The second session of the 108th Congress will be a short one. Congress has only about three weeks left to wrap up its entire legislative calendar. This includes top priorities such as deliberations on





Breaking News

Short Session Could Hold Up Industry Bills

By Bill Holland

WASHINGTON, D.C. -- The second session of the 108th Congress will be a short one. The political imperatives of lawmakers require them to be back home much of the time during a presidential campaign year, and attendance at the Republican or Democratic conventions is a political necessity.

As a result, Congress has only about three weeks left to wrap up its entire legislative calendar. This includes top priorities such as deliberations on appropriations.

For the music community, the abbreviated schedule means that lawmakers may decide to ignore two industry-related issues until next year.

In this short session, Hill observers say, any legislation that isn't "clean" -- ie., cannot be easily passed or does not have complete support of all private-sector players -- is doomed.

One of the two bills in question for the music industry was originally drafted to be squeaky clean but is now encumbered by at least 10 possible amendments from various interest groups.

The Copyright Royalty and Distribution Reform Act, H.R. 1417 (nicknamed the CARP reform bill), initially had wide bipartisan support from the intellectual-property and high-tech communities.

The bill is important to labels, artists, songwriters, music publishers and Webcasters that currently deal with a laborious and expensive royalty rate and distribution system.

The current CARP system, which empanels part-time administrative law judges often unfamiliar with copyright law and the music marketplace, has been roundly criticized by all quarters.

The House bill would replace the part-timers with full-time judges who are knowledgeable about copyright law. It would also streamline rules to make deliberations less costly to smaller players.

The House passed the streamlined measure March 3 and sent it to the Senate.

In the last few months, however, groups that include the Recording Industry Assn. of America (RIAA), the Digital Media Assn. (DiMA), the National Assn. of Broadcasters (NAB) and the National Music Publishers Assn. (NMPA) have met to discuss amendments to the Senate version of the bill, which has not yet been introduced.

The performing rights organizations ASCAP and BMI have also been invited to discussions concerning the possible amendments, as has an official from the union the American Federation of Television & Radio Artists.

An internal Senate staff document documenting RIAA amendment plans shows that there are four prospective amendments that have been agreed upon by the RIAA, DiMA and NAB; two with no agreement by those parties; one agreed to by the RIAA, DiMA and NMPA; two being discussed by the RIAA, DiMA and NMPA; and three possible RIAA amendments not yet vetted by any of the other groups.

The most strenuous objections to the possible amendments have come from representatives of the performing rights bodies, according to sources. The opposition doesn't stem from the content of the amendments, they say, but rather from the presence of extra material that they feel impatient lawmakers will have neither the time nor the inclination to wade through.

The rights groups, says a source, "feel strongly that any amendments added now would kill the bill." The source adds, "They have possible amendments they'd like to put forward as well, but they're afraid that the more barnacles the better chance the ship will just sink."

Most of those involved would agree to one amendment that would streamline the discovery aspect of royalty rate challenges.

The other bill facing opposition (and therefore any chance of easy passage) is the Protecting Intellectual Rights Against Theft and Expropriations Act of 2004, S. 2237 (the so-called the PIRATE Act).

Patrick LeahyThat bill, authored by Sens. Patrick Leahy (D-Vt.), the ranking Democratic member of the Committee, and Orrin Hatch (R-Utah), the panel's chairman, would allow the Department of Justice (DOJ) to file civil copyright-infringement cases. Sen. Lamar Alexander, R-Tenn., co-chair of the Congressional Songwriter's Caucus, stepped in this week as a sponsor of the bill.

Under current law, the U.S. attorney general can bring only criminal copyright cases, which can be difficult to prosecute because they require a higher standard of proof. The PIRATE bill would allow the attorney general to file civil claims that could include damages and restitution -- but without criminal penalties.

Both the American Civil Liberties Union and the free-Internet group Electronic Freedom Foundation oppose the bill, saying it should be up to intellectual-property industries to sue copyright infringers. They say it is not in the public interest for the DOJ to become a traffic cop for the industries when more important issues loom in the post-9/11 atmosphere.

The RIAA counters that extra federal protection of intellectual property industries, a strong sector of the domestic economy, is necessary and warranted.

