TERMINATION RIGHTS IN SOUND RECORDINGS

By: Barry J. Heyman, Esq., with the assistance of Edgar Cepeda and Justin Joel

According to the Mayans, 2012 may be the end of the world, but if it isn’t, 2013 may be the end for the recording industry.

Why, you ask?

Well, beginning in 2013, for the first time ever, authors of sound recordings may be able to recapture copyright ownership in their sound recordings based on rights they originally granted to the record companies in 1978 and thereafter.  Some notable sound recordings that may become eligible for termination of the original grant include those on popular albums by luminary artists and bands such as Billy Joel, Bob Dylan, Bob Marley and the Wailers, Bruce Springsteen, The Rolling Stones, and Tom Petty, among many others.

This is likely to create conflict between the recording artists and the record companies. On the one hand, artists will attempt to terminate the grant of rights in order to begin commercially exploiting the sound recordings themselves, while on the other hand, record companies will want to retain ownership interest so that they can continue commercially exploiting the sound recordings.

The Copyright Act

The Copyright Act grants an author termination rights in all types of copyrighted works including books, photographs, and musical compositions (as may be embodied in the sound recordings). Since Federal copyright law protection was more recently extended to sound recordings in 1972, 2013 marks the first time a grant of rights in sound recordings under copyright law may be terminated.

Congress created the termination right in an attempt to create a proper balance between the author (in this case, the recording artist, and possibly others as discussed later in the article) and the entity to which the copyrighted works (in this case, the sound recordings) were transferred (in this case, the record company).  In general, recording artists are often in less favorable bargaining positions relative to the record companies, especially in the beginning of their careers, and are unable to demand greater compensation for their sound recordings at the time of transfer.  In addition, it is difficult to predict the true value of the sound recordings before they have ever been exploited in the marketplace. As such, this termination right allows the artist to either reclaim his/her ownership interests in the sound recordings in order to further exploit the recordings his/herself or to re-negotiate a new contract with the record company after the market value of the sound recording has been realized through exploitation.

Under Section 203 of the Copyright Act, author(s) (or their heir(s)) are allowed to terminate grants of copyrights in sound recordings executed in or after 1978 after 35 years from the date of execution of the grant (or up to 40 years in certain circumstances).  This means that authors who granted rights in their sound recordings to record companies in 1978 or thereafter can begin to regain copyrights in their sound recordings as early as 2013.

The termination right is optional and the author does not have to exercise the right.  If however the author does exercise this right, then the author(s) (or their heir(s)) must take proactive steps to meet statutory formalities. For example, the artist is required to notify the original grantee that the artist wishes to exercise his/her termination rights at least two or at most ten years prior to the date on which termination is to take effect.

Works Made for Hire

Customarily, recording contracts specify that sound recordings made pursuant to the agreement are “works made for hire” for the record companies.  The contracts also specify that in the instance that the sound recordings are not considered to be works made for hire by law, then the copyrights will be transferred to the record companies.  Under copyright law, if a work (including a sound recording) is considered to be a work for hire, although an individual author may have created the work, the author’s employer or the person or entity who commissioned the work, owns it as if they created the work themselves, and they are treated under copyright law as the “author” of the work. In this instance, the artist never owned the copyrights in the first place and therefore there is no grant of rights to terminate.  For this reason, termination rights do not apply if a sound recording is determined to be a “work for hire” by law.

Merely having a written agreement that says a work was made for hire does not make it a work for hire by law.  Rather, courts will follow the analysis outlined below to determine whether any given work was made for hire.  Section 101 of the Copyright Act sets forth two categories for which an author’s contribution is considered a “work made for hire.”

The first category requires that the work (sound recording) be created “by an employee within the scope of his/her employment.”  This requires the existence of an employer-employee relationship between the parties.  Courts analyze the existence of such a relationship using a non-exclusive list of factors set forth by the Supreme Court in Community for Creative Non-Violence v. Reid.  For example, one such factor is whether the employer (the record company) had the right to control the manner and means by which the work (the sound recording) is produced. Some other factors considered in examining the existence of an employer-employee relationship between the parties include whether the employer withholds taxes from employee compensation, and whether the employer provided the instrumentalities to create the work.  All factors are considered and the determination is made by the court on a case-by-case basis.

The second category involves authors operating as independent contractors.  In this category, the author’s contribution to the work will be considered a “work made for hire” if two criteria are met: (1) the work was “specially ordered or commissioned for use” as one of nine categories delineated in the Copyright Act and (2) “if the parties expressly agree in a written instrument signed by them that the work should be considered made for hire.”  Sound recordings are not specifically included amongst these nine categories.

Works Made for Hire – Application

There are arguments to be made for and against work for hire status for sound recordings.

Under the employer-employee analysis, the question is whether in the course of making the sound recordings, the artist was a “regular” employee of the record company.

Historically, record companies were more hands on than they are today. With respect to these earlier sound recordings, record companies could argue certain attributes during the process of creating the sound recordings that satisfy the factors used to determine an employer-employee relationship.  For example, record companies could argue that they provided a recording fund for the artists to make the sound recordings and that certain contributors who assisted in creating the sound recording were full-time staff, such as in-house producers, musicians, and A&R (artist and repertoire) staff who worked with the artist throughout the recording process.  In addition, the record company could argue they controlled the manner and means by which the recordings were produced, for example, by selecting the recording studios (including their in-house studios), providing the instruments, and setting up the sessions.

Nowadays, however, record companies are typically much more hands off.  Record companies may just provide a recording fund for the artist and then allow artists to record the songs they wish, with their choice of producers, at studios of their choice (including the artist’s home studios), and with their own recording equipment.  In this instance, the record company may just expect the artist to deliver the completed sound recordings to the company.

Since recordings are created in a variety of manners and means, the analysis of whether a specific situation constitutes an employer-employee relationship must be determined on a case-by-case basis.  This process will be arduous, as a court will not just be able to establish a one size fits all rule to cover all situations.

If record companies argue that an employer-employee relationship existed to establish the sound recordings as works for hire, a court may nevertheless find that one did not exist. In these instances, if the sound recordings are to be considered works made for hire for the record companies, the companies will have to argue that it meets the independent contractor criteria set forth above.  Specifically, the record companies will have to show that the sound recordings fit within one of the nine delineated categories, eight of which are not relevant to sound recordings. Therefore, the record companies will likely argue that sound recordings as part of overall albums fit within the “contributions to a collective work” category. The artist’s recording contract will usually satisfy the writing requirement.

Joint Authorship Issues

Another major issue with respect to sound recordings and termination rights is that “author” is not specifically defined in the Copyright Act.  As a result, it is possible that featured artists may not be considered to have been the only author of the sound recordings.  For example, music producers may also be considered “authors” of sound recordings.  Other participants can also argue that they played significant enough roles in the creation of the sound recording to qualify for “author” status.  This includes session musicians, sound engineers, and possibly the songwriters.

If the sound recording is determined to have been created by more than one author, the work may be a work of joint authorship.  In the case of a work of joint authorship, the Copyright Act specifies that the [EC1] majority of the authors must agree to terminate the grant made to the record company of the copyright in the sound recording in order for the termination to take effect.

