Film / TV

Morals Clauses: Past, Present and Future

Morals Clauses: Past, Present and Future
By Caroline Epstein* Download a PDF version of this article here.  

Introduction

Imagine you are the chief executive of a major news network. You have just signed a multi-million dollar contract with your top news anchor, Fred Fabricate. Just as you are congratulating yourself on your shrewd negotiations, you notice a troubling headline trending on Facebook, Twitter, and your Daily Beast Cheat Sheet: “Fred Fabricate’s Web of Lies!” According to the articles, your golden boy has falsified details of past news reports. You call your lawyers in distress, and thankfully they have a solution. Fabricate has a morals clause in his contract with the network, and his conduct is grounds for termination of the agreement. You sigh in relief, thankful that this disaster can be resolved with minimal financial liability. This example is adapted from the recent fallout surrounding Brian Williams and NBC News. Unfortunately for NBC, the separation was not as seamless as the hypothetical above. Williams has been a presence on the Network since 1993, and was a rare bright spot in the struggling network news industry.[1] Since the revelations of Williams’ exaggerations of his experiences in Iraq, NBC has scrambled to perform damage control for their popular Nightly News program.[2] Initially, Williams issued a public apology and stepped away from the show for several days.[3] Then, rumors began to swirl that Williams’ embellishments went beyond this singular occurrence. A six-month suspension without pay quickly followed.[4] Ultimately, Williams was jettisoned to MSNBC, NBC’s ratings-challenged cable analogue.[5] Concerns remain whether Williams can “win back the trust of both his colleagues and his viewers . . . [and] abide by the normal checks and balances that exist” for those in the news industry.[6] The incident “set off a debate about the level of trustworthiness required from someone who explained the world to nearly 10 million people a night”; however, NBC’s primary concern was “protecting the integrity of its news operation, once called the crown jewel of the company.”[7] NBC made clear that the incident provided a right to terminate Williams pursuant to the morals clause in his personal services contract. The Fabricate hypothetical and its real-life counterpart are merely illustrations of how a morals clause might be activated in a talent contract. A morals clause is:
A contractual provision that gives one contracting party (usually a company) the unilateral right to terminate the agreement, or take punitive action against the other party (usually an individual whose endorsement or image is sought) in the event that such other party engages in reprehensible behavior or conduct that may negatively impact his or her public image and, by association, the public image of the contracting company.[8]
The television, motion picture, athletic, and advertising industries all include morals clauses in talent agreements.[9] The value of a morals clause lies in the protection it provides to the contracting company.[10] Companies employ talent to achieve “meaning transference”; they aim to use a “‘celebrity’s established familiarity and credibility’ to make a product [or] project ‘similarly familiar and credible’ to consumers.”[11] Unfortunately, meaning transference cannot be limited to only positive associations with talent; incidental transfers of negative meanings may also occur when talent misbehaves in a professional or personal context.[12] Businesses spend considerable sums of money to cultivate the ideal image, and negative associations can wreak havoc upon their efforts.[13] Because a morals clause allows the contracting company to swiftly sever its relationship with troublesome talent,[14] it is an excellent form of corporate protection.[15] This note will argue that morals clauses remain essential and influential in entertainment contracts of all kinds, despite the considerable changes in social norms since they were first implemented, and the obstacles such changes represent. Part I will begin with a discussion of the history of morals clauses. Part II will examine the two categories of morals clauses: express and implied. Part III will address the use of morals clauses in various sectors of the entertainment industry: motion picture, television, athletics, and advertising. Part IV will discuss the outgrowth of reverse morals clauses, which protect the employee from improprieties of the employer. Part V will address drafting concerns, and Part VI will explore the implications of social media and the current moral climate.

I. History of Morals Clauses

Despite the increasing prevalence of cases involving morals clauses in the public consciousness, the clauses themselves are not new and history provides important context in understanding them. Morals clauses were successful and unabashed contract mechanisms used not only to sever contracts due to moral misconduct, but also to censor political activity. The seminal case that triggered the use of morals clauses in talent contracts, was the moral impropriety of Fatty Arbuckle.[16] In 1921, Comedian Roscoe “Fatty” Arbuckle had just signed a three-year, three-million-dollar contract with Paramount Pictures when a female guest at his party was found severely injured in his hotel suite.[17] After the guest died from her injuries,[18] Arbuckle was arrested on rape and murder charges, turning public opinion against the previously beloved performer.[19] Although he was ultimately acquitted at trial, the court of public opinion had already made its damning judgment.[20] Universal Studios was not involved with the Arbuckle case, but the fallout from the incident inspired Universal to begin including morals clauses in all of their talent contracts.[21] During the late 1940s and 1950s, movie studios more frequently used the clauses to challenge political expression than immoral conduct.[22] For example, morals clauses were used as grounds for dismissal of controversial talent known as the Hollywood Ten.[23] These ten influential actors and screenwriters were jailed and blacklisted by big movie studios for publicly denouncing the activities of the House Committee on Un-American Activities (HUAC) during its investigation of Communist influence in Hollywood at the height of the McCarthy Era.[24] “Fearing widespread boycotts amid a shrinking market share of consumer leisure spending, studios used the morals clause, a customary clause in talent agreements for twenty-five years, to terminate and disassociate themselves from the scandalized Hollywood Ten.”[25] The controversial activity and its perceived impact on the studio’s image were cited as grounds for their dismissal.[26] The three most notorious of the Hollywood Ten cases were litigated before the Ninth Circuit Court of Appeals between 1947 and 1957 and are referred to as the “Hollywood Ten Trilogy.”[27] In Loew’s, Inc. v. Cole,[28] MGM[29] dismissed a member of the Hollywood Ten, Lester Cole, more than a month after he testified before HUAC.[30] Cole sued MGM based on the suspicious delay between his testimony and firing, but the Ninth Circuit ruled that the damage dealt to the studio’s image was sufficient grounds for his dismissal.[31] The parties eventually settled the case.[32] The other two cases in the trilogy, Twentieth Century-Fox Film Corp. v. Lardner[33] and Scott v. RKO Radio Pictures, Inc.,[34] relied on similar reasoning, finding in favor of the studios at the expense of Fox writer, Lardner, and RKO producer and director, Scott. In both cases, the courts relied on Cole’s rationale that “the natural result of the artist’s refusal to answer the committee’s questions was that the public would believe he was a Communist.”[35] Because much of the population was opposed to communism, this was considered a violation of the express morals clause, and constituted grounds for termination.[36] In recent decades, morals clauses have become even more common in talent contracts, but the changing moral landscape has posed challenges to their efficacy and legality. Nonetheless, the growth of social media, the greater publicity given to once private information, and the speed with which private information is disseminated have augmented the need for morals clauses.[37]

II. Types of Morals Clauses

There are two basic types of morals clauses, express and implied. Each represents different considerations on the part of the talent and the contracting company and each poses unique interpretative challenges.

A. Express Morals Clauses

Express morals clauses are drafted as part of the employment agreement. A typical express morals clause reads as follows:
The spokesperson agrees to conduct herself with due regard to public conventions and morals, and agrees that she will not do or commit any act or thing that will tend to degrade her in society or bring her into public hatred, contempt, scorn or ridicule, or that will tend to shock, insult or offend the community or ridicule public morals or decency, or prejudice the [contracting company] in general. [Contracting company] shall have the right to terminate this Agreement if spokesperson breaches the foregoing.[38]
Clauses can range widely based on the talent and contracting company involved, as well as the context of the agreement.[39] The standard punishment for violation of a clause under New York and California Law, where the clauses are frequently invoked, is termination of the agreement.[40] New York and California case law define the scope of behavior prohibited by morals clauses, which goes beyond a mere requirement to obey the law, and includes a duty “to refrain from behavior that tends to ‘shock, insult, and offend the community and public morals and decency,’ bring the artist into ‘public disrepute, contempt, scorn and ridicule,’ or hurt or prejudice the interests of, lower the public prestige of, or reflect unfavorably upon, the artist’s employer or the industry in general.”[41] Loew’s, Inc. v. Cole, Twentieth Century Fox Film Corp. v. Lardner, Scott v. RKO Radio Pictures, Inc.,[42] and Nader v. ABC Television Inc.[43] are the primary cases exploring morals clauses in talent contracts under contract law principles[44] and help illustrate how an express morals clause operates.[45] Compliance with express morals clauses is difficult because their requirements can be unpredictable, a problem that is further exasperated by the tremendous consequence of violating the clause. When talent knows an express morals clause is included in their contract, it is in their interests to moderate their actions to minimize the possibility of breach. However, moderation is not always easy. For instance, the members of the Hollywood Ten probably would have risked termination based on the slightest opposition to HUAC, because of the political tenor of the times.[46] In Nader, violation of the “disrepute” trigger would be impossible to predict ex-ante because the reviewing court only found it enforceable after external review, based upon an inherently unpredictable reasonableness standard.[47] Therefore, this lack of predictability can present distinct challenges to talents’ compliance with an express morals clause. Because of the cost and unpredictability of morals clauses, they can be a point of contention between artists and employers in contract negotiations. Given that the current moral climate is more socially liberal than eras past,[48] many employers no longer require them and will delete them if necessary in a negotiation.[49] However, if a morals clause is necessary, there are several ways for companies to reduce the impact of a morals clause.[50] Lawyers can draft morals clauses to require plaintiffs to show evidence of a negative reaction before the court will find a violation.[51] In addition to contractual limitations on morals clauses, state law can also impact their enforceability. New York and California provide the broadest protections for employees and do not allow employers to make decisions based on an employee’s lifestyle.[52] In contrast, Delaware does not have any laws of this nature, meaning that unless the basis of termination is a protected characteristic such as race, religion, gender or age, the employer can be the judge of conduct warranting termination.[53] In all states, clauses that improperly infringe on a performer’s rights, such as First Amendment rights guaranteed by the United States Constitution, are not permitted.[54] Although express morals clauses remove some of the ambiguity associated with permissible employee behavior, lack of predictability as to when they might be triggered undoubtedly persists. As social norms continue to shift and evolve, this issue will only become more acute.

B. Implied Morals Clauses

Morals clauses can also be implied from principles of common law, which impose a duty upon talent to refrain from activities that are detrimental to the employer or that might devalue the talent’s performance.[55] Whether a morals clause should be implied is a question of fact, and requires an evaluation of the circumstances of the employment and conduct at issue.[56] Under both New York and California law this obligation of good conduct is considered an implied morals clause and is recognized as grounds to terminate an employment agreement.[57] Importantly, an implied moral obligation does not arise solely in the absence of an express provision; rather, these common law duties exist alongside any provisions in an employment agreement.[58] There are hurdles to establishing this implied duty. Principally, an implied morals clause requires a common law employment relationship, which is more difficult to establish in the current film industry than it was in the past for several reasons. One reason for this is the shift from the “star system,” which engendered exclusive contracts between talent and studios, to the “free agency system,” where actors work with many studios and function more like independent contractors than common law employees.[59] Another reason is that the tax-motivated system of creating “loan out” corporations challenges the employment relationship. “Loan outs” contract directly with studios to provide the personal services of the actor. This arrangement potentially destroys privity between the studio and actor by making the actor the common law employee of the loan-out rather than the studio.[60] Nonetheless, for the purposes of employment law, actors are traditionally considered common law employees, rather than independent contractors in New York and California courts.[61] Furthermore, both jurisdictions disregard the “loan out” when determining if there is an employment relationship.[62]

III. Application of Morals Clauses in Entertainment Industries

Morals clauses are common in many sectors of the entertainment industry. This section will explore the application of morals clauses to the television, motion picture, sports, and advertising industries.

A. Morals Clauses in the Television Industry

Historically, branding has dominated the television industry. Television programming was once entirely dominated by advertisers, who bought time from a network and then created programming.[63] Because the sponsor held a franchise on his time period, network consent was considered pro-forma and “[m]any programs were ad agency creations, designed to fulfill specific sponsor objectives.”[64] In the mid-1950s, numerous factors converged to bring an end to sponsor-franchised programming, and control shifted to the networks. Advertisers nonetheless provide the primary support for the medium, and when their support falters, the programming will often change to accommodate them and maintain their backing.[65] Because of the historical importance of advertising in the television industry, morals clauses are essential to protect advertising relationships, the brand of productions, and company image.[66] “[N]etworks have adopted a conservative bias [toward programming], with no risks and no controversy that would exclude, alienate, or miss parts of the audience.”[67] The talent, program, and sponsors are still closely related, and morals clauses are used to quickly sever the connection with talent that poses a threat to public image.[68] Morals clauses have remained important in the television industry. The effect of these clauses has been shown in high profile terminations of television actors, newscasters, and reality television stars.
1.Television Actors
The Southern District of New York addressed the issue of morals clauses in television actors’ contracts in Nader v. ABC Television.[69] Michael Nader portrayed Dimitri Marick on “All my Children” from 1991 to 1999. When ABC asked Nader to return to the show in 2000, his agreement contained the network’s standard “morals” clause, allowing ABC “to immediately terminate the contract if Nader engaged in conduct that ‘might bring [him] into public disrepute, contempt, scandal or ridicule, or which might tend to reflect unfavorably on ABC.’”[70] During the contract Nader was arrested and charged with criminal sale of cocaine and resisting arrest. ABC immediately suspended Nader and he entered rehab.[71] When ABC informed Nader that they were terminating his employment contract for his violation of the morals clause, Nader filed a lawsuit challenging this decision.[72] The court found the morals clause valid, and held that Nader had breached it due to the media coverage of his arrest.[73] Several other high profile disputes involving television stars’ contractual morals clauses have dominated the news in recent years. Most prominent is that of Charlie Sheen, who WBTV fired from its television show “Two and a Half Men” after he exhibited erratic behavior and publicly ridiculed the show’s executive producer Chuck Lorre.[74] He challenged his termination in a $100 million lawsuit.[75] This conduct is a classic example of what might fall within a traditional morals clause violation; however, Sheen’s contract did not have a traditionally worded morals clause.[76] The “moral turpitude clause” in his contract essentially required a felony conviction before termination could be triggered, making the process more complicated.[77] As a result, WBTV relied upon the “force majeure” clause in the contract instead, citing Sheen’s incapacitated state as grounds for his termination.[78] The parties eventually settled the case.[79] Another example of a high profile dispute occurred when Mel Gibson made anti-Semitic remarks during an arrest for drunk driving, and ABC subsequently cancelled his contract for their miniseries on the Holocaust.[80] A recent and ongoing example is the mounting allegations of sexual misconduct Bill Cosby is facing, and the considerable media attention it has received, which led NBC and Netflix to shelve planned collaborations with him.[81] Although the Cosby situation does not appear to be a case involving a morals clause, it raises interesting implications for the value and image of Cosby’s legacy as America’s favorite dad, Heathcliff Huxtable.[82] Overall, morality clauses in television actors’ contracts illustrate the contracting company’s concerns with public opinion and most importantly, the talent’s ability to work. Because television is dependent on a regimented production schedule and good ratings, factors that might derail filming or sour public opinion could prove fatal.[83] For example, although Charlie Sheen’s remarks were alarming, the public seemed to revel in the entertainment value of his outlandish public persona.[84] The bigger concern seemed to be Sheen’s questionable lifestyle habits affecting his performance, and the producer’s general desire to eliminate him from the cast.[85] The Nader case involved similar concerns, given the incapacitating nature of Nader’s cocaine addiction and the bad press it engendered.[86] On the other hand, the cases of Mel Gibson and Bill Cosby represent different concerns because the morally offensive allegations turned public opinion against them. Cosby has suffered widespread shaming in the media, especially given his towering cultural presence beforehand.[87] To this day, it appears Gibson’s career has yet to recover.
2. Newscasters
Morals clauses have also been an issue for television newscasters. These clauses are key for news broadcasters, because newscasters must maintain credibility in order for viewers to trust them. Understandably, the public seems to have less tolerance for the controversial antics of those they trust to relay the news. Bad publicity that might undermine their credibility can wreak havoc on their popularity and the network’s viewership. For example, Alycia Lane, a popular Philadelphia anchorwoman on a CBS subsidiary, attracted considerable negative public attention when she was arrested and charged with assault in New York City.[88] Lane allegedly hit a female police officer and called her a homophobic slur.[89] Although she pled not guilty and contested the charges, the incident activated the morals clause in her contract, and CBS terminated her employment.[90] Lane’s alleged reprehensible statements proved to be the downfall of her career as an anchorwoman. Another incident involved Virginia Galaviz, a reporter covering the “Crime Beat” for a TV station in San Antonio who was similarly terminated based on a morals clause in her contract.[91] Galaviz was involved in three incidents that garnered negative media attention. She had a confrontation with a city councilman whom she was dating, she had an interaction with another woman whom her boyfriend was dating, and an altercation with her fiancée in which both of them were arrested.[92] Although she challenged her termination and argued that the language of her morals clause was ambiguous, the trial and appeals court both held that her conduct was covered and her termination was justified.[93] Understandably, an arrestee with a violent record is no longer considered a credible crime reporter. Brian Williams, discussed in the introduction, is the most recent example of a morals clause affecting a newscaster. Williams’ contract contained the standard NBC News morals clause: If artist commits any act or becomes involved in any situation, or occurrence, which brings artist into public disrepute, contempt, scandal or ridicule, or which justifiably shocks, insults or offends a significant portion of the community, or if publicity is given to any such conduct … company shall have the right to terminate.[94] NBC executive Stephen Burke and Comcast CEO Brian Roberts had the ultimate responsibility of determining whether Williams breached his duties under the clause.[95] The fallout surrounding Williams has led to a major loss of credibility for both himself and NBC. His trustworthiness ranking has tumbled,[96] and the network has turned against their former star.[97] NBC lost nearly 700,000 viewers in the wake of the scandal, and it is still unclear if the scandal has permanently damaged the network’s image and ratings.[98] Due to Williams’ presence as a major news anchor with his own show, it is curious that his contract would contain the same morals clause as all other NBC News employees. Because of this clause, even if producers preapproved his comments and his lies, any resultant public disrepute would still activate the clause. Given his relative youth and success, it will be interesting to see if his reputation can be rehabilitated. His ultimate fate will be telling for the implications of bad press and the loss of credibility for television newscasters.
3. Reality Television Stars
Finally, morals clauses have become a huge issue within the burgeoning reality TV industry. Americans delight in the misbehavior of these stars and live vicariously through their transgressions. Catering to this public demand, while censoring the more outlandish actions and outbursts of talent, has posed a legitimate challenge to TV networks. Networks have been using morals clauses in an attempt to constrain the more controversial reality stars. This phenomenon is aptly illustrated by the recent examples of controversies surrounding reality shows “Duck Dynasty” and “Here Comes Honey Boo Boo.” Phil Robertson, the patriarch of Duck Dynasty’s starring family was suspended by A&E after making anti-gay remarks in GQ magazine.[99] Although specifics of his agreement were not revealed, it was widely speculated that his suspension was based upon a morals clause in his contract with the network.[100] When A&E ended his suspension amidst fan protestation, they “saw ratings plummet nearly 50 percent from the show’s heights.”[101] Similarly, after revelations that “Here Comes Honey Boo Boo” star “Mama June” Shannon was dating Mark McDaniel, a convicted sex offender who had recently been released from prison after a decade behind bars, TLC cancelled the show.[102] Shannon lost payment for the early termination of the contract based upon the morality clause in her agreement with the network.[103] Because the other cast members did not violate their morals clauses, they still received the full benefit of their contracts.[104] These examples demonstrate the ever-present risks facing reality TV producers: “handing worldwide platforms to dubious people in questionable circumstances” and hoping those people will not implode until the show’s popularity is already in decline.[105] The consistent popularity of reality shows, built upon the misbehavior of their stars, demonstrates that the American public is far less concerned with the good morals of reality stars. However, morality clauses are essential to protect the network’s interests in the event that a talent’s antics polarize public sentiment and destroy ratings.[106]

B. Morals Clauses in the Motion Picture Industry

Movie studios also use morals clauses in contracts with talent. While the motion picture industry also faces the branding and advertising concerns of the television industry, these concerns are mitigated because motion pictures developed more independently from advertising than television did.[107] Although movie executives use product placement and co-marketing to “close the gap on budgets,”[108] advertisements are not as essential as they are to television networks. Motion pictures lack dependence on advertisers, but that does not render morals clauses irrelevant. The industry employs morals clauses to protect the value of a film’s brand. Studios and their marketing partners have an economic interest in keeping a movie’s brand value high, and morals clauses insure that talent does not compromise this value.[109] As brand value increases, actors or actresses that become a liability to maintaining this value are eliminated.[110] The protective value of a morals clause in the motion picture context is therefore largely dependent on the specific parties and projects at issue.[111] Illustrative examples include the high profile cases Loew’s, Inc. v. Cole,[112] Twentieth Century-Fox Film Corp. v. Lardner,[113] and Scott v. RKO Radio Pictures, Inc.,[114] discussed in Part I. Additionally, the movie industry has several noteworthy prohibitions on express morals clauses. Both the Director’s Guild of America and the Writer’s Guild of America expressly prohibit morals clauses in any agreements signed by guild members as a response to the removal of screen credit for violators.[115] Although the Screen Actors Guild does not have such a blanket prohibition, many contracts between studios and major talent do not contain a morals clause because these famous actors are influential enough to eliminate this contractual language.[116] As a result, a morals clause is often the first thing stricken from a contract.[117] However, studios may attempt other methods to coerce talent into behaving properly, such as threatening liability for monetary damages to a production or distancing a production from the studio.[118] Movie studios have concerns similar to those of television networks when it comes to morals of the talents. Due to huge production budgets and the importance of ticket sales, incapacitated talent or bad press can derail the success of a movie. Therefore, studios consider morals clauses important to protecting their bottom line.

C. Morals Clauses in Sports Contracts

Morals clauses have also existed throughout the history of professional sports. Given the “tough guy” image cultivated by many professional athletes, morals clauses have different implications in the context of sports. The harbinger of the modern sports’ morals clause was that of Babe Ruth, who had a provision in his contract requiring him to abstain from alcohol and to be in bed by 1:00 am during the baseball season.[119] Although his clause differed from modern morals clauses because violation did not result in termination of his contract, it did allow legal action upon breach, laying the foundation for the modern usage of morals clauses in professional sports.[120] Morals clauses have become routine in national league contracts. “As of 2008, the collective bargaining agreements in the National Football League,[121] National Basketball Association,[122] National Hockey League,[123] and Major League Baseball[124] each contained a standard player agreement that included a morals clause.”[125] Collective bargaining agreements leave little room for negotiation between individual players and teams on the subject of morals clauses because they are negotiated for the league as a whole.[126] Morals clauses in athletes’ league contracts are employed by teams and leagues in an attempt to moderate the athletes’ off-duty behavior. For example, the NFL suspended Adam “Pacman” Jones for the entire 2007 season after being arrested five times in less than two years. “Despite being reinstated by the NFL with clearly delineated requirements for avoiding subsequent suspensions, Jones became involved in an alcohol-related fight with a member of his security team during the 2008 season,” resulting in another suspension.[127] Morals clauses are not always effective in this context. In an effort to circumvent these clauses, the leagues have been lenient in their interpretation of immoral conduct. For example, when Jayson Williams was indicted on manslaughter charges in 2002, his agent argued that the morals clause in his contract did not apply because the clause required intentional moral impropriety, and there was no allegation that his conduct was intentional.[128] Similarly, an NBA Grievance Arbitrator reinstated player Latrell Spreewell’s contract with the Golden State Warriors after finding that choking one’s coach does not meet the NBA’s “moral turpitude” standard.[129] When videos surfaced of Baltimore Ravens running back Ray Rice knocking unconscious his now-wife Janay in an Atlantic City elevator, he was initially suspended indefinitely, but won his appeal and was reinstated.[130] After public sentiment turned against Rice, the Ravens, and the NFL for how they handled the incident, the NFL strengthened its domestic violence policy.[131] As these examples illustrate, although national sports leagues attempt to control their athletes’ behavior through morality clauses, they have not been entirely effective.

D. Morals Clauses in Advertising

Morals clauses are prevalent in advertising contracts between brands and spokespeople. Many companies use celebrity spokespeople to distinguish their brands from other similar products.[132] In choosing celebrity endorsers, advertisers emphasize “trustworthiness, values, image, reputation and publicity risk.”[133] Studies illustrate that celebrity endorsements affect consumers favorably and commingle the public perception of the celebrity and the product.[134] However, this so called “meaning transference” can be a double-edged sword. When the celebrity offends the public, this negative perception can transfer from the person to the product.[135] “Advertisers worry that once a celebrity’s image is connected with a product, it may become an albatross if it is besmirched by allegations of impropriety.”[136] Therefore, companies often include morals clauses within endorsement contracts that allow them to protect themselves from these risks by quickly severing ties and disassociating the connection between offensive talent and products.[137] A typical morals clause in an endorsement contract is similar to a standard express morals clause, but the talent can negotiate for narrower clauses.[138] Courts have held that an express morals clause gives the brand owner a reasonable amount of time to determine the public perception of a clause violation and decide if they want to terminate the endorsement arrangement.[139] Although these clauses provide an exit opportunity for brand owners, endorsement agreements are still risky. Even if the fallout is minimized, there is potential for damage based on existing products featuring the celebrity’s likeness, or the previously established association between the celebrity and the brand.[140] A striking example of the drawbacks of meaning transference is illustrated by the misstep of the “creator of branding,” P&G. After choosing spokeswoman Marilyn Briggs, P&G suffered fallout when an adult film she starred in was released the same week as millions of Ivory soap boxes featuring her likeness.[141] Numerous reviews of the film mentioned the association, and “Ivory’s association with ‘purity,’ ‘mildness’ and ‘home-and-hearth values’ was fiercely bruised.”[142] Many other similar mishaps have occurred with companies and their spokespeople in recent years.[143] For instance, when pictures surfaced of Kate Moss doing cocaine, retailer H&M and designers Chanel and Burberry dropped her from their advertising campaigns.[144] Less famous spokespeople are not immune from the effects of morals clauses either. Benjamin Curtis, most famous for being the “Dell Dude,” was dismissed from his contract with Dell Inc. after being arrested for marijuana possession in 2003.[145] The most prominent morals clause mishaps have been violations of athletes’ endorsement contracts. OJ Simpson, who led the way for sports stars to become spokespeople, also illustrated the importance of morals clauses when he was indicted for a double murder while serving as the spokesman for Hertz, among other brands.[146] Since then, these clauses have become more prevalent in sports endorsement contracts. While a 1997 survey found that less than half of all sports endorsement contracts had morals clauses, by 2003 that number had grown to at least seventy-five percent.[147] Commentators suggest that the growing use of morals clauses in endorsement contracts is due to a combination of factors: the significant amounts of money at stake, the increasing youth of athletes and the concerns posed by an athlete’s potential volatility.[148] There are many other examples of athletes falling victim to morals clauses in endorsement contracts. In 1999, former Sacramento King’s player Chris Webber successfully challenged the termination of his endorsement agreement with sportswear brand Fila pursuant to the morals clause.[149] Furthermore, after Kobe Bryant was charged with sexual assault in 2003, he lost endorsement deals with McDonald’s, Nutella, Spalding, and Coke, altogether totaling $4 million.[150] When Atlanta Falcons quarterback Michael Vick was indicted on dogfighting charges in 2007, Nike, Reebok and Donruss dropped him from endorsement deals.[151] After the adultery scandal that surrounded Tiger Woods in 2009, he lost $22 million in endorsement deals with companies including Gatorade, Accenture, and AT&T.[152]Finally, aided by a broadly-worded morals clause, Nike ended its endorsement deal with seven-time Tour de France winner, Lance Armstrong, in 2012 following mounting allegations that he abused performance enhancing drugs over the course of his career.[153] As all of these examples illustrate, morals clause violations in sports endorsement contracts are widespread. Because advertisers try to appeal to a wide audience and sell products to the public, they are likely to have lower tolerance for controversies and any bad press about a spokesperson. Any desirable attention that talents’ misbehavior might offer to a movie studio or television network is undercut by the risks of meaning transference: a spokesperson’s controversial persona becoming irrevocably intertwined with the contracting company’s image.

IV. Talent’s Response: Reverse Morals Clauses

Recent developments in the corporate realm have encouraged performers to seek the protection afforded by a morals clause for themselves by using reverse morals clauses. This “reciprocal contractual warranty . . . [is] intended to protect the reputation of talent from the negative, unethical, immoral, and/or criminal behavior of the endorsee-company or purchaser of talent’s endorsement,” and give talent, “the reciprocal right to terminate an endorsement contract based on such defined negative conduct.”[154] Such a clause seeks to protect talent from vulnerability they would otherwise have, even if they are aware of the company’s misconduct prior to any public scandal.[155] The history and drafting considerations of reverse morals clauses are essential to understanding their function.