The bill was "hot-lined" and ready for a Senate vote -- without the usual hearing process -- until last week. Opponents were successful in convincing Sen. Norm Coleman, R-Minn., already a critic of the RIAA's lawsuit tactics against filesharers, to put a "hold" on the bill, keeping it from the Senate floor and a vote.

The irony of Coleman's opposition, say observers, is that Coleman probably would not be a senator if it were not for the support of current RIAA chief Mitch Bainwol.

In his previous job as a Republican party senior operative, Bainwol played a large part in Coleman's successful campaign in 2002 to grab the seat of the late Sen. Paul Wellstone.

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Hearing Set In Sony-BMG Merger Probe

By Leo Cendrowicz

BRUSSELS -- The oral hearing organized by the European Commission's competition department to discuss the Sony-BMG merger will give the opportunity for both parties to present their case and respond to objections to the proposed merger.

The hearing, due to take place June 7-8 in Brussels, follows the release of the EC's "Statement of Objections," which was sent to both parties May 24.

The hearing is part of the "Phase II" in the merger procedures. It follows an in-depth investigation from the Commission that launched in January.

During the hearing, Sony and BMG will also be able to offer, if necessary, concessions to alleviate the Commission's concerns.

Both companies say they are cooperating fully with the EC. "We cooperate with the EC, we respect their prerogatives and we deal with their concerns," says a source close to the merger.

The Statement of Objections --which has not been made public --recounts all arguments against the merger presented by competing companies, consumer associations, music publishers, retailers and trade bodies like European independent label's organization Impala.

The 61-page document raises issues such as collective dominance and vertical and horizontal integration.

Sony and BMG have two weeks to respond to the Statement of Objections. The companies' legal and government-affairs teams are understood to be preparing a statement, to be filed by June 9.

The final deadline for the EC probe is July 22. All major issues -- including the final negotiations between the Commission and Sony and BMG -- must be resolved a month earlier, on June 22.

The merger is expected to be formally cleared or blocked at a European Commission meeting to be held July 14.

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Leiber, Stoller Sue Loeb & Loeb

By Chris Morris

John FrankenheimerLOS ANGELES -- Songwriters Jerry Lieber and Mike Stoller have filed suit against the Los Angeles law firm of Loeb & Loeb and attorney John Frankenheimer for breach of contract and legal malpractice.

Leiber and Stoller say they signed a June 2002 agreement with the firm to provide tax advice in connection with the sale of their publishing companies Trio Music, Quartet Music and their subsidiaries to Windswept Classics. Frankenheimer was lead counsel on the deal, which closed May 1, 2003.

Leiber and Stoller claim that Loeb & Loeb and Frankenheimer breached an agreement with the writers by failing to advise them about a decrease in capital gains rates that took effect five days after the sale closed. They also allege they were not told it was possible to structure the sale to take advantage of the lower tax rate.

"These failures on the part of Loeb & Loeb and Frankenheimer fell below the standard of care for attorneys practicing transactional and tax law," the suit alleges.

Leiber and Stoller claim damages in excess of $2.7 million and seek awards to be determined.

The writers filed their action without an attorney in Los Angeles Superior Court April 30 (case no. BC314884).

Frankenheimer did not return a call seeking comment.

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RIAA Files New Round Of Suits

By Bill Holland

WASHINGTON, D.C. -- Expect the Recording Industry Assn. of America (RIAA) to continue filing lawsuits against filesharers in the near future. On May 24, RIAA announced that the trade group had filed lawsuits against 517 more filesharers.

"This is an ongoing program of education and enforcement," says RIAA spokesman Jonathan Lamy.

The RIAA once again utilized its "John Doe" process to sue 493 defendants whose names are not known. In addition, 24 suits were filed against named defendants, who were identified earlier this year through the "John Doe" process but declined to settle with the RIAA.

The suits were filed in federal courts in states that include Alabama, Arizona, California, Colorado, Georgia, Iowa, Illinois, Indiana, Kansas, Kentucky, New Jersey, New York, Minnesota, Missouri, Pennsylvania, South Dakota and Texas.

The RIAA has now filed 2,947 suits since it initiated its enforcement program in September 2003.

RIAA president Cary Sherman says the trade group is looking to settle or otherwise resolve all of its ongoing cases.

"We will continue to go the extra mile and seek to resolve these cases in a fair and reasonable manner," he says. "That's in the best interests of everyone involved."