Conclusion

In order to avoid the anticipated litigation that will likely ensue regarding these issues, Congress could consider amending the copyright law to clarify the “work made for hire” issue and provide a statutory definition of “author.”  However, how each individual sound recording came into existence and whether it was a work made for hire will still be made on a case-by-case determination.  The ultimate goal of any such determination should be to achieve what Congress intended for the termination right- to create balance and fairness for artists and record companies.

Rules on Internet Privacy: E.U. and U.S.A.

By: Francine Prewitt
Rules improving privacy for internet users were first laid down in the European Union Directive 2002/58/EC commonly referred as the “Directive on Privacy and Electronic Communications”. The Directive was later amended by the ePrivacy Directive (2009/136/EC) as part of a package of new European Union Telecoms rules.

In the United States, the Federal Trade Commission was the first government agency to raise awareness on a need for legislation on internet privacy in a report published in December 2010. Following, Senators John Kerry and John McCain introduced “The commercial Privacy Bill of Rights Act of 2011” in April 2011.

The ePrivacy Directive and the Kerry-McCain Bill aim to provide conditions for a better enforcement of privacy rules; more specifically, they provide for regulations that protect and control personal information of internet users.

Both legislations adopt similar approaches with regard to the key elements of the reform but diverge for most part in their regulatory approach.

In substance, these legislations include:

The Right to Security: The ePrivacy Directive requires telecom operators and internet service providers to take strong security measures to protect the names, email addresses and bank account information of their customers, as well as data about every phone call and internet session they engage in. Similarly, in the Kerry-McCain bill, internet operators would be required to implement security measures to protect the information they collect and maintain.

The Right to be Informed: While the Kerry-McCain bill emphasizes on providing consumers with clear notice on the information collection and the purpose of such collection, the Directive focuses on providing internet users with better information about data stored and accessed in their computer, smart phone, or other devices connected to the internet. Moreover, the EU rules require operators, in case of a breach of security and/or loss (or theft) of personal data to inform the data protection authorities and their customers without undue delay.

The Right to Consent: In the Commercial Privacy Bill of Rights Act, collectors of information must provide internet users with the ability to opt-out of any unauthorized information collection. The bill also provide for express consent (opt-in) for the collection of sensitive information. On the other hand, in the EU rules, recipients of direct marketing communication must give their prior consent when those communications are sent through fax, automated calling system or e-mail. However, the user consent is not required in the case of cookies that directly relate to the provision of services requested by the user.

The E.U Directive goes a step further than the Kerry-McCain bill by prohibiting the direct marketing practice of sending electronic mail while concealing the identity of the sender on whose behalf the communication is made, or the address to which the recipient may send a request to stop these communications, or encouraging recipients to visit websites that contravene article 6 of Directive 200/31/EC. On the other hand, the Kerry-McCain bill allows internet providers to collect data only necessary to process a transaction, deliver a service unless the information is collected for research and development to improve the transaction or service.

Neither legislation has been, so far, as successful as intended. The ePrivacy Directive was supposed to be implemented by all EU
members by May 25, 2011. However, they have yet to be enforced by the vast majority of the EU member states (exceptions are Denmark, Estonia and the U.K, who have notified measures to implement the rules). This slow implementation of the Directive highlights difficulties encountered by European authorities in framing rules to protect consumer rights in all member states.

For its part, the Commercial Privacy Bill of Rights Act was introduced in the senate on April 12, 2011 and referred to the commerce, science, and transportation committee. However, as of the publication of this article,
the bill has yet to be adopted by the senate.

This publication is distributed with the understanding that the author, publisher and distributor are not rendering legal, accounting or other professional advice or opinions on specific facts or matters, and, accordingly, assume no liability whatsoever in connection with its use.

RECORDING A COVER SONG

By: Barry J. Heyman, Esq., with the assistance of Nyasha Foy

Recording a cover song can be a great marketing tool—providing artistic interpretation on a song that your audience may already be familiar with. A cover can also bring notoriety to your art from people who were previously unfamiliar with your work. However there are legal implications to covering a song even if you are giving it away for free.

Copyright Basics

Let’s begin with the basics. A song has two copyrights: the sound recording (often called the master) and underlying musical composition. Recording a cover song implicates the latter of these copyrights—the underlying musical composition. The composer and/or songwriter is the copyright owner of song. The Copyright Act lays out certain exclusive rights that the copyright owner has with respect to their copyrighted material, such as the exclusive rights to manufacture and distribute the musical composition. In order for an artist to not violate the copyright law, the artist covering the musical composition with the intent of manufacturing and distributing it would need to obtain the proper license from the owner, usually the songwriter or the songwriter’s publisher (either
directly or through an agent).

Mechanical License

Even if an artist is giving away the song for promotional purposes, the song still needs to be licensed. The type of license required to record a cover version is called a mechanical license which allows an artist to use a copyrighted musical compositions on different formats, such as CD and as a digital download. A separate mechanical license must be obtained for each format. Typically, cover songs are licensed with the songwriter(s)’ publisher(s). Publisher contact information can be found at the following performance rights organization websites ASCAP, BMI, and SESAC or with The Harry Fox Agency (HFA), a licensing agent used by many music publishers. In addition to licensing directly with the songwriter(s), the publisher(s), or HFA, another option is using a licensing service company.

License Fees

There is a license fee (royalty) associated with licensing and using the composition. This is called a statutory mechanical royalty rate. The rate varies depending upon which format is being licensed. For physical pressings and permanent digital downloads, the Federal rate is currently set at $.091 for songs 5 minutes or less in timing, and payable per song for each unit distributed. For recordings given away as promotional products, it is not uncommon to try and negotiate a reduced rate (e.g., 75% of the Statutory rate), or even gratis (free), however the copyright owner is not required to grant
it. For ringtones, the rate is $0.24 per ringtone regardless of song length. Royalties for interactive streams are calculated based on a fairly complicated formula, which you can find on the HFA website.

Synchronization License

If the artist/band wants to create a promotional music video based on the cover song, this requires license(s) as well, except that the license required is called a synchronization license. The statutory rate does not apply, as the license fee would need to be negotiated with the copyright owner in all instances. A couple of factors affecting video synchronization rates include the nature of the use, for example, promotional versus commercial use, and the length of
use.

This publication is distributed with the understanding that the author, publisher and distributor are not rendering legal, accounting or other professional advice or opinions on specific facts or matters, and, accordingly, assume no liability whatsoever in connection with its use.

AN INTRODUCTION TO AGREEMENTS  NEEDED BY INDEPENDENT FILM MAKERS & PRODUCERS

By: Jill Markowitz, Esq.

Red carpets, movie stars, stunts, lights, camera, action!  But behind all the glitz and glamour of movie making, there are lawyers and producers who work very hard on all the contracts and agreements that are actually needed to make a movie happen.  These are the dedicated men and women who make movies possible from the days far before principal photography even begins.  In order to plan and produce an independent feature, multiple agreements are needed in every stage of production — from pre-production to post-production.  These agreements are designed to protect the rights of those producing the film and also the multitude of others who are involved in the creating and marketing of a motion picture.