A. History of Reverse Morals Clauses

The first example of a reverse morals clause was between Pat Boone and Bill Cosby’s record label, Tetragrammaton Records, in 1968.[156] Boone was a religious man with a clean image, and he was concerned about signing a deal with Tetragrammaton due to the provocative cover art featured on the label’s new release “Two Virgins,” which depicted John Lennon and Yoko Ono nude. Tetragrammaton was “sympathetic to his religious concerns and agreed to a ‘reverse morals clause – Boone’s contract would lapse if the record company . . . did something unseemly.” Ultimately, no formal contract was drawn up.[157] Boone’s “novel advocacy of a reverse-morals clause was most likely achievable due to his iconic stature in the entertainment world and his integrity aura in arguably a more conservative era in American history.”[158] Although reverse morals clauses originated with Boone in the 1960s, they have become more relevant due to the financial instability of recent years. The Enron case provides a compelling example of the need for reverse morals clauses in certain cases.[159] In 1999, Enron signed a $100 million, 30-year deal, with the Houston Astros to name the team’s new ballpark Enron Field.[160] Two years later, “Enron filed what was then the largest bankruptcy in American history [and] . . . [s]ince then, the word ‘Enron’ has been embedded in the national psyche and lexicon as being the icon of corporate avarice and the perpetuation of a Ponzi-type scheme on the public.”[161] Because many Astros fans had lost their jobs as a result of the Enron scandal, the Astros spent the next two months trying to buy the balance of the contract for over $2 million to remove Enron’s name from the stadium.[162] Even though the Astros secured a new naming rights sponsor, Minute Maid, this change caused it further pecuniary damages because naming rights decrease with rebranding.[163] Although Enron is a landmark example of the need for a reverse morals clause, it was certainly not the last.[164] In 2009, professional golfer Vijay Singh signed a five-year $8 million endorsement deal with Stanford Financial Group, just one month before allegations that Stanford had participated in a large scale Ponzi scheme surfaced.[165] In 2011, Dior terminated its creative director John Galliano after he was videotaped while shouting anti-Semitic slurs, angering the public and Israeli-born Dior spokesmodel Natalie Portman.[166] These examples illustrate the importance of endorsees protecting themselves with reverse morals clauses. Because reverse morals clauses are a relatively new development, there is little scholarship and no case law regarding their use, and parties who have drafted them have not released them to the public.[167] However, these clauses are increasingly requested by talent in their contracts, and they serve an important function in times of financial uncertainty.[168] Given that talent have been subject to traditional morals clauses for so long, it seems appropriate they are afforded mutuality.

V. Drafting Morals Clauses

In order to ensure that a morals clause is enforceable and inclusive, it is essential that it is properly drafted. Because of the obstacles posed by the modern and evolving moral climate, phrasing is key in both express and reverse morals clauses. There are several important elements to an effective morals clause. First, the term of the clause must be stipulated. Some clauses only apply to future conduct, while others apply to past conduct.[169] Second, clauses may include acts that have the mere potential to bring harm to the employer, in addition to acts that cause actual injury.[170] If potential injury language is included, the fact finder must examine the facts objectively and subjectively, and stipulate termination if this future injury can be proved.[171] Third, a clause can protect related parties, as opposed to just the employer.[172] Fourth, employers should consider language that both reserves rights not expressed in the contract, and also does not give talent a right to cure.[173] Fifth, the scope of the language of the clause is essential; employers prefer expansive language, while talent prefers narrow language, creating a potential sticking point in contract negotiations.[174] Finally, and most importantly, ambiguity must be minimized to the greatest extent possible.[175] Even given proper care in drafting, clauses vary widely in breadth. The major issue is the type of transgression covered by the clause. While some clauses protect against only crimes, felonies, or convictions, others are comprehensive enough to encompass any conduct breeding adverse moral sentiment. Charlie Sheen’s weak “moral turpitude” clause is an example of the former and the strong clause in Williams’ contract represents the latter. Some agreements are so broad that even alleged violations that turn out to be false,[176] or conduct that “may be considered” a violation, can trigger the clause.[177] If a person has done something in the past that might fall into the categories of conduct included in the clause, the morals clause can be triggered if the past conduct is publicized during the contract term.[178] Remedies can also vary, and can include termination of the agreement and/or the right to remove or withhold credit.[179] Therefore, based on variations in drafting, clauses can differ greatly in their force. The drafting process for reverse morals clauses differs slightly from that of express morals clauses. As an initial matter, talent must determine the necessity of a reverse morals clause by searching the corporate history of the contracting company.[180] However, not all talent has the leverage to bargain for inclusion of a reverse morals clause, and companies may resist the imposition of moral reciprocity.[181] In addition, drafting concerns are reversed: talent will want a broadly-phrased reverse morals clause, while the employer will desire a narrowly-phrased clause.[182] Finally, talent is concerned with limiting who can invoke the clause and stipulating which corporate entities are bound by it.[183] This will prevent contracting companies from purposely engaging in the proscribed conduct to activate the clause or escaping unscathed when entities violate the agreement.

VI. Implications for Morals Clauses in Contemporary Society

The rise of the Internet and development of social media has made morals clauses more important in today’s society. “Due to the proliferation of new forms of media, which has greatly increased the speed with which information is disseminated to the public, talented individuals are now significantly more scrutinized than they have been in the past.”[184] An examination of the current moral climate and social media restrictions demonstrate this phenomenon.

A. The State of Morals Today

What constitutes “morality” can be hard to define. “The concept of moral behavior, insofar as it relates to the law, is constantly in a state of flux as it reacts to changes in community standards and incorporating natural evolutionary advancements associated with the growth and development of a society.”[185] American culture has become significantly less concerned with morality. Not only has talent gotten away with misbehavior in the court of public opinion, but contracting companies have also expressed less concern about the moral missteps of talent. Employer leniency can be attributed to the recognition that in the current moral climate, nearly any publicity is good publicity.[186] Christian Slater, Robert Downey Jr., and Charlie Sheen are just a few stars whose misconduct has been tolerated by the industry.[187] Robert Downey Jr. exacted a stunning recovery, going from felon and drug addict to star of one of Hollywood’s most lucrative franchises, Ironman.[188] Different industries have diverse views on morality, which accounts for the discrepancies in morals clause enforcement. Although a newscaster’s reputation hinges upon his or her intellectual credibility, a rap artist’s depends only on his street credibility, or “street cred.”[189] While the former entails avoiding damaging public actions and statements, the latter demands the precise opposite. In the sports and radio industries, morality of the individual athletes and on-air talent seems less of a concern. In radio, provocative statements can be the key to success. Howard Stern made a career out of his outlandish radio behavior, until the FCC imposed formidable fines on the “shock jock,” and Stern announced he would leave traditional radio for Sirius Satellite Radio, a medium free of FCC regulation.[190] In sports, being violent is occasionally part of the job description, but athletes struggle to sequester this behavior to the playing field. Players’ violent off-field antics have resulted in public criticism of the NFL in recent years. Because each industry has unique concerns, each has a different conception of morality. Despite the diverse views on morality across industries, public opinion has placed more emphasis on comments than actions. Comments that are homophobic, racist, anti-Semitic, or sympathetic to terrorism have elicited substantial public backlash. For instance, after admitting past use of racial slurs in a deposition, The Food Network dropped celebrity chef Paula Deen and a slew of sponsors.[191] Deen’s image has yet to recover from the incident, and she has recently incited controversy again for a racist social media post.[192] Meanwhile, offensive public actions seem to have far less impact. Lindsay Lohan, notorious for her drug use, car accidents, and arrests for driving under the influence, cashed in on her controversial image by advertising car insurance during the Superbowl.[193] Similarly, the public has been largely ambivalent toward Florida State Quarterback Jameis Winston, despite public rape allegations against him. In fact, most of the news surrounding the NFL hopeful centers upon the “risk” of drafting him, rather than disapproval of his actions.[194]

B. Morals Clauses and Social Media

There are a growing number of contractual provisions aimed at promoting confidentiality and prohibiting disparaging remarks on social media platforms, which might fall within the purview of a morals clause. “The virtually instantaneous exposure and, in some cases, embarrassment that can accompany a celebrity’s missteps thanks to social networking tools is yet another reason to address and manage that individual’s activity through a contractual provision.”[195] Due to this trend, social media restrictions will likely be an increasing presence in morals clauses.[196] For example, ABC guidelines encourage “tweeting”, but list seven specific prohibited practices surrounding this activity, including “making disparaging remarks about the show.”[197] These restrictions and guidelines are not intended to ban social media, but instead to make talent more mindful of their expression and statements on these platforms.[198] The proliferation of such clauses, and the important role they play in a technologically advancing society has led an industry expert to say, “[e]very celebrity endorsement contract of any kind in the future must have a Twitter/Social Media clause . . . I will be so bold as to state that the failure to not have such a clause would be tantamount to endorsement contract drafting malpractice.”[199] The relationship between morals clauses and social media is complex.[200] First of all, “[e]mployer restrictions on off-duty speech and conduct are troubling in that they squelch expression and individual autonomy and may compromise the employee’s right to a private life, especially when restrictions are unilaterally imposed after employment commences.”[201] Although there has not been an obvious backlash against these restrictions yet, this is likely due to their novelty. Furthermore, clauses limiting social media expression are in direct tension with another studio practice, leveraging the social media popularity of talent to promote a project.[202] In fact, social media postings have replaced traditional advertising in some talent contract negotiations.[203] Ensuring that the parties specify what mediums of communication are covered is essential to promoting the proper operation of morals clauses without unfairly trammeling talents’ freedom of expression.[204] As social media becomes more prominent and varied in today’s society, platforms such as Facebook, Twitter, and Instagram have significantly expanded the scope of what parties must address in talent contracts. Celebrities use these mediums to express themselves, and it is unlikely that they would respond favorably to contractual social media censorship. However, these platforms offer increased, direct contact between celebrities and the public, and create more opportunities for talent to get into trouble. An offensive post on Instagram takes only moments to complete but could take years to live down. James Franco learned this the hard way when he faced public embarrassment after trying to seduce an underage girl on Instagram.[205] This contrasts starkly with times past, when contact talent had with the public was limited to pre-scripted television and radio appearances or transient personal encounters. Restrictions seem necessary given the dangers these platforms engender; a misstep on any one of them could mean the instantaneous destruction of an entire project, employment relationship, or public persona if the conduct rouses the public enough.
1. Case Study: Twitter
Twitter provides a useful case study of the risks of social media usage and the value of such restrictive clauses. Twitter has become a popular way for celebrities to communicate with fans, but the instantaneous nature of the site begets significant risks of misuse and reputational damage.[206] “Armed with Twitter, talent are just possibly one tweet away from scandal or a morals clause violation.”[207] There are numerous examples of the destructive effects of Twitter use, specifically with regard to its potential to terminate talents’ endorsement deals. For example, after the voice of the AFLAC duck, Gilbert Gottfried, tweeted insensitive jokes about a tsunami in Japan, the insurance company terminated his contract.[208] Olympic swimmer Stephanie Rice was dropped from her endorsement deal with Jaguar after she tweeted a homophobic comment.[209] Hanesbrands terminated Rashard Mendenhall, Steelers running back and Champion brands spokesman, for violating his morals clause after he tweeted controversial commentary relating to 9/11.[210] Mendenhall brought a $1 million suit against Hanesbrands for breach of the implied covenant of good faith and fair dealing.[211] “Mendenhall’s attorneys began building what will henceforth be known here as the ‘Charlie Sheen defense’: pointing to another celebrity who has said outrageous things and putting the onus on the other party to explain why one endorsement deal was terminated and another wasn’t.”[212] Although the suit survived a motion to dismiss, the parties eventually settled.[213] Thus, Twitter presents a compelling example of the destructive effects of social media upon morals clauses.

