the logo for your business cards, a slogan to make you stand out from the competition, or a product or service, you’ll want to protect all these ideas from the get go. You might also need to license the copyright in some software to integrate into your business, or license music rights for your website or nightclub.

As you can see, setting up a new business is a long and detailed process that has a number of pitfalls.  Would it surprise you if I told you that this article barely scratched to surface of many of the issue and topics presented?  It’s true; and that’s why I recommend you continue your research, and speak to as many friends, family members, colleagues, other business owners and professionals as you can before making the decision to start a new business.

Good Luck!

Mark A. Pearson is a founding partner at ARC Law Group.  He considers counseling clients on starting new business ventures as one of his favorite things about being an attorney.  Mark can be reached at mark@arclg.com.

You understand and agree that use of this blog does not in any way create or establish an attorney-client relationship between you and any ARC Law Group attorney. You should recognize that the information provided on this blog is provided for your general information and should not be relied on as legal advice and is not a substitute for direct consultation with an attorney about a specific legal problem.