Jumpman Case Is No Slam Dunk

by hlsjrnldev | Feb 4, 2015 | Commentary

In 1984, Life Magazine published a photograph taken by Jacobus Rentmeester of Michael Jordan dunking a basketball while wearing USA Olympic warm-up gear. Shortly thereafter, Nike’s Peter Moore, the designer of the first Air Jordan sneaker, paid Rentmeester $150 for temporary use of Rentmeester’s image. [1] Nike then created an image of Jordan dunking a basketball while wearing a Chicago Bulls uniform in front of the Chicago skyline. Nike’s photograph became the silhouetted image now recognized as Nike’s Jumpman logo.

Images can be found at: http://www.diyphotography.net/wordpress/wp-content/uploads/sites/9/2015/01/Comparison2.jpg

In March of 1985, Rentmeester granted Nike a limited license of the Jumpman image for two years, in exchange for $15,000. The Air Jordan I was released in 1985 and featured the Jumpman logo on the sneaker’s price tag. In 1987, the Jumpman logo appeared for the first time on the tongue of the Air Jordan III sneaker, designed by Tinker Hatfield. [2] Nike trademarked various versions of the Jumpman logo in 1989, 1992, and 1998. The rest is history. Nike sold $100 million worth of Air Jordan I sneakers in 1985 and the Jordan brand generated $3.2 billion in retail sales in 2014. [3]

Last month, Rentmeester registered his photograph with the U.S. Copyright Office for the first time. Now, 28 years after his two-year contract with Nike expired, Rentmeester is suing Nike in federal court in Oregon for copyright infringement. Although seemingly overdue, Rentmeester’s lawsuit will have standing in federal court. In May 2014, the U.S. Supreme Court held in Petrella v. MGM that delay in filing a copyright claim isn’t a bar to seeking damages so long as the copyright infringement is ongoing. [4] Rentmeester is seeking profits associated with the Jordan brand, as well as a halt to current sales and plans for the brand’s future. [5]

It seems that Rentmeester made a deal with the devil. He poorly negotiated the terms of his licensing agreement and failed to enforce or renegotiate its terms after its expiration. Rentmeester is now the biblical David up against a multibillion-dollar Goliath corporation with an army of lawyers.

In order to prove copyright infringement, the plaintiff needs a valid copyright and must prove that the defendant has actually copied the plaintiff’s work and a substantial similarity exists between the defendant’s work and the protectable elements of the plaintiff’s work. [6] The Jumpman logo differs in some respects from the original photograph: it depicts Jordan’s silhouette in a more triangular shape than it appears in Rentmeester’s photograph and Jordan’s right arm and leg are straightened. If Nike is able to prove that its logo is altered enough from the original photo so that a substantial similarity does not exist, then Rentmeester’s claim will fail.

How likely is it that Rentmeester will prevail in a lawsuit against Nike? Cynically speaking, very unlikely. To say Nike has deep pockets and a sizable stake in the outcome of this lawsuit is an understatement. However, the legal and art communities ought to rally behind Rentmeester’s claim. According to philosopher Georg Wilhelm Friedrich Hegel, an object that has been granted intellectual property rights, such as Rentmeester’s photograph of Jordan, is an ongoing expression of its creator. Even if society believes that a work is a freely abandoned cultural object, the creator may still identify with it enough to oppose certain uses for it. [7] Morally speaking, Rentmester has a right to defend the integrity of his work against alterations that would damage his reputation or destroy his intended message. His art is a form of self-expression, and this expression is essential to his identity as an artist. Unfortunately, there are no provisions in American Copyright Law that give an author “moral rights” to his work. [8]

It is only when our legal system chooses to recognize and defend the self-actualizing connection between a creator and his expression will our system properly and ethically protect artists’ copyrights.

Elisa Hevia is a current first year student at Harvard Law School (Class of 2017).

Footnotes:

[1] Darren Rovell, Nike Sued Over Michael Jordan Logo, ESPN (Jan. 23, 2015), http://espn.go.com/nba/story/_/id/12218091/photographer-sues-nike-michael-jordan-photo-copyright.

[2] http://www.footlocker.com/_-_/keyword-history+of+air+jordan.

[3] Darren Rovell, Nike Sued Over Michael Jordan Logo, ESPN (Jan. 23, 2015), http://espn.go.com/nba/story/_/id/12218091/photographer-sues-nike-michael-jordan-photo-copyright.

[4] Petrella v. MGM, 134 U.S. 1962 (2014).

[5] Darren Rovell, Nike Sued Over Michael Jordan Logo, ESPN (Jan. 23, 2015), http://espn.go.com/nba/story/_/id/12218091/photographer-sues-nike-michael-jordan-photo-copyright.

[6] Mannion v. Coors Brewing Co., 377 F.Supp.2d 444, 449 (S.D.N.Y. 2005).

[7] Justin Hughes, The Philosophy of Intellectual Property, 77 Geo. L.J. 287, 348 (1988).

[8] Id. at 351.

Occam’s Razor and Sports Wagering Law

by hlsjrnldev | Jan 25, 2015 | Commentary

On January 14, 2015, New Jersey Governor Chris Christie filed his most recent brief (hereinafter “Christie II”) to the Third Circuit Court of Appeals in the state’s continued attempt to offer sports wagering within their borders.[1] In New Jersey’s first attempt to offer sports gambling (hereinafter “Christie I”) at casinos and racetracks, the state argued that the Professional and Amateur Sports Protection Act (“PASPA”) violated the anti-commandeering protections of the Tenth Amendment, the equal sovereignty principles of the commerce clause, and that the plaintiff sports leagues lacked Article III standing.[2] The Third Circuit was unmoved by these arguments and ruled in favor of the quintet of sports leagues, and intervenors United States.[3] Contained within the Third Circuit’s decision was a footnote stating that “PASPA’s legislative history is clear as to the purpose behind its own exemptions…”[4] This otherwise innocuous statement may represent a material error in the Third Circuit’s reasoning, because the Supreme Court, in a unanimous decision authored by Justice Stevens, seemingly came to a different conclusion in 1999.[5]

PASPA has remained a largely obscure statute since its 1992 passage.[6] However, it has been litigated substantively three times over the past six years. The first instance featured the same sports leagues against the Governor of Delaware in 2009.[7] The suit challenged the state of Delaware’s proposed expansion of sports gambling options.[8] In the second case, Christie I, courts upheld PASPA’s constitutionality, thus preventing Governor Christie from allowing state-licensed casinos and racetracks to offer sports betting at their existing facilities.[9] The most recent case involves the sports league plaintiffs challenging New Jersey’s quasi-deregulation of sports gambling at casinos and racetracks. The pending case, Christie II, examines whether New Jersey’s effort complies with PASPA’s prohibition on state authorization of sports gambling.[10]