Conclusion

You breathe a sigh of relief. Fred Fabricate has been released from his contract based on his morals clause violation. Unfortunately, your enthusiasm is short lived; Fabricate’s replacement is not as popular, and the network experiences marked drops in ratings. Were you too hasty in your decision to invoke the morals clause? Is this decline in popularity due to the bad press from the incident, or does America just want their favorite anchor back? You have minimized your financial liability, but at what expense? Will Fabricate’s image ever recover, and if so, will you lose out on the profit? This hypothetical presents many of the same concerns surrounding morals clauses today. Companies use the clauses to temper the link between themselves and talent, controlling their unpredictable behavior and protecting themselves from their potential missteps. Nonetheless, it is often unclear when these clauses have been triggered, when they should be invoked, and the potential repercussions that may occur. Diverse conceptions of morality and opposition to inhibiting freedom of expression present distinct obstacles to morals clauses today. Although morals clauses have played an important role in motion picture, television, athletics, and advertising contracts for over a century, it is unclear what effect they will have in the future. On the one hand, morals clauses may lose their relevance entirely due to the increasingly lax moral climate. Under this view, morals matter far less, and there is no sense in attempting to censor them. An initial criticism of this argument is that although cosmopolitan regions of the country have relaxed views on morality, there are still many sectors of the population with a strong religious consciousness and correspondingly rigorous conception of moral conduct. Because these individuals also form a captive audience for the industries in question, their attitudes must also be considered by both courts and employers in enforcing morals clauses. The deeply imbedded cultural opposition to stigmatized concepts of racism, homophobia, anti-Semitism, terrorism and violence also contradict this trend. In the alternative, morals clauses may only become more important as social media and the speed with which information is disseminated increases public awareness of and contact with talent. The consistent scandal surrounding celebrity expression on social media and the upswing of contractual clauses addressing these issues evidences this inclination. Despite the merits of the argument that the morals clause is in decline, the clauses remain relevant, effectual, nuanced, and flexible. Even in the case of Brian Williams, a context in which a morals clause is not the most obvious recourse, the provision has demonstrated its pervasive power. Given the proliferation of social media and the backlash of talent through reverse morals clauses, this dynamic area of contract law shows no sign of fading into obscurity.
* J.D. Candidate, New York University School of Law, 2016; B.A. English & Government, magna cum laude, Georgetown University, 2013. The author would like to thank the 2015-16 Editorial Board of the Journal of Intellectual Property & Entertainment Law, as well as Professor Day Krolik, for their invaluable assistance in the editing process.
[1] See Emily Steel, Brian Williams Scandal Prompts Frantic Efforts at NBC to Curb Rising Damage, N.Y. Times (Feb. 11, 2015), http://www.nytimes.com/2015/02/12/business/media/frantic-efforts-at-nbc-to-curb-rising-damage-caused-by-brian-williams.html
[2] Id.
[3] Id.
[4] Id.
[5] Emily Steel, Brian Williams Return is Part of Revamp at MSNBC, N.Y. Times (Sept. 21, 2015), http://www.nytimes.com/2015/09/22/business/media/williams-return-is-part-of-revamp-at-msnbc.html.
[6] Id. (internal quotation marks omitted).
[7] Steel, supra note 1.
[8] Fernando M. Pinguelo & Timothy D. Cedrone, Morals? Who Cares About Morals? An Examination of Morals Clauses in Talent Contracts and What Talent Needs to Know, 19 Seton Hall J. Sports & Ent. L. 347, 351 (2009).
[9] Noah B. Kressler, Using The Morals Clause in Talent Agreements: A Historical, Legal and Practical Guide, 29 Colum. J.L. & Arts 235, 239 (2005).
[10] See Sarah D. Katz, “Reputations…A Lifetime to Build, Seconds to Destroy”: Maximizing Mutually Protective Value of Morals Clauses in Talent Agreements, 20 Cardozo J. Int’l & Comp. L. 185, 187 (2011).
[11] Id. at 190.
[12] Id. at 191.
[13] See Margaret DiBianca, Bad Boys, Bad Boys: Whatcha Gonna Do When They Work for You?, 13 No. 2 Del. Emp. L. Letter 1 (2008).
[14] Katz, supra note 10, at 192.
[15] See Pinguelo & Cedrone, supra note 8, at 366–67.
[16] See Pinguelo & Cedrone, supra note 8, at 354.
[17] Id.
[18] The guest, Virginia Rappe, died of a ruptured bladder. It was speculated that the 266 pound Arbuckle had crushed her bladder while sexually assaulting her. Gilbert King, The Skinny on the Fatty Arbuckle Trial, Smithsonian Mag. (Nov. 8, 2011), http://www.smithsonianmag.com/history/the-skinny-on-the-fatty-arbuckle-trial-131228859/.
[19] Pinguelo & Cedrone, supra note 8, at 354.
[20] See King, supra note 18.
[21] “As a direct result of the Arbuckle case in San Francisco, Stanchfield & Levy, attorneys for the Universal Film Manufacturing Company, have drawn up a protective clause . . . to [be] inserted in all existing and future actors’, actresses’, and directors’ contracts with the company.” Pinguelo & Cedrone, supra note 8, at 354; see also Morality Clause for Films, N.Y. Times, Sept. 22, 1921, at 8, available at http://timesmachine.nytimes.com/timesmachine/1921/09/22/98743776.html?pageNumber=8.
[22] Pinguelo & Cedrone, supra note 8, at 355.
[23] Id.
[24] “During the investigative hearings, members of HUAC grilled the witnesses about their past and present associations with the Communist Party . . . [M]ost individuals either sought leniency by cooperating with investigators or cited their Fifth Amendment right against self-incrimination. . . [T]he Hollywood Ten[] not only refused to cooperate with the investigation but denounced the HUAC anti-communist hearings as an outrageous violation of their civil rights, as the First Amendment to the U.S. Constitution gave them the right to belong to any political organization they chose.” Hollywood Ten, A+E Networks (2009), http://www.history.com/topics/cold-war/hollywood-ten.
[25] Kressler, supra note 9, at 238.
[26] For example, RKO’s letters of dismissal to Adrian Scott and Edward Dmytryk, two members of the Hollywood Ten, stated: “By your conduct . . . and by your actions, attitude, public statements and general conduct . . . you have brought yourself into disrepute with large sections of the public, have offended the community, have prejudiced this corporation as your employer and the motion picture industry in general, have lessened your capacity fully to comply with your employment agreement and have otherwise violated your employment agreement with us.” Selz et al., Entertainment Law: Legal Concepts and Business Practices § 9:107 (3d ed. 2014).
[27] Pinguelo & Cedrone, supra note 8, at 358.
[28] Loew’s, Inc. v. Cole, 185 F.2d 641, 645 (9th Cir. 1950).
[29] MGM was the trade name for Loew’s at the time. Pinguelo & Cedorone, supra note 8, at 358.
[30] Selz et al., supra note 26, at § 9:107.
[31] Pinguelo & Cedrone, supra note 8, at 359. The court opined, “[a] film company might well continue indefinitely the employment of an actor whose private personal immorality is known to his employer, and yet be fully justified in discharging him when he so conducts himself as to make the same misconduct notorious.” Cole, 185 F.2d at 658.
[32] Pinguelo & Cedrone, supra note 8, at 359.
[33] Twentieth Century-Fox Film Corp. v. Lardner, 216 F.2d 844 (9th Cir. 1954).
[34] Scott v. RKO Radio Pictures, Inc., 240 F.2d 87 (9th Cir. 1957).
[35] Kressler, supra note 9, at 245.
[36] Id.
[37] See discussion infra Part VI.
[38] Sarah Osborn Hill, How to Protect Your Brand When Your Spokesperson Is Behaving Badly: Morals Clauses in Spokesperson Agreements, 57 Fed. Law 14, 14 (2010).
[39] See Kressler, supra note 9, at 251–54.
[40] Id. at 244.
[41] Id. at 244– 45.
[42] See discussion supra Part I.
[43] Nader v. ABC Television Inc., 150 F. App’x. 54; see discussion infra Section III(i).
[44] Pinguelo & Cedrone, supra note 8, at 358. Although some other cases have involved morals clauses in contracts, they were not resolved on these grounds. Id. at 358 n. 57; see, e.g., Marilyn Manson, Inc. v. New Jersey Sports & Exposition Auth., 971 F. Supp. 875, 887 (D.N.J. 1977) (deciding the case primarily on First Amendment grounds); Vaughn v. Am. Basketball Assoc., 419 F. Supp. 1274, 1278-79 (S.D.N.Y. 1976) (deciding the case based on jurisdictional issues), and Revels v. Miss N.C. Pageant Org., 627 S.E.2d 280, 284 (N.C. Ct. App. 2006) (ordering the case to be resolved in arbitration).
[45] Lardner, Scott, and Cole each had contracts containing a similar morals clause. Kressler, supra note 9, at 245.
[46] See Pinguelo & Cedrone, supra note 8, at 361-62.
[47] Katz, supra note 10, at 214. Sometimes it is unclear to talent whether they are violating a morals clause. For example, Nader had previously maintained his job despite arrests, making him believe this case would not be handled differently. See id.
[48] See discussion infra Section VI(A).
[49] Selz et al., supra note 26, at § 9:107.
[50] Id.
[51] For example, “the words ‘tend to’ and ‘may’ [can] [be] removed, so that a demonstrably negative reaction is required before the clause can be triggered,” and “most companies will agree to remove the right to terminate employment so that the only remedy is the right to remove a credit.” Id.
[52] DiBianca, supra note 13.
[53] Id.
[54] See, e.g., Marilyn Manson, Inc. v. New Jersey Sports & Exposition Auth., 971 F. Supp. 875, 887 (D.N.J. 1977) (holding New Jersey Sports and Exhibition Authority’s requirement that performers agree to a morals clause problematic from a constitutional First Amendment standpoint); see also Pinguelo & Cedrone, supra note 8, at 377.
[55] Kressler, supra note 9, at 246.
[56] Id.
[57] Id. at 246-47; see, e.g., Drayton v. Reid, 5 Daly’s Rep. 442, 444 (N.Y. Ct. Com. Pl. 1874) (holding that an actress’s public scandal resulting from immoral conduct was just cause for termination of her employment contract); Scott v. RKO Radio Pictures, Inc., 240 F.2d 87, 89 (9th Cir. 1957) (finding that an employee’s conduct before a congressional committee breached “an implied covenant . . . not to do anything which would prejudice or injure his employer”).
[58] Kressler, supra note 9, at 250; see also Twentieth Century-Fox Film Corp. v. Lardner, 216 F.2d 844, 850 (9th Cir. 1954) (finding that, despite the application of expressio unius, the parties intended to bolster potential remedies, not waive given common law rights, and Fox retained the right to discharge its employee for an unspecified cause).
[59] Kressler, supra note 9, at 247-48.
[60] Id. at 248; see generally Mary LaFrance, The Separate Tax Status of Loan-Out Corporations, 48 Vand. L. Rev. 879 (1995) (discussing the tax considerations of loan-out corporations).
[61] See Kressler, supra note 9, at 249-250. This is a multi-factor analysis, the most significant factor being the degree of control the employer maintains over the alleged employee. See, e.g., Makarova v. United States, 201 F.3d 110, 114 (2d Cir. 2000) (finding that a performer was an employee because her producer maintained artistic control over her performance); Johnson v. Berkofsky-Barret Prods., Inc., 260 Cal. Rptr. 1067, 1073 (Cal. Ct. App. 1989) (finding an actor to be an employee because the production company “directed and supervised the manner in which he performed . . . ”).
[62] Kressler, supra note 9, at 249; see, e.g., Welch v. Metro-Goldwyn-Mayer Film Co., 254 Cal. Rptr. 645, 655 (Ct. App. 1988) (finding a talent agreement that contained specific obligations between an actor and studio as forming an employment relationship), rev’d on other grounds, 769 P.2d 932 (Cal. 1989); Berkofsky-Barret Prods., Inc., 260 Cal. Rptr. at 1072 (holding that the court “need not focus on . . . [that] link in the employment chain”).
[63] Kressler, supra note 9, at 241.
[64] William Leiss et al., Social Communication in Advertising 108-09, (2d ed. 1997) (quoting Barnouw, The Sponsor: Notes on a Modern Potentate 33 (1978)).
[65] Kressler, supra note 9, at 241-42.
[66] Pinguelo & Cedrone, supra note 8, at 368.
[67] Katz, supra note 10, at 222.
[68] Kressler, supra note 9, at 243
[69] Nader v. ABC Television, 150 F. App’x 54 (2d Cir. 2005).
[70] Morals Clause, Not Drug Addiction, Reason for Soap Star’s Termination, 19 No. 4 Litig. Rep. 12 (2004).
[71] Id.
[72] James G. Murphy, Soap Star Slips Up on Morals Clause in Contract, 11 No. 10 N.Y. Emp. L. Letter 7 (2004).
[73] Kressler, supra note 9, at 245-46; see also Murphy, supra note 72 (“The court held, among other things, that the provisions of the morals clause weren’t so vague, overly broad, and ambiguous as to render it void.”).
[74] Sheen’s antics included drug abuse, hospitalization, domestic abuse, rehab, and a series of bizarre interviews and tweets. Emily Yahr, Let’s All Remember the Infamous Charlie Sheen ‘Two and a Half Men’ Meltdown, Washington Post Style Blog (Feb. 19, 2015), https://www.washingtonpost.com/news/style-blog/wp/2015/02/19/lets-all-remember-the-infamous-charlie-sheen-two-and-a-half-men-meltdown/.
[75] Id.
[76] Eriq Gardner, Charlie Sheen’s Contract: Was There Actually a Morals Clause?, Hollywood Reporter (Mar. 8, 2011, 9:13 AM), http://www.hollywoodreporter.com/thr-esq/charlie-sheens-contract-was-actually-165309.
[77] Id.
[78] Id.
[79] Nellie Andreeva, Charlie Sheen, Warner Bros TV & Chuck Lorre Announce Settlement, Deadline Hollywood (Sept. 26, 2011, 3:12 PM), http://deadline.com/2011/09/charlie-sheen-warner-bros-tv-chuck-lorre-announce-settlement-176345/ (official statement of Warner Bros. studio) (“Warner Bros. Television, Chuck Lorre and Charlie Sheen have resolved their dispute to the parties’ mutual satisfaction. The pending lawsuit and arbitration will be dismissed as to all parties. The parties have agreed to maintain confidentiality over the terms of the settlement.”).
[80] Pinguelo & Cedrone, supra note 8, at 349.
[81] Dorothy Pomerantz, Netflix and NBC Back Away from Bill Cosby, Forbes (Nov. 19, 2014, 2:35 PM), http://www.forbes.com/sites/dorothypomerantz/2014/11/19/netflix-and-nbc-back-away-from-bill-cosby/.
[82] See Nellie Andreeva, Bill Cosby Controversy is NBC Conundrum: Will America Accept Him Playing a Family Man Again?, Deadline Hollywood (Nov. 17, 2014, 8:30 AM), http://deadline.com/2014/11/bill-cosby-controversy-nbc-series-plan-1201285605/. Given that cast members of The Cosby Show were made to sign morality clauses, widely speculated to be the basis of Lisa Bonet’s abrupt departure, it is possible that the publicity surrounding Cosby’s misdeeds has implications for his prior body of work. See Kara Kovalchik, 10 Actors’ Dramatic Departures from Popular Shows, Mental Floss (Sept. 12, 2011, 5:30 AM), http://mentalfloss.com/article/28735/10-actors-dramatic-departures-popular-shows.
[83] This challenge has also paved the way for the success of streaming platforms like Netflix. Todd Spangler, TV Ratings Have Hurt Creative Side of Television, Says Netflix Content Boss Sarandos, Variety (Dec. 8, 2014, 12:46 PM), http://variety.com/2014/digital/news/tv-ratings-have-hurt-creative-side-of-television-says-netflix-content-boss-sarandos-1201373908/.
[84] Media sources still revel in the entertainment value of Sheen’s “meltdown.” See, e.g., Yahr, supra note 74.
[85] See id. Although, it does not appear his antics were unforgivable; as it was widely Sheen would return for the finale of Two and a Half Men. Lynette Rice, It’s Official: Charlie Sheen Will Have a Presence on the Two and a Half Men Finale – But There’s a Catch, People (Feb. 6, 2015, 7:30 AM), http://www.people.com/article/charlie-sheen-two-and-a-half-men-finale.
[86] See Katz, supra note 10, at 213-14. His argument that he had been fired based on a disability, his cocaine addiction, was rejected by the court. Andrews Emp. Litig. Rep. 12, supra note 70.
[87] Cosby has lost millions of dollars, had several honorary degrees revoked, and has been accused of tarnishing the Cosby show legacy. See e.g., Daniel Bukszpan, How Bill Cosby’s Fortune and Legacy Collapsed, Fortune (Jul. 15, 2015, 10:18 AM), http://fortune.com/2015/07/15/bill-cosby-fortune-collapse/; Sydney Ember & Colin Moynihan, Honorary Degrees in Unwanted Spotlight, N.Y. Times, Oct. 7, 2015, at C1, available at http://www.nytimes.com/2015/10/07/arts/television/to-revoke-or-not-colleges-that-gave-cosby-honors-face-a-tough-question.html?_r=0; Nancy Dillon & Corky Siemaszko, Actor Who Played Bill Cosby’s Son on ‘The Cosby Show’ Says Rape Allegations Have ‘Tarnished’ Show’s Legacy, N.Y. Daily News (Oct. 10, 2015, 12:06 AM), http://www.nydailynews.com/entertainment/gossip/bill-cosby-questioned-alleged-1974-molestation-article-1.2391569.
[88] DiBianca, supra note 13.
[89] Id.
[90] Id.
[91] Morals Clause Forecloses Claim of San Antonio TV Reporter, 21 No. 8 Tex. Emp. L. Letter 2 (2010).
[92] Id.
[93] Galaviz v. Post-Newsweek Stations, 380 F. App’x 457, 459-60 (5th Cir. 2010); see also TV Reporter Fired Due to Morals Clause Violation, Not Sex Bias, Prac. Guide, 2013 WL 422203 (2009).
[94] Emily Smith, Contract ‘Morality Clause’ Could Determine Brian Williams’ Future, N.Y. Post: Page Six (Feb. 15, 2015, 10:33 PM), http://pagesix.com/2015/02/15/brian-williams-future-hangs-on-morality-clause-in-contract.
[95] Id.
[96] Lloyd Grove, Peacock Panic: NBC Suspends Brian Williams for Six Months, Daily Beast (Feb. 10, 2015, 5:55 AM), http://www.thedailybeast.com/articles/2015/02/10/fear-and-loathing-at-nbc.html.
[97] It is alleged that NBC seriously considered firing Williams before his 6-month unpaid suspension. Aaron Feis, NBC Considered Firing Brian Williams Before Suspending Him, N.Y. Post: Page Six (Feb. 12, 2015, 12:04 PM), http://pagesix.com/2015/02/12/nbc-considered-firing-brian-williams-before-suspending-him/.
[98] “The viewer hemorrhage was magnified by the fact it happened in the winter — traditionally the most competitive season for network newscasts.” Michael Starr, ‘NBC Nightly News’ Loses 700K Viewers After Brian Williams Scandal, N.Y. Post (Feb. 18, 2015, 12:17 PM), http://nypost.com/2015/02/18/nbc-nightly-news-loses-700k-viewers-after-brian-williams-scandal/.
[99] Tim Kennealley, ‘Duck Dynasty’ Star Phil Robertson: What Are His Legal Options?, TheWrap (Dec. 19, 2013, 6:06 PM), http://www.thewrap.com/phil-robertson-duck-dynasty-free-speech-religious-discrimiination/.
[100] Id.; see also Scott Collins, ‘Duck Dynasty’: A&E Warned Phil Robertson About Speaking Out Too Much, L.A. Times (Dec. 20, 2013, 4:55 PM), http://www.latimes.com/entertainment/tv/showtracker/la-et-st-duck-dynasty-ae-warned-phil-robertson-about-speaking-out-too-much-20131220-story.html (“Phil and other family members also probably signed contracts containing ‘morals clauses’ in which they promised to, among other things, avoid anything that would embarrass or bring shame to A&E or the brand.”).
[101] Eric Deggans, TLC’s ‘Honey Boo Boo’ Cancellation Shows Dangers Of Exploitative TV, Nat’l Pub. Radio (Oct. 24, 2014, 4:08 PM), http://www.npr.org/2014/10/24/358567472/tlcs-honey-boo-boo-cancellation-shows-dangers-of-exploitative-tv.
[102] Id.
[103] Ryan Arciero, ‘Honey Boo Boo’: Mama June Is Losing Salary, New Child Molestation Interview, Examiner (Nov. 1, 2014, 4:26 PM), http://www.examiner.com/article/honey-boo-boo-mama-june-is-losing-payment-child-molestation-safety-risks.
[104] Id.; see also Karen Butler, ‘Mama’ June Shannon Won’t Be Fully Paid for Final ‘Honey Boo Boo’ Season, United Press Int’l (Nov. 1, 2014, 2:50 PM), http://www.upi.com/Entertainment_News/TV/2014/11/01/Mama-June-Shannon-wont-be-fully-paid-for-final-Honey-Boo-Boo-season/6121414845458/.
[105] Deggans, supra note 101.
[106] As illustrated by the cases summarized, morals clauses can help minimize damaging fallout for networks. See, e.g., id.
[107] Kressler, supra note 9, at 243.
[108] Id.
[109] Id. at 244.
[110] For example, they made the third American Pie movie without troubled and headline prone actress Tara Reid. See id.
[111] Katz, supra note 10, at 223.
[112] Loew’s, Inc. v. Cole, 185 F.2d 641, 658 (9th Cir. 1950).
[113] Twentieth Century-Fox Film Corp. v. Lardner, 216 F.2d 844 (9th Cir. 1954).
[114] Scott v. RKO Radio Pictures, Inc., 240 F.2d 87 (9th Cir. 1957).
[115] Credit is the lifeblood of writers and directors, who do not enjoy the same level of notoriety and recognition as on screen talent. SAG and AFTRA do not include such prohibitions. Katz, supra note 10, at 198-99.
[116] For example, “[w]hen Tom Cruise entered the ‘danger zone[,] with public tirades about psychiatry, Scientology, and postpartum depression,’ Paramount Pictures was still obligated by contract to release Mission: Impossible III,” and “when Mel Gibson was arrested for drunk driving in 2006, Disney had no right to terminate its distribution agreement for Gibson’s movie Apocalypto.” Katz, supra note 10, at 199-200.
[117] Id.
[118] Morgan Creek productions threatened to do as much when Lindsay Lohan misbehaved consistently on the set of Georgia Rule. Id. at 200 & n.84.
[119] Porcher L. Taylor III, Fernando M. Pinguelo & Timothy D. Cedrone, The Reverse-Morals Clause: The Unique Way to Save Talent’s Reputation and Money in a New Era of Corporate Crimes and Scandals, 28 Cardozo Arts & Ent. L. J. 65, 75–76 (2010).
[120] See id.
[121] Under § 11 of the NFL Player Contract, a football club may terminate the player contract “[i]f at any time, in the sole judgment of Club, . . . [the] Player has engaged in personal conduct reasonably judged by Club to adversely affect or reflect on Club.” National Football League Collective Bargaining Agreement 2006-2012, at 252 (2006), available at http://www.docslide.us/documents/nfl-collective-bargaining-agreement-2006-2012.html.
[122] Under § 16 of the NBA’s Uniform Player Contract, a basketball team may terminate a player contract “if the Player shall . . . at any time, fail, refuse, or neglect to conform his personal conduct to standards of good citizenship, good moral character (defined here to mean not engaging in acts of moral turpitude, whether or not such acts would constitute a crime), and good sportsmanship.” National Basketball Association Collective Bargaining Agreement, at A-16 (2011), available at http://www.ipmall.info/hosted_resources/SportsEntLaw_Institute/NBA_CBA(2011)_(newversion_reflectsJeremyLinRuling)May30_2013.pdf.
[123] Under the NHL Standard Player’s Contract, § 2(e), each NHL player agrees “to conduct himself on and off the rink according to the highest standards of honesty, morality, fair play and sportsmanship, and to refrain from conduct detrimental to the best interest of the Club, the League or professional hockey generally.” Collective Bargaining Agreement Between National Hockey League and National Hockey League Player’s Association, at 245 (2005), available at http://www.nhl.com/cba/2005-CBA.pdf.
[124] Under § 7(b) of the Major League Baseball Uniform Player’s Contract, a baseball club “may terminate [a player contract] . . . if the Player shall at any time . . . fail, refuse or neglect to conform his personal conduct to the standards of good citizenship and good sportsmanship.” 2012-2016 Basic Agreement, at 284 (2011), available at http://mlbplayers.mlb.com/pa/pdf/cba_english.pdf. Id. at 284.
[125] Pinguelo & Cedrone, supra note 8, at 364.
[126] Id.
[127] Id. at 373.
[128] Tom Canavan, Williams Will Still Be Paid from Nets Deal, Agent Says: Morals Clause Does Not Apply to Remaining $24 Million, Record (Newark), Feb. 28, 2002, at A04.
[129] Katz, supra note 10, at 208-09.
[130] Jill Martin & Steve Almasy, Ray Rice Wins Suspension Appeal, CNN (Nov. 30, 2014, 12:59 AM), http://www.cnn.com/2014/11/28/us/ray-rice-reinstated/.
[131] Josh Levs, NFL Toughens Policy Addressing Assault and Domestic Violence, CNN (Dec. 10, 2014, 10:45 PM), http://www.cnn.com/2014/12/10/us/nfl-conduct/index.html.
[132] Hill, supra note 38, at 14.
[133] Kressler, supra note 9, at 240-41.
[134] Id.
[135] Id.
[136] Id.
[137] Id.
[138] Success will depend on the talent’s leverage. Pinguelo & Cedrone, supra note 8, at 364.
[139] Hill, supra note 38, at 14-15.
[140] See id. at 15.
[141] Kressler, supra note 9, at 239.
[142] Id.
[143] “Other such deals include . . . Seven-Up with Flip Wilson (later arrested for trafficking cocaine), Mazda with Ben Johnson (later implicated in an Olympic steroid scandal), Gillette with Vanessa Williams (later appearing nude in Penthouse magazine), Beef Industry Council with Cybil Shepherd (later telling a journalist she did not like to eat beef), Pepsi-Cola with Michael Jackson (later canceling his world tour amid charges of child molestation and admitting that he was addicted to painkillers), Pepsi-Cola with Madonna (later releasing her controversial video for “Like a Prayer”), Pepsi-Cola with Britney Spears (later appearing in numerous magazines drinking Diet Coke), O.J. Simpson with Hertz (later arrested for two murders), and National Fluid Milk Processors Board (“Got Milk?”) with Mary-Kate and Ashley Olsen (the former later checked into a treatment facility for an eating disorder).” Id. at 241–43.
[144] Id. at 235; see also Pinguelo & Cedrone, supra note 8, at 347; Kate Moss: Sorry I Let People Down, CNN (Sept. 22, 2005, 3:13 PM), http://www.cnn.com/2005/WORLD/europe/09/22/kate.moss/.
[145] Pinguelo & Cedrone, supra note 8, at 372; see also Anthony Ramirez, “Desperate Housewives” Actor Arrested on Marijuana Charge, N.Y. Times, May 19, 2005, at B2, available at http://www.nytimes.com/2005/05/19/nyregion/desperate-housewives-actor-arrested-on-marijuana-charge.html?_r=0.
[146] See Bruce Horovitz, Simpson Ads Opened Door to Endorsements by Athletes Marketing: Sponsors Are Leery of Controversy. Hertz is Expected to at Least Temporarily Suspend Its Use of Ex-Football Star, L.A. Times, June 15, 1994, at 18, available at http://articles.latimes.com/1994-06-15/news/mn-4395_1_sports-marketing. Morals clauses in these contracts allowed the brands to sever the relationship, but the damage was already done, specifically in the case of Hertz.
[147] Daniel Auerbach, Morals Clauses as Corporate Protection in Athlete Endorsement Contracts, 3 DePaul J. Sports L. & Contemp. Probs. 1, 4 (2005).
[148] See id.; see also Pinguelo & Cedrone, supra note 8, at 369 (stating that in the sports industry alone, “as of May 31, 2008, Nike, Inc., owed more than $3.8 billion in endorsement deals” and the “aggregate of sponsorship deals for the 2008 Beijing Olympics was approximately $2.5 billion”).
[149] Webber argued that paying an administrative fine did not constitute the conviction necessary to trigger the clause, winning a $2.61 million judgment in arbitration. Pinguelo & Cedrone, supra note 8, at 377-78; see also ‘Prematurely Terminated’ – Kings’ Webber Wins Ruling Against Fila, CNN/Sports Illustrated (July 8, 1999, 4:07 PM), https://web.archive.org/web/20040503065604/http://sportsillustrated.cnn.com/basketball/nba/news/1999/07/08/webber_fila_ap/.
[150] In “the greatest marketing comeback in the history of sports marketing,” less than six years later, Bryant was re-engaged by Nike and Coke’s Vitaminwater, put at number 10 on the Forbes Celebrity 100 list, and his jersey outsold all others in the NBA for the second time in the three years. Bryant’s success at making the public and endorsing corporations “forget” his crimes is nothing short of astounding. Taylor, Pinguelo & Cedrone, supra note 119, at 101-02; see also Darren Rovell, Bryant Is NBA’s Most Marketable Again, CNBC (June 15, 2009, 9:34 AM), http://www.cnbc.com/id/31367376.
[151] Pinguelo & Cedrone, supra note 8, at 375. Although Vick suffered a “‘catastrophic and very public fall’ from sports stardom,” and had to “climb a steep hill to repair his tarnished image,” he has appeared to have fully recovered. See Taylor, Pinguelo & Cedrone, supra note 120, at 103. In 2011, nearly four years after they cancelled his contract, Nike signed him to a new deal. See Nike Re-signs Vick, N.Y. Times, July. 2, 2011, at D3, available at http://www.nytimes.com/2011/07/02/sports/football/nike-re-signs-vick.html.
[152] Nike, Woods’ biggest endorser since he went pro in 1996, stood by the golfer. Will Wei, Tiger Woods Lost $22 Million in Endorsements in 2010, Business Insider (July 21, 2010, 1:19 PM). http://www.businessinsider.com/tiger-woods-lost-22-million-in-2010-endorsements-2010-7. Despite the fallout suffered by Woods in the wake of the scandal, he seems to have recovered, signing his biggest deal since with Hero Motorcorp in December 2014. Bob Harig, Tiger’s New Deal Biggest in Years, ESPN (Dec. 3, 2014, 6:55 PM), http://abcnews.go.com/Sports/tigers-deal-biggest-years/story?id=27349217.
[153] “The termination of Armstrong as an endorser of the Nike brand was likely simplified by the inclusion of a broadly worded ‘morals clause’ within the cyclist’s endorsement contract with Nike. Morals clauses are typically worded in such a way as to allow a brand to immediately terminate an endorsement contract, without any penalty, should the athlete endorser act in a certain manner that would tarnish the reputation of the brand.” Darren Heitner, Nike’s Disassociation from Lance Armstrong Makes Nike a Stronger Brand, Forbes (Oct. 17, 2012, 10:22 AM), http://www.forbes.com/sites/darrenheitner/2012/10/17/nikes-disassociation-from-lance-armstrong-makes-nike-a-stronger-brand/.
[154] Taylor, Pinguelo & Cedrone, supra note 119, at 66-67.
[155] Mark Kesten, Reputation Insurance: Why Negotiating for Moral Reciprocity Should Emerge as a Much Needed Source of Protection for the Employee, Cornell Hum. Resource Review, Nov. 23, 2012, http://www.cornellhrreview.org/reputation-insurance-why-negotiating-for-moral-reciprocity-should-emerge-as-a-much-needed-source-of-protection-for-the-employee/.
[156] Taylor, Pinguelo & Cedrone, supra note 119, at 80.
[157] See id. at 80; see also Joseph Reiner, Pat Boone, Encyclopedia.com (1995), http://www.encyclopedia.com/topic/Pat_Boone.aspx – 2-1G2:3493100014-full.
[158] Taylor, Pinguelo & Cedrone, supra note 119, at 80.
[159] Id. at 66.
[160] Id. at 68.
[161] Id.
[162] Id. at 68–69.
[163] Id. at 69; see also Ric Jensen & Bryan Butler, Is Sport Becoming Too Commercialised? The Houston Astros Public Relations Crisis, 9 Int’l J. Sports Marketing & Sponsorship 23, 27, 29-30 (2007).
[164] Additionally, “in less scandalous cases, where companies that bought the rights for the stadia of the Baltimore Ravens (PSI Net), St. Louis Rams (Trans-World Airlines), St. Louis Blues (Savvis), and Carolina Panthers (National Car Rental) went bankrupt or out of business, the teams were compelled to buy back the naming rights, which can be costly, as reflected in the Baltimore Ravens having to pay $5.9 million to the bankrupt PSI Net in 2002.” Taylor, Pinguelo & Cedrone, supra note 119, at 70.
[165] Oliver Herzfeld, Why Jay-Z and Other Talent Should Seek Morals Clause Mutuality, Forbes (Jan. 2, 2014, 9:24 AM), http://www.forbes.com/sites/oliverherzfeld/2014/01/02/why-jay-z-and-other-talent-should-seek-morals-clause-mutuality.
[166] Id.
[167] See Taylor, Pinguelo & Cedrone, supra note 119, at 71.
[168] “Citigroup, the largest government bailout recipient in November 2008, precipitated a scandal of sorts, when it announced that it would charge ahead with the costliest naming-rights deal in sports history with the New York Mets, even though the financial giant had just laid off 52,000 employees and was treading water with almost $20 billion in losses for 2008.” Id. at 89.
[169] Kressler, supra note 9, at 254.
[170] Id. at 255.
[171] Id.
[172] Id.
[173] Id.
[174] Id. at 255-56.
[175] Katz, supra note 10, at 212.
[176] Nicolas Cage was accused of being arrested twice for drunk driving and stealing a dog, allegations that turned out to be false, but that could have triggered a morals clause. Pinguelo & Cedrone, supra note 8, at 353; see also Fox News, Kathleen Turner Apologizes to Nicolas Cage Over Dog Theft Allegation, Fox News (Apr. 4, 2008), http://www.foxnews.com/story/2008/04/04/kathleen-turner-apologizes-to-nicolas-cage-over-dog-theft-allegation.html.
[177] Selz et al., supra note 26, at § 9:107.
[178] Id.
[179] Id.
[180] Taylor, Pinguelo, & Cedrone, supra note 119, at 92.
[181] Id. at 99, 105.
[182] Id. at 105.
[183] Id. at 105-06.
[184] Pinguelo & Cedrone, supra note 8, at 367.
[185] Id. at 352; see generally Calvin Woodard, Thoughts on the Interplay Between Morality and Law in Modern Legal Thought, 64 Notre Dame L. Rev. 784 (1989) (examining the circumstances that have contributed to attitudes regarding the relationship between law and morality); Robert P. Burns, On the Foundations and Nature of Morality, 31 Harv. J. L. & Pub. Pol’y 7 (2008) (discussing historical observations and arguments relevant to contemporary moral debates).
[186] Selz et al., supra note 26, at § 9:107.
[187] See id. Each of the stars has had highly-publicized brushes with the law involving drugs and violence. See, e.g., Actor Christian Slater Gets Jail for Drunk Driving, L.A. Times, Apr. 3, 1990, at B2; Charlie Sheen Hospitalized in Fair Condition After Overdose, L.A. Times, May 22, 1998, at B4; Drug Charges Filed Against Robert Downey Jr., L.A. Times, July 17, 1996, at B4.
[188] Lacey Rose, Will Charlie Sheen Ever Work Again?, Hollywood Reporter (Feb. 28, 2011, 6:38 PM), http://www.hollywoodreporter.com/news/will-charlie-sheen-ever-work-162554.
[189] See Ronn Torossian & Karen Kelly, For Immediate Release: Shape Minds, Build Brands, and Deliver Results with Game-Changing Public Relations 219 (2011).
[190] Sheila Marikar, Howard Stern’s Five Most Outrageous Offenses, ABC News (May 14, 2012), http://www.abcnews.go.com/Entertainment/howard-sterns-outrageous-offenses/story?id=16327309.
[191] “The Food Network, owned by Scripps Networks Interactive (SNI), let Deen’s contract run out, and she was dumped by a slew of sponsors and business partners, including pork producer Smithfield Foods, the casino chain Caesars (CZR), the diabetes drugmaker Novo Nordisk (NVO) and retailers Wal-Mart (WMT), Target (TGT), Home Depot (HD), Sears (SHLD) and JCPenney (JCP).” Aaron Smith, Paula Deen’s Coming Back, CNN Money (Feb. 12, 2014, 3:13PM), http://money.cnn.com/2014/02/12/news/companies/paula-deen-najafi/.
[192] Deen posted a photo of her son in brownface. She later blamed her “Social Media Manager” who was fired after the incident. Emanuella Grinberg, Paula Deen Under Fire for Photo of Son in Brownface, CNN (July 7, 2015, 4:05 PM), http://www.cnn.com/2015/07/07/living/paula-deen-brownface-feat/.
[193] Lindsay Lohan — I’m the Queen of Car Crashes… So I’m Selling Insurance!, TMZ (Jan. 18, 2015, 12:55 AM), http://www.tmz.com/2015/01/18/lindsay-lohan-esurance-commercial/#ixzz3QnNcOAQd.
[194] E.g., Bill Pennington, The Tricky Calculus of Picking Jameis Winston, NY Times, Jan. 30, 2015, at D1, available at http://www.nytimes.com/2015/01/31/sports/football/no-1-debate-in-tampa-whether-to-draft-jameis-winston.html?_r=0.
[195] John G. Browning, The Tweet Smell of Success: Social Media Clauses in Sports & Entertainment Contracts, 22 Tex. Ent. and Sports Law J. 5, 6 (2013).
[196] See Taylor, Pinguelo & Cedrone, supra note 119, at 111.
[197] Andrew Wallenstein & Matthew Belloni, Hey, Showbiz Folks: Check Your Contract Before Your Next Tweet, Hollywood Reporter (Oct. 15, 2009, 1:19 PM), http://www.reporter.blogs.com/thresq/2009/10/check-your-contract-before-your-next-tweet.html.
[198] Id.
[199] Browning, supra note 195, at 20-21.
[200] Katz, supra note 10, at 226.
[201] Patricia Sánchez Abril, Avner Levin & Alissa Del Riego, Blurred Boundaries: Social Media Privacy and the Twenty-First-Century Employee, 49 Am. Bus. L. J. 63, 90 (2012) (“Some organizations have restricted their employees’ off-duty use of social networking sites or have prohibited using them altogether. For example, the National Football League has prohibited players’ access to social media immediately before, during, and after football games.”).
[202] For example, Rihanna was cast in “Battleship” partially because of the exposure she offered through her extensive fan base on social media, including 26 million twitter followers. Browning, supra note 195, at 21; see also Wallenstein & Belloni, supra note 197.
[203] Peter Hess, the co-head of commercial endorsements for Creative Artists Agency said, “We’re starting to have in negotiations, ‘We’d like to include X number of tweets or Facebook postings.’ It’s similar to traditional advertising – instead of two commercials, now we want two tweets.” Browning, supra note 195, at 21.
[204] See Katz, supra note 13, at 225.
[205] Jay Hathaway, James Franco Apparently Tried to Hook Up with a Teenager on Instagram, Gawker (Apr. 3, 2014, 9:29 AM), http://gawker.com/james-franco-tried-to-hook-up-with-a-17-year-old-on-ins-1557491436.
[206] Courtney Love, Alice Hoffman, Mark Cuban, and Michael Beasley are among the many celebrities who have experienced backlash from comments made on the social media site. Taylor, Pinguelo & Cedrone, supra note 119, at 109-10.
[207] Id. at 110-11.
[208] Browning, supra note 195, at 20.
[209] Id.
[210] Mendenhall tweeted about Osama Bin Laden, “[w]hat kind of person celebrates death? It’s amazing how people can HATE a man they never even heard speak. We’ve only heard one side . . . ” And of the 9/11 attacks, the player tweeted, “[w]e’ll never know what really happened. I just have a hard time believing a plane could take a skyscraper down demolition style.” Browning, supra note 195, at 20. Hanesbrands claimed that these tweets fell within the purview of the morals clause within Mendenhall’s endorsement agreement, because they “concluded that his actions meet the standards set forth in the Agreement of bringing Mr. Mendenhall ‘into public disrepute, contempt scandal or ridicule, or tending to shock, insult or offend a majority of the consuming public or any protected class or group thereof . . . .’” Because of these actions, he was considered no longer an effective spokesperson for Champion. Katz, supra note 10, at 227.
[211] Id.; see also Mendenhall v. Hanesbrands, Inc., 856 F. Supp. 2d 717 (M.D. N.C. 2012).
[212] Eriq Gardner, Settlement Reached in Lawsuit Filed by NFL Star Fired as Pitchman for 9/11 Conspiracy Tweets, Hollywood Reporter (Jan. 15, 2013, 3:20 PM), http://www.hollywoodreporter.com/thr-esq/settlement-reached-lawsuit-filed-by-412750.
[213] Id.; Marc Edelman, Rashard Mendenhall Settles Lawsuit with Hanesbrands over Morals Clause, Forbes (Jan. 17, 2013, 12:02 PM), http://www.forbes.com/sites/marcedelman/2013/01/17/rashard-mendenhall-settles-lawsuit-with-hanesbrands-over-morals-clause/.

Signing in Glitter or Blood?: Unconscionability and Reality Television Contracts

Signing in Glitter or Blood?: Unconscionability and Reality Television Contracts
by Catherine Riley* A pdf version of this article may be downloaded here.  

Introduction

How fair is the ninety-page, fine print hurdle that a young singer, dancer, or fame-starved twenty-something has to sign in order to fulfill his or her dreams? Reality television contracts are a growing topic for legal discussion. The contracts tend to be extremely long, even for entertainment contracts, and include language protecting the producers and networks from liability in almost any situation. Are these contracts excessive to the point of unconscionability? Should courts be intervening on behalf of the participants to void certain clauses within the agreements? “No contract can prevent someone from suing. It can prevent them from winning,”[1] is the attitude taken by producers and networks when limiting their liability to contestants of reality television shows. While there have not been many direct attempts to seek legal remedies under the unconscionability doctrine, the mass media and scholars alike have focused on the harshness, constraints, length, and complexity of the contractual language.[2] One Comment claims that reality television contracts force participants to give up all rights of publicity and should therefore be void.[3] Another article, summarizing legal concerns of reality television contracts, argues that courts could, and arguably should, find these contracts unconscionable.[4] Other articles and Comments, while addressing the possibility that contracts could be found unconscionable, fail to delve into the issue thoroughly.[5] The explicit question of unconscionability in reality television contracts has only been handled by two courts: the Superior Court of Los Angeles County followed by the Second District of the Court of Appeal of California State, reviewing the Superior Court of Los Angeles County’s decisions.[6] While many of the clauses of reality television show contracts appear excessive, even appalling, in light of the rights and protections the contestants are signing away, these contracts are not currently considered unconscionable. However, the opportunity to bring and win unconscionability claims may arise, especially if the contracts continue to evolve in ways that increasingly violate public policy. There may be a line, not yet established, that even the networks cannot cross. This note will discuss the development of reality television contracts. Further, it will argue that, at present, the terms of such contracts are not unconscionable because they do not satisfy the two-part test for determining unconscionability: the finding of both procedural and substantive unconscionability. Specifically, this note argues that the “shock the conscience” standard for substantive unconscionability is not met when the risk to the producers, commercial background, benefit, and potential return to the contestants are taken into account. While a lay reader may view the language of the agreements as extreme and unwarranted in isolation, when considered in the larger economic and industry framework of reality television, the terms are not unconscionable.

I. Background in Reality Television

More than twenty-five percent of primetime broadcast programming is now comprised of unscripted television shows.[7] Primetime television has not been so dominated by unscripted shows since the game show fad during the 1950s.[8] Writers’ strikes, actor holdouts, economic downturns, and audience weariness inspired experimentation on the part of the networks to keep their costs down and primetime ratings high.[9] Reality television shows, which are cheaper and faster to produce, and achieve similar audience numbers, emerged as the new model.[10] The popularity of unscripted television commenced with game shows in the 1950s. Game shows were an “early incarnation of highly profitable TV programming that hinged on the popular appeal of real people placed in dramatic situations with unpredictable outcomes.”[11], [12] Next were prank shows, led by Candid Camera, followed by makeover and charity shows.[13] Subsequently, amateur talent contests, pioneered by Star Search, entered the viewers’ living rooms.[14] The model for the contemporary archetypal reality show was MTV’s The Real World, which first aired in 1991,[15] followed by CBS’s Survivor and Big Brother, both premiering in 2000.[16] The show that arguably initiated the explosion of reality television contest shows, however, was American Idol, débuting in 2002 to extraordinary success.[17] “This was 2002, so the only reality shows were really this and Survivor. American Idol was a breakthrough.”[18] Viewers knew of individual shows, but talk of the reality genre was insignificant. However, it did not take long for the large networks to recognize the benefits reality television could bring to their primetime lineups.[19] Several factors contributed to the success of reality television besides simply popularity and creative ideas. In the 1990s, the most profitable advertising spot was Thursday night primetime, which NBC dominated.[20] With Friends opening the evening at 8:00pm and ER closing it at 11:00pm, NBC was all but unbeatable. In fact, NBC had been at the top of the rankings for fifteen years.[21] However, once CBS put Survivor up against NBC’s Friends, NBC’s dominance took a hit.[22] Survivor had competitive viewership numbers at significantly lower production costs.[23] NBC was slower to adopt reality television as a major component of its headlining shows, but in 2006 NBC announced its new strategy, “NBCU 2.0,” whose goal was to cut costs significantly.[24] Announcing NBCU 2.0, Jeff Zucker, the then-head of NBC Universal’s television division, stated, “[w]e have to recognize that the changes of the next five years will dwarf the changes of the last 50.”[25] At this point, it became apparent that reality television was not a passing fad. The growth in reality television necessitated protections for production companies and the networks. As the number of lawsuits and threatened lawsuits increased, so too did the number of contract pages, resulting in a common complaint that reality television contracts are excessively lengthy and contain clauses that are unfair to the contestants.[26] This led to questions of unconscionability. Is the contract unfair to the participant? Are reality television contracts generally contracts of adhesion? Do these contracts violate public policy or shock the conscience in a way that is extraordinary for the commercial context? Could a reality television star win a case claiming his contract is unconscionable, rendering it void? Thus far, no reality television contract has been held unconscionable, even when it is found to be a contract of adhesion.

A. Defining Reality Television as a Genre

Scholars writing on reality television have made attempts to define and categorize the genre. “This fixation with ‘authentic’ personalities, situations, problems, and narratives is considered to be reality television’s primary distinction from fictional television and also its primary selling point.”[27] Reality television is split into many sub-genres, as well as what can only be described as sub-sub-genres.[28] The initial shows fit within the established categories, but now shows are blurring the lines, leading to even more sub-genres. While a comprehensive list is impossible, there is a common core of sub-genres. There is the “gamedoc,” which includes programs like Survivor, America’s Next Top Model, and Project Runway.[29] There are also talent contests, including American Idol, The X Factor, and So You Think You Can Dance, which incorporate a popular vote.[30], [31] Others are dating programs, like The Bachelor and Beauty and the Geek; makeover programs, including What Not to Wear and Made; “docusoaps,” such as The Real World, The Real Housewives series, and Teen Mom; reality sitcoms like The Osbournes, Kendra, and Joan and Melissa: Joan Knows Best?; reality investigation shows; court programs; and charity programs, including Oprah’s Big Give and Extreme Makeover: Home Edition.
1. The Scope of Reality Television in This Note
Because many shows are borrowing attributes from multiple sub-genres, categorization by cast type rather than subject structure is more effective for the purposes of this paper. The broadest definition used by the networks is “unscripted television,” but reality television in a colloquial context tends to exclude the more traditional unscripted formats, such as talk shows and game shows. In particular, this note focuses on unscripted shows featuring “real people” as contestants (as opposed to unscripted shows using celebrities/personalities like Dancing with the Stars or Keeping Up with the Kardashians).[33] Aside from this distinction in casting, there is little else excluded from the broad category of reality television discussed here, and the references to “reality television” or “reality TV” within this note will reflect that definition only. The focus for discussion is the contracts that underlie shows that “provide non-scripted access to ‘real’ people in ordinary and extraordinary situations.”[34] Contestants in these types of programs have less familiarity with the language of the industry and are less able to negotiate individual contracts. Most sign form contracts that are essentially contracts of adhesion created by production companies and networks. This is very different from the contract negotiations for established actors like the cast of Friends, particularly as the show approached its final seasons.[35] Mark Andrejevic, former professor in the Department of Communication Studies at University of Iowa, believes “[r]eality TV cast members are subject to totally unequal terms of negotiations. They are essentially a disposable commodity, and if they don’t sign the contract there are hundreds of other people lining up for their spot.”[36] There is little to no bargaining power for the contestants in the contract signing process for reality television. While their lack of bargaining power may give the contestants pause, the networks, too, have concerns when approaching these contracts. They must protect themselves from the significant risks posed by reality television production, namely that they are dealing with people who are naïve about Hollywood processes and who lack a reputation in the industry sufficient to carry the show or to demonstrate that they will perform to a certain level. Most importantly, the fact that these shows are unscripted means, beyond editing, the networks have little control over what is said or done on screen.[37] Producers have to keep in mind that “[they] are shooting real people with real emotions and [they] can be 100% certain they will often do or feel things that are not part of your plan. This will and should happen.”[38] Writer and producer Pamela Berger has equated creating a reality show to the Heisenberg Uncertainty Principle.[39] The more “care and focus” the producers put into creating a reality television show, the more they “interfere with the very realness [they] are trying to convey.”[40] Therefore, to achieve the best show, producers have to allow for more uncertainty and insecurity, which leads to the incredible breadth of the contracts they draft.