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Hollywood's Rejects Get New Tax Treatment

By Rob Wells

WASHINGTON, D.C.(Dow Jones)-- Scripts worse than "Smokey & The Bandit, Part 3" -- so bad that Hollywood wouldn't even make them into films -- will get new tax treatment under Treasury and IRS guidance issued Thursday (27).

The government told film producers whose creations never appear on the silver screen how to correctly write off the costs of buying or producing failed scripts.
Producers of some of Hollywood's bombs, such as "Gigli," "Waterworld" or "It's Pat," won't be celebrating, however. That's because the Treasury Department and IRS revenue ruling doesn't apply to films that were produced and appeared on screen.

"For a produced film, the rules for recovering cost of that are an entirely separate question," Treasury spokeswoman Tara Bradshaw said.

The Treasury Department and Internal Revenue Service ruling gives film producers new guidance on recovering costs from screenplays, scripts "and other creative properties" from abandoned projects.

The revenue ruling issued Thursday said a film producer may not claim "an abandonment loss" for buying or developing scripts unless the producer actually abandons the project.

Historically, the film industry has included costs of unproduced movie scripts in the costs of produced films. The American Institute of Certified Public Accountants issued a financial reporting rule in 2000 telling producers to write off the cost of the film at the time they decide to drop the project. If three years had passed after the purchase of a script, and nothing has happened with the film, producers can assume to write it off at that point, the AICPA statement said then.

The film industry wanted the IRS to have a similar accounting treatment for tax purposes.

"After a change in the applicable financial reporting rules, the industry asked us to address the tax treatment of these costs," said Greg Jenner, acting assistant Treasury Secretary for tax policy. The film industry sought to resolve the matter under the "Industry Issue Resolution (IIR) program" where corporations and the IRS try to settle complex tax matters affecting numerous companies.

The new revenue ruling said that for tax purposes, producers won't get a tax deduction until they declare the film project abandoned or worthless.

The new revenue procedure provides an accounting method that lets producers amortize over a 15-year period costs for films not scheduled for production within three years of acquisition.


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Los Tucanes Settle With Ex-Bandmember

By Leila Cobo

Los Tucanes de TijuanaMIAMI -- A confidential settlement has been reached between the manager and members of Los Tucanes de Tijuana and former accordionist and founding member Joel Higuera.

In a suit filed in May 2003 in Los Angeles Superior Court, Higuera alleged breach of fiduciary duty, fraud and unjust enrichment. Higuera, who was represented by Anthony R. López of the Los Angeles-based law offices of López & Associates, said he was ousted from Los Tucanes without receiving royalty payments for either record sales or publishing. The group, which is signed to Universal Music Latino, is considered one of the top norte–o bands in Mexico and the United States.

Los Tucanes formed in 1987. In 1996, its members, along with manager Gustavo Felix, created Tucanes Inc. as a corporation with equal participation from all involved and through which the group's business affairs were to be handled.

In conversations last year, López contended that $14 million had gone through the Tucanes Inc. account, and that his client did not receive "one penny" of it. Although the original complaint did not specify an amount of money, an equal distribution of $14 million would have amounted to close to $3 million for Higuera.

López would not comment on the case, citing the confidentiality agreement.

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Washington Report

Murray Anti-Piracy Bill Advances

By Bill Holland

Kevin MurrayWASHINGTON, D.C. -- A spokeswoman for California Sen. Kevin Murray, D-Culver City, says a committee in the Assembly may hold a hearing on his anti-piracy bill, SB 1506, in June. The Senate passed the bill in a 33-0 vote on May 24.

The legislation would impose fines and possible jail time on those who knowingly distribute a digital film or music file online without disclosing a true name, e-mail address and the title of the work.

Under the legislation, an adult would be subject to a misdemeanor fine of up to $2,500 and one year in a county jail. A minor could be fined up to $250 and face one-year imprisonment.

A person disseminating such files "to his or her immediate family," or within a restricted personal network accessible in a household, would be exempted.

The Murray spokeswoman says she is optimistic that the Assembly will pass the bill, pointing out that the legislation is co-sponsored by leading Republicans as well as Democrats in both the Senate and Assembly.