PASPA created several exemptions; the first allowed for states that had authorized some form of sports gambling between January 1, 1976 and August, 31, 1990 to continue operating their schemes.[11] PASPA further created a one year window that would have allowed the state of New Jersey to offer sports betting in Atlantic City, an opportunity that the state did not seize.[12] The Third Circuit highlighted New Jersey’s missed opportunity to license sports gambling in their Christie I decision.[13] The Third Circuit’s majority decision in Christie I was at least partially supported by its finding that PASPA’s exemptions had a clear legislative purpose.[14] Such finding potentially carries immense precedential value, as there are currently several states expressing interest in offering sports betting.[15]

The observation made by the Third Circuit is not uniformly shared. Justice Stevens found PASPA’s exemptions to be unclear.[16] In 1999, while authoring an opinion on the constitutionality of restrictions on gambling related advertisements, Justice Stevens wrote: “… [PASPA] also includes a variety of exemptions, some with obscured congressional purposes.”[17] Justice Stevens concluded that the exemptions make the scope of § 3702 of PASPA “somewhat unclear.”[18] But, neither the Third Circuit nor the parties addressed the only Supreme Court majority opinion that addresses PASPA. To date no party or court decision in Christie I or Christie II have made even passing reference to Justice Stevens’s comments in Greater New Orleans.

Legislative history provides further evidence that PASPA’s exemptions are problematic.[19] Senator Dennis DeConcini of Arizona, stated that he supported the exemptions for the states of Nevada, Oregon, Delaware, Montana and South Dakota.[20] Despite DeConcini’s inclusion of South Dakota in his remarks, South Dakota has not been included as one of the exempted states mentioned in any of the recent PASPA cases. Senator Charles Grassley of Iowa further expressed confusion at the exemptions, in particular asking “why the legislation exempts the billion-dollar private [Nevada] sports gambling industry.”[21] The congressional testimony surrounding PASPA detailed significant confusion regarding not only the states which were exempted, but considerable debate over multiple issues.[22] Congressman Romano Mazzoli of Kentucky may have highlighted PASPA’s bizarre attempt to reel-in state sponsored betting when he stated: “My reaction is that we’re trying to close the barn door here after it’s already been opened and a great many of the horses have escaped. I just don’t know whether we can corral those horses and put them back in the barn.”[23]

With the growth in the number of states introducing sports gambling bills in state legislatures, the likelihood of another PASPA challenge continues to grow. What remains unclear is whether any party will pick the low hanging fruit, which Justice Stevens graciously provided to the states. States looking to legalize sports gambling may be well served relying on lex parsimoniae to challenge PASPA, rather than the broad and potentially impactful constitutional principles, which New Jersey has heretofore unsuccessfully challenged. Justice Stevens’s simple explanation about PASPA’s flaw should suffice.

John T. Holden is a doctoral student at Florida State University. Anastasios Kaburakis is an assistant professor at Saint Louis University. Ryan M. Rodenberg is an assistant professor at Florida State University.

[1] See Brief for Appellants Christopher J. Christie, David L. Rebuck, & Frank Zanzuccki, Nat’l Collegiate Athletic Ass’n et al. v. Christie et al., 14-4546 (3^rd Cir. Filed Jan. 14, 2015).

[2] See Brief for Appellants Christopher J. Christie, David L. Rebuck, & Frank Zanzuccki, Nat’l Collegiate Athletic Ass’n et al. v. Christie et al., 730 F.3d 208 (3^rd Cir. 2013, Filed Apr. 29, 2013). The sports league Plaintiffs included: the National Collegiate Athletic Association (“NCAA”), Major League Baseball (“MLB”), the National Football League (“NFL”), the National Basketball Association (“NBA”), and the National Hockey League (“NHL”).

[3] See Nat’l Collegiate Athletic Ass’n v. Gov. of NJ, 730 F.3d 208 (3rd Cir. 2013).

[4] Id. at n.18.

[5] See Greater New Orleans Broadcasting Ass’n., Inc. v. United States, 527 U.S. 173, 179-180 (1999).

[6] 28 U.S.C. §§ 3701-3704 (2012).

[7] See Office of Comm’r of Baseball v. Markell, C.A. 09-538-(GMS) (D. Del. 2009); See also Office of Comm’r of Baseball v. Markell, 579 F.3d 293, 295 (3d Cir. 2009).

[8] Id. The Third Circuit determined that Delaware could not expand a sports wagering scheme beyond the confines within which sports wagering had been available at the point of PASPA’s adoption.

[9] See NCAA v. Governor of N.J., 730 F.3d 208 (3d Cir. 2013), cert. denied, 134 S. Ct. 2866 (U.S. June 23, 2014); NCAA v. Christie, 926 F. Supp. 2d 551 (D.N.J. 2013).

[10] See Nat’l Collegiate Athletic Ass’n v. Christie, Nos. 3:12-cv-04947 (MAS) (LHG), 3:14-cv-14-06450 (MAS)(LHG) (D.N.J. 2014). New Jersey’s latest attempt at offering sports gambling is based in part on arguments advanced during the first iteration of litigation. See also Anastasios Kaburakis, Ryan M. Rodenberg & John T. Holden, Inevitable: Sports Gambling, State Regulation, and the Pursuit of Revenue, 5 Harv. Bus. L. Rev. Online 27 (2015).

[11] See 28 U.S.C. §3704(a)(1) (2012). This exemption provided for the states of Nevada, Oregon, Delaware and Montana to continue operating respectively varying forms of sports gambling. See John T. Holden, Anastasios Kaburakis & Ryan M. Rodenberg, Sports Gambling Regulation and Your Grandfather (Clause), 26 Stan. L. & Pol’y Rev. Online 1 (2014).

[12] See 28 U.S.C. §3704(a)(3). This exception contained a provision, which would have allowed New Jersey to pass legislation within a year of PASPA’s effective date and thus regulate sports gambling. Such legislation was not adopted until 20 years elapsed, initiating Christie I. The rationale behind this exemption may shed light into Justice Stevens’s concern: Congressman Robert Torricelli of New Jersey expressed concern to his fellow congressmen that PASPA posed a grave threat to Atlantic City’s Casinos, which in his view needed the projected revenue by sports betting to survive. Torricelli proposed an exemption for the state from PASPA’s grasp, the result of which was the curious one-year exemption. See Professional and Amateur Sports Protection Act: Hearing on H.R. 74 Before the Subcomm. on Econ. and Commercial Law of the H. Comm. on the Judiciary, 102d Cong. 74 (1991). (Statement of Robert Torricelli.) During that one-year window, Atlantic City casinos and the state’s gambling industry actors were unsuccessful convincing the legislature to bring a proposed state constitutional amendment to New Jersey voters in a referendum that would have allowed casino betting on sports; such a referendum took place 18 years later, in November 2011, with 64% of the state’s voters siding with legislation allowing sport betting in the state. See Larry Josephson, Righting a Wrong: A History in New Jersey Sports Betting, http://www.covers.com/articles/columns/articles.aspx?theArt=251825.