Having written agreements in place is often critical when it comes to avoiding miscommunications and misunderstandings, all of which can lead to problems in the future sale and distribution of the film. Even with the advent of new technologies, which substantially reduce the costs of film and video production, the making of a feature film or a documentary is often an expensive, time-consuming and risky process.  This article will explore some of the many agreements needed to produce an independent feature from start to finish while ensuring as best as possible that all involved are adequately protected.

Pre-Production

Pre-production refers to the period of a film before production and shooting begins when those in charge of getting the film up and running finalize the rights and the script, get financing in place, put together the cast and crew and prepare for production.  The early stages of pre-production are often called “development”.  The development stage can last for many years, as rights are acquired and cast and crew are slowly assembled.  Agreements that are commonly needed during this period are those for the purchase of rights, the development of the script, and the hiring of writers to finalize the script.  Rights purchase agreements, option agreements, writer “work for hire” or collaboration agreements and co-production agreements are among the many types of contracts necessary to engage talented individuals to develop a script for production.

The Production Entity – Limited Liability Company

In order to finance a feature film, producers generally form a production company and sell interests in the business entity. A production company can be any form of business entity, such as a corporation, a limited partnership (“LP”) or a limited liability company (“LLC”).  Generally LLCs are recommended as production entities.  They are the most flexible in terms of tax treatment and allocation of power among and between members while still providing the benefits of limited liability for the business owners. This means that  personal assets of individual LLC members will be protected from the debts of the LLC.   To form an LLC, organizational papers must be filed with the secretary of state in the state of formation,  along with filing fees. In some states, such as New York, there is also a publication requirement.  Members of LLCs can be individuals or other entities, such as corporations or other LLCs.

The basic agreement necessary for an LLC is called an operating agreement, which sets forth the rules that govern the LLC and is analogous to a “shareholders’ agreement” for a corporation.  The operating agreement must address keys issues such as management control, the scope of the business of the LLC, the personal role of the filmmakers and their fees,  as well as the role and obligations of investors and the priority and allocation of return of their investment.  Also, while many people do not like to discuss the dissolution of a business at the time of formation, the operating agreement should nevertheless address what would in the event that the LLC needs to be wound up or if new members need to be added because of death, disability or budget shortfalls.

From the filmmakers’ perspective, it is very important that the operating agreement be drafted to ensure that the filmmaker retains complete control of the company’s management. As films are highly personal to the filmmaker, the operating agreement should include a “contingency plan”, which as the name implies, should lay out the back up plan and consequences in the event that the filmmaker, for whatever reason, cannot complete the project.  We also recommend that the filmmakers’ obligations be more specifically set forth in separate employment agreements, so that the filmmakers become employees of the LLC and the intellectual property created is owned by the LLC under traditional “work for hire” principles.

The investor, on the other hand, will try to negotiate so as to protect his investment and allow for continuity in the event that new creative teams or members need to be brought in for the benefit of the project.  Counsel for the filmmakers would try to draft the agreement to ensure that their clients maintain creative control at least through the initial production and distribution stages. The operating agreement should further include the investor’s obligations, such as when and how their money will become available to the filmmakers. Typically, these agreements require that the investor’s funds be released to the filmmaker when there is enough money to make “meaningful progress,” in a manner this is defined by the operating agreement. Remember, the best way to prevent misunderstandings is to have the expectations of all parties expressly provided for and written down along with contingency plans.

The next question to be considered is the scope of the business of the LLC.  For example, is the film company being created to produce one film or multiple films?  Generally, LLC operating agreements are drafted to allow the LLC to participate in “any lawful business” but it may offer more protection to small investors if the LLC is limited to a single film project given the risks of motion picture investment.

Finally, and perhaps most importantly, are the terms regarding the wrap-up or “winding down” of the business.  As mentioned earlier, many producers do not wish to discuss the wrapping up of a business at the time of its formation because they consider it bad luck.  However, it is very important to address these issues before problems actually arise so that producers will know what to do in the event of dissolution.  The operating agreement may also provide for mandatory repurchase of the investor’s ownership interests at some point in the future.  Often this is triggered by the fact that the production company does not have any financing for a certain period of time.

An operating agreement is not only necessary for the formation of an LLC, but it is also an extremely important tool used to address certain issues in writing before the problems come to fruition in reality.  If the operating agreement provides guidance for what the parties involved should do throughout the production of a film, it would eliminate the stress and chaos of having to figure out what to do when problems actually arise—and they almost always do.

The Business Entity – Securities Issues

Because a production entity is a business and involves selling passive interests in the business to finance the film, this raises many issues regarding federal and state disclosure requirements set forth by applicable securities laws.  The producers and promoters of the business are responsible for providing full disclosure of all the material facts regarding the investment and its risks to their passive investors.  Material information is any information that a reasonable person would want to know when deciding whether or not to invest in a film.

It is typical for the producers to hire experienced securities counsel to write an Offering Plan (“Private Placement Memorandum”), which they then either register with the proper federal and state authorities or file for an exemption from registration with those same state and federal authorities. These Offering Plans must include a description of all material elements of the film project including bios of all personnel involved, risk factors, budgets and projections.  They must state where all original, underlying agreements relating to the offering are on file and that they can be examined on request.  One major risk that must be disclosed is the risk of failure to obtain distribution and to recoup negative costs. For instance, independent films that never obtain distribution do not recover their expenditures, resulting in a loss for the investors.  Thus, the producer should be sure to be honest from the beginning, as they can be held criminally liable for knowing misrepresentations of facts.  The investors may be entitled to a full refund of their investment if the producer or any of his agents or associates hides or misrepresents facts regarding production.

Under the Securities Act of 1933, any offer to sell securities must either be registered with the SEC or meet an exemption. Regulation D (“Reg D”) contains three rules providing exemptions from the registration requirements, allowing some companies to offer and sell their securities without having to register with the SEC. For more information about these exemptions, read publications on Rules 504, 505, and 506 of Regulation D. For more information on film financing and securities issues, see Jon Garon’s book The Independent Filmmaker’s Law and Business Guide: Financing, Shooting and Distributing Independent and Digital Films or consult a securities attorney in your jurisdiction. Our firm works with several excellent securities counsel if you need a suggestion or recommendation.

Rights Purchase Agreement

A rights purchase agreement is used when a producer desires to purchase a script or story outright from a writer or other owner.  Generally, these agreements are known as “Assignments of Rights” and often include the sale of “the sole and exclusive motion picture, television, photograph record, merchandising and commercial rights and all allied and ancillary rights, throughout the universe, in perpetuity.”  Put simply, a rights purchase agreement provides for the purchase of all rights associated with a motion picture, not just the rights to purchase the script.