The Motion Picture Assn. of America pushed for the bill. The Recording Industry Assn. of America had no comment on the overwhelming Senate vote.

The Electronic Freedom Foundation opposes the bill, saying it violates privacy laws by requiring citizens to post their names and e-mail addresses even if they have not been found to have committed copyright infringement.

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International Section

Italy Enacts Tough New Copyright Laws

By Mark Worden

Giuliano UrbaniMILAN -- The enactment of Italy's "Decreto Urbani" (Urbani decree) on copyright was greeted by a hackers' revolt on May 24. The decree, named after its sponsor, culture minister Giuliano Urbani, imposes stiff sanctions on illegal file-sharers.

To express their displeasure, hackers managed to put the Web sites of collecting society SIAE, the Italian parliament, Urbani's own ministry of culture and the ministry of tax collection out of action for several hours.

Italy's music industry, on the other hand, responded favorably to the new legislation.

Luca Vespignani, secretary general of anti-piracy body FPM, tells ELW, "As far as we're concerned, the reaction of the hackers shows that the new law is effective, even if it has been the subject of considerable misinformation. It's simply not true, as some newspapers and politicians have claimed, that innocent kids will now go to prison if they get caught downloading files.

"The decree makes a clear distinction between illegal downloaders, who face fines of 154 euros ($188), and illegal uploaders, who put material up on the Web. It is the latter who could receive prison sentences of between six months and three years."

The Urbani decree modifies Italy's existing copyright legislation (law 633 of 1941, law 248 of 2000 and the country's application, in 2003, of the EU Copyright Directive) in three ways. The key element, acccording to Vespignani, is that it extends punishment for copyright infringement from those who do it for "financial gain" to those who do it "for profit." Says Vespignani: "The phrase 'for financial gain' meant that you couldn't be prosecuted if you simply shared an illegal file, as there was technically no money involved. 'For profit,' on the other hand, means doing something in order to save money, which is what happens when files are distributed for free."

The new legislation also includes an obligation on the part of service providers to state that all contents are legally registered. The law also extends SIAE's private-copying levy, which was previously limited to blank CD-Rs, to software and to "mass memory" technology such as computer hard drives. The levies are at the rate of 0.36 euros (43 cents) per gigabyte of memory and, in the case of audio and video software, 3% of list price.

As with most legislation, the Urbani decree underwent modification in the committee stage. The original draft imposed stiff sanctions on illegal file-sharers of film material but was lenient on music and software; this was subsequently altered. The new version was passed by the Senate on May 19 and became law five days later when it was published in the official legislative "Gazzette."

Silvio BerusconiIn its passage through the Senate, the decree was supported by Urbani's colleagues in Prime Minister Silvio Berlusconi's right-wing government coalition; left-wing opposition parties either voted against it or abstained.

Although the decree puts Italy ahead of several of its neighbors in terms of file-sharing legislation, enforcement is another matter. Even if sentenced, it is thought to be highly unlikely that "uploaders" would do jail time.



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WIPO Meets To Discuss Patent Law

By Lars Brandle

LONDON -- Representatives from member states of the World Intellectual Property Organization (WIPO) met May 10-14 in Geneva to discuss future directions to harmonize patent law. The Standing Committee on the Law of Patents (SCP) used its regular forum to review provisions of a draft Substantive Patent Law Treaty (SPLT).

The draft SPLT aims to simplify, streamline and achieve greater convergence among national and regional patent laws and practices. It covers a range of basic legal principles that govern the grant and validity of patents in different countries.

According to WIPO, the SCP did not reach a consensus as to the scope of its future work but agreed to continue discussion of the existing draft SPLT text during the present session.

"Discussions brought about greater mutual understanding and movement toward agreement on a number of issues," WIPO says in a statement, "such as the introduction of a grace period, the prior art effect of international applications under the Patent Cooperation Treaty that are filed before but published after the application under consideration, and the definition of novelty."

However, WIPO notes that there are still important differences of approach among delegations, and "further reflection is required."

According to WIPO, representatives of 71 member states, seven intergovernmental organizations and 27 non-governmental organizations attended the SCP.

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IFPI's Anti-Piracy Site Lists All Legit Online Services

By Juliana Koranteng


LONDON -- The International Federation of the Phonographic Industry (IFPI) has updated its 1-year-old anti-piracy Web site, Pro-music.org.

