As we suspected, the response from the entertainment community has been swift, and the company has since received a barrage of cease and desist letters from television networks, movie studios, sports leagues, broadcasters, syndicators and others in the entertainment industry alleging that the operation of the service as currently conducted amounts to copyright infringement. In response, the company has now filed a complaint for declaratory judgment in Seattle district court alleging that by complying with the Act’s compulsory licensing scheme in Section 111 “it has not infringed any of the copyrights owned by the any of the Defendants.”

We will obviously keep an eye on future developments as this complaint now moves its way through the court system and the entertainment industry’s forthcoming response.

Unlike other online content distributors, the start-up has allegedly sidestepped negotiating with the copyright holders for the license of its programming, and has instead elected to wager its future on a seemingly liberal interpretation of certain provisions of the Copyright Act (the “Act”), which permit qualifying “cable systems” to rebroadcast over-the-air television signals upon the payment of certain statutorily mandated revenues. Specifically, the Act’s compulsory licensing scheme (see Section 111) allows cable systems to carry distant broadcast signals while compensating copyright owners for the public performance of their works, without the transaction costs associated with marketplace negotiations for the carriage of copyrighted programs, and instead requires that the cable system remit a fixed portion of their revenues for the retransmission of such programming to the copyright holders. Based on statements from ivi, Inc.’s management, the company has already taken steps to comply with the requirements under Act, and is apparently taking the position that its service does, in fact, qualify as a “cable system”.

The company’s current position appears to be in part attributable to the Act’s expansive definition of a “cable system”, which includes “any facility… that receives signals transmitted or programs broadcast by one or more television broadcast stations licensed by the Federal Communications Commission, and makes secondary transmissions of such signals or programs by wires, cables, microwave, or other communications channels to subscribing members of the public who pay for such service.”  The legislative intent behind the foregoing definition and the enactment of the statutory licensing scheme over 30 years ago (decades before the advent and commercialization of the Internet) was to benefit traditional cable and satellite companies operating in a heavily-regulated industry under the jurisdiction of the FCC, including a slew of rules and requirements under the Communications Act, such as programming exclusivity, sports blackouts, network non-duplication, signal quota, must-carry, and others.  The statute was not designed to provide a means for Internet-based services like “ivi tv” to avail themselves of the statutory licensing scheme by labeling themselves a “cable system” on the one hand, while at the same time finding refuge from the corresponding restrictions on MVPDs under the Communications Act because the regulation of programming retransmitted via the Internet falls outside the scope of the FCC’s jurisdiction.

This approach has been attempted before, albeit unsuccessfully.  A similar start-up, iCravetv.com played an analogous tune in 2000. Hailed as the first service to put a broad range of ordinary TV stations on the Internet–from the Simpsons to Major League Baseball games–the Toronto-based service launched to international press and huge amounts of Web traffic. They too made similar arguments regarding the contours of compulsory licensing under Canadian copyright law, but failed to quash a swift petition for a temporary restraining order initiated by United States movie studios, television studios, sports leagues and broadcasters and the iCraveTV.com service agreed to permanently shut its doors.  Notably, the petition for the temporary restraining order called the business venture “one of the largest and most brazen thefts of intellectual property ever committed in the United States.” 

Since the iCraveTV case, the U.S. Copyright Office’s Register of Copyright has repeatedly reiterated that the compulsory licensing scheme under Section 111 of the Act is inapplicable to Internet transmissions:  “..[T]he section 111 license does not and should not apply to Internet transmissions” and that “if there is to be a compulsory license covering such retransmissions, it will have to come from newly enacted legislation and not existing law.”  Most poignantly, the Copyright Office has explicitly stated that it opposes any circumstance (as in the case of “ivi tv” or iCraveTV.com) where “any online content aggregator would have the ability to use a statutory license to sidestep private agreements and [be] free from any of the limitations imposed on cable operators and satellite carriers by the Communications Act and the FCC’s rules.”   In fact, the Copyright Office openly opposes an Internet statutory license that would permit any website on the Internet to retransmit television programming without the consent of the copyright owner, stating that “such a measure, if enacted, would effectively wrest control away from program producers who make significant investments in content and who power the creative engine in the U.S. economy.”