B. Legal Activity in Reality Television

To date, the discussion and legal action surrounding reality television has had little to do with contract theory. However, networks and producers are using the contracts as a defense, stating that the participants consented to any consequences resulting from their involvement. The actions contestants have brought against producers cover a wide range of claims and are not all governed by the same laws.
State law claims involving reality television shows include common law and statutory right of publicity claims, defamation, intentional infliction of emotional distress, fraud, trademark infringement, and even violation of civil rights. Much of the recent focus in these cases, however, has been on claims that producers and broadcasters have violated the plaintiffs’ common law or statutory rights of publicity.[41]
Contestants have also sued for defamation based on “frankenbiting,”[42] (such as the BBC Castaway case[43] and Fox’s Temptation Island case[44]). As previously mentioned, the networks’ response is that in signing their contracts, the parties consented to any reputational results. The Writers’ Guild of America (WGA) also sued over “frankenbiting,” insisting that this extensive editing is actually writing the show and, therefore, should be done by union members.[45] Other common claims are privacy and right of publicity,[46] racial discrimination,[47] breach of contract,[48] abnormally dangerous activities,[49] invasion of privacy, slander and intentional infliction of emotional distress.[50] In a recent and highly publicized case, contestant Tanya Cooley of the Real World/Road Rules Challenge: The Ruins, sued Viacom and MTV, claiming she was raped during filming. Cooley alleged that when she notified the show’s producers, they told her to “just deal with it” and eventually sent her home.[51] In her claim Cooley stated producers encouraged intoxication and “scandalous behavior.”[52] MTV responded by claiming “affirmative defenses including Cooley’s assumption of risk, consent, a waiver, a release and the argument that there were legitimate business reasons for sending her home—that she was removed from the show because ‘she violently struck another contestant,’” behavior that Cooley did not deny.[53] The case settled in October 2012[54] but had it gone to trial, could Cooley have successfully argued that the waiver violated public policy or that it was unconscionable? Based on current case law, it is unlikely that she could have succeeded on those claims. This is not to say there were no other potentially successful claims outside the realm of contract waivers that Cooley could have brought. All of these suits and settlements in which the networks and production companies escaped liability have raised general awareness regarding reality television contracts. Discussion revolves around the validity of the actual terms of the contract, examining whether or not the contracts are just an example of the “big guys” taking advantage of the average Joe.[55]

II. What is the Unconscionability Doctrine?

Unconscionable contracts are those that “no man in his senses and not under delusion would make on the one hand and as no honest and fair man would accept on the other.”[56] The unconscionability doctrine is meant to extend protection to parties that sign unfair contracts and are not otherwise protected under contract law by duress, fraud, or misrepresentation.[57] For a contract to be unconscionable, an exacting standard must be met in order to prevent exploitation by parties who have simply exercised bad judgment.[58] The unconscionability doctrine allows a court to refuse to enforce contracts.[59] However, the court’s ability to intervene raises the inherent conflict between freedom of contract and protection from lack of bargaining during the formation of contracts.
There exists an unavoidable tension between the concept of freedom to contract, which has long been basic to our socioeconomic system, and the equally fundamental belief that an enlightened society must to some extent protect its members from the potentially harsh effects of an unchecked free market system… [T]he law has developed the concept of unconscionability so as to prevent the unjust enforcement of onerous contractual terms which one party is able to impose under the other because of a significant disparity in bargaining power.[60]
The majority of discussions and case law concerning unconscionability focus on Section 2-302 of the Uniform Commercial Code (“UCC”) and involve the sale of goods. However, this provision is not applicable to service contracts and therefore contracts involving personnel in the entertainment industry.[61] The Restatement (Second) of Contracts takes the UCC language, but applies it to contracts generally rather than limiting it to sale-of-goods contracts.[62] The Restatement (Second) of Contracts Section 208 states:
If a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result.[63]
Although the Restatement is not legally binding, most states have adopted its principles and extended the applicability of the unconscionability doctrine to all contracts.[64] The theory behind unconscionability and Section 208 is based on the concepts of freedom of contract[65] and laissez-faire doctrine.[66] There is a tension between being permitted to sign any contract and being limited and controlled by the government and the courts out of paternalistic, but perhaps necessary, protection.[67] The unconscionability doctrine is an attempt to strike a balance between these two extremes, allowing the courts to police contracts without causing undue interference.[68]

A. The Test for Unconscionability

“Whether a contract or any clause of the contract is unconscionable is a matter for the court to decide against the background of the contract’s commercial setting, purpose, and effect.”[69] Most courts “have shown restraint in examining contracts or clauses for unconscionability” to avoid encroaching on the parties’ freedom of contract.[70] But how far courts should be allowed to go in their interpretation of contracts has yet to be settled. “Usually, but not always, neither the substance nor the circumstances alone leads to the conclusion that unconscionability exists. To reach such a result, there is a need to couple the two.”[71] Unconscionability includes abuse of both procedural and substantive contract terms.[72] In Williams v. Walker-Thomas Furniture Co.,[73] the leading case on the subject of unconscionability, in order to demonstrate unconscionability Williams, the petitioner, had the burden of showing “an absence of meaningful choice … together with contract terms which [were] unreasonably favorable to the” defendant.[74] Professor Arthur Allen Leff laid out the test for unconscionability by separating it into two components: substantive unconscionability, which “refers to the actual terms of the agreement,” and procedural unconscionability, which “pertains to the bargaining process.” [75] The “Leff Test” has been applied not only to unconscionability questions covered by the UCC §2-302, but also to those agreements that do not pertain to the sale of goods.[76] In most states, both procedural and substantive unconscionability must be found for a contract as a whole to be found unconscionable.[77]
1. Procedural Unconscionability
Procedural unconscionability consists of the “absence of meaningful choice,” whereby one party has no option but to sign the contract.[78] Often, procedural unconscionability results from “haste and high pressure tactics” or signing “for the sole benefit of the defendants,” ignoring any benefit or necessity of the less powerful party.[79] One common way for courts to find procedural unconscionability is by determining that the contract is a contract of adhesion. “The term [contract of adhesion] signifies a standardized contract, which imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it.”[80] Although contracts of adhesion are used as evidence to demonstrate a disparity in bargaining power, a factor in establishing procedural unconscionability, they are not per se procedurally unconscionable.[81]
2. Substantive Unconscionability
Establishing substantive unconscionability requires looking “to the terms of the contract itself (the contract’s substance), . . . ask[ing] . . . whether those terms are unreasonably favorable to the stronger party.”[82] The Southern District of New York (affirmed by the Second Circuit) in Croce v. Kurnit explained that substantive unconscionability requires that the terms of the contract “shock the conscience” or be “grossly” different from “industry norms.”[83] Being “complex in nature” is not sufficient for unconscionability so long as the terms are not intended to “obfuscate or confuse.”[84] Courts tend to be most hesitant to step in regarding the substantive unconscionability aspect of the Leff Test. Substantive unconscionability is often viewed to be the heart of the unconscionability doctrine and, in some states, is enough to find an agreement unconscionable on its own, although it is often still accompanied by a finding of procedural unconscionability.[85] Factors courts consider when deciding if a contract is substantively unconscionable, include, but are not limited to, commercial setting, bargaining power, opportunities for the signing parties, who requires more protection, as well as to whom rights or privileges are given or payment is made (as specified by the contract in question). This factor-driven test creates a sliding scale, making the plaintiff’s burden of proving unconscionability highly dependent on the importance of the rights involved. When fundamental and constitutional rights are bargained away, the context (commercial setting, bargaining power, etc.) is of lesser concern than when other personal privileges are given up as consideration. Contracts found to be unconscionable, or those that violate public policy, are void or voidable.[86] While public policy violations and unconscionability are technically different theories for voiding a clause or contract, they are interrelated.[87] Furthermore, the idea of voiding a contract or clause because it violates public policy fits into the broader understanding of the unconscionability doctrine, particularly into the concept of substantive unconscionability.[88]
3. Application of the Two-Part Test
When courts are determining whether a clause is unconscionable, they often combine the procedural and substantive tests into a single analysis. Habitually, courts assume procedural unconscionability in contracts of adhesion and reserve thorough analysis until after the substantive unconscionability discussion. Consequently, a court will often avoid the procedural analysis altogether because it does not find the clause to be substantively unconscionable. On the other hand, a clause may be so clearly substantively unconscionable that procedural unconscionability is only used to tip the scale. Many courts “have suggested a kind of sliding scale, in which even a small amount of procedural unconscionability, when combined with a high degree of substantive unconscionability, [would] be enough to invalidate a challenged clause.”[89]

B. Unconscionability under California Law

California, home to Hollywood, is also the site of most of the nation’s entertainment law disputes. As a result, California state law has one of the most developed unconscionability doctrines in the entertainment industry. Most reality television shows are California-based, making California state interpretations of the doctrine binding for any unconscionability claims that may arise. The California courts also tend to be less restrained in their application of unconscionability than courts in other jurisdictions.[90] California Civil Code §1670.5 covers the unconscionability doctrine, stating:
(a) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made, the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result. (b) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable, the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose, and effect to aid the court in making the determination.[91]
The California courts have applied this statute to all contracts.[92] California law requires the finding of both procedural and substantive unconscionability in order to void a provision.[93] The California courts also apply the Leff Test. “The text of §1670.5 is identical to the text of §2-302 of the 1962 Official Text of the Uniform Commercial Code… The purpose of enacting §1670.5 as part of the Civil Code was to make its provisions applicable to all contracts.”[94] In Buchwald v. Paramount Pictures Corp., the court found that when Buchwald signed an agreement with very complicated formulas for the calculation of net profits (or net proceeds), he “had been taken advantage of through a commonly used motion picture industry contract.”[95] The court held the clause to be unconscionable. However because the court in Batfilm Productions v. Warner Brothers, Inc. found the same net profits clause not to be unconscionable, the film industry has done little to change its practices.[96] Since Buchwald, California courts have been reluctant to find entertainment contracts unconscionable, leaving the case as an outlier in the unconscionability sphere of entertainment contracts.

C. Unconscionability under New York Law

New York, another prominent state for entertainment, television, and film activity, is the other state that may eventually play a role in reality television contractual disputes. However, both the New York courts and legislature have been much less active with regards to the unconscionability doctrine than California; thus, there is little precedent to use as a guide. In 1951, the New York Court of Appeals held that an unconscionable contract is one that is “so grossly unreasonable or unconscionable in the light of the mores and business practices of the time and place as to be unenforceable according to its literal terms.”[97] In 1962, New York adopted the UCC §2.302 provision and in 1976, incorporated similar language into the state’s Real Property Law.[98] In Gillman v. Chase Manhattan Bank, the New York Court of Appeals held that both procedural and substantive unconscionability are required to find a contract void for unconscionability.[99] “The New York Court of Appeals defined procedural unconscionability as an ‘absence of meaningful choice,’”[100] but also held that a contract of adhesion, without more, is not automatically a procedurally unconscionable contract.[101] Hence, requiring someone to sign a contract in order to participate in a program does not in itself make the contract procedurally unconscionable.[102] Substantive unconscionability in New York, while similar, uses a less stringent standard than is used in California.[103] The court in Gillman determined that the standard of review in New York is the reasonableness of the terms.

III. The Contracts

The only bona fide protection for producers and networks filming reality television shows is through contract. Union collective bargaining agreements provide baselines in scripted television, but do not apply to reality television cast members. Given the extra risk and uncertainty of reality television, producers and networks feel the need to protect themselves from every possibility for legal action fathomable.

A. Measures for Protection of Production Companies and Networks

Over time, the size, number, and depth of the reality television contracts and releases has grown significantly. Producers have learned that they need very elaborate contracts to protect themselves. According to Matt Kunitz, Supervising Producer of The Real World, “the second season of The Real World, the contract was 12 pages long, and every year it got bigger and bigger.”[104] Nigel Lythgoe, producer of American Idol and So You Think You Can Dance, described contract formation as having to be complete in its expectation of transpiring events. “Whenever you do a contract, you have to try to anticipate every angle, because you can’t tell what’s going to happen.”[105] “You’re always dealing with unpredictability,” echoed Chris Sloan of the USA network, leading a practical contract author to ensure protection against all risks.[106] It is clear that comprehensive nature of reality television contracts is a response to the lack of control and unique problems associated with unscripted shows.[107] In addition to the main contract, it is common for contestants to sign a release, full contestant agreement, and non-disclosure agreement.[108] Most contestants also have to submit to a medical examination, background check, psychological evaluation, and personality testing.[109] For example, the Season 4 Beauty and the Geek cast had to sign and complete a thirty-five-page agreement and release, a three-page confidentiality agreement, a two-page medical supplies form, and a three-page medical information form.[110] So You Think You Can Dance Season 5 contestant Randi Lynn Strongg (formerly Randi Lynn Evans) said, “[t]he contract that we had to sign once making it onto the show was about 90 pages long.”[111] Contestants also completed “a 450-question psych evaluation along with physical tests with a doctor.”[112] On the first season of The X Factor, the contestants had a thick packet to fill out right after boot camp week. If the contestants “[get] past the judges, they take [the contestants] for a screening with a private investigator and they [ask] [the contestants] everything: what religion you are, what drugs you have done, how many people have you had sex with. It’s scandal protection.”[113] Production companies thoroughly investigate the contestants’ lives, from their relationships and family, to their driving record and where they lived for the last ten years, to avoid any potential surprises down the line.

B. Typical Contractual Language

There are several common features to reality television contestant: standard warnings about dangers contestants may face along with liability releases; privacy waivers and permission grants for filming any time and place; warnings and releases regarding reputational damage and embarrassing depictions; commitment or exclusivity clauses; and communication limitations. Standard warnings about the dangers that the contestants face by coming on the show may be part of a larger contestant agreement or may constitute a separate waiver or release. The intention of these clauses is to warn contestants of potential hazards and to release the production company from liabilities stemming from those risks.[114] Contestants on The Biggest Loser sign an eleven-page release that covers both physical and psychological risks, waiving the right to sue for virtually any liability related to injury or death. [115] Under the release, contestants assume all risks, known and unknown, and acknowledge the “diet, exercise, and/or nutritional” risks associated with the show:[116] It further states:
I understand that the Series and my compliance with the Series Rules may cause me mental, psychological and/or emotional distress, and the consents, authorizations of risk and releases set forth in this Agreement and in the Waiver and Release expressly apply to all such potential harms.[117]
Similar provisions appear in the contract signed by contestants on the fourth season of Beauty and the Geek:
I understand that the Series will involve my participation in physically and mentally strenuous activities that may cause me serious bodily injury, illness or death, including, but not limited to exhaustion, dehydration, fatigue, overexertion and sun or heat stroke. I understand and acknowledge that while conduct giving rise to such situations and activities might otherwise constitute an actionable tort, I have freely and knowingly consented to such conduct and to participating in such situations and activities. I acknowledge that the foregoing is not an exhaustive list of the risks, hazards and dangers I may be exposed to as a result of the Series activities and I voluntarily and freely accept and assume these and all such other risks, hazards and dangers I may encounter or be exposed to and understand and acknowledge that the waivers, releases and indemnities in this Agreement expressly apply to these risks, hazards and dangers.[118]
Similar clauses may also release the producers of liability from association and interaction with the other contestants or guests on the show. On The Real World, guests were required to sign a contract containing the following clause:
I understand that Producer does not make any representations or warranties about the cast members in the Program or of any other person whom I may encounter in connection with my participation in the Program, including but not limited to, the mental or physical health of any such person. If I choose to engage in consensual sexual behavior or intimate contact . . . I do so voluntarily and knowingly and I assume the risk that by engaging in such activity I may contract certain sexually transmitted diseases . . . . [119]
Despite the their ubiquity, Professor Andrejevic of the University of Iowa doesn’t believe that such language provides any sort of warning to the participants, stating that it is “disingenuous for producers to suggest that contestants were adequately warned of the conditions they would face.”[120] Language permitting filming of contestants at any time and place during production is common to most, if not all, reality television contracts. For example:
I grant to Producer and its successors, licensees and assigns, the irrevocable right, but not the obligation, with or without my knowledge, to film, tape and/or photograph, record, exhibit, edit and otherwise use my appearance, name, likeness, voice, singing voice, conversation, sounds and biographical data on or in connection with the Program in any manner in Producer’s sole election and discretion, which use shall not entitle me to receive any compensation whatsoever.[121]
Contestants often must explicitly give up all rights of privacy while being filmed for the show:
[I]f I so choose to enter the case house that hidden cameras and microphones may be used and I have no expectation of privacy anywhere in the house, including but not limited to bedrooms, bathrooms and other places I would typically expect privacy.[122]
Relatedly, contestants frequently must consent to any personal information or embarrassing depictions that may be revealed over the course of the show. These releases prevent suits for frankenbiting, invasion of privacy, reputational injuries, defamation, and other claims involving emotional and non-physical personal injuries. One such contract reads:
I understand that, in and in connection with the Program… I may reveal and/or relate, other parties… may reveal and/or relate, or the Producer may thus edit, information about me of a personal, surprising, defamatory, disparaging, embarrassing or unfavorable nature. I further understand that my appearance, depiction, and/or portrayal in or in connection with the Program, and my actions and the actions of others displayed in or in connection with the Program, may be disparaging, defamatory, embarrassing or of an otherwise unfavorable nature, and may expose me to public ridicule, humiliation or condemnation. I acknowledge and agree that Producer shall have, in its sole discretion and editorial control, the right to include any such information and any such appearance, depiction, portrayal, actions and statements in and in connection with the Program. I understand and acknowledge that while such conduct might otherwise constitute a tort, I have freely and knowingly consented to such conduct and waive any action against Producer.[123]
Such provisions are common even in talent competitions; the American Idol Personal Release states:
I understand that I may reveal and other parties may reveal, information about me that is of a personal, private, embarrassing or unfavorable nature, which information may be factual and/or fictional. I further understand that my appearance, depiction and/or portrayal in the Program may be disparaging, defamatory, embarrassing or of an otherwise unfavorable nature which may expose me to public ridicule, humiliation, or condemnation. I acknowledge and agree that Producer shall have the right to (a) include any or all such information and appearances, depictions or portrayals in the Program as edited by Producer in its sole discretion, and (b) broadcast and otherwise exploit the Program containing any or all such information and appearances, depictions or portrayals in any manner whatsoever in any and all media now known or hereafter devised, or for any other purpose, throughout the universe in perpetuity.[124]
Various commitment clauses are also common in addition to releases for physical dangers, emotional harm, privacy rights, and other producer liabilities, especially for talent-based shows. Some clauses restrict activity during production, while others cover post-production activities. Exclusivity during production and run of the show is common. American Idol Season 2 contestants were barred from any sort of vocal performance unrelated to the show during the season’s filming and airing. They “couldn’t sing anywhere but Idol, even family barbeques, while [they] were on the show.”[125] Similarly, The X Factor Season 1 contestants had to wait until seven months after the show aired to perform in other contexts.[126] The Biggest Loser contestants had to obtain the show’s approval for public appearances or speaking engagements for a year after the conclusion of the show.[127] Contracts also have commitments that bind the contestants to some combination of the show, network, management company, or production company for a period of time after the show’s completion. Pursuant to such a release, contestants on the second season of American Idol “were bound to 19 Management for three months after the tour.”[128] For The Biggest Loser family, the commitment is mostly social. Prior contestants “can go back every year for the finale… Devin [Alexander] has a big dinner party at her home. [They] also have an alumni group Facebook page so [they] can keep in touch.”[129] However, The Biggest Loser also has contractual control over contestants for one year after the final episode airs:[130]
Producer and Network shall have the right and option to require me to participate in any future unscripted, ‘reality-based’ programs… and all media now known or hereafter devised in which I appear as myself (the “Reality Hold”), according to the following terms and conditions… through the date which is twelve (12) months after the initial exhibition of the final episode of the cycle of the Series in which I appear.[131]
In spite of the contracts, contestants on many of these shows felt that they were well-treated and respected during the show, especially contestants from the early seasons. So You Think You Can Dance Season 5 contestant Randi Lynn stated in an interview that, “[j]ust recently, I attended the Season 9 wrap party and got to see everybody there, including Nigel [Lythgoe] and stuff. That was a lot of fun, and I felt that I was greeted with open arms. I feel like everyone who was on the show will always have a special place with Nigel and friends.”[132] Yet, things appear to be different on some newer shows. During The X-Factor’s inaugural season in 2011, the producers required the contestants that made it to the final live shows to sign an additional contract with a seven-year producer right-of-first-refusal clause on activities of the top contestants.[133] Gray Aydelott explained, “[w]e got cut right before the… right of first refusal. That was what scared me the most. If we were offered it, I would have taken it, obviously, but seven years is a long time to be bound.”[134] Aydelott understood how the contract could tie the hands of his group, but felt that the opportunity would have been worth it.[135] It seems that in the wake of American Idol’s missed contractual hold on Jennifer Hudson, who didn’t win but went on to have an Oscar-winning career, producers want to ensure no potential opportunities slip away again.[136] Limitations on contact with the outside world are prevalent; contestants are required to be away from their families and friends for extended periods of time. Despite the emotional hardship this can entail, many shows compound the separation with clauses pertaining to communication. In some cases the restrictions extend communication limits beyond when contestants actually appear on the show (i.e., after they have been eliminated) to ensure confidentiality and maintain the surprise factor for finales. For example, the release for The Biggest Loser reads:
I understand the Series Rules may require me to be separated from my family, friends and regular environment for an extensive period of time, to be present at one or more locations… with or without other participants of the Series, and that I may be subject to limitations or prohibitions on my ability to communicate with my family, friends and others, for up to twenty-four (24) hours a day, seven (7) days a week, for a period of approximately nineteen (19) consecutive weeks (and possibly longer) tentatively scheduled to begin on or about . . . . [137]
Ultimately, producers are attempting prepare for the fact that the filming experience may not go as they or the participants anticipated. The production company may reveal information on the show that the contestant never imagined producers would find out, and contestants may do or say unexpected things. All of this is reflected in the contracts.

IV. Could Unconscionability be Used to Void the Contracts?

“Unconscionability is a question of law for the court.”[138] If a clause is found unconscionable, courts may address the solution in a variety of ways, including “red-penciling” out the problematic phrase or clause, voiding the entire contract, or narrowing the meaning of the unconscionable term. Under California state law, unconscionable contracts are subject to severability under CA Civil Code §1670.5(a); hence the entire contract would not be void regardless of a finding regarding an individual clause.[139] Markedly, there is no precedent finding the standard and existing clauses of a reality television contract unconscionable. Reality television’s contemporary development and the tendency to settle disputes have limited the courts’ exposure to this issue. Only the California Superior Court for Los Angeles County, followed by the Second District of the Court of Appeal for California reviewing the County Court’s cases on appeal, has specifically addressed using unconscionability to void clauses other than the arbitration clause in reality television contracts. The Superior Court exhibited a clear and accurate application of the unconscionability doctrine in the Higgins cases, in particular, Higgins II.

A. Unconscionability in Reality Television Contracts According to the Los Angeles County Superior Court and the Second District of the Court of Appeal

1. The Higgins Cases
In the series of Higgins cases, a family of orphaned children brought suit against ABC and its affiliates over an episode of Extreme Makeover: Home Edition.[140] The four Higgins siblings’ were orphaned and, with the encouragement of their church, agreed to go on Extreme Makeover: Home Edition. Prior to the show, the Leomiti Family had taken the four siblings into their home, thus it was the Leomiti house which was remodeled. Within a year of the remodel, the Leomitis evicted the Higgins children, prompting the siblings to sue the Leomitis and several parties involved in the production of the show, including the production company and the network.[141] In 2006 the children appealed a decision by the Superior Court to the Court of Appeal (Higgins I) arguing that they should not be required to arbitrate with the producers and network because the arbitration clause was unconscionable. The Court of Appeals agreed with the children, overturning the Superior Court decision and finding the arbitration clause unconscionable.[142] Judge Rubin reversed the Superior Court’s requirement to arbitrate, granting the Higgins children’s writ of mandate.[143] In 2007, the children returned to the Superior Court (in Higgins II) with seventeen causes of action against defendants Disney and ABC. Of their many claims, those relevant to this note alleged that particular clauses in their contract were unconscionable and rendered the agreement void.[144] The appeals court disagreed, finding the clauses at issue were not unconscionable.[145] In Higgins II, the Superior Court accepted the ruling of the Court of Appeals in Higgins I, finding that the contract was a contract of adhesion.[146] However contrary to the Court of Appeals’ holding, the Superior Court found that under the procedural unconscionability analysis the fact that font changes and formatting made the contract difficult to read did not alone render the contract unconscionable. Therefore, while the contract at issue was a contract of adhesion, it did not meet the requirements for procedural unconscionability.[147] The Higgins children appealed again (Higgins III), this time focusing more specifically on several clauses that they claimed were unconscionable, including the Participation Clause[148] and the Release and Indemnity Clauses.[149], [150], [151] The appeals court affirmed the Superior Court’s decision but focused on the question of substantive rather than procedural unconscionability, holding that the agreement failed to “shock” or “surprise” in a manner that rendered it unenforceable.[152] The court noted that the contract was not “permeated with unconscionability” such that the entire contract could be voided, and that the contested terms, when considered in context, were not in and of themselves unconscionable.[153] That these highly restrictive, and fairly common, clauses were not found unconscionable bodes well for producers with similarly drafted contracts. However, the court did make a point to note that it was not making a ruling as to the unconscionability of provisions other than the specific ones contested in the case.[154] Hence, what exactly a conflict-free production contract looks like has not yet been established.
2. The Dr. Phil House Case
A second California case that touches on unconscionability in reality television contracts is Dieu v. McGraw, in which the issue stemmed from Dr. Phil McGraw having built a house in which to gather and film viewers who had written to him for advice.[155] The plaintiffs, who were themselves participants, brought claims of misrepresentation and fraud against Dr. Phil and his fellow producers.[156] The Superior Court denied the defendants’ motion to strike because the defense had not met its burden of demonstrating that the plaintiffs’ complaints arose out of defendants’ protected activity.[157] On appeal, the unconscionability arguments were brought out when the defense’s counsel chose to use the plaintiffs’ releases as a means for blocking their claims. The plaintiffs rebutted, arguing the releases were unconscionable and void due to the language.[158] The court disagreed with the plaintiffs, finding the release was not unconscionable.[159] However, it should be noted that the court implied that the reason for their holding was that the plaintiffs had not met their burden of proof. As the appeals court stated: “Plaintiffs have provided no evidence of whether they were relegated only to a take it or leave it scenario with respect to the releases . . . . On this basis alone, plaintiffs have failed to satisfy their burden to establish that the releases are unconscionable and, therefore, unenforceable.”[160] The court also found that the language of the releases appeared one-sided and may have been substantively unconscionable. However, it never conclusively addressed that issue because the plaintiffs had already failed to establish procedural unconscionability.[161] The Dr. Phil case illustrates how unconscionability suits are likely to arise in the future. Claims of unconscionability are not common in the initial complaint stage, but are instead brought out at a later stage to try to prevent producers from using the contracts as an affirmative defense. Both this case and Higgins I and II demonstrate the complicated nature of the unconscionability doctrine and the high burden of proof that must be met to win a claim under it. While these two cases were unsuccessful, the Los Angeles County Superior Court and the Second District of the Court of Appeal for California left the door open for future claims so long as they address different contract provisions. If a contestant were to win such a claim, it could drastically alter the nature of reality television contracts and expose the producers and networks to new risks.