The site now features what is believed to be the first comprehensive directory of authorized music sites from around the world.

The directory offers links to more than 100 legitimate sites across the world, with an average of 500,000-plus tracks each.
When Pro-music launched in May 2003, it listed about 20 sites in the United States and Europe, with an average offering of about 200,000 songs.

The directory--which will be regularly updated--also offers information on the genres and number of songs available through each listed music site.

This week has seen the introduction of an Italian-language version of the service, Pro-music.it. A German edition rolled out last August, followed by a French version in January.

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Chinese Ringtone Service Sued for Copyright Infringement

SHANGHAI -- A Chinese company has been sued for allegedly offering copyrighted music for use as ringtones without the authorization of rights owners.

Handset manufacturer Capitel Co. Ltd. was selling mobile phones that allegedly had ringtones taken from works by composers Chen Gang and He Zhanhao, both members of the Music Copyright Society of China (MCSC).

According to Chinese press agency Interfax, MCSC claims it never licensed the songs to Capitel. The body had engaged in negotiations with the handset maker, but the talks reportedly fell apart after Capitel refused to pay for use of the copyrighted works.

MCSC subsequently filed a copyright-infringement lawsuit against Capitel with the Junior People's Court in Chaoyang District, Beijing.

MCSC is China's only officially recognized music rights organization. It is headquartered in Beijing and has branches throughout the country.

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Dream Makers & Deal Breakers

This Week's Dream Makers & Deal Breakers:

Michele Ballantyne- The RIAA has hired a senior counsel in the office of Senate minority leader Tom Daschle, D-S.D., as part of its lobbying team.

Michele Ballantyne will take the position of senior VP, federal government and industry relations. She will start work at the Washington, D.C.-based RIAA in June.

In Daschle's office, Ballantyne coordinated legislative strategy and managed caucus initatives for Senate Democrats. Prior to her work on Capitol Hill, she was special assistant to President Clinton and special counselor to Clinton White House chief of staff John Podesta from 1999 to 2001.

At the RIAA, she will replace David Sutphen, who recently left the organization for a position with Viacom.

Gary Sommerstein


- Los Angeles-based law firm Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro has named Gary Sommerstein as a partner and head of the entertainment law practice group. Sommerstein joined Christensen Miller in 2000 and works with a range of clients, including MGM Television, Morgan Creek Prods, KirchMedia, syndicated talk show host Larry Elder, producer Arthur Cohn and the Hallmark Channel.

Contributors: Bill Holland and Chris Gardner (The Hollywood Reporter)

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Events

Confab To Address Digital Entertainment

By Jill Kipnis

Entertainment and media attorneys will examine issues facing the digital industry at the Advanced Legal and Business Guide to Digital Entertainment Distribution conference.

The event, set for June 22-23 at the Park Hyatt in Los Angeles, will feature eight panel discussions that will delve into issues of digital music rights, digital rights management, fair use and copyright infringement, the status of peer-to-peer litigation and legal challenges for wireless and mobile content.

More than 30 leading attorneys and senior music-industry executives from companies including BMI, Sony Music, Universal Music Group and Warner/Chappell Music will be participating.

Keynote speaker Jonathan Potter, executive director of the Digital Media Assn., will discuss legislative initiatives affecting digital entertainment.

Attendees can receive 11.75 hours of Continuing Legal Education (CLE) credits from the State Bar of California, and up to 14 CLE credits from the New York State Continuing Legal Education Board.

The event is sponsored by the American Conference Institute.

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Starr To Address Future Of 1996's Telecom Act

Kenneth W. Starr- Former Solicitor General and Washington, D.C., Circuit Court judge Kenneth W. Starr will discuss the potential Supreme Court review of the overturning of the Federal Communications Commission's telecom unbundling regulations during a lunch June 2 at the National Press Club.

The event is sponsored by the Progress & Freedom Foundation, a research and educational organization that examines digital issues and their implications on public policy.

Starr's address, "The Supreme Court and the Future of the Telecom Act of 1996," will be followed with reaction from a panel that will include Christopher J. Wright, former FCC general counsel and current partner at the law firm of Harris, Wiltshire & Grannis.

Foundation senior fellow and director of communications policy studies Randolph J. May will moderate.

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