In addition, the Copyright Office has also warned that any possible expansion of the statutory licenses to the Internet will implicate and may contradict certain international obligations, including various bilateral and multilateral trade agreements that prohibit statutory licensing of television signals over the Internet.  Specifically, the U.S. has obligations under the Berne Convention, the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs), and WIPO Copyright Treaty that relate to broadcasting and Internet transmissions, including several free trade agreements with foreign nations which contain the obligation that “…neither Party may permit the retransmission of television signals (whether terrestrial, cable, or satellite) on the Internet without the authorisation of the right holder or right holders, if any, of the content of the signal and of the signal…”

Against this backdrop, even if Ivi is able to successfully defend any copyright infringement claims and challenges to its current position regarding the applicability of the compulsory licensing provisions under Section 111 of the Act, we suspect (and Ivi has even suggested) that, like  iCraveTV, the company may be on the wrong end of a barrage of claims asserted by television networks, movie studios, sports leagues, broadcasters, syndicators and others in the entertainment industry alleging that the operation of the service as currently conducted amounts to and/or results in unfair competition, tortious interference with contractual relationships, trademark infringement and dilution, false designation of origin or false representation with regard to sponsorship or authorization, etc. Additionally, until and unless Congress decides to amend the Act to clarify the legislative intent concerning the scope of the compulsory license under Section 111, any challengers to the law will need to be in a position to withstand the full weight of the United States entertainment industry which drives a substantial portion of the U.S. economy.

We will obviously keep an eye on future developments in connection with this fledgling service and the entertainment industry’s forthcoming response.

At issue is the broadcast “overspill” clause of the 1992 distribution agreement between Univision and Televisa.  Under the agreement, Televisa granted Univision exclusive broadcast rights in the US to certain programming produced by Televisa but the agreement contains an exception to Univision’s exclusivity for any transmission of a program emanating from a television station located in Mexico.  This clause, which is typically included when television rights are licensed on an exclusive basis for a specific territory, is designed to address the issue of broadcast “overspill” resulting from the ability of television signals broadcast from neighboring countries to be received across the border. Televisa contends that under the broadcast “overspill” clause, it may exhibit and distribute its programming on the Internet via servers based in Mexico.   

A decision against Univision could have a significant adverse impact on Univision’s viewership and ratings (and hence its advertising revenues) because Televisa typically broadcasts its shows in Mexico several months before the programs are made available to Univision and other broadcast licensees outside Mexico.  US viewers could potentially watch the extremely popular Televisa soap operas and telenovelas on the Internet six months ahead of when they air on Univision. 

A similar issue is involved in litigation filed in 2007 by the Starz pay TV programming service against Disney.  In the litigation, Starz contends that Disney’s distribution of its films via the Internet through services such as iTunes and Amazon.com violates the exclusive pay television rights granted by Disney to Starz under various pay television license agreements between the two companies.  Starz is also distributing Disney’s films online through its  Starz On Demand and Vongo services.

The Univision/Televisa litigation and the Starz/Disney litigation illustrate the problems that can be created by new media applications under agreements purporting to license television rights on an exclusive basis.  These problems can be particularly acute under older “legacy” agreements where key definitions and terms used to describe the licensee’s exclusivity may have been drafted without a view to potential future exploitation via the Internet and other new media distribution platforms. 

For example, a random Pay TV agreement from 1994 I just pulled off my shelf defines “Pay Television” as “the encrypted transmission and/or retransmission from a distance (i.e., other than from the premises where received) and intended for receipt on a television monitor or other comparable non-public video display by broadcast, microwave, satellite, optical fiber, telephone cable and/or coaxial cable of synchronized video and audio signals both of which are received upon payment by a Subscriber of a periodically charged or supplemental subscription and/or access fee.”  This definition would appear to encompass not only traditional pay television rights typically granted to HBO, Showtime and Starz but also digital video-on-demand rights granted to various Internet distribution services such as Amazon.com and BestBuy.com. 

Obviously, in licensing rights for distribution via the Web and other new media platforms, such as mobile and handheld devices, content owners need to examine pre-existing, legacy television distribution deals to ensure that those rights are available and are not encompassed within the grants of exclusive television rights.  Also, practitioners on both sides of new television deals need to take particular care in defining the scope of the licensee’s exclusivity to avoid the types of problems that have surfaced in the Starz and Univision cases.