However, these agreements can, and often are, limited to only certain rights and can exclude others.  Which rights are kept by the writer usually depend on the bargaining power of the writer and the desires of those purchasing the property.  Rights purchase agreements are the broadest form of purchasing a property from a writer or other owner.  They can be used to purchase anything from a movie script to a book to a short story and can be tailored to a myriad of purposes.

Life Rights

Similar to a rights purchase agreement is a life rights purchase agreement.  If a producer intends to produce a biography on a person’s life, they may purchase that person’s cooperation with a so-called life rights agreement.  These rights can also be purchased from someone who knows the subject well.  This is most commonly used when the subject is deceased. In that case, the life rights can be purchased from the subject’s heirs or other immediate family who inherited these rights upon the subject’s death.  While story rights of certain deceased individuals may be considered “public domain,” particularly if the individuals did not exploit their right of publicity during their lifetime, there are dangers in producing a “bio pic” without an actual person’s verified story. Included in these dangers is being sued for slander by the deceased individual’s estate and/or being prosecuted for criminal slander against a deceased individual in certain jurisdictions. Clearance of these issues can be critical in obtaining errors & omissions (“E&O”) insurance at the time of distribution.

Option Agreement

An option agreement is a contractual agreement in which a producer buys the right to purchase a screenplay from a writer or other owner.  Unlike the Rights Purchase Agreement, which is a flat out purchase of a property, an option agreement is not actually the purchase of the right to use the screenplay.  Instead, the producer purchases the “exclusive right to purchase” the screenplay at a later date, for instance, when the producer secures financing.  Option agreements are usually used to put a property “on hold”, allotting the producer more time to conduct more research and to explore other avenues relating to the making of the film.  Options are generally less expensive than Rights Purchase Agreements, as writers are often happy to get a few thousand dollars for their work.

Options are used often in Hollywood and it is far cheaper to option a screenplay than buy it from the onset.  An option agreement is especially useful when a producer is unsure of whether their financing will come through.  This is basically a way of hedging your bets in case financing does not come through as anticipated . In such an event, if you purchase the rights to the property outright, you might be forced to purchase a screenplay which cannot be made into a profitable motion picture.  With an option agreement, on the other hand, even if you fail to secure financing, you can simply let the option expire and “cut your losses”

Writer Agreement

A writer agreement may be needed in two specific instances.  One reason a producer would use a writer’s agreement is when a producer has an idea for a film (for example, based on a book or a Broadway play) and wants to convert this idea into a screenplay.  A producer would use a writer’s agreement in order to formally engage the writer’s services to adapt his idea (or “property”) into a screenplay.  Another reason a writer’s agreement would be used is when the producer wants to engage a screenwriter for a final rewrite of an existing screenplay. In both scenarios, a writer’s agreement is an excellent option to engage a writer, but producers should use caution when engaging writers belonging to the Writer’s Guild of America. When drafting writer’s agreements for WGA writers, producers should take into account additional protections that the WGA provide for writers.

Production

Production refers to the period of movie making when “the magic happens” and principal photography starts and the movie physically gets made.  Typical agreements needed during this period are engagement agreements for hiring cast and crew, renting a venue for shooting scenes, and other needs.

Crew – Above the Line

There are two types of crewmembers.  Above the line crewmembers are those who control the aesthetics of a movie, such as the director, producer and cinematographer, just to name a few.  Above the line crewmembers are generally paid a flat fee, as provided in their employment agreements.  These agreements most likely contain very complex terms and provisions than those needed for their below the line counterparts due to the nature and extent of their work on a film.

For example, a director’s employment agreement would include compensation for development and production, depending on when the director was hired.  The agreement might also include a provision to share a part of the profits if the film does well at the box office.  Moreover, it is not uncommon for above the line crew to receive a daily stipend, or per diem, to cover their expenses while on-set.  The agreement generally also includes provisions for how above the line crewmembers are credited in a film, which can sometimes become highly contested.  Also, an agreement of this type might confer the right for directors to hire other crewmembers and to decide on the cast.  A director might want to have control over the editing and final cut of the film and the extent of such control should also be memorialized in the director’s employment agreement.  Finally, an agreement with a director might have a “a right of first refusal” provision that gives the director a right to choose whether to direct any prequels or sequels of the film before the producers can hire another director.  Like writers, many experienced directors are members of the DGA. Their agreements would be subject to DGA rules and their Basic Agreement.

An agreement with a producer should also cover the basic terms of employment, such as a description of the producers’ obligations and compensation.  The agreement should cover how the producer will be credited in the film.  Often, it is wise to have an exhaustive list of applicable terms memorialized in the agreement, rather than risking the possibility of running into problems in the course of the film production which could be catastrophic, especially at or near the end of the filmmaking stage.

Crew – Below the Line

“Below the Line” crew refers to those crewmembers who deal with hands-on aspects of filmmaking, such as lighting and sound technicians and script supervisors.  Below the line crewmembers are generally paid hourly, as opposed to the flat fee above the line crewmembers receive.  Therefore, agreements with below the line crew are often less complex than those of their above the line counterparts.

Accordingly, a “deal memo” can be used instead of a full contract for below the line crewmembers.  Deal memos include personal information of the crewmembers such as their name, address, and emergency contact information and social security number.  The deal memo also discusses individual crewmember’s job title, rate of compensation and expense reimbursement. The memo also covers what if any credit a crewmember will receive. A deal memo is usually only one page long.

Deal memos are often a good idea because they clearly set out all the important information on one page and copies can be made available to all crewmembers. Because of its length, a deal memo is easy for reference, which is especially important in the event a conflict arises.   

Cast

Agreements with the cast will vary depending on the type of cast member.  For example, a SAG (Screen Actor’s Guild) actor will have a different contract that a Non-SAG actor because the requirements for these two cast members might differ due to the rules and regulations imposed by the guild.  Further, if you plan on hiring minors or extras, you might need a different agreement for each group.

A SAG actor’s standard contract includes regular terms such as compensation.  However, one wrinkle imposed by SAG is that actors under guild protection are guaranteed a certain amount of compensation (regardless of the actual hours they work) and in return, the producer of the film gets the exclusive right to use their likeness in the film.  The producer must also agree to pay all SAG contributions, such as the actors’ health and pension plans.  Generally, agreements with SAG actors also provide for how they will be credited and often include a section addressing the dressing room and other similar amenities.  Importantly, a SAG contract is explicit about the types of promotion and publicity services to which the actor must be engaged.  Also, a SAG actor will also often have approval over the types of publicity photos and other materials the producer can use to promote a film.

Non-SAG cast members can have their agreements memorialized in a cast deal memo, similar to the deal memo for below the line crewmembers.   A cast deal memo is one page agreement which includes contact information, job obligation, terms of compensation and other amenities provided to individual cast member, such as travel and accommodation expenses and reimbursement, if any.  A cast deal memo for a non-SAG actor will also set forth the type of credit the actor will receive and whether or not the cast member will be paid for the subsequent use of their pictures or likeness for future promotion of the film.  Because these actors are not represented by a union like SAG, they enjoy relatively less protection: non-SAG actors negotiate their employment contract terms with less  bargaining power and legal knowledge than would a SAG actor or his representative.