B. Applying the Test and Concluding That The Contracts Are Not Unconscionable

Though the potential success of unconscionability claims cannot be discounted if producers and networks continue to push the bounds of acceptable television entertainment, there remains a heavy burden on parties bringing such claims. In addition, several factors make winning a case particularly difficult in the current climate of reality television contracts. First, contestants freely choose to participate and, arguably, have the opportunity to make an informed decision before signing the contract,[162] nullifying allegations of procedural unconscionablity. Second, the courts weigh the contractual language “against the background of the contract’s commercial setting, purpose, . . . effect,” as well as industry norms.[163] In the entertainment industry, contracts tend to be over-inclusive and favor production companies because they are assuming the majority of the financial risk. Third, courts must find that the language of the contract meets the high standard of “shock[ing] the conscience” in order for the contestant to succeed. Finally, the fact that contestants sign the hefty contracts in hopes of an even heftier return makes any unfairness argument weak. They are giving up a substantial number of privileges, but in exchange the studios and networks are risking a lot of money on the contestants and the show while offering the contestants a potentially life-changing opportunity.
1. Free Will and Informed Decisions in the Procedural Unconscionability Analysis
“The critical principle to keep in mind is that no one is forcing anyone to participate in these shows,” argues Jonathan Anschell, who represented CBS in a claim brought by Stacey Stillman, one of the original contestants on The Survivor.[164] There is no reason, other than desire, for a person to be on reality television. Those arguing that these contracts are unconscionable should consider the fact that the contestants do not have to be on the shows at all. Many, if not all, of the shows offer the contestants the opportunity to make informed decisions either by consulting an attorney provided by the producers, their own attorney, or another informed party. In 2002, when Carmen Rasmusen was on American Idol “the show hired a lawyer for the ‘Top 12.’ He went over the about fifty-page contract with us . . . They wanted to make sure we understood. I mean they hired a lawyer to spend hours with all of us on speakerphone to make sure we were okay with everything.”[165] Not everyone has had the experience Rasmusen had. “In some cases, reality show contestants may know very little about the contents of the contracts they sign, given their length, the use of boilerplate and legal jargon, and the relatively short time contestants have to review the contracts.”[166] However, contestants do realize that they have little to no bargaining power to change these contracts of adhesion, due to basic economic supply and demand. If they choose not to participate, there is a line of people around the block, literally, to replace them. They are a highly dispensable piece of the production of the show. Randi Lynn said about participating on So You Think You Can Dance that: “Honestly, they are going to do what they want, and they can, because all the power is in their court. I just wanted to be on the show, no matter what. In the end, I can say that I think everything worked out for me great.”[167] “If you wanted to do the show”, she added, “you played by their rules and had to sign it as it was.”[168] Similarly, Will Frank, a Beauty and the Geek contestant, knew he had no bargaining power. “[T]his wasn’t a negotiation of equals; it was pretty take-it-or-leave-it. I felt the choice was pretty simple – sign and be on the show, or don’t and don’t.”[169] On the other hand, the contestants on reality television shows do not have agents negotiating their contracts, and most of them have little experience negotiating contracts in general, let alone entertainment and reality television contracts which operate under their own set of unconventional industry practices.[170] When combined with the expendable nature of individual contestants, this lack of bargaining power makes these agreements contracts of adhesion and increases the likelihood that the terms favor the producers and networks, which could enable the courts to find procedural unconscionability. Even so, the courts are still unlikely to find substantive unconscionability based on these factors alone, and both procedural and substantive unconscionability are required to find a clause or contract unconscionable.
2. Commercial Setting and Industry Norms as Part of the Scrutiny for Substantive Unconscionability
Most of the contestants understand what they are getting into and fully expect to “sign their lives away.”[171] They understand that making it in the entertainment world is extremely difficult, has low chances of success, and requires sacrifices in many forms, including contractual obligations. “It’s everything that goes along with. . . entertainment. The publicity, the television, the interviews, the crowd. It’s part of the business.”[172] However, many contestants do feel that “[producers] tried to do what worked for [both] the show and for the contestants. They were looking out for [the contestants’] best interests.”[173] Still, “Hollywood language is . . . difficult.”[174] In a letter to the contestants of Beauty and the Geek containing the contract they were required to sign, the producers tried to limit anxiety by explaining that the contract language was standard. To do this, they included the following in the letter:
DON’T PANIC!!!! It is a standard show contract and umbrellas a wide set of scenarios and circumstances that you may, or may not, encounter. Much of the language in this agreement is intimidating and difficult to understand. Read through it carefully and feel free to ask us any questions. A LOT OF THIS LANGUAGE SOUNDS FAR WORSE THAN THE ACTUAL CIRCUMSTANCES YOU WILL ENCOUNTER ON THE SHOW.[175]
Why have this language at all if it is an exaggeration of what is necessary? The answer is that Hollywood is Hollywood – competitive, risky and uncertain. Those who have invested money have learned that they need to protect themselves against any peril that may befall the show. The contestants have to accept the quirks of the industry that they are entering, which includes the contracts. As the Higgins court pointed out, analyzing a contract requires viewing it in context of the commercial background and the needs of the trade in question.[176] Thus, when looking at the “nature of the agreement: allowing appellants to appear on the show and receive its benefits in exchange for giving up their publicity rights and limiting respondents’ liability for torts occurring in connection with the show,” the releases are “not surprising or unexpected and, when viewed in the context of the agreement’s primary purpose, were not unconscionable.” Hence, waivers of publicity rights and other rights in exchange for being on a show “is clearly legal.”[177]
3. Shocking the Conscience – The Crux of the Substantive Unconscionability Analysis
The standard test for substantive unconscionability in California is the “shock the conscience” test. In their case, the Higgins family argued that the contract was one-sided and lacked mutuality. In rejecting their claims, the court made it clear that there is a difference between arbitration clauses, which are often found to be unconscionable, and other provisions pertaining to reality shows.
While [the] Higgins [family] cite[d] two recent decisions concerning unconscionability, the decisions cited typically addressed arbitration clauses, often in the employment context. A contract demanding [a] waiver of the constitutional right to a trial by jury in consideration of allowing the signatory to obtain or keep employment is a far cry from a contract enabling the signatories to participate in the making of an entertainment broadcast carrying with it the potential for fame as well as the potential for cash and other prizes in exchange for which the Producers demand the right to broadcast the program and the waiver of certain liabilities which might arise from the program. As conditions attached to an otherwise completely gratuitous grant of consideration, these waivers do not ‘shock the conscience’ which is the typical test for substantive unconscionability.[178]
According to the court, shocking the conscience depends largely on the context of the clause. It is not as shocking to sign away rights of publicity and waive liability as it is to contractually forfeit a constitutional right. Whether something shocks the conscience hinges on what the clause is about considered in light of the other elements discussed in this section such as commercial setting, industry norms, the opportunities available to the contestants, and which party is bearing the risk.
4. Available Opportunities to the Participants Weighing in on the Substantive Unconscionability Analysis
Contestants have “various motives” for being on shows.[179] Many, like Carmen Rasmusen are looking for exposure to advance their careers. “This was before Facebook and YouTube. It was a great way to get heard instead of little county fairs in Orem, Utah.”[180] Another advantage for contestants is the opportunity to be on the show itself. Andrew Bonito from the 2005 season of Hell’s Kitchen felt like he had been given the “opportunity to be a part of popular culture.”[181] The motivations that lead contestants to want to be on reality shows vary, and they don’t all come down to simply wanting their fifteen minutes of fame. Some are “excited for the challenge and to prove to [themselves] that [they] could do it.”[182] There are “so many opportunities on the [shows] to work with the best of the best in the business.”[183] Contestants have experiences and develop relationships on the show that they will remember for their entire lives. According to Aydelcott, those involved in the first season of The X Factor “became like… family. Simon and Paula and all of them.”[184] The success of previous participants furthers the belief among potential contestants that they can also be among the small percentage that becomes famous. It is possible, as many contestants and participants of reality television shows have gone on “to star in Hollywood films, host television programs, . . . and appear as contestants on [other] . . . reality programs. While participation . . . doesn’t seem to lead to an acting career, it does . . . provide a continuation of the observed life,” since participants continue to be tracked by the media.[185]
5. The Production Companies Bear the Financial Risk – Turning Away from Finding of Substantive Unconscionability
Another piece of the debate worth emphasizing when considering substantive unconscionability is that all of the risk is born by the network. “Until the program airs, it is virtually impossible to predict its success – sunk costs are high, and so is the risk of failure.”[186] Even though reality television is cheaper than dramas or sitcoms, they are not inexpensive. As of 2005, the average cost of producing a drama or sitcom ranged from $700,000 to $1.25 million.[187] Those numbers are still running about the same, if not cheaper. Scott Manville of TV Writer’s Vault estimates that reality television programs cost between $100,000 and $500,000 depending on the network.[188] It is the production companies and networks that are bearing the entire cost of the shows. The participants on the show are not professional actors risking their reputations; instead they are merely risking their reputational portrayal in exchange for opportunities provided and paid for by the production companies. As in most other areas of contract law, the side bearing the financial risk deserves more protection within the contract.

Conclusion

Contestants from reality television shows are bringing suits against production companies and networks when the shows do not go according to plan.[189] These lawsuits are relatively unsuccessful due to the hefty contracts the contestants signed which cover most of the claims at issue in the suits. Recently, this has begun to raise the question of whether these contracts are enforceable at all with the broad and sometimes appalling clauses that release the “all-powerful” networks and producers from nearly all liability. As the courts see it, the formation of the contract determines a complaining party’s fate. A contract can only be unconscionable if it is unconscionable at the time of signing. In hindsight, a contestant may wish he had never agreed to this contract, but that is not enough to make the contract unconscionable. This is especially true since reality television contracts are not something anyone needs to sign at all. As Judge Gutman noted in Higgins II, an arbitration clause in an employment agreement may be found unconscionable while another clause in a reality television contract will not. To reiterate:
A contract demanding waiver of the constitutional right to a trial by jury in consideration of allowing the signatory to obtain or keep employment is a far cry from a contract enabling the signatories to participate in the making of an entertainment broadcast carrying with it the potential for fame as well as the potential for cash and other prizes in exchange for which the Producers demand the right to broadcast the program and the waiver of certain liabilities which might arise from the program. As conditions to an otherwise completely gratuitous grant of consideration, these waivers do not “shock the conscience.”[190]
Contestants are only signing away personal privileges not constitutional rights, thus reality television contracts are not unconscionable. When considering the opportunities contestants gain from participation in the shows, the commercial setting of the contracts, the free will of the contestants in signing the contracts, and the significant risk the networks and producers are taking on, the robust contractual language is completely justified. As currently written and practiced, though complex and comprehensive, reality television contracts are not unconscionable.
* Catherine Riley is a 2014 JD Candidate at NYU School of Law. She received her Bachelor of Science in Industrial and Labor Relations from Cornell University in 2011. A big thank you to the staff of the Journal of Intellectual Property and Entertainment Law at NYU and my parents for all of their help.
[1] Brian Lowry, Be Sure to Read the Fine Print, L.A. Times, Aug. 20, 2002, at F1, available at http://articles.latimes.com/2002/aug/20/entertainment/et-lowry20 (quoting Jonathan Anschell).
[2] See, e.g., Lin Burress, The Bachelor Contract, Telling It Like It Is (March 7, 2010), http://www.tellinitlikeitis.net/2010/03/the-bachelor-contract-reality-steve’s-blog-and-bachelorette-ali-fedotowsky.html.
[3] Porsche T. Farr, Comment, What Good Is Fame if You Can’t Be Famous in Your Own Right?: Publicity Right Woes of the Almost Famous, 16 Marq. Intell. Prop. L. Rev. 467 (2012).
[4] Katie Hopkins, Staff Article, Unique Legal Considerations in Reality Television, 13 U. Pitt. J. Tech. L. & Pol’y 1, 9-16 (2012), available at http://d-scholarship.pitt.edu/17865/.
[5] See, e.g., Melody Hsiou, Harsh Reality: When Producers and Networks Should Be Liable for Negligence and Intentional Infliction of Emotional Distress, 23 Seton Hall J. Sports & Ent. L. 187, 218-19 (2013).
[6] E.g., Higgins v. Disney/ABC Int’l Television, Inc. (Higgins III), No. BC B200885, 2009 WL 692701 (Cal. Ct. App. Mar. 18, 2009).
[7] Edward Wyatt, On Reality TV, Tired, Tipsy and Pushed to Brink, N.Y. Times, Aug. 1, 2009, at A1, available at http://www.nytimes.com/2009/08/02/business/media/02reality.html?pagewanted=all&_r=0.
[8] Susan Murray & Laurie Ouellette, Introduction to Reality TV: Remaking Television Culture 6 (Susan Murray & Laurie Ouellette eds., 2d ed., N.Y. Univ. Press 2009).
[9] Thomas Fenoglio, The Economics of Reality TV: Why Is the Genre So Darn Cheap?, Tex. Christian Univ., http://www.rtvfmediastudies.tcu.edu/Economics Why the Genre is Cheap.htm (last visited Mar. 24, 2013).
[10] Ted Magder, Television 2.0: The Business of American Television in Transition, in Reality TV: Remaking Television Culture, supra note 8, at 142-44.
[11] Murray, supra note 8, at 6.
[12] Some scholars have questioned whether some reality television contest-like shows should be illegal under 47 U.S.C. § 509 (for competitions of knowledge, skill, or chance). The statute was enacted after the game show scandals in the 1950s of rigging the results. See Kimberlianne Podlas, Primetime Crimes: Are Reality Television Programs “Illegal Contests” in Violation of Federal Law, 25 Cardozo Arts & Ent. L.J. 141 (2007). Section 509 makes it illegal to prearrange or predetermine outcomes in “contests of knowledge, skill, or chance.” 47 U.S.C. § 509. This question is beyond the scope of this paper, but is another proposed argument against reality television.
[13] Murray, supra note 8, at 4.
[14] Id.
[15] Id.
[16] Magder, supra note 10, at 142.
[17] American Idol, IMDB.com, http://www.imdb.com/title/tt0319931/?ref_=fn_al_tt_1 (last visited Mar. 11, 2013).
[18] Telephone Interview with Carmen Rasmusen Herbert, former American Idol contestant, Season 2 (Sept. 28, 2012).
[19] Fenoglio, supra note 9.
[20] Magder, supra note 10, at 141.
[21] Id. at 141-43 (with Cheers, Seinfeld, Hill Street Blues, The Cosby Show, Will & Grace, and Just Shoot Me).
[22] This occurred during the 2000-2001 season when NBC had four of the top five shows in terms of advertising cost. By the end of the season, CBS had doubled its Thursday primetime viewership. Magder, supra note 10, at 143.
[23] Friends was the most expensive half hour show on television, mainly because of on-air talent: the six celebrity leads were paid $1 million an episode by the last season, while Survivor was paying close to nothing for its “cast” of real people. Madger, supra note 10, at 142-44.
[24] Magder, supra note 10, at 141-42.
[25] At this time, reality television was capturing fifteen hours of primetime, while sitcoms were only ten hours per week. Id. at 142.
[26] See, e.g., Camille Dodero, We Have Obtained a Copy of MTV’s Standard Real World Cast-Member Contract, The Village Voice Blog (Apr. 1, 2011, 7:45 PM), http://blogs.villagevoice.com/runninscared/2011/08/mtv_real_world_contract.php; Breeanna Hare, The ‘Real World’ of Reality Show Contracts, CNN.com (Dec. 30, 2009), http://www.cnn.com/2009/SHOWBIZ/TV/12/30/legal.reality.contracts/.
[27] Murray, supra note 8, at 5.
[28] Id.
[29] These shows have similarities to game shows, with an ultimate winner based on some sort of skill or knowledge. However, producers must be careful to avoid any conflict with quiz show laws that were enacted after the game show scandals of the 1950s, as it is a federal crime to rig contest shows with the intent of deceiving the public. See 47 U.S.C. § 509.
[30] Some shows, such as America’s Next Top Model, are now combining the original gamedoc format with popular talent vote to blur these lines further. In Season 19, the show incorporated audience vote as a component of the models’ results each week (along with point value scores from the judges and “challenges”).
[31] A sub-sub-genre extending from both of the aforementioned categories is a contest program with expert infusion, where contestants are “coached” by experts in the relevant field.
[33] “Real people” being those who do not have celebrity status. This is mostly for the purpose of discussing the unconscionability of the contracts, of which bargaining power is an important factor. The bargaining power of celebrities is arguably significantly different and enables more contract-specific negotiation on behalf of the celebrity-contestant.
[34] Murray, supra note 8, at 3.
[35] Bill Carter, ‘Friends’ Deal Will Pay Each Of Its 6 Stars $22 Million, N.Y. Times, Feb. 12, 2002, at C1, available at http://www.nytimes.com/2002/02/12/business/friends-deal-will-pay-each-of-its-6-stars-22-million.html (the six stars were able to hold out contract negotiations with, arguably greater bargaining power than the network).
[36] Wyatt, supra note 7.
[37] Pamela Berger, What It Takes to Make Good Reality TV, CNN.com (Oct. 27, 2011, 10:42 AM), http://www.cnn.com/2011/10/27/showbiz/tv/good-reality-tv-berger.
[38] Id.
[39] The more precisely one property is measured, the less precisely the other can be controlled, determined or known.
[40] Berger, supra note 37.
[41] William Archer, Getting Real Reality TV Shows Continue to Be Sued by Unwilling Participants and Wannabe Producers, L.A. Law., May 2012, at 28.
[42] Frankenbiting is the rearranging of dialogue and sequences of events to make the situation more dramatic. The WGA argued that this is a form of writing for reality shows. See, e.g., Newsday, ‘Frankenbiting’ Scares up Reality Controversy, Chi. Trib (July 21, 2005), http://articles.chicagotribune.com/2005-07-21/news/0507210334_1_bachelor-producer-show-runners-reality.
[43] Joel Ugolini, So You Want to Create the Next Survivor: What Legal Issues Networks Should Consider Before Producing a Reality Television Program, 4 Va. Sports & Ent. L.J. 68, 75-76 (2004).
[44] Jennifer L. Blair, Surviving Reality TV: The Ultimate Challenge for Reality Show Contestants, 31 Loy. L.A. Ent. L. Rev. 1, 22 (2011).
[45] Newsday, supra note 42.
[46] See, e.g., Nieves v. Home Box Office, Inc., 817 N.Y.S.2d 227 (App. Div. 2006).
[47] Reality TV Show Subject of Breach of Contract Lawsuit, Payton & Associates, LLC (Oct. 25, 2012), http://www.payton-law.com/blog/2012/10/reality-tv-show-subject-of-breach-of-contract-lawsuit.shtml.
[48] Martin Austermuhle, Woman Sues MTV for Depiction on The Real World D.C., DCist.com (Mar. 5, 2010, 10:06 AM), http://dcist.com/2010/05/woman_sues_mtv_for_depiction_on_the.php
[49] Ugolini, supra note 43, at 77.
[50] Eric Gardner, The Bachelor Racial Discrimination Lawsuit, The Hollywood Rep. (Apr. 18, 2012, 12:05 PM), http://www.hollywoodreporter.com/thr-esq/the-bachelor-lawsuit-racial-discrimination-313734.
[51] Eric Gardner, MTV Settles Lawsuit with ‘Real World’ Cast Member Who Alleged Rape, The Hollywood Rep. (Oct. 24, 2012, 1:49 PM), http://www.hollywoodreporter.com/thr-esq/real-world-rape-mtv-tanya-382809.
[52] Id.
[53] Id.
[54] Id.
[55] Blair, supra note 44, at 18.
[56] Earl of Chesterfield v. Janssen, 28 Eng. Rep. 82, 100 (Ch. 1750).
[57] Paul Bennett Marrow, Contractual Unconscionability: Identifying and Understanding Its Potential Elements, N.Y. St. B.J., Feb. 2000, at 18; Restatement (Second) of Contracts §164 (1981); Restatement (Second) of Contracts §175 (1981).
[58] Marrow, supra note 57, at 18.
[59] Larry A. Dimatteo & Bruce Louis Rich, A Consent Theory of Unconscionability: An Empirical Study of Law in Action, 33 Fla. St. U. L. Rev. 1067, 1068 (2006).
[60] Rowe v. Great Atl. & Pac. Tea Co., 385 N.E.2d 566, 569 (N.Y. 1978).
[61] Harry G. Prince, Unconscionability in California: A Need for Restraint and Consistency, 46 Hastings L.J. 459, 462, 492 (1999).
[62] Restatement (Second) of Contracts §208 (1981). The Reporter’s Note to §208 observes that while §2-302 is literally inapplicable outside of sale of good contracts, it has proven very influential in non-sales cases. Id.
[63] Id.
[64] See e.g., Perdue v. Crocker Notional Bank, 702 P.2d 503, 511-12 (Cal. 1985); Soltani v. Western & Southern Life Ins. Co., 258 F.3d 1038, 1042 (9th Cir. 2001).
[65] See generally A.H. Angelo and E.P. Ellinger, Unconscionable Contracts: A Comparative Study of the Approaches in England, France, Germany, and the United States, 14 Loy. L.A. Int’l & Comp. L. Rev. 455 (1992), available at http://digitalcommons.lmu.edu/ilr/vol14/iss3/3 (discussing the origins of unconscionability doctrine in the United States and European Civil law countries).
[66] Richard Craswell, Professor of Law, University of Chicago, Freedom of Contract, Ronald H. Coase Lecture at the University of Chicago Law School (Dec. 6, 1994).
[67] Id.
[68] Prince, supra note 61, at 461-62.
[69] Wilson Trading Corp v. David Ferguson, Ltd., 24 N.E.2d 685, 688 (N.Y. 1968).
[70] Prince, supra note 61, at 463.
[71] Marrow, supra note 57, at 22.
[72] 8 Richard Lord, Williston on Contracts § 18:10 (4th ed.) (substantively unconscionable contracts contain terms that “unreasonably [favor] the more powerful party… or otherwise contravene the public interest or public policy”).
[73] Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (D.C. Cir. 1965) (note, this case is a sales-of-goods case).
[74] Id. at 449.
[75] Prince, supra note 61, at 472-74. See also Arthur Allen Leff, Unconscionability and the Code-The Emperor’s New Clause, 115 U. Pa. L. Rev. 485, 487 (1967).
[76] See, e.g., Higgins v. Disney/ABC International Television (Higgins II), No. BC 338017 (Cal. Super. Ct. Jul. 7, 2007), aff’d, Higgins III, No. B200885, 2009 WL 692701 (Cal. Ct. App. Mar. 18, 2009).
[77] See, e.g., Soltani v. Western & Southern Life Ins. Co., 258 F.3d 1038, 1042 (9th Cir. 2001); Scovill v. WSYX/ABC, 425 F.3d 1012, 1017 (6th Cir. 2005); Andersons, Inc. v. Horton Farms, Inc., 166 F.3d 308, 322-23 (6th Cir. 1998).
[78] Williams, 350 F.2d at 449.
[79] Croce v. Kurnit, 565 F. Supp. 884, 893 (S.D.N.Y. 1982).
[80] Armendariz v. Found. Health Psychcare Servs., Inc., 6 P.3d 669, 689 (Cal. 2000) (citing Neal v. State Farm Ins. Cos., 188 Cal. App. 2d 690, 694, 10 Cal. Rptr. 781 (1961).
[81] Id.; Graham v. Scissor-Tail, Inc., 623 P.2d 165, 172 (Cal. 1981).
[82] Richard Craswell, Two Different Kinds of Procedural and Substantive Unconscionability, Law and Economics Workshop, Berkeley Program in Law and Economics, UC Berkeley, 1 (Apr. 12, 2010), available at http://escholarship.ucop.edu/uc/item/0hf7v16t.
[83] Croce v. Kurnit, 565 F. Supp. 884, 893 (S.D.N.Y. 1982), aff’d, 737 F.2d 229 (2d Cir. 1984).
[84] Id.
[85] However, it is still most often accompanies by a finding of procedural unconscionability. 8 Richard Lord, Williston on Contracts § 18:10 (4th ed.).
[86] See Restatement (Second) of Contracts §178 (1981); Restatement (Second) of Contracts §208 (1979) (most states have adopted these provisions of the Restatement or equivalent to apply to all contracts).
[87] See Restatement (Second) of Contracts §208 cmt. (a) (“Policing against unconscionable contracts or terms has sometimes been accomplished ‘by adverse construction of language, by manipulation of the rules of offer and acceptance, or by determinations that the clause is contrary to public policy or to the dominant purpose of the contract.’”)
[88] Public policy violation can be a way to void a contract or clause on its own when the first part of unconscionability, procedural unconscionability, is not satisfied. That distinction is probably not an issue for the context of this paper because procedural will not be difficult to satisfy for reality television contestants, since these contracts are standard, non-negotiable contracts of adhesion.
[89] Craswell, supra note 82, at 2.
[90] Prince, supra note 61, at 493.
[91] Cal. Civ. Code § 1670.5 (West 1979).
[92] See, e.g., Perdue v. Crocker Nat’l Bank, 702 P.2d 503, 516 (Cal. 1985).
[93] 8 Richard Lord, Williston on Contracts § 18:10 (4th ed.); AT&T Mobility, Inc. v. Concepcion, 131 S. Ct. 1740, 1746 (2011) (citing Amandariz v. Found. Health Psychcare Servs., 6 P.3d 669, 690 (Cal. 2000)).
[94] 3 Ann Taylor Schwing, California Affirmative Defenses § 55:1 (2013 ed.) (emphasis added).
[95] Prince, supra note 61, at 460-61.
[96] Id. at 493.
[97] Mandel v. Liebman, 100 N.E.2d 149, 152 (N.Y. 1951).
[98] Marrow, supra note 57, 20.
[99] Gillman v. Chase Manhattan Bank, 534 N.E.2d 824, *828 (N.Y. 1988).
[100] Ian Brereton, Note, The Beginning of a New Age?: The Unconscionability of the “360 Degree” Deal, 27 Cardozo Arts & Ent. L.J. 167, 175 (2009) (citing Gillman).
[101] Croce v. Kurnit, 565 F. Supp. 884, 893 (S.D.N.Y. 1982), aff’d, 737 F.2d 229 (2d Cir. 1984) (applying New York state court precedent).
[102] Id. (finding that the contract was not per se unconscionable even though the entertainer lacked bargaining power with the publishing and management companies).
[103] Brereton, supra note 100, at 175.
[104] Lowry, supra note 1.
[105] Id.
[106] Id.
[107] Id.
[108] Sam Brenton & Reuben Cohen, Shooting People: Adventures in Reality TV 125 (2003).
[109] Id.
[110] Applicant Agreement and Release Beauty and the Geek, 3 Ball Productions (Jun. 16, 2007) (unpublished contract) (on file with the author).
[111] Email Interview with Randi Lynn Strongg, Former Contestant So You Think You Can Dance Season 5 (Oct. 4, 2012).
[112] Id.
[113] A member of the group “The Anser,” which was one of the four finalists in the “group” category that worked with Paula Abdul. “The Anser” was eliminated in the Judges’ House portion of the show, the section right before the judges’ final picks go on to the live show. Telephone Interview with Gray Aydelott, Former Contestant, The X Factor Season 1 (Oct. 3, 2012).
[114] Production companies remain liable in instances of gross negligence or where there is a lack of reasonable care on their part.
[115] May be unenforceable but that is for another discussion.
[116] Applicant Agreement, Release and Arbitration Provisions The Biggest Loser Season 11 BL4 Productions, Inc. (Oct. 14, 2010) (unpublished contract) (on file with the author).
[117] Id.
[118] Applicant Agreement and Release, Beauty and the Geek Season 4, supra note 110.
[119] Voluntary Participation Agreement (Guest Release) The Real World, RW Productions, Inc. (unpublished contract) (on file with the author).
[120] Wyatt, supra note 7.
[121] “American Idol” Season 12 – Personal Release, American Idol Season 12, American Idol Productions, Inc. (2012) (unpublished contract) (on file with the author).
[122] Voluntary Participation Agreement (Guest Release), The Real World, supra note 119.
[123] Id. (emphasis added).
[124] “American Idol” Season 12 – Personal Release, American Idol Season 12, supra note 121.
[125] Telephone Interview with Carmen Rasmusen Herbert, supra note 18.
[126] Telephone Interview with Gray Aydelott, supra note 113.
[127] Telephone Interview with Deni Hill, Former Contestant, The Biggest Loser, Season 11 (October 1, 2012).
[128] Telephone Interview with Carmen Rasmusen Herbert, supra note 18.
[129] Telephone Interview with Deni Hill, supra note 127.
[130] Id.
[131] Applicant Agreement, Release and Arbitration Provisions, The Biggest Loser, supra note 116.
[132] Id.
[133] Telephone Interview with Gray Aydelott, supra note 113.
[134] Id.
[135] Id.
[136] Id.
[137] Applicant Agreement, Release and Arbitration Provisions, The Biggest Loser, supra note 116.
[138] Higgins II, No. BC 338017, at 10 (Cal. Super. Ct. Apr. 20, 2007) (citing Vance v. Villa Park Mobile Home Estates, 36 Cal. Rptr. 2d 723 (Cal. Ct. App. 1995)).
[139] Id. (citing Abramson v. Juniper Networks, Inc., 9 Cal. Rptr. 3d 422, 438 (Ct. App. 2004)).
[140] Higgins v. Superior Court (Higgins I), 140 Cal. App. 4th 1238, 1241-43 (2006) (on appeal, the court found the arbitration clause to be unconscionable); Higgins III, No. B200885, 2009 WL 692701, at *2-3 (Cal. Ct. App. Mar. 18,2009).
[141] Higgins II, No. BC 338017, at 2-3.
[142] Arbitration agreements are commonly found to be unconscionable, particularly if they lack mutuality in bargaining (procedural unconscionability). Many arbitration clauses require that any dispute go to mandatory arbitration and that the result there will be binding on the parties. Courts have held this type of language to be unconscionable (substantial unconscionability) when there is also highly unequal bargaining power (procedural unconscionability) because it forces one party to give up the constitutional right to a trial by jury. Higgins I, 140 Cal. App. 4th at 1241-1243.
[143] Higgins II, No. BC 338017, at 2-3.
[144] Id.
[145] Id. at 13.
[146] Id. at 10 (According to the Court of Appeals opinion in Higgins I, 140 Cal. App. 4th, at 1238, this contract is, in fact, a contract of adhesion).
[147] Id. at 11.
[148] The Participation Clauses come at paragraphs 12 and 13 where the participants acknowledge that
“the show will be recorded and that, as a result, private, personal, and embarrassing matters may be publicly broadcast. The show defendants are granted permission to fully exploit those materials in any way, and they are released from any and all claims that liability based on participant’s right of privacy, intentional or negligent infliction of emotional distress, defamation, and any other torts in any way relating to the disclosure and exhibition of personal information about the participant.”
These provisions are not highlighted or displayed in boldface and appear in sequence with paragraphs 4 through 19 under the heading PARTICIPATION. Higgins III, No. B200885, 2009 WL 692701, at *11 (Cal. Ct. App. Mar. 18, 2009).
[149] Paragraph 56 states that the releasing parties will not sue any of the show participants “for any injury, illness, disease (including, without limitation, any sexually transmitted disease), trespass, damage, loss or harm to me or my property, or my death, howsoever caused, resulting or arising out of or in connection with . . . the [show], . . . whether or not caused by or arising out of the act or omission . . . of the released parties or any of the participants in the program.” Id. at *12.
[150] Paragraph 57 states that the releasing parties unconditionally release and discharge all show participants and the released parties from “any and all claims, liens, agreements, contracts, actions, suits, costs, . . . and liabilities of whatever kind or nature . . . whether now known or unknown, suspected or unsuspected, and whether or not concealed or hidden . . . arising out of or in connection with” the show. The released claims shall include “those based on negligence or gross negligence of any of the released parties or . . . the other participants . . . wrongful death, personal injury, [negligent and intentional] infliction of emotional distress, . . . products liability, breach of contract, breach of any statutory or other duty of care owed under applicable law, libel, slander, defamation, invasion of privacy, violation of any right of publicity or personality, infringement of copyright or trademark, loss of earnings or potential earnings, kidnapping, false imprisonment, and those based on my dissatisfaction with the improvements or my possession or use thereof.” Id.
[151] Paragraph 58 “sets forth the waiver of Civil Code section 1542 and releases claims that are not known or suspected. It also states that the releasing parties have either been advised by legal counsel or have chosen not to consult counsel.” Id.
[152] The court comes to this conclusion even though they note that one of the contested provisions, based on a footnote of the complaint, releases the Producers from any claims resulting from emergency medical care and is “effectively a modified version of the ‘good samaritan’ laws.” Higgins v. Disney/ABC International Television (Higgins II), No. BC 338017, 11 (Cal. Super. Ct. Jul. 7, 2007).
[153] Higgins III, 2009 WL 692701, at *11-12.
[154] Higgins II, No. BC 338017, at 13 (“More importantly, the court notes that paragraph 2 (granting the Producers rights to publicity), the first four lines of paragraph 64 (integrating all prior understanding into the contract providing that the contract supersedes them), paragraph 65 (asserting that the contract has not been entered into on the basis of prior promises or representations by the Producers) and paragraph 71 (containing a recitation that the signatory has read the contract) are not alleged to be unconscionable.”).
[155] Dieu v. McGraw, No. BC223117, 2011 WL 38031 (Cal. Ct. App. Jan. 6, 2011).
[156] Id. at *1-2.
[157] Id. at *3.
[158] Id. at *2 (“[plaintiffs] will never sue and [plaintiffs] fully release and discharge, [CBS], Peteski Productions, Inc., [McGraw] and/or their respective distributors, assigns, affiliates, licensees, agents, officers, directors, shareholders, employees and attorneys, and each of them for any loss, claims or injuries of every kind and nature which [plaintiffs] may now have or may hereafter acquire arising out of or in connection with the [Program] including without limitation: (a) any claims, demands and causes of action for invasion of privacy or publicity, defamation, infliction of emotional distress and any other tort in connection therewith; . . . (d) because [plaintiffs did] not like the questions, responses or outcome of the [Program]; and (e) because [CBS] did not fully disclose the subject matter of the [Program] or the identity of other guests appearing on the [Program]. [Plaintiffs] voluntarily assume the full risk of any loss or injury (including, without limitation, physical or emotional loss or loss of property or income) to [themselves] . . . that may occur as a result of the production, taping and/or broadcast of the [Program]. . . . [Additionally, the releases provided that:] (1) McGraw does not administer individual, group or medical therapies, and that plaintiffs would not be receiving therapy of any kind from him, (2) no promises had been made to plaintiffs other than those expressly set forth in the releases, (3) no promises had been made to plaintiffs about the final or specific content of the Program, and (4) in signing the releases, plaintiffs did not rely on any representations or statements that were not set forth in the releases.”).
[159] Id. at *11 (citing Tunkl v. Regents of Univ. of Cal., 383 P.2d 441 (Cal. 1963)). After determining that the releases were not unconscionable, the court had to determine if the plaintiffs’ claims were barred by the release. The defendants argued that the release barred all suits, but the plaintiffs pushed that it was blocked California Civil Code §§1542 and 1668. The court determined that §1542 was not applicable because there was no debtor/creditor relationship. As to §1668, the defendants brought evidence that under this type of case does not apply because §1668 only applies to “public regulation.” The court held that Tunkl only applies to negligence claims and not intentional torts, violations of statutory law, or fraud. Therefore, six of the plaintiffs’ eight claims were not barred by the releases. As to the other two, which were negligence claims, the court performed a Tunkl analysis and concluded that these releases are exempt and not considered of “public interest” under Tunkl so the negligence claims were barred by the releases.
[160] Dieu, 2011 WL 38031, at *11.
[161] Id.
[162] But see infra note 166, note 175.
[163] Wilson Trading Corp. v. David Ferguson, Ltd., 244 N.E.2d 685 (N.Y. 1968)
[164] Lowry, supra note 1.
[165] Telephone Interview with Carmen Rasmusen Herbert, supra note 18.
[166] Blair, supra note 44, at 23.
[167] Email Interview with Randi Lynn Strongg, supra note 111.
[168] Id.
[169] E-mail interview with Will Frank, former Beauty and The Geek contestant, Season 4 (Dec. 3, 2012).
[170] See Jonathan Barnett, Hollywood Deals: Soft Contracts for Hard Markets (USC Law and Economics Research Paper Series No. C12-9, 2012), available at http://ssrn.com/abstract=2118918 or http://dx.doi.org/10.2139/ssrn.2118918.
[171] Telephone Interview with Gray Aydelott, supra note 113.
[172] Telephone Interview with Carmen Rasmusen Herbert, supra note 18.
[173] Id.
[174] Telephone Interview with Deni Hill, supra note 127.
[175] Letter from Christina Soletti, Production Manager, 3 Ball Productions, LLC, to the contestants of Beauty and the Geek Season 4 (June 8, 2007) (on file with the author).
[176] Higgins v. Disney/ABC Int’l Television (Higgins II), No. BC 338017, 12 (Cal. Super. Ct. Apr. 20, 2007) (citing American Software v. Ali, 54 Cal. Rptr. 2d 477 (Cal. Ct. App. 1996)).
[177] Higgins v. Disney/ABC Int’l Television, Inc. (Higgins III), No. BC B200885, 2009 WL 692701, at *12-13 (Cal. Ct. App. Mar. 18, 2009).
[178] Higgins II, No. BC 338017, at 12 (citing California Grocers Association v. Bank of America, 27 Cal. Rptr. 2d 396 (Ct. App. 1994))
[179] Lowry, supra note 1.
[180] Telephone Interview with Carmen Rasmusen Herbert, supra note 18.
[181] Wyatt, supra note 7.
[182] Email Interview with Randi Lynn Strongg, supra note 111.
[183] Id.
[184] Telephone Interview with Gray Aydelott, supra note 113.
[185] Murray, supra note 8, at 11.
[186] Magder, supra note 10, at 147.
[187] Id.
[188] Laura Jerpi, Reality TV – Low Cost Programming that Produces High Ratings, The TV Issue, South Source, Jan., 2013, available at http://source.southuniversity.edu/reality-tv-low-cost-programming-that-produces-high-ratings-119585.aspx.
[189] Hopkins, supra note 4.
[190] Higgins v. Disney/ABC International Television (Higgins II), No. BC 338017, 12 (Cal. Super. Ct. Jul. 7, 2007)