Mr. Siegel is a “master at financing and structuring,” Chambers USA says in its latest edition. “Clark Siegel is widely recognized as an imposing presence in the field,” the publication observes. In addition to the Chambers guide, Mr. Siegel is recognized by many other legal publications including Best Lawyers in America, the Legal 500 U.S. guide, Los Angeles Magazine’s “Southern California Super Lawyers” and The Los Angeles Times “Best Lawyers in the West.”

“The demand for sophisticated, cutting-edge expertise in the areas of content, the Internet and technology continues to be of critical concern to our clients,” said Hughes Hubbard Chair Candace Beinecke. “We believe that with Dan Schnapp in New York, and now Clark Siegel in L.A., we can offer our clients an unparalleled bi-coastal capability in this area.”

Mr. Siegel has published widely on Intellectual Property matters and issues. Specific technologies and applications he has been involved with include digital cinema projection, CGI animation, video on demand and electronic sell-through, DVD, satellite and wireless delivery, peer-to-peer distribution, digital cable, digital video recorders, PDAs, cellular phones, interactive television, fiber-optic transmission, and other digital and analog applications. He received his B.A. in 1980 from Stanford University, Phi Beta Kappa, and his J.D. in 1984 from University of Chicago where he was a member of the University of Chicago Law Review.  Clark’s full bio and contact information is here. 

We anticipate that Clark will become a regular contributor to DigitalHHR, providing insights from his vantage point on the Left Coast.  We look forward to working with him.

Advances over the last decade in the media, entertainment and technology industries have been unparalleled. The new media landscape is dynamically shifting in real time and all businesses must anticipate and react to innovations in technology in order to seize new opportunities and develop unique business models.

Hughes Hubbard and Reed’s New Media, Entertainment and Technology group recognizes the pace at which these advancements are affecting the day-to-day operations of our clients. We specialize in helping clients exploit such developments to stay ahead of the curve by understanding the way technology influences business. It is not merely the convergence of the media, entertainment and technology industries, but the impact of such convergence on the global consumer, which drives the marketplace forward. We combine the resources and experience of a traditional law firm with an understanding and passion for today’s cutting-edge technologies to assist our clients in navigating the new realities and challenges arising from this shifting landscape.

Digital Media and Internet

• Digital audio-visual content licensing, distribution and syndication initiatives on all new media platforms including wireless, broadband, satellite radio and IPTV
• Online social networking services, virtual reality communities, blogging, massively multiplayer online games (MMOGs)
• Mergers & acquisitions, strategic alliances, online sponsorships/promotional collaborations and joint ventures
• Embeddable media player development, deployment and syndication
• Electronic publishing and distribution
• Integrated marketing, contextual advertising and brand management
• Viral marketing and Internet based “word of mouth” campaigns
• Ad serving, syndication, publication, targeting and tracking
• User-generated content ingestion, distribution, syndication and liability-related issues
• Digital content screening, moderation and filtering
• Online gaming, sweepstakes, contests and promotion compliance
• Digital Millennium Copyright Act – safe harbors and anti-circumvention issues
• Adoption and content of website Terms of Use agreements

Entertainment

• Development and production matters for motion picture and television productions, including writer, producer and director arrangements, guild issues, special effects agreements, location agreements, and other production related matters and documentation
• Domestic and international motion picture distribution in all media, including output deals and ancillary exploitation
• Cable and television broadcast, syndication and other distribution
• Motion picture and television finance, including single- and multi-project finance and all forms of debt, equity and mezzanine financing
• Strategic alliances and motion picture and television co-production and co-financing arrangements
• Major record label sound recording, publishing and associated rights clearances
• Independent music recording, publishing and licensing
• Video game development, publishing ,distribution and licensing for all platforms, including console, handheld ,wireless and online games
• Professional sports league television licensing and retransmission
• Professional athlete employment contracts and talent agreements, including spokesperson, appearance and sponsorship agreements
• Literary and other underlying rights acquisition and licensing
• Rights clearance for motion pictures, television productions and video games
• Product, character and technology merchandising and licensing
• Television format licensing
• Overall and housekeeping deals with talent elements and production companies
• Motion picture and television library acquisitions and dispositions
• Network, cable system and satellite affiliation and carriage agreements
• Product placement and commercial tie-ins
• Motion picture and television marketing agreements and arrangements
• Registration and licensing of patents, trademarks and copyrights
• Litigation concerning the interpretation of recording, film and distribution contracts
• Theme park, gaming and hotel operation

