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From: Mark Litwak <la...@marklitwak.com>
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Sent: Thu, Oct 7, 2010 12:55 pm
Subject: Legal Insights for Entertainment and Multimedia, Attorney Mark
Litwak
on line blog http://marklitwak.blogspot.com/
In This Issue
Spielberg Prevails in Copyright Suit
Creative Accounting
October 7, 2010
SPEILBERG PREVAILS IN COPYRIGHT INFRINGEMENT SUIT
The U.S. Southern District Court in New York has found that director
Steven Spielberg's film "Disturbia" does not infringe the copyright in
the short story "Rear Window," which was the basis for the Alfred
Hitchcock movie with the same title. U.S. District Judge Laura Taylor
Swain found there was no substantial similarity between "Rear Window"
and "Disturbia."
Spielberg and the other defendants produced and distributed the motion
picture Disturbia; in 2007. For a plaintiff to prevail in a copyright
infringement case, two elements must be proved: (1) ownership of a
valid copyright, and (2) copying of constituent elements of the work
that are original. The defendants conceded access and actual copying.
Thus, the only questions for resolution were whether Defendants
unlawfully appropriated copyrightable elements from Plaintiff's Short
Story, and, if there is no such appropriation, whether Defendants are
entitled to judgment dismissing Plaintiff's copyright infringement
claims as a matter of law. To prove unlawful appropriation of
protectible elements, a plaintiff must show that there is substantial
similarity between protectible elements in the two disputed works.
The short story Rear Window spans four days and depicts, through
first-person narrative, protagonist Hal Jeffries' observations of his
neighbors' activities which eventually lead him to discover and solve a
crime through deductive logic. It is set in New York City.
At the opening of the Short Story, the reader learns that Jeffries is
incapacitated such that he can only move from his bed to a chair near
the window of his second floor bedroom.
The events depicted in Disturbia span more than a year. The story's
chief protagonist is Kale Brecht, a troubled teenager who, sentenced to
house arrest, spies on neighbors to stave off boredom and, after
learning of the disappearance of several women in the area, discovers
that his neighbor may be to blame.
The court found that "It cannot be disputed that both works tell the
story of a male protagonist, confined to his home, who spies on
neighbors to stave off boredom and, in so doing, discovers that one of
his neighbors is a murderer. The voyeur is himself discovered by the
suspected murderer, is attacked by the murderer, and is ultimately
vindicated. Although it is possible to characterize the plots of both
works so they appear indistinguishable, such similarity is not,
standing alone, indicative of substantial similarity. The law of
copyright only protects an author's particular expression of an idea,
not the idea itself."
The court concluded that the expression of the
voyeur-suspicion-peril-vindication plot idea is quite different in the
two works. This broad plot idea, or premise, is not a protectible
element. Similarity at this level of generality is not probative of the
question of infringement.
The Plaintiffs also contended that the characters were similar. The
court disagreed stating that they are not substantially similar. "While
Plaintiff correctly points out that both Kale and Jeffries are
confined, single men, such generalized similarities are not
protectible."
The Sheldon Abend Revocable Trust, v. Steven Spielberg et al., No. 08
Civ. 7810 United States District Court, S.D. New York, September 21,
2010. The full decision is posted on my blog:
http://marklitwak.blogspot.com/
CREATIVE ACCOUNTING
Filmmakers and profit participants often lament about distributors
engaging in creative bookkeeping. This is one area where filmmakers
concede that studios are sufficiently imaginative in their thinking. A
frequent complaint is that the studios continually devise new and
ingenious ways to interpret a contract so that all the money stays in
their pockets. The general consensus among filmmakers is that net
profits are illusory. Rarely does a share of net profits generate hard
cash.
No doubt, there are numerous instances where producers or distributors
have cooked the books to avoid paying back-end compensation to those
entitled to it. Expenses incurred on one movie might be charged to
another. Phony invoices can be used to document expenses that were
never incurred. Some ruses are subtler, and not readily apparent to the
uninitiated.
The major studios determine profits for participants using their own
special accounting rules as set forth in their net profit definitions.
The accounting profession has generally agreed-upon rules called
Generally Accepted Accounting Principles (GAAP). There are special
guidelines for the motion picture industry called Financial Accounting
Standards Bulletin 53 (FASB 53). These rules provide, among other
things, for the accrual method of accounting. Under this method,
revenues are recognized when earned, and expenses are recognized when
incurred. But distributors do not necessarily follow these rules. They
may use GAAP and FASB 53 when accounting to their shareholders, or
reporting to their bankers, but they often resort to their own Alice in
Wonderland-type rules when they calculate net profits for participants.
They may recognize revenue only when it is actually received, while
taking expenses when incurred. So if the distributor licenses a film to
NBC, the distributor may not count the license fee as revenue until
they actually receive it. Even when they receive a non-refundable
advance, they might not count it as income until the time of the
broadcast. Meanwhile, they count expenses as soon as they are incurred,
even if they have not paid them. This mismatching of revenues and
expenses allows the distributor to delay payment to participants. It
also allows distributors to charge producers interest for a longer time
on the outstanding "loan" extended to the producer to make the film.