“Adapting to the Realities of 21st Century Journalism”: Keith Olbermann and an Examination of Legal and Political Constraints in an Era of Partisan News Outlets

By Benjamin Kabak* A pdf version of this article may be downloaded here. Three days after Election Day 2010, Politico, the multimedia news outlet that covers all things politics, dropped a bombshell on the political media world. Keith Olbermann, MSNBC’s lead commentator and the host of the increasingly controversial Countdown, donated money to three Democratic politicians in advance of Election Day.[FN1] Olbermann confirmed to Politico that in late October 2010, he gave $2,400, the maximum amount allowed by federal campaign contribution law, to Rep. Raul Grijalva, Rep. Gabrielle Giffords and Jack Conway, the Democratic nominee and eventual loser in the race for a Kentucky Senate seat.[FN2] These donations violated NBC News’ own internal policies barring personal contributions; as Politico’s Simmi Aujla reported, news organizations and reporters “consider[] it a breach of journalistic independence to contribute to the candidates they cover.”[FN3] NBC News eventually suspended Olbermann indefinitely, and he did not host Countdown on either Friday, November 5 or Monday, November 8, 2010. Olbermann returned to the airwaves on Tuesday, November 9, 2010, one week after Election Day and just two days after he was suspended. MSNBC President Phil Griffin announced the end of the suspension: “[A]fter several days of deliberation and discussion, I have determined that suspending Keith through and including Monday night’s program is an appropriate punishment for his violation of our policy.”[FN4] When he returned to the airwaves, Olbermann defended his actions, saying that the NBC News policies he allegedly violated were “not in his contract” and were “probably not legal” either.[FN5] Still, he apologized to his viewers for various breaches of trust, yet maintained that he made “legal political contributions as a U.S. citizen.”[FN6] In the weeks following his suspension, commentators wrung their hands over the Olbermann controversy. In this paper, I will add my voice to the fray as I explore and analyze the Olbermann suspension and discuss the legal ramifications of both his claims and those of NBC News. In Part I, I will further explore the circumstances surrounding the suspension, how the story broke and the reaction and fallout to the story. In Part II, I will delve into the rationale behind the increasingly more opinionated television news offerings and what Olbermann termed “the realities of Twenty-First Century journalism.”[FN7] Part III will examine various standards and practices codes put forth by news organizations, and Part IV will examine these codes in the context of employment in the entertainment and news industry. I will conclude with my own thoughts on the legality of Olbermann’s suspension and the tension between NBC News’ standards and practices and MSNBC’s mission and liberal viewpoint. In an age where news commentary and news reporting have become increasingly segmented, I believe NBC News’ policies do not fit its news presentation scheme. I. The Keith Olbermann Suspension A. MSNBC’s Rise to Prominence In 1996, after seeing CNN’s popularity and ratings grow and recognizing that cable news could be the next great money-making frontier for major television networks, NBC and Microsoft joined forces to launch MSNBC.[FN8] Originally intended as a joint venture consisting of a cable channel and an Internet news site, the fledgling cable news network struggled to find an audience during its early years. In fact, in mid-2006, one newspaper columnist questioned the viability and success of the network. Calling it a “[w]eb site with a cable channel,” Don Kaplan of The New York Post noted that the leaders in the cable news field – Fox News and CNN – “regularly average three or four times as many viewers” as MSNBC.[FN9] Today, MSNBC is the second-most watched cable news network, and 2010 marked the second year in a row that MSNBC’s prime time ratings for the year outpaced CNN’s by a wide margin.[FN10] How has MSNBC managed to attain such a quick turnaround over a period of less than four years? Olbermann himself termed the focus of the turnaround a part of the “realities of 21st Century journalism.”[FN11] In essence, MSNBC has discarded programming that features seemingly unbiased news reporting and has replaced it with commentary, particularly in its primetime lineup, that features a strong leftward slant. Instead of presenting itself as an unbiased news outlet such as CNN and the New York Times news section, the network has become the liberal equivalent of Fox News, more akin to the opinionated editorial pages of a major newspaper. The change, as Howard Kurtz of The Washington Post explored after the 2008 Presidential election, occurred as the race between John McCain and Barack Obama unfolded. With Olbermann leading the political charge, the channel’s hosts no longer hid their biases, and commentators like Rachel Maddow, Chris Matthews, Andrea Mitchell and David Gregory further contributed to the channel’s left-leaning bent. Even as NBC Senior Vice President Phil Griffin disputed charges of partisanship, only one conservative host, Joe Scarborough, remained with the network, and Republican operatives highlighted Olbermann’s Countdown commentary as a clear sign of bias.[FN12] Yet, despite this rise to prominence borne seemingly on the back of a progressive bent, MSNBC remains very much a work in progress. Amidst the network’s move toward the left, Griffin denied that his network was “tied to ideology.”[FN13] In fact, not until mid-2010 did Griffin discuss MSNBC’s push to reclaim an audience of left-leaning viewers who had no obvious liberal equivalent to the conservative Fox News channel.[FN14] Lately, armed with a new tagline – “Lean Forward” – the network has clearly been “embrac[ing] its progressive political identity.”[FN15] However, as the network moves leftward, it seems to be suffering from an internal identity crisis thanks to its close relationship with NBC News. MSNBC shares some on-air talent with NBC News, and NBC News’ standards and practices guidelines apply to MSNBC. In 2007, MSNBC.com reprinted various news organizations’ policies on campaign donations and included in that list was MSNBC’s and NBC News’ own policies, which state:
“Anyone working for NBC News who takes part in civic or other outside activities may find that these activities jeopardize his or her standing as an impartial journalist because they may create the appearance of a conflict of interest.  Such activities may include participation in or contributions to political campaigns or groups that espouse controversial positions.  You should report any such potential conflicts in advance to, and obtain prior approval of, the President of NBC News or his designee.”[FN16]
It is this guideline that Keith Olbermann violated in October 2010. B. What Keith Did As MSNBC’s star rose, so too did Keith Olbermann’s. His “is one of MSNBC’s most recognizable faces, and [he] has emerged as one of the country’s most prominent liberal commentators. A former ESPN star, Olbermann’s ‘Countdown With Keith Olbermann’ started in 2003 as a traditional news show but evolved into a left-leaning opinion program – and in some ways, led the network into its new identity as the cable-news voice of the left and an attempt to be a counterweight to Fox News.”[FN17] Today, Countdown averages over 1.038 million viewers per episode and is considered MSNBC’s flagship program.[FN18] On Thursday, October 28, 2010, Raul Grijalva, a four-term incumbent Democratic House Representative involved in a competitive race in Arizona, appeared on Countown. As Olbermann explained in a statement issued on November 5, 2010, it was after this interview with Grijalva that he made the controversial contributions to three congressional campaigns: “One week ago, on the night of Thursday October 28, 2010, after a discussion with a friend about the state of politics in Arizona, I donated $2,400 each to the reelection campaigns of Democratic Representatives Raul Grijalva and Gabrielle Giffords. I also donated the same amount to the campaign of Democratic Senatorial candidate Jack Conway in Kentucky.”[FN19] Olbermann continued, “I did not privately or publicly encourage anyone else to donate to these campaigns, nor to any others in this election or any previous ones, nor have I previously donated to any political campaign at any level.”[FN20] Shortly after Election Day, which saw Grijalva and Giffords emerge as winners and Conway return home, Politico uncovered Olbermann’s campaign donations, and NBC News suspended him for violating their policies. Phil Griffin, the president of MSNBC, issued only a perfunctory statement: “I became aware of Keith’s political contributions late last night. Mindful of NBC News policy and standards, I have suspended him indefinitely without pay.”[FN21] Two days later, as the media firestorm swirled, MSNBC reinstated Olbermann. Upon returning to the air, he apologized for his ethics breach, but seemed to be basking in the limelight of political attention he had garnered during his two days off the air.[FN22] C. A Swift and Divisive Reaction As news of Olbermann’s suspension spread, commentators from all walks of life voiced their opinions. Olbermann had recently engaged in a heavy-handed attack of Fox News’ less restrictive campaign donations policy,[FN23] but his suspension earned him supporters from the left and the right. William Kristol, Fox News commentator and the editor of The Weekly Standard, supported Olbermann: “[H]e’s not a reporter. It’s an opinion show. If Olbermann wants to put his money where his mouth is, more power to him…Republicans of the world, show you believe in the free expression of opinion! Tell the crony corporatists at NBC—keep Keith!”[FN24] Others weren’t nearly as dogmatic as Kristol. Greg Sargent of The Washington Post interpreted NBC News’ standards and practices policy as applying only to those who wished to project a “standing as an impartial journalist” – something Olbermann does not appear to desire – and wondered if other politically active reporters for the network were subjected to the same rigorous standards as Olbermann.[FN25] Politico’s Michael Kinsley called the suspension “absurd in so many ways it’s hard to keep track.”[FN26] He continued:
If Olbermann had merely put these politicians on his show, representing a viewpoint he obviously shares, that would have been worth more than a campaign contribution of a few thousand dollars, but Olbermann would be considered blameless. Does anyone think that by suppressing the expression of his views (via these donations), Olbermann would have stopped having them? Does anyone doubt what Olbermann’s views are on politics in general and these races in particular? Most journalists try to suppress their biases — Olbermann gets paid to flaunt his biases. On a crude political scale, Olbermann is a left-wing liberal. MSNBC hired him to be a liberal and last week suspended him for the same thing. Or rather, not for being a liberal but for revealing it.[FN27]
Joshua Greenman of the Daily News praised NBC News for sticking to its policies, but highlighted the partisanship inherent in cable news coverage today. He wrote: “Let’s not pretend that everyone is playing by the same rules. Fox News’ parent company, News Corporation, gave $1 million to the Republican Governors Association, making no mistake that the entire network is in one partisan corner.”[FN28] Ultimately, the Olbermann suspension snared another MSNBC commentator as well. Joe Scarborough, the conservative host of the network’s Morning Joe, had donated $4,000 over five years to political candidates, and as the network came under fire for suspending Olbermann but not Scarborough, its executives had no choice but to keep their morning show host off the air for two days as well. “It is critical that we enforce our standards and policies,” Phil Griffin said.[FN29] Left unanswered in the controversy were questions surrounding the role of the partisan news organizations in American democracy and the interplay between NBC News employees’ legal obligations and the ramifications of the suspensions. In the next sections, I will tackle these issues. II. On Cable, A Partisan Media Emerges A. A Viewpoint Emerges Out of Objectivity In the early 1980s, cable news appeared to occupy a highly specialized market without the potential for earning strong viewership totals or millions in revenue. The Cable News Network, more commonly known as CNN, had yet to emerge as a popular source of news coverage, and network coverage had long been ruled by the Fairness Doctrine. The FCC has always exercised jurisdiction over traditional broadcast networks but has had limited oversight of cable networks.[FN30] The agency’s stance was that network broadcasters were “responsible for providing the listening and viewing public with access to a balanced presentation of information on issues of public importance. The basic principle underlying that responsibility is ‘the right of the public to be informed, rather than any right on the part of the Government, any broadcast licensee or any individual member of the public to broadcast his own particular views on any matter.’” This became known as the Fairness Doctrine.[FN31] Two events – a war in the Middle East and the end of the Fairness Doctrine – would set the stage for a rise in partisan news coverage and analysis. In 1987, over the objections of Congress, the FCC repealed the Fairness Doctrine and released broadcasters from their obligation to be truly fair and balanced. According to one commentator, “[a] dramatic consequence of the Fairness Doctrine’s repeal was the rise of talk radio in the 1990s. Previously there had been discussions about unheard voices, and the underlying assumption was that they were on the left – but talk radio went right. It turned out that many conservatives believed that their voices were not being heard and that ABC, CBS, and NBC, as well as the major newspapers, were liberal organs, slighting conservative issues and viewpoints. Thus, many conservatives migrated to talk radio to listen to Rush Limbaugh and his imitators – programming that would have been impossible before the repeal.”[FN32] Meanwhile, a few years later, in the early 1990s, CNN would garner praise, Emmy Awards, viewers and, more importantly, advertiser dollars with its 24-hour focus on the Gulf War and later the Black Hawk Down incident in Somalia. As the talk radio ad dollars poured in and CNN emerged as a leader in the television news field, media companies and the television networks turned to cable and new on-air experiments in news coverage. Fox News and MSNBC both launched in 1996, and Fox eventually emerged victorious in the ratings war. Fox’s programming consistently outpolls that of the other cable news networks,[FN33] and it has a balance sheet to match. In 2008, the News Corp. cable giant drew in revenues in excess of $1 billion and turned a profit of nearly $450 million.[FN34] In 2009, its profit surged to nearly $500 million.[FN35] Fox News has become a success largely by advocating for and featuring conservative and “right-wing” hosts. Despite its promise of “Fair and Balanced” coverage, Fox News is home to such hosts as former Republican presidential candidate Mike Huckabee and the extremely conservative agitators Glenn Beck, Don Imus and Bill O’Reilly. Fox News does not hide its biases. Although the network, in response to the 2004 film Outfoxed, denied an editorial bias, today, it serves as a de facto cable news outlet for Republican talking points.[FN36] As previously mentioned, News Corp., the parent company of Fox News, donated $1 million to the Republican Governors Association in early 2010, and Roger Ailes, the station’s president, previously worked for three Republican presidents.[FN37] In recent years, MSNBC has adopted a more partisan approach, similar to that of Fox News, and as its ratings and revenues climbed. MSNBC projected a 25 percent increase in revenues in 2008 over the previous year.[FN38] Furthermore, viewer opinion shows how bifurcated and partisan cable news has become. A 2009 Pew Research study revealed how American attitudes toward news coverage had changed over time.[FN39] In 2007, 66 percent of Americans felt the press favored one side of the story over the other, and by 2009, that number had climbed to 74 percent. Seventy-two percent of Republicans gave Fox News a favorable rating while just 43 percent of Democrats agreed. MSNBC earned praise from 60 percent of Democrats and just 34 percent of Republicans. Just 26 percent – down from 36 percent in 1985 – of respondents viewed news organizations as “careful to avoid bias,” and 60 percent said news organizations are politically biased, a 15 percent increase over similar surveying in 1985. For better or worse, television news viewers believe that their news coverage now comes with a partisan viewpoint from which the media companies profit. Meanwhile, news commentary and news reporting have become two distinct parts of the television news package. This is what Keith Olbermann means when he urges NBC News to “adapt to the realities of 21st Century journalism.” B. The Media and Democracy: Biases Trump Objectivity As TV journalism reaches new levels of partisanship and the dollars flow in, political commentators, who have long believed that the news – the so-called Fourth Estate – should serve an educating function in American democracy, see an uncertain future. Blake D. Morant summarized this theoretical concept:
Media’s status as the fourth estate conjures images of an industry that fosters democracy through the dissemination of information that ensures self-governance. The industry’s legitimacy and utility hinges upon the fulfillment of this important societal duty. This duty takes center stage during elections, which are bedrocks of a functional democracy. Media’s coverage of elections should focus public attention on the conduct of elected officials and the generalized workings of government. Adherence to this essential task should legitimize the industry’s role in a complex democracy.[FN40]
Yet, with the rise of the Internet and the ever-expanding reach of do-it-yourself journalists and bloggers, this model for the media seems to be under attack. It is easy for politically-interested readers to find themselves inside an echo chamber, where expression may not be stifled, but only one viewpoint is being expressed. Some believe this isolation began with cable news.[FN41] Some media analysts think this segmentation could lead to an ill-informed public who watch only commentary programs and not traditional news reports. Mark Emery, writing as a law student at the University of Notre Dame, called upon the FCC to avert a democratic crisis:
FCC regulation of the content of televised news is the best option available if we want to preserve televised news as a medium that promotes a just, democratic society. The public’s choice is between government content regulation, with the ever-present risk of government censorship, or the risk of the private managerial censorship of new outlets. Without reasonable, government-enforced standards for minimal news content, there is a risk that managerially censored news will descend into a Roman circus, a popular public forum where small pieces of important news are lost in a forum for appetite and entertainment, to the neglect of serious affairs of state, the marginalized, and suffering.[FN42]
Writing from a “confessedly moral” viewpoint, he believes that without regulation, “the content and quality of reporting…[will] quickly slip []away.”[FN43] What Emery views as a crisis in news is simply a distinction between opinionated commentary and objective news reporting that many news companies have embraced lately. It is debatable whether or not this new paradigm will bring about a crisis amongst the electorate. While Emery may be of the school that believes journalists can maintain true objectivity in the face of personal and social biases, his belief seemingly ignores history. For centuries, objectivity in the press was consigned to the news pages while the editorial and opinion pages have been rife with so-called biased commentary. As Watergate and the drive to expose scandals gave rise to celebrity investigative journalists, objectivity in news gathering remained a true concern for news editors. Yet, as Edward Bernays proposed in his influential 1928 book Propaganda, politicians and society’s leaders had long used news coverage and the open forum journalists provided to shape public opinions and put forward a viewpoint.[FN44] Borne out of the yellow journalism from the turn of the 20th Century, Bernays’ Propaganda found a media willing to be influenced by politicians and politicians willing to use the media to influence constituents and potential voters. Nearly 70 years before Fox News and MSNBC would first begin broadcasting (and, in fact, long before Bernays put his thoughts to the paper), the news was a malleable media, and those with the right access could use it to shape a message. Democracy has survived, news companies are making hundreds of millions of dollars, and viewers at home watch by the millions. Ultimately, then, the Olbermann scandal is not about projecting an aura of impartiality on the part of MSNBC of NBC News. It is, rather, about reconciling competing approaches to news coverage. Just as The New York Times editorial pages contain opinions, so too do the programs of MSNBC. The network cannot overtly proclaim its Democratic sympathies any more than Fox News cannot proclaim itself to be an unofficial arm of the Republican Party. Yet, through signals – such as politically loaded slogans, corporate campaign donations and opinion-based news magazine programs – the networks accomplish just that. They do not need to tell their viewers the shows they watch are slanted. The viewers, as surveys show, simply know and accept that fact. The Olbermann scandal is instead about how news organizations’ standards and practices codes interact with employment provisions and news anchors’ legal rights in the new era of 21st Century television reporting and commentary. It is to those concerns that I now turn. III. Standards and Practices Codes in Journalism: A Self-Policing Mechanism A. What Purpose Newsroom Codes? As journalists and news organizations are, in part, in the business of bringing information to a skeptical public, they have to do so with a degree of reliability and integrity. Thus, “all media, whether broadcast or print, have codified rules of professional responsibility. These various codes share language that confirms the importance of truth and accuracy in the reporting of news and information.”[FN45] Morant elaborated on the roles of ethical codes in the newsroom:
Ethical codes function both internally and externally. As rules of reporting behavior, they regulate the internal processing of news that is reported. They establish professional order and certainty, and serve as goals for professional conduct. The external operation of ethical codes relates to their demonstration of media’s intent to report responsibly and respect the collective interests of society. When dogmatically followed, ethical codes enhance credibility and impose an almost moral obligation for media to act responsibly, thereby ensuring that subscribing sources will avoid distortion, bias and falsity. Operating under such rules, media garner a presumptive degree of credibility that is further established, or even increased, by its actual behavior.[FN46]
These codes create a “culture of responsibility” within newsrooms, as colleagues, producers and corporate leaders know that their employees – the journalists reporting and writing stories – will obey the codes. Ideally, ethics codes compel journalists to “consider deliberately responsible journalistic behavior. The ingrained obligations of truth and good faith, which all ethical codes reinforce, become operational tenets that, if violated, prompt a degree of cognitive dissonance. A breach of an ethical code, thus, compels the individual to justify her conduct.”[FN47] Keith Olbermann, for instance, went on the air to justify his conduct once his standards and practices violation became public knowledge. For media consumers these codes are designed to signal credibility. If the code is designed to convince consumers that news reporters it have adhered to industry standards, those consumers should feel confident that they are getting a version of events that closely resembles the truth. Thus, news organizations publicize their standards and practices codes and expose those who violate them in order to show potential audience members that they take their craft seriously. “Because public perception of media credibility is an inexorable part of audience size, the industry must also externalize the influence of ethical codes by informing the public of the importance and influence of these norms on journalistic behavior. Increased public awareness of the operation of ethical codes in the industry fosters greater public confidence in the reality of media responsibility and veracity.”[FN48] B. How Standards and Practices Codes Work By and large, news organizations adopt their own internal standards and practices codes, and many of those codes are available online.[FN49]Employees are contractually required to abide by their codes. The Radio Television Digital News Association has put forward a model code that highlights the ways in which journalists should remain independent of their sources and those they cover. Journalists must strive to be fair and must avoid “real or perceived conflicts of interest.”[FN50] To adhere to these goals, journalists should not pay sources or “engage in activities that may compromise their integrity or independence.”[FN51] These are vague standards that allow for journalists to interpret them at their own discretion, and often, newsrooms will promulgate their own rules and codes, especially in the realm of political activity where conflicts can be viewed as a sign of journalistic bias. As seen with the Keith Olbermann debacle, NBC News has a policy against campaign contributions without the permission of the network president. The New York TimesNewsweek, ABC News, CBS News and National Public Radio have similarly restrictive codes while Fox News, Forbes and Reuters are among those that allow political activity within limits.[FN52] Fox News, for instance, requires that “any employee who becomes involved with a political group must make it clear that his or her activities are being conducted purely in a personal capacity and not on behalf of or in connection with the Company.”[FN53] While NBC News’ policy strives for impartiality, Fox News’ policy recognizes that its employees will inevitably support candidates and causes. If the viewers – and more importantly, station executives – expect an opinion and understand the personal biases of those providing the commentary, the standards codes are relegated to relics from another era, and the tension between these codes and the current model of television news programming may just be what ensnared Olbermann. IV. Employment Agreements and Ethics Codes When he returned to the airwaves after his two-day suspension for violating NBC News’ own internal policies, Keith Olbermann was highly critical of those policies. He claimed that the policies were “not in his contract” and “probably not legal” either.[FN54] NBC News is in the process of “adapting to the realities of 21st Century journalism,” and Olbermann , as the host of a show that presents opinionated commentary and has an agenda, clearly felt constrained by NBC News’ attempts to achieve impartiality in its newsroom.[FN55] That impartiality, he seems to believe, should apply to news reporting but not news commentary. On the surface, Olbermann’s claim that NBC News’ limitations on political contributions is an extra-contractual enforcement mechanism may bear weight. NBC News’ standard provisions form contains no mention of the network’s own ethical guidelines. NBC News though can easily claim otherwise. One provision calls attention to internal guidelines. It reads, “The services and the material, if any, furnished by Artist shall comply with all of Company’s rules and policies, including but not limited to the then applicable news policies and/or guidelines.”[FN56] Another requires those at the company to comply with “procedures concerning the financial investments and holdings of its employees.”[FN57] Had NBC News failed to provide Olbermann with further explanations, the policies could easily have been construed as an attempt to control the actions of employees through mechanisms not agreed upon in contractual negotiations. But NBC News makes it clear that its employees and on-air talent must adhere to its standards and practices guidelines. Olbermann’s claims therefore rest on uneasy footing. Olbermann raises a further concern of illegality as well. As the Supreme Court recently reinforced, political speech is “speech that is central to the meaning and purpose of the First Amendment.”[FN58] Thus, the government cannot promulgate regulations that would have a chilling effect on speech. Over the years, many have debated whether or not the FCC Fairness Doctrine had such effect.  Furthermore, as the elimination of the Fairness Doctrine led to an increase in the number of partisan news outlets, it is unlikely that the Court would uphold the Fairness Doctrine today. The FCC, therefore, could not place any restrictions on NBC News because doing so would serve to chill speech protected by the First Amendment. However, NBC News can, as a private employer, limit its employees’ actions without treading on their First Amendment rights. Therefore Olbermann’s legal claims seem weak at best and non-existent at worst. Ultimately, though, these legal arguments are weaker than the ones based on public perception and the practical realities of MSNBC’s liberal bias. NBC News has maintained its relationship with Keith Olbermann because it believes his personal commentary and viewpoints generate an audience. The network executives see how popular his show has become and how influential he can be on the air. As Politico’s Michael Kinsley said, Olbermann’s views are well known and his job is to espouse them on television.[FN59] In an era when partisanship drives ratings and ratings drives substantial revenues and profits, news organizations should not restrain their commentators from espousing political viewpoints. If Keith Olbermann can give free airtime to a candidate and voice his support for the candidate on television while the audience watches with awareness of his personal biases, he should be able to make personal donations to the that candidate as well. The current news policies, put forward in an another era, simply do not recognize the reality of expectations today. If partisanship is to be embraced on the air, it cannot be avoided off the air, and doing so creates unnecessary conflict between on-air talent and employers. The 21st Century, as Olbermann said, is calling, and NBC News’ standards and practices are seemingly outdated. The network should consider devising separate sets of standards for its commentators and its true news reporters. Olbermann’s words and actions have thrust him into the middle of that paradigmatic conflict. V. Conclusion In this paper, I have explored how changing paradigms in cable news have led to conflicts between a network’s push for profits on the one hand and on the other, its adherence to outdated ethical codes and internal policies. Through the lens of MSNBC’s rise to prominence and the controversy over Keith Olbermann’s suspension in November, it is possible to see how newsrooms are struggling to balance demands of impartiality with the expectations of both its on-air talent and its viewers. When impartiality is not to be expected on the air, it should not be expected off the air either. Ultimately, this conflict between Olbermann and NBC News should serve as a starting point for an examination of the role that standards and practices codes play in the news and entertainment employment contexts and their future in an age of partisan media. As more and more news coverage resembles entertainment programming, it does not make financial sense for a network or personal sense for on-air talent to have codes that constrain personal political dealings but encourage agenda-laden views on television. Network executives will have to determine if commentators should adhere to separate codes from their reporters. Olbermann’s star amongst liberals is brighter now than it was in late October, and as NBC News embraces the MSNBC format, those in charge will have to reassess the policies that impact their employees.  
* J.D. candidate, NYU School of Law, 2011; B.A., Swarthmore College, 2005. [FN1] Simmi Aujla, Keith Olbermann suspended after donating to Democrats, Politico, Nov. 5, 2010, http://www.politico.com/news/stories/1110/44734.html. [FN2] Id. [FN3] Id. [FN4] Lisa de Moraes, Chastened Olbermann returns to MSNBC, a sadder but wiser man, The Washington Post, The TV Column, Nov. 10, 2010, http://voices.washingtonpost.com/tvblog/2010/11/olbermann.html. [FN5] Countdown with Keith Olbermann (MSNBC television broadcast Nov. 9, 2010), available at http://www.msnbc.msn.com/id/40099422/ [hereinafter Olbermann Broadcast]. [FN6] Id. [FN7] Id. [FN8] Stefanie Olsen, Ballmer: Would not launch MSNBC again, CNET News, June 7, 2001, http://news.cnet.com/2100-1023-268073.html (last visited Dec. 20, 2010). [FN9] Don Kaplan, Do We Need MSNBC?, N.Y. Post, June 14, 2006, at 99. [FN10] Press Release, MSNBC, MSNBC Beats CNN For Second Year In a Row in Primetime 2010 Ratings (Dec. 20, 2010), http://tvbythenumbers.zap2it.com/2010/12/20/msnbc-beats-cnn-for-second-year-in-a-row-in-primetime-ratings/76083. [FN11] Olbermann Broadcast, supra note 5. [FN12] Howard Kurtz, MSNBC, Leaning Left and Getting Flak From Both Sides, The Wash. Post, May 28, 2008, at C1. [FN13] Aaron Barnhart, MSNBC prez on Fox News: “You can’t trust a word they say,” The Kansas City StarJuly 18, 2008, http://blogs.kansascity.com/tvbarn/2008/07/msnbc-prez-on-f.html (last visited Dec. 26, 2010). [FN14] Phil Rosenthal, MSNBC boss stands ready in ideological battle with Fox News, Chicago Tribune, May 2, 2010. [FN15] Brian Stetler, With Tagline, MSNBC Embraces a Political Identity, N.Y. Times, Oct. 4, 2010, at B3. [FN16] Newsroom policies vary on campaign donations, MSNBC.com, June 21, 2007, http://www.msnbc.msn.com/id/19178161/ (last visited Dec. 20, 2010). [FN17] Aujla, supra note 1. [FN18] Press Release, MSNBC, supra note 12. [FN19] Washington Post Editors, Olbermann suspended indefinitely for donation to Dem candidates, The Wash. Post, 44: Politics and Policy in Obama’s Washington, http://voices.washingtonpost.com/44/2010/11/keith-olbermann-donates-to-dem.html (last visited Dec. 20, 2010). [FN20] Aujla, supra note 1. [FN21] Id. [FN22] Olbermann Broadcastsupra note 5. [FN23] The News Corp.-owned cable news leader allows and seems to encourage its reporters and commentators to be active in politics. Its ethics policy says, in part, “Personal involvement in political activity is permitted as long as the activity does not interfere with or impair the performance of the employee’s duties for the Company.” See Rosenthal, supra note 14. I will return to Fox News’ role in this controversy in the next section. [FN24] William Kristol, Keep Keith!, The Weekly Standard, Nov. 5, 2010, http://www.weeklystandard.com/blogs/keep-keith_514980.html (last visited Dec. 20, 2010). [FN25] Greg Sargent, Did Keith Olbermann even violate NBC policy?, The Wash. Post, The Plum Line blog, Nov. 5, 2010, http://voices.washingtonpost.com/plum-line/2010/11/did_olbermann_even_violate_nbc_1.html (last visited Dec. 20, 2010). [FN26] Michael Kinsley, The absurdity of Olbermann’s sin, Politico, Nov. 9, 2010, http://www.politico.com/news/stories/1110/44855.html. [FN27] Id. [FN28] Joshua Greenman, Keith Olbermann’s suspension by MSNBC was right – but there’s a double standard, N.Y. Daily News, Nov. 5, 2010, http://www.nydailynews.com/opinions/2010/11/05/2010-11-05_keith_olbermanns_suspension_by_msnbc_was_right__but_theres_a_double_standard.html. [FN29] Sam Schechner, MSNBC Suspends Scarborough for Donations, Wall Street Journal, Nov. 20, 2010, at B3. [FN30] Due to the differences between cable and broadcast technology and Supreme Court limitations on the Federal Communication Commissions’s regulatory power, the FCC historically could impose more rigorous content standards on broadcast networks than it could on cable channels. Today, the FCC, thanks to Supreme Court rulings and Congressional action, has a very limited role in regulating cable content; in fact, some would call it no role at all. For more on the history of the FCC and its relationship with cable channels, see Pamela B. Gullett, The 1984 Cable Flip Flop: From Capital Cities Cable Inc. v. Crisp to the Cable Communications Policy Act, 34 Am. U.L. Rev. 557 (1985). [FN31] CBS v. Democratic Nat’l Comm., 412 U.S. 94, 112 (1973). [FN32] L.A. Powe, Jr., Free Speech and Press in the Digital Age: Red Lion and Pacifica: Are They Relics?, 36 Pepp. L. Rev. 445, 457 (2009). [FN33] Bill Gorman, Cable News Ratings for Friday, December 17, 2010, TV By the Numbers, Dec. 20, 2010, http://tvbythenumbers.zap2it.com/2010/12/20/cable-news-ratings-for-friday-december-17-2010/76044. [FN34] The Project for Excellence in Journalism, Cable TV Economics, 2009, http://www.stateofthemedia.org/2009/narrative_cabletv_economics.php?cat=2&media=7. [FN35] Ryan Nakashima, News Corp. Earnings Up Surprising 11%, Fox News Income Grows 41%, The Associated Press, Nov. 4, 2009, http://www.huffingtonpost.com/2009/11/04/news-corp-earnings-up-sur_n_346080.html. [FN36] Fox News, Fox News Channel Statement on ‘Outfoxed,’ July 13, 2004, http://web.archive.org/web/20060927182708/http://www.foxnews.com/story/0,2933,125436,00.html. [FN37] Ben Smith, News Corp. gave $1 million to pro-GOP group, Politico, Sept. 30, 2010, http://www.politico.com/news/stories/0910/42989.html. [FN38] Supra note 34. [FN39] See generally Pew Research Center for The People & The Press, Press Accuracy Rating Hits Two-Decade Low, Sept. 14, 2009, http://pewresearch.org/pubs/1341/press-accuracy-rating-hits-two-decade-low. [FN40] Blake D. Morant, The Inescapable Intersection of Credibility, Audience and Profit in Broadcast Media’s Coverage of Elections, 24 St. John’s J. Legal Comment. 479, 482 (2009). [FN41] See generally Brian Lehrer, A Million Little Murrows: New Media and New Politics, 17 Media L. & Pol’y 1 (2008). [FN42] Mark Emery, Note: Regulating Televised News: A New Season for the Public Interest Standard, 19 Notre Dame J.L. Ethics & Pub. Pol’y 737, 739 (2005). [FN43] Id. at 740. [FN44] Edward Bernays, Propaganda. Ig Publishing 2005 (1928). [FN45] Morant, supra note 43 at 495. [FN46] Id. [FN47] Id. at 498. [FN48] Id. at 502. [FN49] See Ethics Codes, Pew Research Center’s Project for Excellence in Journalism (Dec. 20, 2010), http://www.journalism.org/resources/ethics_codes. [FN50] Code of Ethics and Professional Conduct, Radio Television Digital News Association (Dec. 20, 2010), http://www.rtnda.org/pages/media_items/code-of-ethics-and-professional-conduct48.php. [FN51] Id. [FN52] Newsroom policies vary on campaign donations, supra note 15. [FN53] Id. [FN54] Supra, note 5. [FN55] Id. [FN56] Standard Provisions, ¶ 1(a) [(YEAR)]. NBC Universal’s Standard Provisions are on file with the author. [FN57] Id. at ¶ 1(e). [FN58] Citizens United v. FEC, 130 S. Ct. 876, 892 (2010). [FN59] Kinsley, supra note 25.