[13] See Gov. of N.J. supra n.9 at 216.

[14] See Gov. of N.J. supra n.9 at n.18.

[15] Indiana introduced a sports betting bill on January 6, 2015. See In. House Bill No. 1073 (2015); The state of New York introduced a sports betting bill on January 7, 2015. See N.Y. Bill No. S00940 (2015); South Carolina introduced a joint resolution on sports betting on January 13, 2015. See S.C. Bill No. H-3127 (2015).

[16] See Greater New Orleans Broadcasting Ass’n., Inc. supra n.5.

[17] Id. at 179-180.

[18] Id. at 180.

[19] See Prohibiting State-Sanctioned Sports Gambling: Hearing on S. 473 and S. 474 Before the Subcomm. on Patents, Copyrights & Trademarks of the S. Comm. on the Judiciary, 102d Cong. 1 (1991); Professional and Amateur Sports Protection Act: Hearing on H.R. 74 Before the Subcomm. on Econ. and Commercial Law of the H. Comm. on the Judiciary, 102d Cong. 74 (1991).

[20] See Prohibiting State-Sanctioned Sports Gambling: Hearing on S. 473 and S. 474 Before the Subcomm. on Patents, Copyrights & Trademarks of the S. Comm. on the Judiciary, 102d Cong. 1 (1991) (opening statement of Dennis DeConcini, Chairman S. Comm. on Patents, Copyrights & Trademarks).

[21] See Prohibiting State-Sanctioned Sports Gambling: Hearing on S. 473 and S. 474 Before the Subcomm. on Patents, Copyrights & Trademarks of the S. Comm. on the Judiciary, 102d Cong. 1 (1991) (Statement of Senator Charles E. Grassley). Senator Grassley also posited in his statement that only 3 states were exempted: Nevada, Oregon and Delaware, in his comments he requested that Iowa also be exempt from PASPA’s scope, but made no mention of Montana.

[22] See generally supra n.19.

[23] See Professional and Amateur Sports Protection Act: Hearing on H.R. 74 Before the Subcomm. on Econ. and Commercial Law of the H. Comm. on the Judiciary, 102d Cong. 74 (1991). (Statement of Romano Mazzoli, Representative from Ky.)

Unpaid Interns in Sports and Entertainment

by hlsjrnldev | Jan 7, 2015 | Commentary

It is generally accepted that the path to a career in the sports and entertainment industries begins with an unpaid internship performing menial tasks, through which up-and-comers receive an opportunity to view the industry from the inside, make valuable connections, and, occasionally, gain academic credit. However, this practice has recently come under siege through Fair Labor Standards Act (“FLSA”) challenges alleging violations of minimum wage and overtime compensation regulations.

I. FEDERAL LAW

Under the Fair Labor Standards Act of 1938[1], an employer must compensate an employee according to minimum wage and overtime compensation laws. The FLSA defines “employ” to mean “to suffer or permit to work”—a definition that was “written in the broadest possible terms so that the minimum wage provisions would have the widest possible impact in the national economy.”[2] As a result, exemptions must be narrowly construed against the employers seeking to assert them.[3] This is especially so in the context of unpaid internships because none of the exemptions enumerated within the FLSA explicitly apply to interns.[4]

1. Walling v. Portland Terminal

The landmark 1947 Supreme Court case Walling v. Portland Terminal[5] set forth the trainee exception to the FLSA that purportedly makes unpaid internships legal.. In Walling, the Department of Labor (“DOL”) brought suit on behalf of prospective yard brakemen, who were enrolled in Portland Terminal’s training course.[6] The course provided prospective brakemen with the requisite skills necessary to handle the job.[7] Accepted applicants, under the supervision of yard crews, first learned the routine activities by observing, before being gradually allowed to practice the tasks under close scrutiny.[8] Trainees did not receive pay or compensation for the training period.[9]

The Court held that the FLSA’s definition of employ was “not intended to stamp all persons as employees who, without any express or implied compensation agreement, might work for their own advantage on the premises of another.”[10] The Court further held that a person whose work serves primarily his own purpose cannot be deemed an employee of another person providing assistance and guidance.[11] As it pertains to interns, the holding implies that those who receive training from an employer for their own educational benefit need not be paid.

2. DOL Fact Sheet

In attempting to elucidate the Court’s decision in Walling, DOL released Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act (“DOL Fact Sheet”) in 2010.[12] The DOL Fact Sheet sets out six criteria to apply in determining whether an internship or training program qualifies for Walling’s trainee exemption.[13] The criteria apply to interns in “for-profit” private sector programs exclusively, as DOL has deemed it generally permissible for unpaid internships to be used in government or non-profit organizations, provided that the intern volunteer has no expectation of compensation.[14] If all of the following factors are met, an employment relationship does not exist under the FLSA, and minimum wage and overtime provisions need not apply to the intern.

1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
2. The internship experience is for the benefit of the intern;
3. The intern does not displace regular employees, but works under close supervision of existing staff;
4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.[15]

To satisfy the DOL Fact Sheet, the program must be structured around academic experience,[16] and provide generally applicable skills that are not employer-specific.[17] A program providing academic credit and overseen by the school is more likely to fulfill the criteria.[18]

It is crucial that the business not depend on the intern’s work such that a paid employee would not need to perform the intern’s tasks if the intern were absent.[19] Additionally, the internship program must provide close and constant supervision exceeding that which is received by the regular workforce.[20] Finally, there should be no expectation from the intern of future employment with the employer following the internship.[21]

3. Tests for Trainee Exemption

Federal courts have constructed three different tests for applying the trainee exemption based on differing readings of Walling.