An important clause that is often included in all contracts with any type of actor, SAG or non-SAG, is a clause stating that the actor’s services are unique and the producer has the right to seek remedies in the form of injunctive relief if the actor were to breach the contract.  These clauses essentially prevent the actor from acting in another movie project during the time frame set forth in the her original employment contract.  Generally, New York courts allow these types of agreements so long as they are reasonable in time and scope.

If you plan on employing minors to work on your film, you must use yet another type of agreement and the  minor’s legal guardian must sign on behalf of the minor. The agreement, usually one-page in length, gives the producer the exclusive right to use the minors’ image and likeness in perpetuity.  Certainly it is possible for child actors to be in SAG and in that case case,  the minors would be covered by not only the terms of the employment agreement but also the rights and protections set forth under SAG rules.  Consequently, this class of minor SAG actors would require a more complex agreement.  Moreover, it is important to be aware of the rules provided in the specific state where the film is being made.  Some states, for instance California, require a teacher to be on-set and set a ceiling on the number of hours minors can work at any given period of time.

It can often be very complicated to use too many extras in a feature film, although there are times when doing so is essential.  Producers generally use a standard extra agreement which sets forth the rate and credit afforded to the extras. Extras may also belong to SAG and if so, their employment contracts must include terms that meet all requirements set forth in the SAG rules.  When actors volunteer on a non-paid basis to be extras in the film, producers should nonetheless have them sign simple release agreements that allow producers to use their name and likeness in the film.

The foregoing is a simple discussion of the agreements used when hiring the cast.  Drafting these agreements can often involve complex negotiations because of individual needs and relevant union rules.  For a complete list of SAG rules and regulations, please visit their official website.

Locations

Locations are a very important part of filmmaking, as most independent films are not filmed in a studio, but rather are filmed at a leased location.  A location agreement covers how long and for how much a location is leased. The location agreement also addresses “rain dates”, in case filming needs to be rescheduled or re-shoots are required as a result of unforeseen circumstances.   A location agreement will also often grant a producer the rights to use the film shot on the location for other film projects.

Perhaps the most important clause in a location agreement is the one that indemnifies the owners of any damages arising out of the use of the premises for filming and further protects the owners from tort liabilities that might arise as a result of filming.  In addition, producers generally include a disclaimer in the location agreement that all depiction of the location is fictional and such filmography does not necessarily represent a true reflection of the actual location.

Post Production

Postproduction refers to the time in the movie production when the shooting is done and the film is undergoing editing which requires the help of editors and composers.  Common agreements needed during this time period include editor agreements and composer agreements. Like actors, editors and composers may belong to a guild or union which can impact the nature and complexity of their agreements.  However, the agreements will typically include the term of employment, the rate of employment and should also address who will own the finished product.  Editors are usually hired on a “work-for-hire” basis, which enables the producer to maintain ownership of the edited product.  Often, compensation is divided based on the number of times the film needs to be edited or the number of compositions that are required to be written by the composer.  It is not uncommon for a film to use many editors at a time and it is therefore important to split the agreement up in this manner to ensure that the producer can continue to hire more editors as needed.

It is also critically important for the success of a film to use music and other sound to create sound effects. It is equally important to use clips of film and TV to enhance the overall presentation of the movie.  This is a very complex area of filmmaking and unsurprisingly involves even more types of agreements, clearances, and licenses, such as sync agreements.  For more information in this area, please read our music counsel Barry Heyman’s recent article on the types of agreements needed to use music in a film or television series.

Conclusion

Producing an independent feature film is not an easy task and often involves a lot of negotiation and agreements in all stages of production from pre-production to production to post-production.    This article is designed to briefly cover the types and variety of agreements that are most commonly used in an independent feature film.  However, this is by no means a complete list of agreements that one might need for the production of a feature film.  Would-be producers should be aware that each film has its own independent issues and requires its own list of agreements. At times, it may be necessary and prudent to hire an attorney who specializes in filmmaking and has substantial experience in the field.  We at Schneider, Pfahl & Rahme, LLP have over 20 years experience in representing writers, producers, directors, cast, crew, editors, music supervisors and allied talent involved in the filmmaking and post-production process. Please visit our website and we hope you will consult us before engaging in the production of a film.

WHAT’S THE BIG IDEA?

By: Barry J. Heyman, Esq. and Justin Joel

New ideas are the lifeblood of the television and film industries. At a pitch meeting, a writer presents ideas for a new show or movie to a producer of a network or studio. At a successful pitch meeting, the producer accepts the writer’s ideas and agrees to turn it into a show or movie. The producer promises to compensate the writer for using his or her idea and the network or studio hopes to reap the financial rewards that accompany a successful show or movie. Oftentimes, however, the producer decides to pass on the idea submission and no agreement is reached.

Disputes arise when the producer later makes a show or film that the writer believes is based on his or her ideas. “Idea submission” cases result when the network or studio has not obtained permission from or compensated the writer for use of that idea. Although copyright law protects the writer’s particular expression of an idea, it does not protect ideas, concepts, or themes. As such, a writer who pitches a story idea is susceptible to idea theft. The good news for the writer is that while ideas are not protected by copyright law, they can be the subject of a contract. Thus, a contract between the writer and producer can provide that the writer be compensated for his or her ideas.

Contract

There are two ways in which a contract may be created in an idea submission case. First, the writer can obtain from the studio a written or an oral promise that the writer will be compensated if their idea is used. Second, if no such agreement is created, an “implied contract” may exist if the parties’ conduct and the circumstances surrounding the pitch indicate a mutual understanding that there is an expectation that if the idea is later used, the writer would be compensated.

Federal Preemption

After the passage of the 1976 Copyright Act, the applicability of the implied contract claim was called into question since this federal law “preempts” or trumps state law causes of action that seek to protect rights equivalent to those protected by copyright law. The Copyright Act sets forth the following two requirements that, if satisfied, will result in the preemption of a state law claim: (1) the claim involves subject matter of copyright and (2) the state law grants legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright.

The following two recent cases in California and New York involve idea submission cases and illustrate the courts’ seemingly conflicting decisions.

Montz v. Pilgrim Films & Television (CA, May 2011)

Plaintiffs Larry Montz and Daena Smoller sued NBC Universal (“NBC”) and producer Pilgrim Films & Television, claiming that they had given NBC the idea for the reality show Ghost Hunters with the understanding that they would partner with the network to produce the show. When the network produced the show without them, Montz and Smoller asserted a claim for breach of an implied contract. Since analyzing similarities between copyrighted works and the allegedly stolen ideas can prove difficult for the writers to achieve a favorable outcome, the writers preferred to assert a claim for a breach of an implied contract rather than a copyright infringement claim. The court found that the implied contract claim was not preempted by a copyright infringement claim because it required proof of an additional element beyond that required in a traditional copyright claim. Specifically, the court found the additional element of an implied promise by the network of granting a partnership interest to the writers in the proceeds of the production for the use of the disclosed ideas.