Fasten Your Seatbelts, It’s Going to Be a Bumpy Night: The Implications of Recent Delaware Case Law on the Film Industry

By Jason Tyler* A pdf version of this article may be downloaded here. I. Introduction Applying general corporate law principles to Hollywood is challenging because the film industry is unique.  This article attempts to offer some preliminary analysis of two recent Delaware [FN1] Court of Chancery cases dealing with contests for corporate control in light of Hollywood’s unique qualities.  Recently, the Court of Chancery in eBay v. Newmark doubted the ability of firms to cite a threat to corporate culture as legitimate grounds for implementing a takeover defense.[FN2] Just over a year ago, the Court in Amylin expressed doubt about a firm’s ability to impede changes of control by embedding financial penalties, for lack of a better word, in otherwise ordinary business transactions.[FN3] In both cases, the final analysis proceeded naturally from a central tenet of Delaware’s corporate law jurisprudence: ultimate authority to elect corporate directors rests in the hands of the shareholders as the principals of their agent-directors. This article expresses no opinion on the ultimate dispositions of those cases in their respective factual contexts or on the merits of the particular litigants’ arguments.  Rather, this article argues that Hollywood presents an exceptional context, or, to put it another way, that the economic reality of movie studios pushes at the logical assumptions that underlie the eBay and Amylin holdings.  Accordingly, if applied broadly, eBay and Amylin may threaten movie studios in particular.  Where possible, this article further offers a preliminary attempt to interpret eBay and Amylin in a way that would militate such a threat. II. “All right, Mr. DeMille, I’m ready for my close-up”: Moviemaking Microeconomics While the film industry is unique in numerous ways of course, two of its characteristics are often underemphasized.  First, movie studios enjoy only nominal brand identification.  To be sure, the public recognizes the names of the Big Six studios (Disney, Fox, Paramount, Sony, Warner Brothers, and Universal) and often so-called “mini-majors” (e.g., Lionsgate, MGM, The Weinstein Company/Dimension Films).  Yet, perhaps with the exception of Disney (and its subsidiary Pixar), the public rarely goes to a movie because it is produced or distributed by a certain studio.  Instead, audiences decide to see one movie or another because of factors germane to the particular movie itself, such as what it’s about, who’s in it, who directed it, how well it’s been reviewed, etc.  Accordingly, studios’ market share greatly fluctuates from year-to-year and is attributable more to that year’s slate of releases than to the established brand of the studio.[FN4] Second, and correlatively, a movie studio’s financial success thus depends largely on the qualitative taste of key production executives, often including the studio’s chief executive officer, who “green light” or acquire prospective projects for production and distribution.  That is, if the studio’s market share and revenue derive afresh each year from the public’s appetite for particular releases, then the executives who decide what to release bear significant responsibility for ensuring the studio’s success.[FN5] Consequently, one may assume stakeholders – i.e., equity and debt investors – are relatively more concerned with preserving extant corporate culture and retaining key employees when investing in a movie studio than when investing in any other going concern.  This, too, is a unique aspect of the film industry, but one which Delaware corporate law apparently does not recognize. III. “You are not a beautiful and unique snowflake”: eBay v. Newmark eBay v. Newmark concerned eBay’s star-crossed investment in craigslist, a relationship that Chancellor Chandler described as “oil and water.”[FN6] Craig Newmark and Jim Buckmaster – the founder and CEO of craigslist, respectively, and its controlling shareholders, collectively – wanted to continue operating their business as a community service.[FN7] In contrast, eBay – the third, minority shareholder – wanted to monetize the service as soon as its investment was finalized.[FN8] Thus, a culture clash: “It might be said that ‘eBay’ is a moniker for monetization, and that ‘craigslist’ is anything but.”[FN9] Driving the dispute more specifically, Newmark and Buckmaster retaliated against eBay for launching a competitive online classified service (“Kijiji”) by, inter alia, implementing a stockholder rights plan (more commonly known as a “poison pill”) that restricted eBay’s ability to sell its craigslist shares to third parties.[FN10] As a takeover defense, the rights plan was subject to the Unocal standard, which requires the company to show (1) a reasonably perceived threat to corporate policy and effectiveness and (2) that the defensive tactic is a reasonable response to that threat.[FN11] In Paramount Communications, Inc. v. Time Inc. (hereinafter “Time-Warner”),[FN12] the Delaware Supreme Court famously held that defensive action to protect a target’s corporate “culture” could satisfy the first Unocal prong.  In eBay, however, Chancellor Chandler cabined craigslist’s ability to rely on the “amorphous purpose of ‘cultural protection’ as a justification for defensive action…”[FN13] Indeed, he found nothing unique to craigslist’s community-service-oriented operation:
“Giving away services to attract business is a sales tactic, however, not a corporate culture. … To the extent business measures like loss-leading products, money-back coupons, or putting products on sale are cultural artifacts, they reflect the American capitalist culture, not something unique to craigslist.”[FN14]
Accordingly, with nothing unique about craigslist’s culture, there could be no reasonably perceived threat to it under Unocal.[FN15] What makes eBay troubling for a movie studio looking to implement a takeover defense is the Court’s use of the word “unique.”  The Chancellor found craigslist’s culture was not unique and, therefore, its controlling shareholders could not rely on corporate culture as grounds for implementing a takeover defense.  But exactly how unique must a business be?  On the one hand, it could be argued that a movie studio derives its market edge from a unique corporate culture in which key employees put their qualitative taste to task.  Change the corporate culture to one where those same employees cannot similarly employ their qualitative taste and presumably there will be a change to the studio’s financial performance.  Thus, stakeholders looking to maximize their returns might very well want to preserve their investment’s corporate culture.  On the other hand, it could be argued that all movie studios rely on a culture in which qualitative decision-making on matters of taste are encouraged.  Thus, there would be nothing unique about any one studio’s corporate culture. Time-Warner itself offers little guidance.  There, Time sought to preserve its “journalistic integrity,” a quality that perhaps all news organizations share, because “Time’s management made a studious effort to refrain from involvement in Time’s editorial policy,” a quality that may be unique to Time even within the industry.  Moreover, there is an inter-industry component that complicates the Time-Warner analysis: Time feared its focus on journalism was threatened by a merger with an entertainment company (either Paramount, a hostile bidder, or Warner Bros., a friendly bidder that had promised to preserve Time’s journalistic integrity).[FN17] In summary, Time tried to preserve a culture that may have been unique to it and, even if that culture were ubiquitous in the news industry, would be unique in the entertainment industry.  In either case, the facts of Time-Warner do not on their own delineate the bounds of what precisely satisfies a reasonable threat to corporate culture under Unocal’s first prong. For the avoidance of doubt, it is not inconceivable for an acquiror (hostile or friendly) to seek control of an entertainment company despite failing to have prior experience in the industry.  Indeed, one could seek control of an entertainment company precisely to diversify extant investments.  For example, of the Big Six studios, Fox, Paramount, and Warner Brothers are subsidiaries of journalism/media conglomerates (News Corp, Viacom, and Time-Warner, respectively), Sony is a subsidiary of an electronics manufacturer, and Universal is a subsidiary of General Electric, which deals in energy, consumer and industrial manufacturing, and capital finance.  (Disney, meanwhile, has become a parent conglomerate that owns various media, theme park, and other diverse subsidiaries.)  Moreover, Carl Icahn, whose self-stated expertise is in shrewd investing and increasing management accountability,[FN17] has in the last two years twice launched hostile takeover bids for Lionsgate[FN18] and has recently offered to buy MGM’s debt before its imminent Chapter 11 bankruptcy.[FN19] Given this state of affairs, the viability of satisfying Unocal’s first prong by citing a threat to corporate culture is indeed relevant to studios wishing to maintain their corporate independence. IV. “Carpe diem.  Seize the day, boys.  Make your lives extraordinary”: Amylin Because movie studios rely so heavily on the taste of current employees, stakeholders who believe in extant operations have an interest in ensuring that the studio retains key employees.  A change of control, however, usually ends top executives’ employment.[FN20] Ordinary takeover defenses may satisfy such stakeholders’ concerns, but they are not the only means of doing so.  Debt investors, for example, are equally satisfied by “change of control provisions,” covenants that accelerate the repayment of principal in the event of a change of control.  Indeed, change of control provisions are relatively common in the film industry.  For example, when Carl Icahn attempted to takeover Lionsgate in the spring of 2009 and again in the spring of 2010, Lionsgate cited change of control provisions in its revolving credit facility with JP Morgan Chase as a principal reason why Icahn’s takeover would harm the company.[FN21] Moreover, with a higher degree of certainty as to the future operations of an otherwise unstable studio, creditors are willing in turn to offer the studio more favorable financial terms in the debt agreement, thus introducing an element of bilateral exchange into the equation.  Accordingly, Change of control provisions are not obviously takeover defenses, because the process occurs as part of a seemingly ordinary business transaction.  Of course, the effect on takeovers is the same: the studio derives a financial benefit precisely because of the impediment to changes of control the provisions by definition engender.  In this sense, a change of control provision is an example of what may be called generally an “embedded defense.”[FN22] The Delaware courts have never ruled directly on the legality of embedded defenses, however the Court of Chancery did suggest last year how it might address an embedded defense challenge in San Antonio Fire & Police Pension Fund v. Amylin Pharm., Inc.[FN23] In Amylin, the company had issued bonds under an indenture that included a change of control provision prohibiting a turnover of the majority of the board, unless the outgoing board “approved” newly elected directors.[FN24] When two dissident shareholders launched proxy contests, the incumbent board “approved” the dissident slates for purposes of the indenture while running its own opposing slate in the same election.[FN25] The noteholders’ trustee brought suit, claiming that the plain meaning of “approve” should have precluded Amylin from “approving” directors of whom it necessarily disapproved via the voting franchise.[FN26] Vice Chancellor Lamb upheld the board’s actions and disagreed with the trustee’s interpretation because such a reading would render the change of control provision an “entrenchment mechanism . . . prohibit[ing] any change in the majority of the board as a result of any number of contested elections, for the entire life of the notes.”[FN27] Other facts surrounding the negotiation of the indenture undermined such a reading.[FN28] The Vice Chancellor then added in dicta that
“[a] provision in an indenture with such an eviscerating effect on the stockholder franchise would raise grave concerns…  The court would want, at a minimum, to see evidence that the board believed in good faith that, in accepting such a provision, it was obtaining in return extraordinarily valuable economic benefits for the corporation that would not otherwise be available to it.  Additionally, the court would have to closely consider the degree to which such a provision might be unenforceable as against public policy.”[FN29]
Perhaps complicating the court’s reasoning, it is important to keep in mind that Vice Chancellor Lamb did not invalidate the change of control provision itself, only the trustee’s interpretation of it.  Moreover, the Court upheld a second change of control provision in another debt agreement in that same case.[FN30] It appears that neither the Delaware courts nor corporate law scholars have come to a consensus on the meaning of Amylin.  So far it has been cited in subsequent case law only for certain contract law authority and a cursory search on Westlaw and SSRN produced no commentary.  Amylin’s implication seems daunting, however: a change of control provision triggered by a change in the composition of the board would be considered invalid under Delaware corporate law except, perhaps, if the company received “extraordinarily valuable economic benefits” in exchange. Inherently unstable operations like movie studios might be best able to exploit the exception since, as discussed above, they receive more favorable financial terms in exchange for the covenant.  Nevertheless, the studio would have to show “extraordinarily valuable economic benefits,” not simply some economic benefit, in order to satisfy Amylin’s standard.  I can only speculate as to the meaning of “extraordinary” in this context, however I doubt Vice Chancellor Lamb would have gone to such extremes if a mere reduction of the applicable interest rate would suffice. Despite the seemingly high standard Vice Chancellor Lamb would require, the case is susceptible to a more nuanced interpretation than it would seem at first glance.  In California Public Employees’ Retirement System v. Coulter,[FN31] for example, Vice Chancellor Noble noted that parties employing a continuing director provision, like the one involved here, bargain for the right, “as a matter of contract, to allow the incumbent directors…to determine [that] there had not been a change of control.”  In Amylin, Vice Chancellor Lamb similarly observed in a footnote that the directors possessed only a contractual right and were “under absolutely no obligation to consider the interests of the noteholders in [exercising that right.]”[FN32] Synthesizing this language, a reasonable interpretation of Amylin is that the trustee’s contractual reading would have violated Delaware public policy not because all change of control provisions are impermissible per se, but because the trustee’s interpretation would transform a contractual term generally interpreted as conferring a discretionary right to be exercised in accordance with directors’ fiduciary duties into a committed obligation notwithstanding any adverse effects on shareholders.  That is, a change of control provision intended to allay creditors’ concerns may be enforceable where it confers a benefit on shareholders (e.g., by reducing the company’s cost of capital), but not where it is contrary to shareholders’ best interests (e.g., by impeding the voting franchise).  Concededly, this interpretation derives from a close, subtle reading of the Vice Chancellor’s language, however it would permit studios – and all businesses – both (1) to agree to change of control provisions that reduce the studio’s cost of capital at the inception of the agreement and (2) to refuse to exercise that contractual right (i.e., to permit acceleration to occur) as a way to discourage a hostile takeover when the board believes in good faith that the change of control would not be in shareholders’ best interests (i.e., consistent with its fiduciary duties under Unocal). V. “Good Night, and Good Luck”: Conclusion eBay and Amylin are troubling cases for movie studios because both undermine extant Hollywood practices: after eBay, it is increasingly difficult for movie studios to rely on threats to corporate culture as reasonable grounds for implementing a takeover defense; after Amylin, it may be harder to allay creditors’ fears of volatility by offering common change of control provisions as an escape mechanism from the investment in the event of volatility.  But these practices make business sense for movie studios in a way that might not for other industries: corporate culture is salient where revenue depends on taste; change of control provisions are beneficial where the risks of key executive turnover would otherwise make capital prohibitively expensive. “What we’ve got here is a failure to communicate.”  
* J.D. candidate, NYU School of Law, 2011; B.A., The Johns Hopkins University, 2005. [FN1] Nearly one million business entities and more than half of the corporations making up the Fortune 500 list were incorporated in Delaware as of 2007.  Lewis B. Black, Jr., Why Corporations Choose Delaware 1 (2007), available at Delaware Department of State, Division of Corporations, http://corp.delaware.gov/default.shtml. For each of these Delaware-chartered entities, Delaware corporate law applies.  See 18 William Meade Fletcher et al., Fletcher Cyclopedia of the Law of Corporations §43.72 (perm. ed., rev. vol. 2007) (Defining “Internal Affairs” doctrine).  Accordingly, referring to Delaware common law – as opposed to a 50-state survey ­– is convenient shorthand applicable to most businesses. [FN2] Civ. No. 3705-CC, 2010 WL 3516473 (Del. Ch. Sept. 9, 2010). [FN3] 983 A.2d 304 (Del. Ch. 2009), aff’d 981 A.2d 1173 (Del. 2009). [FN4] Harold L. Vogel, Entertainment Industry Economics: A Guide for Financial Analysis 57 (6th ed. 2004). [FN5] I realize it is naïve to assume a studio’s financial health derives solely from production, acquisition, and direct distribution of film and television projects.  Studios derive considerable financial benefit as well by, inter alia, exploiting libraries of past film properties, entering into favorable co-financing agreements that reduce costs of capital, and acting as sales agents or performing other services within the industry.  Nevertheless, I ignore these aspects of a studio’s business for the sake of simplicity. [FN6] eBay Domestic Holdings, Inc. v. Newmark, 2010 WL 3516473, at *2 (Del. Ch. Sept. 9, 2010). [FN7] Id. (“Though a for-profit concern, craigslist largely operates its business as a community service.  Nearly all classified advertisements are placed on craigslist free of charge.  Moreover, craigslist does not sell advertising space on its website to third parties.  Nor does craigslist advertise or otherwise market its services.  craigslist’s revenue stream consists solely of fees for online job postings in certain cities and apartment listings in New York City.”) [FN8] Id. at *7. [FN9] Id. at *3. [FN10] Id. at *9-15. [FN11] Id. at *21; Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 954-55 (Del. 1985) [FN12] 571 A.2d 1140 (Del. 1990) [hereinafter “Time-Warner”]. [FN13] eBay, 2010 WL 3516473, at *21. [FN14] Id. at *22. [FN15] Chancellor Chandler’s ruling further turned on the legal ability to assert a corporate culture of eschewing shareholder wealth maximization altogether: “Time[-Warner] did not hold that corporate culture, standing alone, is worthy of protection as an end in itself,” rather a protectable corporate culture “must lead at some point to value for stockholders.”  Id. at *21.  Whatever beliefs Newmark and Buckmaster might have had about community service, they “opted to form craigslist, Inc. as a for-profit Delaware corporation and voluntarily accepted millions of dollars from eBay as part of a transaction whereby eBay became a stockholder. Having chosen a for-profit corporate form, the craigslist directors are bound…to promote the value of the corporation for the benefit of its stockholders. … Thus, I cannot accept as valid for the purposes of implementing the Rights Plan a corporate policy that specifically, clearly, and admittedly seeks not to maximize the economic value of a for-profit Delaware corporation for the benefit of its stockholders…” Id. at *23 (emphasis in original).  This line of reasoning, however, is not relevant to this article, because most movie studios are interested in profit maximization and are thus easily distinguishable from craigslist. [FN16] Time-Warner, 571 A.2d at 1144 n.4. [FN17] See Barbara Kiviat, 10 Questions for Carl Icahn, Time, Feb. 15, 2007, available at http://www.time.com/time/magazine/article/0,9171,1590446-1,00.html. [FN18] See, e.g., Andrew Ross Sorkin, Lions Gate Rejects Latest Icahn Offer, N.Y. Times, Mar. 23, 2010, available at http://dealbook.blogs.nytimes.com/2010/03/23/lions-gate-rejects-latest-icahn-offer/ (regarding Icahn’s March 2010 takeover attempt); Lions Gate Entertainment Corp., General Statement of Acquisition of Beneficial Ownership (Schedule 13D/A) (Mar. 12, 2009) (disclosing Icahn’s March 2009 takeover attempt). [FN19] See, e.g., Michael Speier, Icahn Makes Offer to Buy More MGM Debt to Expedite Merger, Deadline Hollywood, Oct. 21, 2010, available at http://www.deadline.com/2010/10/icahn-makes-offer-to-buy-more-mgm-debt-to-expedite-merger/. [FN20] See William J. Carney, Mergers & Acquisitions: Cases and Materials 307 (2d ed. 2007) (citing empirical evidence that 50% of top executives leave their employment within three years of a change of control); cf.,  e.g., James F. Cotter & Marc Zenner, How Managerial Wealth Affects the Tender Offer Process, 35 J. Fin. Econ. 63, 88-94 (1994) (offering empirical support that managerial resistance to tender offers appears driven by self-interest); Kenneth J. Martin & John J. McConnell, Corporate Performance, Corporate Takeovers, and Management Turnover, 46 J. Fin. 671, 677 (1991) (“The dramatic increase in the turnover rate of top managers following takeovers…indicates that takeovers are an important device for altering the top management of target firms.”). [FN21] See, e.g., Press Release, Lions Gate Entertainment Corp., Lionsgate Board of Directors Expresses No Opinion and Remains Neutral Toward Icahn’s Unsolicited Debt Tender Offer, Strongly Urges Noteholders to Consider All Aspects of Icahn’s Offer Carefully (Mar. 26, 2009), available at http://investors.lionsgate.com/ (follow hyperlink to Press Releases, News Releases; then follow hyperlink to New Release of 3/26/2009). [FN22] Professors Arlen and Talley coined the term “embedded defenses” in Jennifer Arlen & Eric Talley, Unregulable Defenses and the Perils of Shareholder Choice, 152 U. Pa. L. Rev. 577, 583 (2003). [FN23] 983 A.2d 304 (Del. Ch. 2009), aff’d 981 A.2d 1173 (Del. 2009). [FN24] Id. at 307-308. [FN25] Id. at 312-13. [FN26] Id. at 314. [FN27] Id. at 315 (emphasis in original). [FN28] In particular, the court focused on a second credit agreement with a bank, conceded by all parties to be more restrictive than the indenture, but not susceptible to a similar interpretation as the trustee’s interpretation of the indenture.  Id. [FN29] Id. (internal citations omitted). [FN30] Id. [FN31] No. Civ.A. 19191, 2005 WL 1074354, at *4 (Del. Ch. 2005). [FN32] Amylin, 983 A.2d at 316 n.37 (emphasis in original).