Some courts, including the Fifth Circuit[22] and certain New York federal courts[23], require all factors from the DOL Fact Sheet to be met. These courts argue that because the DOL factors “were promulgated by the agency charged with administering the FLSA and are a reasonable application of it, they are entitled to deference.”[24]

Other courts, however, such as the Fourth Circuit[25] and the Sixth Circuit[26], have eschewed the DOL Fact Sheet in favor of a primary beneficiary test based on the idea that “the ultimate inquiry in a learning or training situation is whether the employee is the primary beneficiary of the work performed.[27]”

Finally, some other courts, including the Tenth Circuit[28] and certain other New York federal courts[29], adopt a middle ground, giving deference to the DOL factors but construing the language in the DOL Fact Sheet and the Walling holding to permit a flexible approach that allows the Court to “take into account all the economic realities of the relationship between the alleged employer and the trainees.”[30]

II. NEW YORK LAW

The Second Circuit has yet to rule on the issue, and there are conflicting rulings within the New York federal courts. New York is particularly relevant, as it has spawned much litigation regarding unpaid interns, particularly with regard to the sports and entertainment fields.

Within the span of just over a month in 2013, the Southern District of New York (“SDNY”) heard two cases in which first-impression FLSA claims were brought by unpaid interns seeking back wages. While the two cases shared many similarities in underlying fact patterns and legal claims, the Courts applied two different tests and came to opposing conclusions

1. Xuedan Wang v. Hearst Corp.

In Xuedan Wang v. Hearst Corp.,[31] plaintiffs were each among more than 3000 interns employed by Hearst, one of the world’s largest publishers of monthly magazines,[32] over six years preceding this trial, performing an assortment of tasks for various magazines operated by Hearst.[33] The Court analyzed the DOL Fact Sheet and concluded that the weight that it should place on individual factors was unclear. The Court interpreted the DOL Fact Sheet as providing a framework for the analysis, rather than a rigid checklist, and held that a “balancing of the benefits” test looking to the totality of the circumstances should be employed to evaluate the economic reality of the intern-employer relationship.[34]

An appeal to the Second Circuit was certified, seeking guidance on the controlling question of law regarding the applicable test.[35]

2. Glatt v. Fox Searchlight Pictures

In Glatt v. Fox Searchlight Pictures, a group of unpaid interns, who had performed menial tasks on blockbusters Black Swan[36] and 500 Days of Summer,[37] brought FLSA claims against Fox Searchlight, which produces and distributes feature films.[38]

This Court explicitly rejected the primary beneficiary test advocated by the defendant in favor of adhering to the DOL six-factor test.[39] The Court found that the primary beneficiary test has little support in Walling, as the Supreme Court did not weigh the benefits of the parties, but rather emphasized the fact that the training program was solely for the trainees’ benefit, with the employer deriving no immediate advantage from their work.[40] Additionally, the Glatt Court argued that such a test would be subjective and unpredictable, potentially leading to the result that the same internship position would be compensable to one intern but not another, based on the amount each took from his or her experience:[41] “Under this test, an employer could never know in advance whether it would be required to pay its interns,” and so “such a standard is unmanageable.”[42] In opting for the DOL six-factor test, the Court noted that the factors are supported by Walling and are entitled to deference because they were promulgated by the agency charged with administering the FLSA.[43]

Following an examination of the evidence relative to the six-factor test, the Court held that the plaintiffs were improperly classified as unpaid interns, and are instead employees covered by the FLSA.[44] Unsurprisingly, this decision too has been appealed, and is currently pending before the Second Circuit.

III. AFTERMATH

In December 2012, prior to the resolution of Glatt and Wang but following their filings, Charlie Rose and his production company agreed to pay 189 interns back wages to settle a putative class action lawsuit.[45] The Glatt ruling made the issue even more urgent, as the DOL six-factor test the Court applied is tremendously unfavorable to employers seeking to use unpaid interns. It is clear though that such a stringent standard is indeed advocated by DOL, which went on record in 2010 saying “If you are a for-profit employer or you want to pursue an internship with a for-profit employer, there aren’t going to be many circumstances where you can have an internship and not be paid and still be in compliance with the law.”[46]

Indeed, some entertainment companies have found that it is no longer worthwhile to provide an internship program. In October of 2013, shortly after the Glatt and Wang rulings, Conde Nast, the publisher of, among others, Vogue, The New Yorker, and Glamour magazines, announced that it will stop offering internships as of 2014.[47]

Within the court system, Glatt has had also a predictable effect. Unpaid interns in the sports and entertainment industries, hoping to capitalize on the success of the Glatt plaintiffs, have filed a barrage of cases this past year within SDNY with varying success. These lawsuits have targeted a wide range of employers, including Major League Baseball[48], Madison Square Garden[49], Warner Music[50], and Gawker Media.[51]

IV. CONCLUSION

An analysis of the application of Walling’s trainee exemption to unpaid internships reveals that this is very much an unsettled area of law. What is unambiguous, however, is the fact that this is a current hot button issue with significant implications for the sports and entertainment industries.

Given the rush to the courthouse by former interns and the panicked responses of employers, it is clearly in the best interest of the legal system and society generally that this issue of law be settled as soon as possible. The competing factors, however, render the situation a complex one. Interns driven by the benefit of fostering connections within the sports and entertainment industries may be willing to accept unpaid positions. It is thus a mutually beneficial relationship wherein the interns receive something they greatly desire in exchange for providing free labor to businesses that have historically utilized a lot of it. However, this dynamic also creates ample risk of exploitation, which is precisely what the FLSA was intended to guard against. Indeed, a key feature of the FLSA is that employees are not allowed to waive their entitlement to wages, even if they would be willing to perform employee type work as a volunteer. The legal system must thus determine how to best protect interns from exploitation while still providing employers incentives to train up-and-coming workers. How it does so is an area to watch in the coming years.

Matthew Lee is a current student at Harvard Law School (Class of 2016).

[1] 29 U.S.C.A. §201 et seq.

[2] Carter v. Dutchess Cmty. Coll., 735 F.2d 8, 12 (2nd Cir. 1984).

[3] See Reiseck v. Universal Commc’ns of Miami, Inc.,591 F.3d 101, 104 (2nd Cir. 2010).

[4] Xuedan Wang v. Hearst Corp., 293 F.R.D. 489, 492 (S.D.N.Y. 2013).

[5] Walling v. Portland Terminal Co., 330 U.S. 148 (1947).

[6] Id. at 149.

[7] Id. at 149.

[8] Id.

[9] Id.

[10] Id. at 152.

[11] Id.

[12] U.S. Dep’t of Labor, “Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act (April 2010),” available at http://www.dol.gov/whd/regs/compliance/whdfs71.pdf.

[13] Id.

[14] Id.

[15] Id.

[16] Id.

[17] Id.

[18] Id.

[19] Id.

[20] Id.

[21] Id.

[22] See e.g., Atkins v. General Motors Corp., 701 F.2d 1124, 1127-28 (5th Cir. 1983).

[23] See e.g., Glatt v. Fox Searchlight Pictures Inc., 293 F.R.D. 516, 531 (S.D.N.Y. 2013).

[24] Id. at 532.