Technology and Information Security

• Privacy, data and information security compliance
• Information technology, business process, call center and manufacturing outsourcing transactions
• Website development, hosting and colocation arrangements
• Electronic commerce, publishing and distribution
• Technology and data export compliance
• Record retention and disaster recovery/contingency planning compliance
• Wireless device and network applications
• Software/hardware and intellectual property procurement, development, licensing and distribution
• Micropayment, contactless payment, smart cards and other alternative electronic payment technology implementations
• Technology transfers and acquisitions
• Technology service and maintenance agreements
• Domain name disputes

New Media, Entertainment and Technology Attorneys

• Dan Schnapp
• Rita Haeusler
• Wayne Josel
• Peter M. Langenberg
• Lindsay Orosz
• Matthew Syrkin
• Other Attorneys

E-Alert: Impact of the Writer’s Guild

In the coming days, the 10,500 striking members of The Writers Guild of America are expected to ratify a new, three-year agreement, which secures the writers a share of the digital media market by way of compensation for television programming and films delivered via the Internet and new media distribution platforms, including those delivered on an ad-supported basis. The proposed deal recognizes that the Internet is a primary means for content creation and delivery and firmly establishes the union’s jurisdiction over programming created for and distributed via new media outlets.

The anticipated compensation formula provides for the writers to receive a flat fee for programs streamed for the first two years of the term of the agreement. In the third year, the writers will begin to receive a percentage of the distributors’ gross revenue. The proposed agreement also provides for compensation for programming written specifically for new media platforms that are distributed and syndicated later as a television series, special or motion picture. The new rate at which writers will be compensated for electronic distribution of movies and television shows is speculated to be nearly double the rate historically paid by distributors for DVDs.

The arrangement raises complex and daunting questions for content producers, providers, distributors, aggregators and syndicators operating in the new media space. These include:

• How will networks and studios take these additional fees into account in determining the license fee that distributors will pay or share of advertising revenue they will receive?

• Will the writers’ success in securing this compensation formula have a precendential effect on upcoming negotiations of the Screen Actors Guild contract?

• How will the well-established economic model for video downloads (i.e., fixed price per download) be impacted if content providers are compelled to evaluate download-to-own and electronic-sell-through pricing based on the popularity of a particular show?

• Will the distribution of promotional content trigger the payment of residuals? What distinguishes “promotional” programming from “commercial” programming for this purpose?

• What is the scope of the revenue model contemplated and how far do the writers’ residuals extend? Content providers will need to carefully structure their transactions with distribution partners to exclude consideration received that is not directly attributable to the programming that is ultimately distributed (e.g., ancillary on-air advertising buys, run of site banner advertising inventory appearing on pages where such programming is streamed via an embeddable/viral media player, etc.).

• How will residuals based on “gross revenues” be calculated? What exactly does “gross revenues” mean? Both content providers and content aggregators/distributors will need to be extremely vigilant in delineating applicable deductions for any royalty payments or revenue shares due in connection with the distribution of programming.

The reality is that many content distribution and syndication deals are multi-faceted and often involve multiple forms of distribution, equity components and revenue streams. Now, more than ever, it has become increasingly important for studios, producers, content providers, distributors and aggregators alike to seek competent legal counsel to mitigate the legal, economic and operational risks involved when contemplating the structure of these transactions.

We are here to help. We have extensive experience in assisting our clients with the development of new business models and the negotiation of cutting edge transactions that facilitate the exploitation of their programming, products and services on all new media platforms, and will continue to stay apprised of how the WGA agreement (once ratified), and other related industry developments, challenge and create obstacles for our clients to overcome.

Contact Dan Schnapp at schnapp@hugheshubbard.com or (212) 837-6258 or Hali Resnick at resnickh@hugheshubbard.com or (212) 837-6058 of our New Media, Entertainment and Technology practice group to find out how we can help you.