Forest Park Pictures v. Universal Television Network, Inc. (NY, May 2011)

In this case, a production company and two individuals pitched an idea for a show to USA Networks (“USA”). The show was about a doctor who relocates to Malibu and makes house calls to the rich and famous. USA passed on the idea, but distributed a show, Royal Pains, four years later about a doctor who relocates to the Hamptons to become a doctor to the stars. The plaintiffs argued that USA breached an implied contract which was created when the network agreed to hear the pitch with knowledge that they expected to be compensated for use of their idea. However, unlike in the Montz case, the court found that the claim to protect characters and storylines was within the subject matter of copyright and that federal law preempted a state law claim. Since the plaintiffs did not bring a copyright infringement claim, the court dismissed the case.

Practical Tips

The conflict as to whether federal copyright law preempts state law breach of contract claims is likely to continue. Since New York and California courts hear most of the idea submission cases, and because these courts are diverged on this issue, it may be that the Supreme Court would be willing to hear this issue.

However, regardless of whether the Supreme Court hears a case on this issue, here are some tips for studios and networks to help prevent liability and litigation and for writers to protect their ideas.

The Montz decision, if followed by other courts, would make it easier for writers to assert implied contract claims against studios and networks for stealing their ideas, so studios may want to be more aggressive in requiring writers to sign submission releases before allowing them to pitch their ideas. Such agreements would specify that the studio or network may have received similar ideas from other sources, and is not liable to the writer if it uses these ideas. Studios and networks may also wish to require that writers waive their right to an implied contract claim in exchange for the studio or network agreeing to hear their pitch.

The best position for the writer is to get the network or studio to sign a written agreement stating that the writer will be compensated if their idea is used. However, some writers may find it awkward to begin a meeting by asking a producer to sign a contract and some producers may be offended by this approach. If securing a written agreement is not viable, a less hostile approach for the writer would be to enter into an oral agreement with the network or studio. In this instance, before the writer pitches the idea, they would tell the studio that they expect to be compensated if the idea is used. If the producer expresses agreement to this arrangement, a contract is created. The writer should follow up after the meeting and thank the producer for their time, reminding them of the terms of the agreement, and ask them to confirm it in writing.

Since ideas are not copyrightable but expressions of the ideas are, a writer may want to embellish upon their ideas and then register the story with the Copyright Office and Writers Guild of America before they discuss it with anyone. Also, the writer should put a copyright notice on his or her work to prevent anyone from claiming innocent infringement. To deter possible idea theft, writers should also look into being represented by an agent or entertainment attorney.

The Latest on Internet Privacy – Kerry-McCain Commercial Privacy Bill of Rights

By: William I. Rothbard, Esq.

Legislation on Internet privacy has been mushrooming since release of the Federal Trade Commission’s report last December calling for adoption of a “Do Not Track” mechanism, similar in concept to the “Do Not Call” registry, for consumer protection against unwanted online tracking and targeted ads. Bills are pending in the U.S. House and the California Legislature that would implement the FTC’s Do Not Track recommendation.
This week, the legislative landscape got more crowded and interesting with the bipartisan introduction of a “Commercial Privacy Bill of Rights” by Senators John Kerry and John McCain. Unlike its counterparts in the House and California, the Kerry-McCain bill does not include Do Not Track, setting up a potential showdown on a core element between the two chambers in an eventual conference to hash out a final bill. Still, the Kerry-McCain privacy plan is extremely comprehensive and, given the bipartisan alliance and political stature of its authors, could become the focal point in Congress for enactment of the nation’s first Internet privacy law.
In brief, the Kerry-McCain privacy rights include:
The Right to Security – Internet marketers must implement security measures to protect the consumer information they collect and maintain.
The Right to Notice, Consent, Access and Correction of Information – Internet marketers must give consumers clear and timely notice of their information collection, use, transfer and storage practices and purposes and any material changes to them. Consumers must be allowed to opt-out of data collection not authorized by them (i.e., uses other than in a requested transaction or service; marketing to them by the collector of the data or by other companies that received the data with their permission; product and service enhancements; website analytics). Consumers also must opt-in for the collection of sensitive personal information (i.e., name, email address, phone, credit card or social security number which, if lost or disclosed without permission, could cause harm) except for use in a transaction or service. Consumers also must be given clear notice of their right to opt-out of data-sharing for behavioral advertising. Consumers may also see and correct their data and request at any time that it no longer be used or distributed.
The Right to Data Minimization, Constraints on Distribution, and Data Integrity – Internet marketers can only collect as much data as necessary to process a transaction, provide a service, or to use to improve service, and can only keep the data for a reasonable time. They must contractually bind third party recipients of the data to comply with the law’s privacy protections and their own privacy policies, and they must take reasonable steps to ensure the data’s accuracy.
Under the legislation, the FTC, with the help of the Department of Commerce, would develop and oversee voluntary safe harbor programs that businesses could join as a way of minimizing the impact of the law and their liability. The FTC also would be required to pass rules fleshing out the law’s provisions and would be its primary enforcer. State Attorneys General also will be able to enforce the law, but only when the FTC hasn’t. Lawsuits by consumers or other private parties to enforce the law would not be allowed.
Kerry-McCain attempts to strike a balance between the privacy interests of consumers and the commercial interests of Internet marketers in using behavioral advertising to target consumers. Online privacy is shaping up to be the consumer issue of the year in Congress. With or without Do Not Track, the likelihood of passage of a federal Internet privacy law, imposing significant data collection, sharing and security requirements on Internet marketers, appears to be great.
It is in the interest of anyone marketing to consumers on the Internet to follow the privacy debate in Congress (and California), and to anticipate and understand the new privacy requirements that are headed their way. I will continue to pay close attention to the action and will be happy to try to answer any questions you may have on this or any other topic of FTC advertising regulation. Please don’t hesitate to contact me at any time.

Finding a Solution for Orphan Works

By: Jonathan D. Reichman, Esq.