[25] See e.g., McLaughlin v. Ensley, 877 F.2d 1207, 1209-1020 & n.2 (4th Cir. 1989).

[26] See e.g., Solis v. Laurelbrook Sanitarium & Sch., Inc., 642 F.3d 518, 525 (6th Cir. 2011).

[27] Id.

[28] See e.g., Reich v. Parker Fir Prot. Dist., 992 F.2d 1023, 1026 (10th Cir. 1993).

[29] See e.g., Xuedan Wang v. Hearst Corp., 293 F.R.D. 489, 493 (S.D.N.Y. 2013).

[30] Id.

[31] Xuedan Wang v. Hearst Corp., 293 F.R.D. 489, 492 (S.D.N.Y. 2013).

[32] Id. at 492

[33] Id. at 491-92.

[34] Id. at 493-94.

[35] Xuedan Wang v. Hearst Corp., No. 12 CV 793(HB), 2013 WL 3326650 (S.D.N.Y. Jun. 27, 2013).

[36] Black Swan (20th Century Fox 2010).

[37] (500) Days of Summer (20th Century Fox 2009).

[38] Glatt v. Fox Searchlight Pictures Inc., 293 F.R.D. 516, 531 (S.D.N.Y. 2013).

[39] Id. at 531-32.

[40] Id.

[41] Id. at 532.

[42] Id.

[43] Id.

[44] Id. at 534.

[45] Steve Greenhouse, “Charlie Rose” Show Agrees to Pay Up to $250,000 to Settle Interns’ Lawsuit, New York Times (Dec. 20, 2012), available at http://mediadecoder.blogs.nytimes.com/2012/12/20/charlie-rose-show-agrees-to-pay-up-to-250000-to-settle-interns-lawsuit/?_php=true&c_type=blogs&_r=0.

[46] Steve Greenhouse, The Unpaid Intern, Legal or Not, New York Times (Apr. 2, 2010), available at http://www.nytimes.com/2010/04/03/business/03intern.html?pagewanted=all&_r=0.

[47] Suzanne Lucas, Conde Nast Ends Internship Program: Will Others Follow Suit?, CBS News (Oct. 24, 2013), http://www.cbsnews.com/news/conde-nast-ends-internship-program-will-others-follow-suit/.

[48] Chen v. Major League Baseball, 6 F.Supp.3d 449 (S.D.N.Y. Mar. 25, 2014).

[49] Fraticelli v. MSG Holdings, L.P., No. 13 Civ. 6518(JMF), 2014 WL 1807105 (S.D.N.Y. May 7, 2014).

[50] Grant v. Warner Music Group Corp., No. 13 Civ. 4449(PGG), 2014 WL 1918602 (S.D.N.Y. May 13, 2014).

[51] Mark v. Gawker Media LLC, No. 13 Civ. 4347(AJN), 2014 WL 4058417 (S.D.N.Y. Aug. 15, 2014).

McFarlin: Ray Rice Video Shows that Cameras Should Do the Talking

by hlsjrnldev | Nov 17, 2014 | Commentary

Defamation, Celebrities, and the Internet

by hlsjrnldev | Apr 17, 2014 | Commentary

PDF Download of the Article

By the very nature of their positions, celebrities in both the sports and entertainment spheres generate significant public attention and discussion. While the discourse will frequently be positive, inevitably many such conversations will result in negative, or even slanderous, remarks being made regarding such individuals. However, with the proliferation of the Internet and social media, many of these exchanges are now occurring not at the water cooler or in the schoolyard, but rather published online for a potentially wide audience to view. In fact, individuals are likely to exercise less restraint online than they would in a personal interaction, as they are protected, to varying degrees, by a veil of anonymity, and thus may be prone to making even more extreme statements. Defamation law is clear that individuals are held to the same standard for what they say online as offline, but as of yet there have been no known lawsuits that have proceeded through the legal system, all the way to damage calculations, for online libel. This article will provide recent examples of celebrities being involved in such cases, whether as the plaintiff or the defendant, and the difficulties that plaintiffs face in attempting to prevail in an online defamation lawsuit.

Anonymous Defendants

Brian Burke, the current general manager (“GM”) and president of the National Hockey League’s (“NHL”) Calgary Flames, as well as the former GM of the Toronto Maple Leafs, the Anaheim Ducks, the Vancouver Canucks, the Hartford Whalers, and the US men’s hockey team at the 2010 Winter Olympics in Vancouver, received substantial press about a year ago for a lawsuit he filed in the Supreme Court of British Columbia (“BC”). The suit is targeted at eighteen individuals who, through a variety of message board posts, blog posts, and comments to blog posts, allegedly made defamatory statements regarding Burke. While this case is no longer generating heavy media coverage, its implications are nevertheless still salient in our increasingly cyber world.

In January 2013, a few months prior to filing the suit, Burke was terminated from his position as the GM of the Maple Leafs. The timing was curious, as news of the firing came three days prior to the end of the 2012-2013 NHL lockout, following a prolonged offseason where Burke remained in control of the club. While the termination was arguably justifiable solely on the basis of the team’s performance, speculation of alternative explanations began to proliferate. This speculation ultimately culminated in Burke’s filing of the lawsuit, on April 26, 2013[1]. From behind the veil of aliases such as “Kanada Kev,” “Slobberface,” “Poonerman,” “Ncognito,”  “Sir Psycho Sexy,” and “Steve,” individuals on fora ranging from prominent hockey message boards, team fan sites, and personal blogs to even message boards for golf fanatics and escort service reviews began postulating that the real reason for Burke’s termination was an extramarital affair.[2] In particular, it was alleged that Burke had impregnated Toronto sportscaster Hazel Mae, who is also married.[3]

While Burke does not deny that running a professional hockey team is a task that invites tremendous scrutiny and criticism, particularly in the hockey craved market of Toronto, and he accepts that negativity directed towards his performance in a professional capacity comes with the position, he draws the line when it comes to his personal life.[4] Rather than merely working behind the scenes to get the comments in question taken down, Burke chose to go on the offensive. In the words of Burke’s lawyer Peter Gall: “A lot of people think they can with impunity say whatever outrageous things on the Internet and nobody’s ever going to be able to find them or hold them accountable. Brian’s going to hold them accountable.”[5]

As would be expected, tracking down these individuals, particularly ones such as “Steve” who made their comments without a registered account, has proven to be difficult. However, Burke quickly secured his first legal victory. Master MacNaughton of the BC Supreme Court, finding it impracticable for Burke to personally serve “Message Board Defendants” without knowing their identities or locations,[6] applied the procedural rule that “[i]f it is impracticable to serve a document by personal service . . . the court may . . . [grant] permission to use an alternative method of service.”[7] This ruling extended to seven of the eighteen defendants, for whom Burke was allowed to serve notice of the proceedings through the use of private messaging on the respective message boards on which these defendants made their slanderous statements.[8] This is a direct attempt to pierce the veil of anonymity behind which Internet commenters hide, to try to hold them responsible for their remarks.

