ELW brings to you weekly updates and analysis on entertainment law and news.

Breaking News

EC Throws Money Wrench In Sony-BMG Merger

By Wolfgang Spahr in Hamburg and Emmanuel Legrand in London

LONDON-- The European Commission has created new doubt about the viability of the proposed merger of the Sony and Bertelsmann music divisions.

The EC said Feb. 13 that its antitrust department will conduct an in-depth probe of the proposal. That means opponents of the plan--including indie labels body Impala and computer giant Apple--will have plenty of opportunities to state the case against consolidation.

The probe could hold up the merger for as much as four months. The EC's has a deadline of June 22 to reach its verdict.
A senior source at one of the majors tells ELW that the EC's decision was expected, but that Sony and BMG executives continue to focus on day-to-day businesses.

"The best we can do for our artists and for us is to concentrate on our job and do the best we can," says the source.
Bertelsmann officials declined comment.

In a Feb. 12 statement, the EC said it will investigate whether the proposed merger" might create or strengthen a collective dominant position between the remaining four major record companies--Universal, SonyBMG, Warner and EMI ---in the recording market."

The EC noted that the remaining four major players would hold about 80% of the recording market both on a European level and in most national markets in the European Economic Area. Taken together, the new entity, SonyBMG, and the No. 1 music company, Universal Music Group, would account for about half of the recorded music market.

European independent label's body Impala has been raising concern that the new Sony-BMG entity could leverage Bertelsmann's other assets in the media field and therefore create a situation of unfair competition.

Not surprisingly, Impala welcomed the EC's decision.

Michel Lambot, Impala president and co-chairman of Belgium's PIAS Group/Vital, said, "Impala and its members will continue to work with the Commission to provide further evidence on the horizontal and vertical concerns that this merger raises. It is our duty to safeguard artists and consumers."

IFPI Sues Belgian ISP In Copyright Action

By Leo Cendrowicz

BRUSSELS--IFPI Belgium is suing Belgian Internet service provider and telecoms operator Telenet for hosting file-sharing links on its Web newsgroups.

The group has asked a Brussels court to close many of the newsgroups, and will seek millions of euros in damages over lost revenue from songs illegally made available by the server.

London-based IFPI general counsel Allen Dixon says the bulk of the files attached to the newsgroups were MP3 music files.

"This is primary copyright infringement. They are copying files and making them available," Dixon says."IFPI has asked Telenet to take down these newsgroups, but they have refused."

Dixon says this was distinct from the music industry's attempts to shut down file-sharing networks like Kazaa and Morpheus as the newsgroups contain e-mails with files rather than just files.

"They are storing files on their own servers," he says."And they don't sit there for a nanosecond. They are there for days, weeks and months."

He added that this was not part of an international campaign, but was targeted at just newsgroups."They could just take them off with a couple of clicks of a mouse," he says.

At the end of January, Telenet had 417,000 broadband customers, and 258,000 telephony customers. According to press reports, U.S. cable operator Liberty Media is close to acquiring a majority stake in Telenet.

IFPI Belgium director Marcel Heymans says that after nine months of negotiations, during which Telenet initially indicated it would cooperate and remove the newsgroups, the ISP claimed it was a mere conduit, and was not liable.

"It is incomprehensible in my mind why they simply cannot shut them down," Heymans says."We don't want to close all the newsgroups. Out of thousands of newsgroups, about 300 distribute illegal files."

The court is expected to reach a decision next month.

The move comes just two months after four of five majors were sued by Belgian consumer group Test-Achats/Test Aankoop for installing anti-piracy mechanisms in CDs that prevent them being played on car stereos and computers.

The group said that EMI, Universal Music, Sony and BMG Music acted illegally in their efforts to prevent consumers from making private copies of CDs, since this is specifically authorized under Belgian law.
Washington Report

Broadcast Indecency Fines May Skyrocket

By Bill Holland

WASHINGTON, D.C.-- A streamlined version of a House bill to increase fines for broadcast indecency tenfold was marked up by a subcommittee panel and and sent to the full Commerce Committee.