The recent rejection by the Southern District of New York of a settlement that would have provided the first effective, if imperfect and partial, solution to the problem of “orphan works”[1] has refocused attention on this modern-day copyright question. Orphan works are those works which are still protected by copyright, but for which the copyright owner cannot be identified and/or located by someone who wishes to make use of the work in a manner that requires permission of the copyright owner.
The settlement that was to provide a solution, in the context of literary material, was the Google Books settlement. The settlement, as explained below, would have set out a way for orphan books to be legally used online, with royalties distributed to their copyright owners if and when they appeared. However, on March 22, 2011 the proposed settlement agreement was rejected by the Court as “not fair, adequate, and reasonable.” This rejection serves as a new impetus to resolve, once and for all, the problem of orphan works under United States copyright law.
While not a completely new phenomenon, orphan works were less of a problem under previous copyright laws. Under the 1909 Copyright Act, which governed U.S. copyright law until 1978, registration was required for copyright protection, and protection was given through two 28-year terms, the second of which had to be proactively obtained through a renewal application. The short term length, and the required formalities, meant that the Copyright Office usually had an accurate record of the copyright owner for a particular work. This meant that under the 1909 Copyright Act, a user who wished to contact a copyright owner and ask for use permission often could do so.
The 1976 Copyright Act, which is still in force, significantly changed the copyright scheme. Under the Act, statutory copyright protection exists from the moment a work is fixed in any type of tangible medium – no registration required. Moreover, the term length was significantly lengthened to 50 years after the death of the author, with no renewal necessary. This term was further lengthened in 1998 to 70 years after the death of the author. For “works made for hire,” the protection term is 95 years from the year of first publication, or 120 years from the year of creation, whichever expires first. The length of the copyright term; the elimination of the registration requirement; and elimination of the renewal requirement have increased the orphan works problem. If a party wants to make use of an older work it can be very difficult to identify, let alone locate, the proper owner of the copyright. The owner may have died years ago with no heirs, or be a corporation long since dissolved. Yet there is always the risk that ownership of the copyright might have been acquired by an extant, though unidentifiable, party who would object to any unauthorized use.
The user is thus left with few choices. She can either: (1) not use the work; or (2) use the work with the knowledge that she is infringing, and hope that the copyright owner does not appear. Only one option is legal, and neither option is fully efficient for society. If the party chooses not to use the work, society has lost access to a creative work, and the copyright owner has (unknowingly) lost royalties, which the user would have gladly paid, and which the owner might have welcomed. If the party chooses to use the work without permission, she is infringing, and must always be concerned that the copyright owner could “appear out of the woodwork” and assert his rights.Due to the increasingly obvious nature of the “orphan works” problem, in 2005 Representative Orrin Hatch and Senator Patrick Leahy asked the Copyright Office to draft a report on the issue and identify any potential solutions. The Copyright Office’s report was issued in 2006, incorporating a historical background of the problem; hundreds of written comments from interested parties; and an analysis of suggested solutions. It also set forth the Office’s own proposed solution: an amendment to the Copyright Act that would give protection to a user who performed a “reasonably diligent search” (applied on a case-by- case basis) to locate the owner. The search would need to be diligent; performed in good faith; and of course be unsuccessful (there is no orphan work problem if the copyright owner is located and then says no – that is a negotiation problem). If such a search is completed, and the use includes as much author attribution as is known, the user’s potential infringement liability would be reduced, with the owner’s monetary relief limited to reasonable compensation (and eliminated entirely for certain nonprofit users), and injunctive relief eliminated for derivative works. The proposal expressly did not affect any currently existing exceptions and limitations of copyright law (such as fair use).
The Copyright Office’s recommendations were adopted into two bills in the 110th Congress, H.R. 5889 (the “Orphan Works Act of 2008”) and S2913 (the “Shawn Bentley Orphan Works Act of 2008”). The bills were substantially similar, in that they adopted the majority of the Copyright Office’s proposals along with some additional language. The only substantial differences were that the House bill required the user to file a “Notice of Use” with the Copyright Office, and the Senate bill required the user to retain documentation of her diligent search to find the copyright owner. The Senate bill made the most progress, passing the Senate on September 26, 2008, but neither bill was passed by both houses, and both therefore died at the close of the 110th Congress in January 2009.
While there currently is no pending orphan works legislation, the Google Books settlement, while imperfect, looked to be a digital-age solution for the problem in the context of books. Several years ago Google announced an agreement with several major library systems to scan and digitize every work in their collections. In response, a group of authors filed a class action lawsuit against Google, arguing that Google’s copying and online sale of their works constituted infringement. To resolve this dispute, the settlement would have allowed Google to sell online access to its database and individual books, as well as sell advertising to accompany the online display of the books, with 63% of the revenue going to the copyright owners (known as “Rightholders” under the agreement).
Crucially, the settlement would have been an “opt-out” venture, meaning that works for which the copyright owners were unknown or unable to be contacted (i.e., orphan works) were included in the arrangement. The settlement would have created a “Book Rights Registry” in charge of distributing the revenue to individual authors, and vested with the responsibility of trying to find those Rightsholders who could not be identified. While a Rightsholder could exclude her work from the database, such exclusion would require the Rightsholder’s express request. By paying royalties, however, Google and its clients would avoid all liability for their use of the works—even ones later removed at the request of the Rightsholders—therefore allowing, for the first time, users to have legal access to orphan books without fear of legal exposure.
One of the major concerns to the settlement was the initial inclusion of books regardless of the wishes of their copyright owners. As the Court’s opinion noted, “the [settlement agreement] proposes to expropriate rights of individuals involuntarily,” and “it is incongruous with the purpose of the copyright laws to place the onus on copyright owners to come forward to protect their rights when Google copies their works without first seeking their permission.”[2] Because of this problem, and others, the Court rejected the settlement.currently-pending efforts to resolve the dilemma of orphan works. However, in its wake, scholars and commentators are suggesting that Congress should again take up the mantle. While of course no solution will please every side, the problem is important enough to warrant a renewed effort to rescue these 21st-century orphans.
[1]    The Authors Guild, et al. v. Google, Inc., No. 05-CV-8136, 2011 WL 986049 (S.D.N.Y., Mar. 22, 2011).

[2]    The Authors Guild, 2011 WL 986049 at 10-11.

Kenyon & Kenyon LLP Associate Aaron Johnson assisted with the preparation of this article.

Jimi Hendrix Right of Publicity

By: Mark Litwak, Esq.

The Right of Publicity is the right that individuals have to control the
use of their name and likeness in a commercial setting. You cannot put
a picture of Cher on your brand of pickles without her permission.
Everyone has a right of publicity but it is particularly valuable for
celebrities who can earn large fees from endorsing products.
The right is determined under state law. Each state applies its own
laws, and the states provide varying treatment on a number of issues.
For example, the states decide whether this right is inherited by one’s
heirs or is a personal right, that dies with the celebrity.
California courts first held that the right of publicity was personal and
did not descend. In 1984, however, the California legislature changed
the law. The legislators enacted Civil Code section 990 which provides
that the right of publicity descends for products, merchandise and
goods, but does not descend for books, plays, television and movies. A
similar statute, California Civil Code section 3344 prohibits the
unauthorized use of the name and likeness of living persons on products,
except for news and public affairs uses. . Both statutes attempt to
balance First Amendment rights of journalists and business people
against rights of publicity of celebrities and their heirs.
Generally, the state law that applies is the law where the celebrity was
domiciled when he or she dies. The state of Washington, however,
attempted to expand its rights of publicity so that it would cover even
those who did not reside in Washington when they died.
That Washington law, the Washington Personality Rights Act (“WPRA”),
was reviewed in a recent decision regarding Jimi Hendrix’s estate’s
right of publicity. A federal judge in ruled that WPRA), violated the
U.S. Constitution. The court concluded that applying this law regardless
of the law of the domicile of the individual at the time of death was
arbitrary and unconstitutional.
WPRA was initially passed in 1998 after a prior decision concluded that
Hendrix’ publicity rights didn’t descend to his father and sole heir, Al
Hendrix, since Jimi Hendrix didn’t reside in Washington at the time of
his death. The law applied retroactively.
The suit was brought by Experience Hendrix, L.L.C. which owns several
songs written by Jimi Hendrix and various federally registered
trademarks incorporating Hendrix’s name, image, and song titles. They
sued defendant Hendrixlicensing.com, a seller of Jimi Hendrix
merchandise, and sought to enjoin it from using various song titles and
lyrics and use of his name and likeness.
Even though the plaintiff did not allege any claims under WPRA, the
court reviewed it because the essence of plaintiff’s allegation was that
Hendrix’s right of publicity did not expire upon his death. Under New
York law, where Hendrix was domiciled at the time of his death, the
right of publicity did not survive his death.The Defendant argued
successfully that such a choice-of-law directive violated the Full Faith
and Credit Clause and Due Process Clause of the United States
Constitution.
The court also found the law arbitrary because applying it would result
in uncertainty regarding the ownership and existence of a right of
publicity because it applies only in Washington, and that almost all
states except Indiana have determined that the law of the person’s
domicile should apply.
The decision can be read at: CASE.
Note that this decision could be reversed by a higher court.