Despite that minor victory, Burke still faces tremendous hurdles in locating the remaining defendants, as well as getting the “Message Board Defendants” to come forth and reveal their identities, even after being served. While there is an individual who left his blog post available to be perused (“isolatedcircuit”),[9] and a journalism student who has revealed his identity (“THEzbrad”),[10] Burke also has to attempt to locate individuals such as “Steve” and “Ncognito,” who left their remarks in the comments section of blog posts that do not require one to be a registered user to do so.[11][12] Despite the lack of cooperation from message board and website administrators,[13] Burke and his team have made progress over the past year. While there is no indication that the civil trial is actually imminent, Burke’s lawyers have been able to locate several of the defendants (for example, Kanada Kev[14]), expose their real identities, and force them to retract their statements.[15]

Famous Defendants

On this side of the border, Courtney Love, the former frontrunner of the band Hole and widow of Nirvana lead singer Kurt Cobain,[16] has been involved as the defendant in several defamation lawsuits over comments she made on Twitter and other social media. The first such case was filed in March 2009 by Dawn Simorangkir, a fashion designer who created five outfits for Love.[17] Love had accused Simorangkir of theft on several occasions through her Twitter account, as well as implied that Simorangkir held a criminal background.[18] The case was to be the first in which a jury would decide whether a celebrity’s Twitter posts could be considered libel, but the case was settled pretrial for $430,000.[19]

Next, Love was sued by her former attorney Rhonda Holmes, who had been hired to deal with a fraud case against the administrators of Cobain’s estate.[20] Holmes filed a defamation suit against Love for a tweet that read, in part, “I was f—ing devastated . . . when Rhonda J. Holmes esq. of san diego was bought off.”[21] The case is believed to be the first trial in the United States involving allegations of defamation on Twitter.[22] Because of Holmes’ association with Love, she is deemed a “limited-purpose public figure,[23]” such that she needs to show that Love acted with “actual malice.”[24] In her testimony, Love claimed that she meant for the tweet to be a direct private message, and that she removed the tweet as soon as she realized it was made public.[25] She also claimed to have honestly believed the statement to be true when she made it.[26] The trial took place over eight days, and ultimately the jury, on January 24, 2014, determined that Holmes had not established by “clear and convincing evidence” that Love “knew her statement to be false or doubted the truth of it” and thus did not prove actual malice to be sufficient to prevail for defamation.[27] Thus, while this case was a trailblazer for Twitter defamation lawsuits, it did not provide any insight regarding how a jury may reward damages for such a suit, in the age of social media.

However, such insight could still emerge from the most recent case involving Love. Simorangkir has filed a new suit for new comments that Love made toward her, on Pinterest as well as in an interview given to Howard Stern.[28] In her interview with Stern, Love claimed that she has learned her lesson, but went on in the interview to assert that Simorangkir is a thief, and insinuate that she had engaged in prostitution.[29] On Pinterest, Love commented that Simorangkir “stole 36 bags of clothing” and stole, and is continuing to use, Love’s designs[30]. The suit claims that Love has “mounted a malicious campaign to not only terrorize Simorangkir, but to ruin and destroy her reputation and livelihood.[31]”

Comparing Defamation Laws

While Love’s victory in court over Holmes may bode well for Internet commenters in the US, given the difficulty of proving actual malice, the defendants in the Burke case are not similarly lucky. Canadian defamation laws differ significantly from American defamation laws, to the extent that the former are considered the most plaintiff-friendly defamation laws in the English speaking world, while the latter is considered the most defendant-friendly.[32] In 1995, the Supreme Court of Canada expressly rejected the actual malice test from New York Times v. Sullivan, citing criticism of it both within the United States and in other countries.[33]

Actual malice is defined in the defamation context as “knowledge (by the person who utters or publishe[s] a defamatory statement) that a statement is false, or reckless disregard about whether the statement is true.”[34] A public figure seeking to recover for defamation must prove that the defendant purposefully lied, and that the lie resulted in actual, material harm for the plaintiff. Love prevailed against Holmes because the court classified Holmes to be a public figure, and Holmes could not prove that Love’s statement was a purposeful lie. In Canada, however, intent is presumed, and so it is not necessary to show that the defendant intended to defame.[35]

Canadian libel laws have been criticized as being arbitrary, capricious, absurd, and otherwise illogical, in addition to being antiquated.[36] Burke is likely to prevail against his online defamers because under Canadian law, plaintiffs do not have to prove falsity, malice, or special damages to win a defamation suit.[37] In fact, defendants are considered prima facie liable until they can prove their innocence; the burden of proof is thus on the opposite party as compared to American law.[38] While Canadian law does not allow defendants to be held liable for libel for opinions, inferences, neutral reporting, good-faith research, or statements of truth,[39] none of these descriptions applies to the statements made alleging an extramarital affair between Burke and Mae. In either jurisdiction, there is no difference to defamation law as it applies to statements made online and offline.[40]

However, in addition to issues that Burke will face in locating the defendants, he may also face hurdles in attempting to collect damages awarded by the court. While many of the online fora where the defendants were found specialize in content for Canadians, there remains the possibility that some of the defendants may be American citizens. This is significant as, based on judicial decisions,[41] which were subsequently codified in 2000 into the SPEECH Act, American citizens are largely protected from having to pay defamation damages awarded in international jurisdictions that provide defamation standards that are less friendly to free speech than American law.[42] Any decision in Burke’s favor handed down by the BC Supreme Court would thus likely not be enforceable against American defendants unless an American court would also have found the statements libelous, which may be difficult under the “actual malice” standard.

The Aftermath

Ultimately, it is unclear what the effects of these lawsuits will be on the court system or Internet interactions going forward. It is clear that courts can and will hold defendants to the same standard for statements they make online as well as offline. This alone may have deterrence effects on individuals on the Internet, as they come to realize that they can be held liable for their statements despite their assumed anonymity. However, the Burke case shows though that there are significant barriers for plaintiffs seeking to recover from defendants online in situations where the defamers are hidden behind some level of anonymity, such as on message boards or Twitter. Given the nature of the Internet and social media, this means that any deterrent effect of potential liability for such defendants will be low, as they are likely to escape capture, and may be judgment-proof even if they are found.