Expect many amendments to be offered once the bill is debated as early as next week.

Some amendments will call for revocation of station licenses for repeat offenders; others will call for even larger fines than the $275,000 maximum, including a forfeiture based on a percentage of station revenue.

Other lawmakers may want to slap the fines on the media company that owns the property.

Veteran Hill legal sources are already warning that lawmakers must steer a clear course so that a final bill's tough provisions don't also abridge first- amendment free speech rights.

Copyright Arbitration Royalty Panel Set

By Bill Holland

WASHINGTON, D.C.-- The Copyright Office on Feb. 4 published the list of arbitrators eligible for service on a Copyright Arbitration Royalty Panel (CARP) in 2004 and 2005.

This list will be used to select the arbitrators who will serve on panels to determine the distribution of royalty fees or the adjustment of royalty rates.

The Copyright Office has employed outside arbitrators since Congress dissolved the Copyright Royalty Tribunal (CRT) in 1993, since it was considered inefficient. The CARP process faces a similar fate.

There is a pending bill to return to a government arbitration panel of judges following complaints that a CARP process on digital Webcaster rates proved to be unfocused and expensive. International Section

French Shop Owner Convicted In Piracy Case

ByEmmanuel Legrand

LONDON--The owner of a shop in Toulouse, France, was convicted on Feb. 10 for producing illegal copies of sound recordings with CD-R equipment.

The criminal court action followed complaints from French collecting societies SCPP, SDRM and SPPF, acting on behalf or rights owners. They filed charges against the owner of the shop for breach of French copyright law two years ago.

The shop was offering customers pay-for replications of pre-recorded CDs. The shop owner argued that he was acting within the law, which authorizes copies for home usage.

However, the tribunal determine that he has breached the law by selling CDs without authorization from rights owners.

The shop owner has received a suspended three-month jail sentence, all his material has been confiscated and he will have to pay SCPP 27,360 euros ($35,000) in damages. The defendant has 10 days following the judgement to appeal.

"The tribunal has made a decision we are satisfied with," says SCPP legal director Laurence Marcos."The fine is in line with the prejudice we evaluated."

Marcos adds that French courts and judges seem to be much more sensitive to piracy and copyright infringement cases affecting intellectual property.

"We have won quite a few cases in recent times and we hope they have a deterrent effect," she comments.

"A lot of people offer services that look like they are legal but actually show a complete disregard for intellectual property rights. We always try to obtain the toughest judgements to deter from these practices," Marcos adds.

Canadian ISPs Asked To Disclose File-Sharer Identities

ByLarry LeBlanc

TORONTO--The Canadian Recording Industry Assn. (CRIA) has filed motions in the Federal Court of Canada to require five Canadian Internet service providers to disclose the identities of large-scale pirates who are illegally distributing digital music files over public networks.

CRIA is seeking to identify large-scale infringers using Internet services operated by Bell/Sympatico, Rogers Communications, Shaw Communications, Telus Corp. and Videotron Telecom Ltd.

CRIA had announced in December that it was taking legal steps against uploaders who are illegally distributing music copyright files. Dream Makers & Deal Breakers

Gibson Guitar Names Cherry General Counsel

By Samantha Chang

NEW YORK--Veteran entertainment executive Joel Cherry has joined Gibson Guitar Corp. as general counsel, senior VP and corporate secretary. He will be based in Nashville.

Cherry has represented mega-stars such as Willie Nelson, Jimmy Buffett, Brooks & Dunn and Tim McGraw, as well as LucasFilms and Estefan Enterprises, the company founded by Gloria and Emilio Estefan.

"His background in entertainment management and his leadership experience with major organizations and artists will further strengthen Gibson's profile around the globe," chairman/CEO Henry Juszkiewicz says.