The Art Buchwald case illuminates some of the devices Paramount used
to deny payment to net profit participants. The trial judge found many
of these practices to be unconscionable and therefore refused to
enforce them. Paramount appealed, and the case was settled before the
Court of Appeals could rule on the issue.
If Buchwald had won the appeal, the precedent would have caused severe
repercussions for all the major studios. That is because Paramount's
"net profit" definition was virtually identical to the definitions
found throughout the industry. If Buchwald's contract was invalid
because it was unconscionable, then many other contracts could be
contested.
In my opinion, Buchwald may well have lost the appeal had the case
been decided. The trial court judge in Buchwald used the doctrine of
unconscionability to invalidate a contract that Buchwald was trying to
enforce. Courts have traditionally embraced this doctrine only when it
was used as a defense, or shield, against enforcement of an unfair
contract, rather than as a sword to enforce the terms of a contract
against another. Courts have typically relied on the doctrine to
protect uneducated people who have been taken advantage of. If an
unscrupulous door-to-door salesman sells a refrigerator for an
exorbitant price to a poor, illiterate consumer on an installment plan
using a boilerplate contract not open to negotiation, the judge might
refuse to enforce the contract because it "shocks the conscience of the
court."
Buchwald, however, was hardly a poor, defenseless victim. He was an
intelligent, wealthy, and acclaimed writer represented by the William
Morris Agency. If a judge was willing to rewrite his contract because
it was unfair, then why not rewrite thousands of other writer
contracts? Indeed, why not rewrite any unfair contract? Where does one
draw the line? If any contract can be contested simply because it is
unfair, then how can anyone safely rely upon the terms of a contract?
How can you conduct business if you cannot be sure your contracts will
be enforceable?
Under long-established precedent, courts refuse to invalidate
contracts simply because they are unfair. Law students are taught the
principle that even a peppercorn-something worth less than a penny-can
be valid consideration. This means that if you are foolish enough to
sign a contract to sell your $200 bike for a dime, do not expect a
court to bail you out of a bad deal. Absent fraud, duress, or some
other acceptable ground to invalidate a contract, courts do not
second-guess the wisdom of what the parties agreed to.
While the trial judge in the Buchwald case thought the doctrine of
unconscionability could be invoked to invalidate a net profit
definition, it bears noting that another Los Angeles Superior Court
came to a different conclusion. In reviewing the accounting practices
of Warner Bros. in the Batman case, the judge found that the plaintiffs
had failed to prove that the studio's net profits definition was
unconscionable.
Regardless of whether the Buchwald decision would have been upheld on
appeal, the dispute has had an impact on the industry. The major
studios have rewritten their contracts, replacing the phrase "net
profits" with such terms as "net proceeds." They want to avoid any
implication that the back-end compensation promised participants has
anything to do with the concept of profitability.
As a result of many highly publicized creative-accounting disputes,
anyone who has clout insists on receiving either large up-front
payments or a share of gross revenue. Distributors have consequently
lost the ability to share risk with talent. Budgets have escalated to
accommodate large up-front fees, with major stars now demanding $20
million per picture. Moreover, stars and directors have little
incentive to minimize production expenses, since it doesn't affect
their earnings.
Not all complaints about creative accounting concern accounting
errors. Many grievances reflect the inequality of the deal itself. The
studio uses its leverage and superior bargaining position to pressure
talent to agree to a bad deal. The distributor then accounts in
accordance with the terms of the contract and can avoid paying out any
revenue to participants because of how net profits are defined. The
contract may be unfair, but the studio has lived up to its terms. It is
only after the picture becomes a hit that the actor bothers to read the
fine print of his employment agreement. This is not creative
accounting. This is an example of a studio negotiating favorable terms
for itself.
Keep in mind that there is no law requiring distributors to share
their profits with anyone. Indeed, in most industries, workers do not
share in their employer's profits. Moreover, when a major studio
releases a flop, losses are not shared; they are borne by the studio
alone.
Excerpt from Mark Litwak's Risky Business, 3nd edition, 2009.
Mark Litwak is an entertainment attorney, author and expert witness
based in Beverly Hills, California. His practice includes work in the
areas of copyright, trademark, contract, multimedia law, intellectual
property, and book publishing. As a Producer's Representative, he
assists filmmakers in arranging financing, marketing and distribution
of their films. His filmmaker clients have had award winning films in
Cannes, Toronto, Telluride and other festivals.
Mark Litwak
Law Offices of Mark Litwak & Associates
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Paulo Joe Jingy
fall in love, have problems and get back together before the end. I
call it a romantic comedy.
It has come to my attention that hundreds, maybe thousands of writers
have stolen my idea.
Here come the law suites!
On Oct 7, 3:00 pm, clayhe...@aol.com wrote:
> GOOD STUFF this month...
>
> -----Original Message-----
> From: Mark Litwak <l...@marklitwak.com>
> To: clayhe...@aol.com
> Sent: Thu, Oct 7, 2010 12:55 pm
> Subject: Legal Insights for Entertainment and Multimedia, Attorney Mark
>
> Litwak
>