Even in situations where the individual making the libelous statements is known, recovery may be difficult under the “actual malice” standard. To be required to prove that someone knowingly made a false statement with the specific intention, and effect, of harming one’s reputation is a heavy burden to bear, and one that may be even more difficult to prove for comments made online. Love was able to prevail on the basis that she was found to not have knowingly made a false statement, and Burke would likely struggle to prove actual damages, given that the audiences of his defendants were limited, and the likelihood that the rumor would reach a magnitude so as to actually impact his reputation is trivial.

One thing that is as of yet unknown is how courts will rule on damages in Internet defamation lawsuits, as Love was able to first settle a case, and then prevail on a second one, not requiring precedent to elucidate a court’s reasoning. This situation will be one to watch, as potential instances of defamation occur frequently on the Internet, likely to the magnitude of millions of such statements being made daily. Courts are thus wise to be mindful of the precedential effects of any rulings they make, so as to not provide incentive for individuals to file petty lawsuits in the hopes of obtaining a large judgment. The threat of overwhelming judicial resources is very real in such a situation. Compound this issue with the fact that courts may be reluctant to find libel on a forum where many believe their statements to be free speech, and set precedents restrictive to speech, and it seems unlikely that suits against Internet commenters will succeed, or be profitable even if damages are awarded.

While society is likely on the precipice of a groundbreaking defamation case based on statements made on the Internet, these reasons, and more, provide reason to believe that the success rate will be extremely limited. So, for entertainers and athletes, defamatory statements to their reputations will remain largely unpunished, and come as one of the unavoidable downsides of their positions in the public eye.

Matthew Lee is a current student at Harvard Law School (Class of 2016).

Suggested citation:

Matthew Lee, Defamation, Celebrities, and the Internet, Harv. J. Sports & Ent. L. Online Dig., March 27, 2014,  https://harvardjsel.com/2014/04/defamation-internet/.

Kickstarting Litigation: What is the Future of Crowdfunded Films?

by hlsjrnldev | Mar 27, 2014 | Commentary

On April 12, 2013, The Veronica Mars Movie project broke fund raising records, with 91,585 backers pledging a total of $5,702,153. The catch? The film was funded on the crowdfunding website, Kickstarter. Veronica Mars became the site’s fastest project to reach a million dollars in funding, its highest-funded film project, and its third highest-funded project overall.[1] The return of the cult-television hit made news[2] and highlighted important legal questions, now that direct public investment and involvement through “crowdfunding” has reached such levels.

The history of arts patronage, at least in the west, goes back to ancient Rome, though it is perhaps best remembered from fabulous examples of Renaissance art. The rise of bourgeois capitalism shifted the patronage system, at least for the arts, towards publicly-supported systems, such as public museums. Patronage on a large scale still exists today, as evidenced by the Disney Concert Halls and American Airlines Theatres of the world, but for the most part, corporate sponsors have replaced private individuals. In the social media age, we now have “micropatronage”[3] in the form of crowdfunding artistic works.

So, what is crowdfunding? A prime example is the internet funding platform Kickstarter, which “uses the Web to match aspiring da Vincis and Spielbergs with mini-Medicis who are willing to chip in a few dollars toward their projects.”[4] As one of its founders explains, “[i]t’s not an investment, lending or a charity. It’s something else in the middle: a sustainable marketplace where people exchange goods for services or some other benefit and receive some value.”[5] The basic premise is that it provides a meeting place where individuals contribute small amounts, categorized at a certain patronage level, that promise rewards in return—usually insider access or small mementos of emotional more than financial value[6]—to a project that fits into one of Kickstarter’s self-limited thirteen categories.[7]

The results have been remarkable: since 2009 Kickstarter has secured more than one billion dollars for its projects from more than five million backers, of whom more than one million are repeat backers.[8] Successful projects have debuted at film festivals including Sundance and Tribeca, received nominations from award shows such as the Oscars, and climbed the Billboard charts.[9] And while it is easy to marvel at these successes, crowdfunded films raise interesting and unresolved legal issues, which this article will briefly examine through the lens of the Kickstarter example.

Intellectual Property: Who Owns What?

The Kickstarter website announces that the designers, filmmaker, producers, and other participants in the projects hosted on the site have “complete control” over the projects, and the platform merely takes a cut (usually 5% for Kickstarter, plus 3 to 5% for Amazon Payments, which runs the actual pledge processing[10]) for hosting and publicizing the project. If the project raises its minimum amount, each backer is charged the amount she promised; and if the minimum is not met, no pledged funds are actually collected.[11] Kickstarter is explicit that project creators retain ownership over their work and the backers’ funds are mere donations, which are neither refundable nor a true investment with the possibility of a profitable return.[12]

While Kickstarter disavows any liability for contract or license disputes, or the intellectual property of the respective users of the service, it does, interestingly, take a free license for itself to use and exploit any and all submissions to the site, as well as to allow users to “stream, transmit, playback, download, display, feature, distribute, collect, and otherwise use the User Submissions and Trademarks in connection with the Service.”[13] So while the projects being funded are the property of the creators, the information and media they actually upload to the Kickstarter website, such as the videos explaining the project and requesting funding, are fair game. And while the service promises compliance with the Digital Millennium Copyright Act,[14] this is small comfort to content distributors, whose current encryption systems and legal enforcement of intellectual property claims have had only a modest impact on piracy.[15] In fact, the Better Business Bureau has given Kickstarter an F rating (its lowest) for its failure to address copyright and patent issues.[16]

And intellectual property issues, there are many. With the collapse of the studio system in the second half of the twentieth century, the film industry lost many of its anti-piracy safeguards,[17] and technological innovation has kept them on edge ever since. Sony Corp. of America v. Universal City Studios[18] litigated the issue of personal recording for personal use and its impact on movie-going, in which the studios alleged that such viewing of films crossed copyright boundaries so as to strip the rights holder of her control.[19] Sony Corp. demonstrated a “groundbreaking” jurisprudence and recognition that devices that are capable of infringing uses are not automatically subject to “secondary copyright liability.”[20] This modern fair use jurisprudence has important implications for the future of the entertainment industry as consumers are brought into direct contact with media and as old methods of distribution and advertising are replaced by social media sharing and crowdfunding. As viewers take more control of how they consume media, the lines between owner or licensee and third party become blurred. The threat of unintentional digital piracy, already an issue, could increase as content is shared faster than can be controlled by investors who may believe they have rights to the content. Digital piracy, both intentional and not, is a constant threat and is unlikely to abate anytime soon.[21]