From 1979-1992, Cherry was a partner in Atlanta-based entertainment law firm Katz & Cherry. He then joined EMI North America as head of business affairs.

New York Financial/Entertainment Firms Merge

By Samantha Chang

NEW YORK--Janover Rubinroit LLC, an accounting and financial advisory firm in Long Island, N.Y., has merged with Rosenzweig & Maffia, a Manhattan-based entertainment and sports accounting group.

The combined firm will operate under the Janover Rubinroit name.

The Rosenzweig & Maffia office will remain in place and later this year will officially become known as the New York office of Janover Rubinroit, LLC. The New York office will continue to expand, according to executives.

"The merger extends our metro-area presence into Manhattan, bringing us closer to many of our clients," says Michael Goodman, managing partner of Janover Rubinroit.

The Enhanced Role Of Mediation in Artistic and Creative Disputes

By David D. Stein

About 80%-98% of all lawsuits settle before trial. Personally, my experience doing litigation for 20-plus years makes me believe that the number is closer to the higher end.

The debilitating costs, the emotional turmoil, the prevailing atmosphere of uncertainty and the staggering attorney fees will drain and exhaust all but the most unflappable litigants. It is hardly a wonder that most cases settle.

For the past 13 years, I have been the litigation partner for a small firm that specializes in intellectual property, with an emphasis in the music recording business, film and the arts.

During that time, I have observed that artists are particularly ill-equipped to endure the slings and arrows of civil litigation. The mind-numbing stress and unending umbrage of actually being a participant in litigation is especially wearing on those litigants who make their living using their artistic sensibilities. Very few creative people can weather such a storm without having their creative abilities, at least temporarily, tarnished.

An artistic dispute does not need to rise to the level of full-blown litigation in order to ruin an otherwise creative environment. Whenever an artistic product is the result of a collaborative effort, the situation is ripe for conflict and the resulting spoliation of the creative process.

Collaborative artistic endeavors involve creative people, often with large egos, working together in a give-and-take dynamic to forge from their disparate visions a unified work. Although these creative types are usually intelligent and capable, they often lack the experience, tools, and skills necessary to work through impasse and resolve inter-personal communication failures.

Oftentimes the event that causes an irreparable split is the harbinger of that most feared of all happenings: success.

You don't have to be a psychologist to know that many people live with a fear of success. Perhaps it has to do with facing up to doing what they always thought they wanted to do and fearing that they will ultimately fail. I don't know, and for purposes of conflict management and mediation, it really doesn't matter.

The muse of creativity is a fickle, mysterious and capricious creature. Sometimes significant interpersonal conflict is an integral part of the creative process. It is not for a mediator, lawyer, manager or label representative to attempt to create an enduring friendship between collaborators.

The dispute resolution specialist's goal in such a situation is pure behaviorism: To manage the conflict in such a manner as to allow the authorship of a satisfactory end product. Period. This task should be done in a manner that provides for limited amount of bloodshed, if such precautions seem necessary. The best way to assure obtaining the goal is for the parties to create a mutually agreeable plan.

The prevailing complaints are all too often the same. It turns out that although everyone was able to work together effortlessly when poor and without prospect, once it seems as if they are going someplace, certain members engage in actions, mannerisms, or ways of making creative contributions that are insufferable to one or more of their collaborators. The subjects of these criticisms feel just as strongly about their accusers.

The coincidental good news is that for conflict management purposes the dynamic of treating the symptoms, or behavior, often has a hugely beneficial impact on the underlying causes.

It is amazing what can be accomplished utilizing a specially trained mediator in a daylong session. To some artists, particularly young people and those new to being a professional, it can come as a revelation that they don't have to be friends with their co-workers. They just have to be able to work together. Again, the goal is to manage the conflict, not necessarily to resolve it, to create a mutually agreeable way to work together.

It sounds so simple, but it's often the case that once the participants get a handle on the fact that they don't have to live out some Beatles' movie fantasy of loving companionship, a figurative cloud lifts from the room and sun shines in.