Supreme Court: Third Parties May Sue For Retaliation

By: Alix R. Rubin, Esq.

A man who was fired after his fiancée filed a sex discrimination charge can sue their common employer for retaliation, the U.S. Supreme Court recently held. In a unanimous decision that follows the longstanding policy of the Equal Employment Opportunity Commission (“EEOC”), the Court ruled that such third-party retaliation suits are viable under Title VII, the nation’s major job bias law.

The defendant in Thompson v. North American Stainless, LP, No. 09- 291, 562 U.S. ____ (Jan. 24, 2011), fired the plaintiff three weeks after learning that his fiancée, also an employee, had filed a sex discrimination charge with the EEOC. Plaintiff sued, claiming that the employer had retaliated against him for his fiancée’s protected activity.  The trial court ruled in the employer’s favor, holding that Title VII does not permit third-party retaliation suits. Plaintiff appealed.

The U.S. Court of Appeals for the Sixth Circuit upheld the trial court’s decision in an en banc ruling, reasoning that plaintiff was not protected by Title VII because he did not “engage in any statutorily protected activity, either on his own behalf or on behalf of [his fiancée].” Thompson, 567 F. 3d 804, 807-808 (6th Cir. 2006). Plaintiff appealed to the Supreme Court, which granted certiorari on two questions:
*  Did defendant’s firing of plaintiff constitute unlawful retaliation?
*  If so, does Title VII grant plaintiff a cause of action?

Supreme Court Reads Title VII Broadly

Relying on Burlington Northern & Santa Fe Railway Co. v. White, 548 U.S. 53 (2006), the Court easily concluded that, if the facts plaintiff alleged are true, defendant’s firing of him violated Title VII. In Burlington, the Court held that Title VII’s anti-retaliation provision “is not limited to discriminatory actions affecting the terms and conditions of employment.” Id. at 64. Rather, this provision prohibits any action that “well might have dissuaded a reasonable worker from making or supporting a charge of discrimination.” Id. at 68.

The Court reasoned in Thompson that it is “obvious that a reasonable worker might be dissuaded from engaging in protected activity if she knew that her fiancé would be fired.” However, the Court declined to identify the category of relationships protected, except to state that firing a close family member will almost always constitute unlawful retaliation, while “inflicting a milder reprisal on a mere acquaintance will almost never do so.”

Third Parties Have Standing to Sue

The more difficult question for the Court was whether plaintiff may sue his employer for allegedly retaliating against him. Title VII permits a person “claiming to be aggrieved” to file a civil action. 42 U.S.C. §2000e-5(f)(1). The Supreme Court declined to follow the Sixth Circuit’s ruling or its own dictum that Article III standing — which merely requires an injury that defendant caused and the court can remedy — fulfills the aggrievement requirement, as this would lead to absurd results in this context.
Yet, the term “aggrieved” is not limited to the employee who engaged in the protected activity. Rather, the Court held that, as under the Administrative Procedure Act, if the person is adversely affected within the meaning of the relevant statute, he “falls within the `zone of interests ́ sought to be protected” and thus has standing to sue. The plaintiff in Thompson falls within the zone of interests Title VII protects, the Court held, because he was an employee of defendant and “hurting him was the unlawful act by which the employer punished [his fiancée].”

Employer Liability Expanded

The Supreme Court’s validation of third-party retaliation claims under Title VII expands potential liability for employers. The ruling means that taking adverse action against an employee in retaliation for the protected activity of a family member, friend or co-worker is illegal, regardless of whether the employee participated in the protected activity. Employers must take care when making employment decisions that the protected activity — such as the filing of an EEOC charge — of a family member, friend or co-worker is not a motivating factor. Thorough, careful investigation and documentation of the legitimate reasons for taking the adverse employment action are essential.
An employee who engages in protected activity as well as a relative, friend or co-worker who experiences an adverse employment action may sue their common employer for retaliation under Title VII. If the action would dissuade a reasonable worker from engaging in protected activity, then it will constitute unlawful retaliation. Therefore, a best business practice for employers is to have zero tolerance for retaliation, regardless of whether the third party falls within the “class of relationships for which third-party reprisals are unlawful.” And plaintiffs’ lawyers should ask their clients whether any relatives or friends who work for the same employer have experienced any fall out as a result of the client’s discrimination complaint.

About Alix R. Rubin, Esq.

Alix R. Rubin, Esq. empowers employers and employees to stop fighting so everyone can get back to business. She counsels employers on best employment practices to minimize the risk of a lawsuit and defends them when they are sued; helps high-level executives secure their future careers; and makes sure employees get a fair shake.
The founder and principal attorney of Alix Rubin Law, LLC, Alix earned her law degree from the University of Pennsylvania Law School, where she was associate and book review editor of the Comparative Labor Law Journal as well as a legal research fellow. She began her career in private practice as a general litigator at two major New Jersey law firms, Hannoch Weisman, a Professional Corporation, and Lowenstein Sandler PC. Most recently, she was the employment counseling and litigation partner at the New York-based firm of Entwistle & Cappucci LLP. After obtaining a Bachelor of Arts degree in English and French magna cum laude from Tufts University, Alix earned a Master of Journalism degree from Temple University and worked as a public relations practitioner and journalist before attending law school. She is admitted to the bar in New York, New Jersey and Pennsylvania.
In addition to running her law firm, Alix is an investigator for Verita, LLC (www.verita.us), where she conducts independent and unbiased factual investigations of all types of workplace claims. She also serves as Secretary of the Board of Trustees of Volunteer Lawyers for Justice, Inc., is a member of the District V-C Ethics Committee of the Office of Attorney Ethics of the Supreme Court of New Jersey, sits on the Board of Directors of the Wharton Club of New Jersey and is an Advisor of the I Can Still Do That Foundation.

For more information, please click here. Alix can be reached by e-mail at arubin@alixrubinlaw.com.

This publication is distributed with the understanding that the author, publisher and distributor are not rendering legal, accounting or other professional advice or opinions on specific facts or matters, and, accordingly, assume no liability whatsoever in connection with its use.