As the pace of innovation increases, the push for “the next big thing” may lead to unfair or corrupt practices. Trade secrets become easy to obtain when numerous “backers” are given sneak peeks or insider information as part of the perks package, which raises the specter of litigation over existing patents or intellectual property that would have been patented. The marketplace technology itself comes with piracy litigation fears: Kickstarter in particular has faced other crowdfunding platforms in court on patent infringement claims for donation models and collection software.[22] Kickstarter specializes in creative endeavors, but it lacks external safeguards for the ideas posted to it. The site has already been involved in litigation for patent infringement based on its hosting of a project that may have infringed a third party patent,[23] and has hosted several fraudulent or plagiarized projects.[24]

With the digitization of media and the rise of personal viewing devices, “the audience has slowly but inexorably gained control over the content it consumes.”[25] Crowdfunding is a step along the path of direct-to-consumer developments in an age of increasing audience participation on all fronts. Audience hunger for active participation is age-old, and has spawned derivative works,[26] the ownership of which is often called into question.[27] Further, audience involvement with content in the planning stage calls into question the very artistic ownership of new works. This situation already came to fruition in 2003 in a case with a Baltimore Ravens fan’s copyright claims regarding the team’s use of a logo similar to one he created.[28] The fan, unsolicited, sent a sketch of a logo for the new team as they left Cleveland for Baltimore, asking only that the company send him a letter of recognition and a signed helmet if they used the design.[29] The original trial found that the team had mistakenly incorporated the design into their official logo without proper accreditation. Although the team eventually escaped liability for actual damages, the case highlights the potential dangers of fan involvement in creative endeavors. Who is the true owner of the final work when hundreds of comments and suggestions pour in for a work in progress? Such liability fears could limit artistic innovation or stifle creators’ acceptance of crowd participation in the future.

Contracts: Kickstarting Liability?

Crowdfunding platforms are third-party platforms with little to no responsibility for the actual projects or other follow-through, specifically disavowing any fiduciary duty or special relationship to users.[30] Kickstarter does, however, promise backers that the creators supported through the portal are “legally obligated to fulfill the promises of their project[s],” via the site’s terms of service.[31] What exactly the promise of “legal action on behalf of . . . backers”[32] comprises, though, is an issue that has not yet been litigated. In general, crowdfunding seems to be an example of caveat emptor. The uncertainty of donor relationships in the case of a crowdfunded film is exacerbated by the fact that donors do not receive tax exemptions for their gifts. In traditional philanthropic endeavors, including the arts, the permanent severance of a gift was cemented by a tax write-off. Kickstarter straddles the divide between traditional philanthropy and investment, and confusion is bound to occur. Similarly, a project, once accepted on Kickstarter, is not guaranteed continued hosting or provided any specific warranties. The website’s terms of service reserve the right to deny service for any reason: “The Company may assign, transfer, or delegate any of its rights and obligations hereunder without consent.”[33] As crowdfunding develops and becomes more common, the responsibility, contractual or not, of the platforms and sites will most likely have to be litigated.

A separate contractual issue for crowdfunding of new media involves not the creation of content, but instead its distribution. Distribution includes advertising, marketing, rental, physical distribution, and payment collection. Today, the studios are still the major players in distribution because they have the necessary infrastructure,[34] but direct interaction between creators and audience has recently “allowed content creators to replace supply chains with . . . one-to-one relationships between client suppliers and the consumers.”[35] Traditionally, the distributor had a monopoly over the content and the method of distribution.[36] However, audience members as taste-shaping connoisseurs and promoters increasingly utilize crowdfunding. The power of social media enables fans to disseminate works or information with stunning speed. This “curatorial” power has the “potential to reshape the marketing and eventually the green-lighting process for new media.”[37] Whereas content owners used to rely on physical objects to control supply, the medium matters less and less now, breaking down the traditional contractual relationships between creators and distributors, and between distributors and consumers. But what are the responsibilities of backers to a project? Kickstarter’s terms of use describe that project creators and backers enter into direct contracts:

By creating a fundraising campaign on Kickstarter, you as the Project Creator are offering the public the opportunity to enter into a contract with you. By backing a fundraising campaign on Kickstarter, you as the Backer accept that offer and the contract between Backer and Project Creator is formed. Kickstarter is not a party to that agreement between the Backer and Project Creator. All dealings are solely between Users.[38]

Is it realistic for an artistic creator to enter into separate contracts with thousands of funders? Is an implied contract created via the click-through process to confirm one’s donation? If there are any real terms or restrictions imputed, does this approach raise issues of fraud or contracts of adhesion?

Regulatory Law: Harnessing Crowdfuding

For many years, the SEC was wary of crowdfunding, as there was little government infrastructure to regulate it. This situation changed with the passage of the 2012 Jumpstart Our Business Startups Act.[39] Title II of the Act directly addresses crowdfunding, wherein startups can raise “actual investment funds from individuals in exchange for equity or a share of profits.”[40] The law’s goal was to help restart the stalled economy by removing regulatory restrictions to crowdfund-based models of profit-seeking investment, based off the success of donative models like Kickstarter.[41] Until the rules are fully promulgated, it remains unlawful for content creators and marketplace websites to offer true investment opportunities.[42] However, upon finalization of the SEC draft rules published on October 23, 2013,[43] companies will be able to raise up to one million dollars each in investments during a calendar year without registering with the SEC themselves by utilizing SEC-registered online “funding portals.”[44] The companies will not be soliciting donations, but will be finding “real” investors and selling stock in the company or project.[45] This dramatically improves the crowdfunding model already sweeping the entertainment industry and may influence significant investment in future films or entertainment endeavors. On the other side, there would remain particular risk for “vulnerable investors lacking ‘financial sophistication,’”[46] the very type of donors crowdfunding frequently attracts, especially considering the minimal safeguards to protect against fraud currently in place on platform sites themselves. Should the SEC be able to protect investors from “bad investments,” though, or even be able to make such a determination? The line in crowdfunding between donative intent and actual investment could be quite thin in practice. Despite such fears to the contrary, though, it seems more likely that based on the characteristics of today’s investors, the JOBS Act’s proposed crowdfunding regulations substantially limiting the amount an individual can invest provide “adequate provisions” such that “concerns about investor protection are unfounded.”[47]

Conclusion

While Kickstarter and crowdfunding offer a tantalizing glimpse into a potential future of entertainment production, that future is by no means settled. Many of the issues described will most likely be resolved through litigation, and before that, we can merely sit back and watch the drama on and off screen.

PDF Download of Article

Marissa Lambert is a current student at Harvard Law School (Class of 2016).

Suggested citation:

Marissa Lambert, Kickstarting Litigation: What is the Future of Crowdfunded Films?, Harv. J. Sports & Ent. L. Online Dig., March 27, 2014, https://harvardjsel.com/2014/03/kickstartinglitigation/.