You see it is OK not to like the people you work with and they need not like you. It is amazing how many times the key to managing creative workplace conflict is a variation of this theme.

There is no more polarizing an event than to introduce a lawyer into the situation. If one party has a lawyer, then all need lawyers, direct communication becomes a thing of the past and expenses mount, as does resentment.

It is time to stop treating the civil justice system as the only viable alternative to armed conflict and move disputes to dispute management and mediation services as quickly as possible.

The undeniable fact of the matter is that suing in order to enforce civil rights is ruinously expensive, grindingly slow and often ultimately unsatisfying. Creative people should participate in the creation of their dispute resolution plan, not leave it to some judge or jury.

As we move into the new millennium and attorney fees, court costs and expenses continually escalate while artist compensation and the financial margins in the entertainment business erode, it is time to get smarter about how we manage conflict.

It is essential that entertainment lawyers, managers, agents and other artist representatives recognize that disputes involving artists have to be handled with a creative approach. The knee-jerk reaction of resorting to litigation should be avoided.

David Stein is a partner with Simons & Stein in Oakland, Calif.
Case Analyses

Artists Seek Reprocity In Endorsement Deals

By Samantha Chang

New York--As entertainers become brands in their own right, they're increasingly seeking "reciprocal morals" clauses in their product-endorsement deals.

The clause enables an artist to terminate an association with a product if the advertiser comes into general disrepute.

For example, a wholesome pop star who appeals to a teen audience might want to end her association with a company if it is found that the product she endorses is being manufactured in a third-world country using illegal child labor.

By doing this, the artist protects her image, which could be hurt by a negative association with a corporation and therefore could damage the artist's career.

The clauses are generally not part of recording contracts, being limited mainly to product-endorsement deals, where the image of a particular product can become closely linked with that of the artist.

"These [endorsement] deals are critical to launching and keeping an artist in the public eye," says Robert Darwell, an attorney with Sheppard Mullin Richter & Hampton in Los Angeles. The firm advises MGM, Fox Studios, Walt Disney, Warner Bros. and Sony Pictures.

The trend is a direct result of the increasing cult of celebrity, the public's heightened sensitivity following the recent hailstorm of corporate scandals and the downturn in the music industry, observers note.

The standard morals clause in product-endorsement deals--which enables the advertiser to end a contract if the endorser behaves inappropriately--has been par for the course for years.

Two years ago, TV host Bill O'Reilly and thousands of his "Factor" viewers successfully pressured Pepsi-Cola into canceling an ad campaign featuring hip-hop artist Ludacris.

O'Reilly and his fans argued that the lewd rapper and, by association Pepsi, were "subverting the values of the United States." Pepsi immediately ended its endorsement deal with the rapper, saying it wasn't aware of the "extent to which his material was sexually explicit."

Lawyers say that the recent Janet Jackson/Justin Timberlake stunt at the Super Bowl would likely invoke a standard morals clause, although McDonald's--which uses Timberlake as a spokesman--has not yet made any moves.

This heightened sensitivity is due to the increased speed with which media attention affects one's image, says Ken Anderson, a partner with Loeb & Loeb in New York.

"Artists are thinking more carefully about the future. Money doesn't help a tarnished reputation," says Anderson, who advises the Dixie Chicks, Will Smith, the Beastie Boys and Phish.

For example, "Who would want to be known as having been an Enron spokesperson?" Darwell asks.

While the reciprocal morals clause is a recent phenomenon, it's one that will take wing, observers predict. Indeed, it's a hotly contested issue these days, says Scott Zolke, a partner with Loeb & Loeb in L.A.

"Most artists understand that career longevity is fleeting. Therefore, it becomes important to protect their career by protecting their image," says Zolke, who advises Ryan Seacrest, Carson Daly, Rick Dees, Rush Limbaugh and Clear Channel Communications.

While it's hardly a make-or-break issue right now, it could become a sticking point as more artists develop themselves as brands.