Regulating the Film Industry in China: A New Approach

By Brian R. Byrne* A pdf version of this article may be downloaded here. I.  Introduction For U.S. filmmakers, the People’s Republic of China represents a prodigious market opportunity.[FN1] As the Chinese middle-class expands,[FN2] enjoying an increase in disposable income,[FN3] the thirst for quality entertainment intensifies.[FN4] Cinema construction rampages across the mainland in an effort to satisfy demand for theatrical releases.[FN5] Yet despite this consumer demand,[FN6] supply methodology remains a perplexing phenomenon. True exploitation of the market is simply chimerical due to an obstinate web of import quotas, censorship, and government intervention, all founded upon a guise of cultural protectionism.[FN7] However, notwithstanding the obstacles to legitimate distribution, the channels of illegitimate distribution remain relatively unencumbered. Piracy is rampant throughout China[FN8] and high quality copies of pirated films are widely available, often before the film in question has even been released through lawful channels. Moreover, in contrast to lawful distribution, pirates are subject to neither an import quota nor the rigorous censorship regime that would otherwise apply.[FN9] Thus, China appears to offer a distinct advantage to illegitimate market players. Unsurprisingly, this regime has caused diplomatic unrest,[FN10] souring, in particular, China’s relationship with the United States. In 2007, the U.S. initiated two WTO proceedings against China, one regarding insufficient protection of intellectual property,[FN11] and the other complaining of insufficient market access.[FN12] In both instances, the Panels made rulings adverse to China. In the aftermath of these decisions, China faces deep scrutiny from the international community and an expectation that the necessary reforms will be implemented. This paper will not serve to deconstruct the WTO rulings. Rather, I will argue that: (i) China’s authoritarian approach to film distribution, coupled with its deficient intellectual property regime, actually promotes the dissemination of Western culture within its borders – a direct perversion of its intentions; and (ii) in order to achieve its cultural objectives, China must undertake a number of key reforms. II. Film Distribution in China and the Control of Culture Before proposing a new market structure, I will examine the structure currently in place, emphasizing the market valves and barriers that China has implemented to maintain cultural oversight. The system for distributing U.S. films in China has been described as “among the most burdensome and restrictive in the world.”[FN13] In order to release a film in Chinese theaters, foreign studios must overcome a number of significant obstacles, each one carrying the potential to reduce or even eviscerate potential profits. After analyzing each of these impediments, I will turn to the perverse result of this structure. (a) Importation and Distribution The theatrical release of foreign films in China is heavily restricted and state-governed. Regulatory oversight is vested in China’s State Administration on Radio, Film and Television (the SARFT).[FN14] Only twenty foreign films – both U.S. and non – may be imported into China annually,[FN15] and importation can only be conducted by film import enterprises designated or approved by the SARFT.[FN16] Currently, there is only one entity approved to import films: the China Film Import and Export Corporation, a wholly state-owned entity.[FN17] Following importation of their films, U.S. studios must secure a distributor. In its submissions to the WTO, the U.S. made the following allegations about the system of distributing films for theatrical release in China: distribution can only occur through one of two Chinese state-controlled distributors;[FN18] both members of the distribution duopoly[FN19] use identical form contracts and do not permit negotiation of key terms;[FN20] China Film Group actually decides on the distributor and distribution conditions for all imported films;[FN21] this distribution regime facing U.S. films contrasts starkly with the open distribution system available for domestic films, as Chinese films may be distributed by their production studios, or a full range of film distributors in China, with terms being negotiated commercially and competitively.[FN22] Thus, China maintains a high barrier for the importation and distribution of foreign films. It intends this barrier to facilitate trade protectionism and function as a cultural filtration device, limiting the number of foreign films to which Chinese citizens are exposed. (b) Censorship Censorship in China is extensive and disquieting.[FN23] The current Internet crisis serves as a cautionary tale for both free speech advocates and expansionist capitalists.[FN24] For the U.S. film industry, the ominous specter of Chinese censorship is just as perturbing and no less commercially disruptive.[FN25] All films imported into China must pass the strict scrutiny of censors,[FN26] but because the country lacks a film rating system and censors can interpret the censorship guidelines in a number of different ways, the process is very unpredictable.[FN27] This creates problems for U.S. studios that would like to pre-censor their films to avoid delays.[FN28] A lamentable dilemma faces U.S. film executives in this regard. To ensure a quicker grant of censorship approval, the studios could adopt an overly cautious approach and remove all potentially condemnable material. This approach, however, may unnecessarily reduce the artistic quality and commercial appeal of the picture if, in reality, censors would not have objected to the removed content. On the other hand, the studios could take a less cautious approach and remove only that material that the censors are most likely to flag. The risk associated with this strategy is that censors may object to content “left in,” causing censorship delays and resulting in significant commercial harm to the film.[FN29] China’s rigorous system of censorship unquestionably highlights the government’s commitment to control the flow of cultural inputs in the market. Essentially, a censorship wall has been created to act as a second barrier to the entry of foreign films. However, a key difference between censorship and the import quota is that both the U.S. film industry and the Chinese film industry must overcome the censorship barrier. (c) Blackout Periods Periodically, China institutes cultural “blackout” periods, during which foreign films cannot be shown in theaters.[FN30] Asian media reports that imported films are subject to removal at any time the government decides to hold an “impromptu film festival.”[FN31] Although this indicates a lack of predictability, reports suggest that there is one annual period during which foreign films are “routinely barred from screening.”[FN32] This period occurs during July, coinciding with the school summer holidays. Naturally, this inflicts significant losses on summer blockbusters.[FN33] It would be naïve to disregard the protectionist nature of blackout periods, considering the boost given to domestic films at the expense of American films. They are certainly designed to “make room for domestic Chinese films during peak summer viewing days.”[FN34] However, they are not confined to summer and may occur numerous times during the year, spontaneously and suddenly.[FN35] For this reason it has been suggested that the Chinese authorities pull films that do “too well” at the box office.[FN36] In addition to economic concerns, blackout dates are heavily focused – ostensibly, at least – on cultural management. The Chinese government is attempting to fence out the Hollywood influence at key times of the year – most notably, at those times when the malleability of youth is exposed and vulnerable. III.  Insufficient IP Enforcement and the Dissemination of Western Culture Within China Piracy is pervasive throughout China.[FN37] IP enforcement is so deficient that some U.S. studios see only two options for commercial viability: compete with pirates on price, or convert pirates to legitimate retailers.[FN38] However, underlying the pervasiveness of piracy is a relatively straightforward market dynamic: because lawful supply cannot meet demand, unlawful supply takes its place.[FN39] The Motion Picture Association of America enunciates fiercely that the current import quota of twenty films per year falls far short of market demand for “primarily American films.”[FN40] Many commentators argue that when consumers are unable to purchase products in the open market, they “may settle for black market products or pirated goods.”[FN41] Thus, in the “large and hungry”[FN42] Chinese market, consumers who wish to see certain movies that are unavailable through legitimate channels have little choice but to purchase unlicensed copies.[FN43] Those unlicensed copies are facilitated by the lack of robust IP enforcement. We can assume that the import quota serves two goals: limiting the influx of Western culture presented in U.S. films, and protecting the domestic film industry.[FN44] Aside from the economic objective associated with the latter goal, both goals share the same underlying cultural objective: preserve and promote Chinese culture at the expense of Western culture. Yet the import quota, without adequate IP enforcement, is producing a result that is directly perverse to this purpose. Uncensored, pirated copies of U.S. films are widely available on the streets of China at a price far lower than the admission to a movie theater.[FN45] This is without question a widespread dissemination of Western culture, fostered by a lack of commitment on the part of the Chinese government to eradicate piracy. If the Chinese government increased the number of foreign films imported into China, it would satisfy some of the market demand for U.S. films and reduce some of the demand for pirated films, thereby limiting the dissemination of Western culture and helping China achieve its cultural objectives. Analyzing the intersection between piracy and inadequate lawful supply necessarily encompasses more than a mere discussion of the import quota. Censorship also plays three fundamental roles in fostering piracy. Firstly, Chinese censorship authorities are often slow in approving U.S. films, and this can give pirates a significant head start on reaching the market.[FN46]Secondly, Chinese legislation denies copyright protection to films that have not yet been approved by censors.[FN47] Thus, while a film is awaiting approval, pirates can operate without fear of legal sanction. Finally, the content of pirated films has typically not been subjected to censorship.[FN48]Therefore, pirates are actually in a position to offer a product, which may be more desirable to consumers than a legitimate copy. The cultural blackout periods referred to earlier also act as an acute constraint on lawful supply, creating a void for pirates to fill. During these periods, pirates operate without competition, which inflicts a particularly severe commercial detriment to U.S. film studios, especially in light of their tendency to release summer blockbusters simultaneously across the globe.[FN49] Thus, rampant piracy of U.S. films in China clearly nullifies the government’s cultural input barriers. The import quota, censorship and blackout dates actually provoke an injection of U.S. culture into the market. IV.  Reform Proposal In light of the foregoing, China should implement the following reforms in order to achieve its cultural objectives. A consequential benefit will accrue insofar as these reforms may help remedy some of the complaints raised by the U.S. at the WTO.[FN50] Although the reforms outlined below may not offer a complete formalistic resolve to China’s WTO obligations, the reforms will benefit U.S. filmmakers, and this should help mitigate the current adversarial guise of U.S.-Sino relations. (a) Strengthen IP Enforcement By eradicating piracy to the greatest extent possible, China will limit the dissemination of uncensored U.S. films and thereby further its cultural objectives. Furthermore, China’s own film industry will benefit from increased revenues, and this is especially important for domestic films, which have enjoyed extensive government promotion.[FN51] Typically, piracy diverts these government funds away from the official channel of revenue receipt. Without piracy, however, the funds would remain in official channels and could thus be used to strengthen the domestic film industry in a manner consistent with the government’s desired cultural trajectory. (b) Increase the Import Quota Increasing lawful supply is a necessary corollary to eradicating piracy. It is essential that China reduce incentives to pirate by the greatest degree possible. If consumers have greater lawful access to U.S. films, they may be dissuaded from purchasing pirated DVDs of the same films. If, simultaneously, punishment for piracy is real and exorbitant, the risk-reward ratio of piracy may become so high as to act as a substantial deterrent. In addition to helping reduce piracy, increasing the import quota may lead to increased domestic cinema construction, which itself may benefit the domestic film industry.[FN52] Naturally, China should strive for a balance between the number of films imported, piracy reduction, and benefits to the domestic industry. After all, flooding the market with U.S. films would not achieve its cultural objectives.  However, increasing the number of imports would.  The benefit of legitimate importation over piracy is that China retains censorship control. (c) Reduce Censorship Delays As I have already discussed, delays in censorship approval can give pirates a significant lead-time to reach the market. Thus, in conjunction with an increased import quota, China should invest in its censorship infrastructure in two ways: firstly, it must increase efficiency by decreasing the processing time for approval of imported films; secondly, it must increase transparency so that U.S. film companies can pre-censor their material. Releasing a film on the same date globally is an effective means of limiting piracy. It is therefore vital to China’s interests that its censors are not the weak link in an otherwise industrious chain of effort that makes the simultaneous release possible. Censorship will be the most fundamental valve for China to control cultural direction, and it is also the least destructive to the commercial interests of U.S. filmmakers. However, China should strive to keep the level of censorship within the bounds of consumer acceptability. Otherwise, pirates may be inspired to capitalize on consumer demand for uncensored versions of the films. (d) Relax Restrictions on the Domestic Film Industry Ultimately, as China’s middle class grows, entertainment will only increase in importance. The demand for foreign films is currently fuelled, in part, by the perceived superiority of U.S. filmmakers and their ability to entertain an audience.[FN53] Although the Chinese film industry has made great advances, government authorities must allow Chinese artists greater freedom[FN54] to promote greater competition between domestic artists and the cultural influences of imported entertainment. Similar to import quotas, Chinese authorities must strive to achieve the optimum balance between fostering a competitive domestic industry and not sacrificing their fundamental cultural objectives. In other words, the government need not lift all restrictions currently placed on Chinese filmmakers. Instead, it must only relax restrictions to the point that the cultural benefits of a truly competitive domestic industry outweigh the perceived negative cultural effects of forfeiting a degree of control over the industry. V.  Current Market Structure On the left side of the chart above, I have depicted China’s barriers intended to control cultural inputs. The U.S. film industry must overcome two barriers to entry: the import quota and censorship. Only some U.S. films pass through both barriers and reach the Chinese market. Naturally, China’s own film industry must not overcome the import quota; however, it must still contend with censorship. Although China seems concerned with filtering cultural inputs on the left side of the chart, the right side of the chart shows the glaring deficiency due to insufficient IP enforcement. Piracy allows vast quantities of uncensored U.S. culture into the market, while extracting significant revenue owed to the U.S. industry (leading to political and legal tensions). Piracy of Chinese films extracts revenue from the market that would otherwise strengthen the Chinese film industry. VI.  Proposed Market Structure The chart above represents the proposed market structure.  Allowing more U.S. films to legitimately enter the market would increase U.S. cultural input; however, China could still rely on the censorship barrier as a cultural valve. Relaxing censorship constraints on the Chinese film industry would strengthen the industry and increase its cultural input. On the right side of the chart is a representation of increased IP enforcement. China benefits in two ways: first, there is a reduction in uncensored U.S. films entering the market, and therefore a reduction in uncontrolled cultural input; second, revenue owed to the Chinese film industry stays within official channels, which strengthens the domestic industry. VII.  Conclusion The U.S.-China acrimony, engendered by China’s current state-of-play for intellectual property holders, has attracted a saturating volume of legal scholarship. Understandably, the majority of this commentary[FN55] champions Western pressure on China, via the WTO and other channels. Clearly, this approach has proved extremely fruitful recently, in light of U.S. success at the WTO. Without question, these rulings provide a platform to reform the status quo in China. However, I propose that the U.S. should seek to supplement the WTO rulings with Chinese-orientated incentives that simultaneously benefit U.S. interests.[FN56] In order for China to achieve its cultural objectives, it must reform its current regime. One might contend that this argument, taken to the extreme, would simply result in China banning the import of all foreign films, while simultaneously cracking down on piracy. Yet this would not be in China’s best interests. Due to its regulatory control of the revenue sharing mechanism, China stands to profit greatly from the legitimate exhibition of foreign films. Also, it is arguable that China’s economic success heavily depends on at least a modicum of contentment among the middle class workforce. Given the high demand for U.S. films from this constituency, a total ban on foreign imports may be a treacherous move for the government. My proposals reflect an endorsement of cultural regulation; if implemented, the new market structure would inevitably restrict the dissemination of information throughout China. In light of this, the U.S. film industry may be hesitant to pursue the type of argument presented in this paper, for fear of allegations of cynicism. Nonetheless, I believe my position can be defended on two fundamental grounds. The first ground concerns the issue of sovereignty. Put simply, China has a right to define the contours of its culture. As recognized by the WTO, “the protection of public morals is a highly important governmental interest.”[FN57] Therefore, in seeking to resolve their grievances, U.S. IP holders cannot, and should not, interfere with China’s cultural progression, other than to monetize their creative output and vigorously enforce their property rights. U.S. filmmakers need not be expected to sustain altruistically the plight of piracy in order to maintain a cultural interchange, which is contrary to the policy of a sovereign nation. The second ground of defense centers directly on property rights. Respect for the ownership of private property is a bedrock principle of U.S. policy. Meanwhile, the current regime in China evidences disregard for the property rights of U.S. copyright holders. It may be true that a beneficial side effect of this market structure is that Chinese citizens enjoy greater exposure to unfiltered expression. However, this exposure comes at great cost. The foundations of this cultural influence rest on piracy, an enterprise that flies in the face of private property rights. In persuading the Chinese authorities to exercise greater control of cultural influence, the U.S. film industry would be indirectly raising the status of private property ownership throughout China. From a U.S. perspective, the idea of private property ownership is arguably a cultural export of at least equal significance to free speech. Therefore, I believe that it is thoroughly appropriate to advance the market reforms proposed herein, as the result will accord with U.S. policy. In summation, the adage of “change must come from within” is robust and time honored for a reason. If Chinese authorities are not ready to embrace the trappings of Western culture, then so be it. The pursuit of free expression does not necessarily correlate to the interests of intellectual property holders.[FN58]Nonetheless this should not deter filmmakers from pursuing legitimate revenue that stands to be extracted from the market. The U.S. film industry can increase its profits in China without demanding that Chinese authorities cease their control of cultural development. Each objective can co-exist and the reforms mentioned above should help satisfy both parties. All that remains now is to convince China. * Brian R. Byrne practices EU competition law in Brussels. He is a graduate of University College Dublin (B.C.L. 2007) and New York University School of Law (LL.M. 2010). He is a member of the New York Bar and an Irish solicitor. [FN1] Chinese box office sales reached $907 million in 2009, representing a 42 percent growth in the sector.  See Zhang Yimou: China Needs More Cinemas, Beijing Review, Mar. 8 2010, available at http://www.bjreview.com.cn/movies/txt/2010-03/08/content_252286.htm. [FN2] See Wayne M. Morrison, Cong. Research Serv., RL 33536, China-US Trade Issues 1 (2009). [FN3] For a detailed economic analysis of the Chinese middle class’ spending power, see Diana Farrell et al, The Value of China’s Emerging Middle Class,McKinsey Quarterly, Spec. Ed. 2006, at 60, 69. [FN4] See Patrick H. Hu, Mickey Mouse in China: Legal and Cultural Implications in Protecting U.S. Copyrights, 14 B.U. Int’l L.J. 81, 92 (1996). [FN5] It has been reported that 626 screens were added last year bringing China’s screen total to 4,723 by the end of 2009. This represents an increase of 13 percent. Ding Wenlei, Building China’s Hollywood, Beijing Review, Feb. 18, 2010, available at http://www.bjreview.com.cn/business/txt/2010-02/11/content_246761.htm. [FN6] Acclaimed Chinese director Zhang Yimou recently proposed to the Chinese People’s Political Consultative Conference (CPPCC) that more cinemas should be built in smaller towns and cities to satisfy demand.  Zhang Yimou: China Needs More Cinemassupra note 1. [FN7] See Panel Report, China – Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products, ¶ 7.709, WT/DS363/R (Aug. 12, 2009). [FN8] Some reports indicate that 95 percent of all movies sold in China are pirated. See Frank Lin, Piracy in China: Identifying the Problem and Implementing Solutions, 14 Currents: Int’l Trade L. J. 83, 89 (2005). Others indicate a rate of 90 percent. See Kevin Lee, The Little State Department: Hollywood and the MPAA’s Influence on U.S. Trade Relations, 28. Nw. J. Int’l L. & Bus. 371, 389 (2008). [FN9] See Paula M. Miller, Reeling in China’s Movie Fans, China Business Review, Mar./Apr. 2007 35, 37. [FN10] Senator Chuck Schumer blasted China in the media in 2007 and hailed the WTO complaints, saying, “China has no excuse to allow American intellectual property to be ripped off without any consequences. I hope this is just the beginning of a much stronger Administration stance on China’s nonstop violations of free trade rules.” See Eric Bangeman, US Says China Isn’t Doing Enough About Piracy, Files Complaint with WTO, Ars Technica (Apr. 10, 2007), http://arstechnica.com/tech-policy/news/2007/04/us-says-china-isnt-doing-enough-about-piracy-files-complaint-with-wto.ars. [FN11] See Panel Report, China – Measures Affecting the Protection and Enforcement of Intellectual Property Rights, WT/DS362/R (Jan. 26, 2009). [FN12] See China – Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products, supra note 7. [FN13] Bradley S. Klapper, WTO Win Could Open China’s Doors to US Companies, Arizona Daily Sun, Aug. 12, 2009, available at http://azdailysun.com/news/article_80c41a2e-f8ce-50cd-8b7f-141ff30a9aa3.html (quoting Dan Glickman, MPAA Chairman). [FN14] See China – Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products, supra note 7, at 84. [FN15] Lee, supra note 8, at 389. [FN16] See China – Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products, supra note 7, at 85. [FN17] Id. at ¶ 7.575. [FN18] Id. at ¶ 7.1660. [FN19] Although the WTO Panel rejected the U.S. argument that China’s rulescreated the duopoly (either de jure or de facto), a duopoly exists in fact nonetheless. For a detailed discussion of the duopoly argument, see id. at 451-58. [FN20] Id. at ¶ 4.24. [FN21] Id. at ¶ 4.30. [FN22] Id. at ¶ 4.24, ¶ 4.30. Regarding these obstacles to distribution I have purposefully referred to the U.S. arguments, rather than the Panel Report, simply because the Panel rejected the claim of a de facto distribution duopoly. However, that rejection was founded merely upon a deficiency of evidence submitted, and does not alter the pragmatic obstacles faced by U.S. films studios seeking to release their films in Chinese cinemas. [FN23] “Virtually all print and broadcast media are government-run or supervised, and subject to censorship by Communist Party propaganda officials.” China and the WTO: Let Me Entertain You, Economist, Aug. 15, 2009, at 7. [FN24] See Google Ponders Leaving China: Failed Search, Economist, Mar. 20, 2010, at 79. Chinese authorities have also been actively shutting down websites, and blocking the registration of new domain names. See Fredrik Erixon and Hosuk Lee-Makiyama, Chinese Censorship Equals Chinese Protectionism, Wall St. J., Jan. 6, 2010, available at http://online.wsj.com/article/SB10001424052748704842604574641620942668590.html. [FN25] See Vivien Cui, Mainland release of Mission Impossible Possible, South China Morning Post, May 16, 2006, at 1. [FN26] Gerardo Lara, The Piracy of American Films in China: Why the U.S. Art Form is Not Protected by Copyright Laws in the People’s Republic of China, 2 UCLA J. Int’l L. & Foreign Aff. 343, 356 (1997-98). [FN27] See Miller, supra note 9, at 37. [FN28] Id. [FN29] The relationship between piracy and censorship delays will be examined in greater detail below. [FN30] See Lee, supra note 8, at 389. [FN31] Aventurina King, Curtains For Foreign Cinemas?, Asia Times Online, Dec. 2, 2006, available at http://www.atimes.com/atimes/China_Business/HL02Cb02.html. [FN32] Cuisupra note 25. [FN33] For example, China refused to screen Spider-Man 2Harry Potter and the Prisoner of Azkaban, and Shrek 2 in July 2004 due to a blackout period carrying the supposed aim of encouraging  “more upright pursuits” among the nation’s youth. See Carl Erik Heiberg, American Films in China: An Analysis of China’s Intellectual Property Record and Reconsideration of Cultural Trade Exceptions Amidst Rampant Piracy, 15 Minn. J. Int’l L. 219, 237 (2006). [FN34] Miller, supra note 9, at 37. [FN35] King, supra note 31. [FN36] Miller, supra note 9, at 37. One U.S. film with respect to which this allegation has been levied is The Da Vinci Code, which was scheduled for a three-week run but was pulled after it made more than $13 million dollars in China. [FN37] It is reported that 90% of all DVDs sold in China are pirated. SeeMichael C. Ellis, Report, The Cost of Motion Picture Piracy – To China, Asia and the Worldavailable at http://www.mpaa.org/press_releases/leksummarympa.pdf (last visited Nov. 8, 2010). In 2005, the US film industry lost an estimated $2.1 billion to piracy in China. See Jordana Cornish, Cracks in the Great Wall: Why China’s Copyright Law Has Failed to Prevent Piracy of American Movies Within Its Borders, 9 Vand. J. Ent. & Tech. L. 405, 411 (2006). It is worth noting that the value of lost revenue to piracy varies according to method of calculation and figures differ. See generally Aaron Schwabach, Intellectual Property Piracy: Perception and Reality in China, The United States and Elsewhere, 2 J. Int’l Media & Ent. L. 65 (2008). [FN38] CAV Warner Home Video has started to treat pirates as competitors by lowering prices and shortening the window between theatrical release and DVD release. It also attempts “to convert stores that sell counterfeit goods into sellers of licensed DVDs.” Miller, supra note 9, at 38. [FN39] See Lara, supra note 26, at 355. [FN40] Heiberg, supra note 33, at 236 (citing testimony of Fritz E. Attaway, Executive Vice President and Wash. General Counsel, MPAA). [FN41] Peter K. Yu, Piracy, Prejudice and Perspectives: An Attempt to Use Shakespeare to Reconfigure the US-China Intellectual Property Debate, 19 B.U. Int’l L. J. 1, 31 (2001). See also Derek Dessler, China’s Intellectual Property Protection: Prospects for Achieving International Standards, 19 Fordham Int’l L. J. 181, 232 (1995) (“Commentators argue that these market access barriers facilitate intellectual property piracy”). [FN42] Heiberg, supra note 33, at 236 [FN43] Schwabach, supra note 37, at 75 n.49. [FN44] Carl Erik Heiberg makes a similar suggestion, supra note 33, at 256. [FN45] “The latest Hollywood movies are on DVDs on street corners across China within days of their release, at a cost of $1 or less.” Keith Bradsher, WTO Rules Against China’s Limits on Imports, N.Y. Times, Aug. 12, 2009, at A1. [FN46] Mission Impossible III serves as a suitable illustration of this point. The film was originally scheduled for a simultaneous release in the U.S. and China. However, because censors opined that the film depicted Shanghai as “run down” and the police force as “clumsy,” the release was, at the time, “indefinitely postponed.” Upon learning of the censorship controversy, interested moviegoers allegedly turned to illegitimate copies, which were already available on the market, rather than wait for the official outcome. Cui, supra note 25. See also Miller, supra note 9, at 37. [FN47] Morrison, supra note 2, at 18. [FN48] Miller, supra note 9, at 37. [FN49] Exploitation of such releases in China is extremely difficult because potential audiences may have had access to the pirated copy months prior to the film actually being released in theaters. [FN50] I refer to the complaints made by the U.S. against China in Appellate Body Report, China – Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products, WT/DS363/AB/R (Dec. 21, 2009). [FN51] Examples of movies, heavily supported by the Chinese government include The Founding of a Republic and Confucius. The latter is a biopic of the ancient philosopher while the former celebrates 60 years of the People’s Republic of China and features 120 top Chinese actors. For further information on these movies, including how they were received by audiences, see Sharon LaFraniere, China’s Zeal for Avatar Crowds Out Confucius, N.Y. Times, Jan. 30, 2010, at A4 and Steven Schwankert, China Reiterates Screen Limits for Foreign Films, Film Journal International, Jan. 27, 2010, available at http://www.filmjournal.com/filmjournal/content_display/esearch/e3if8d7feafe64b6fb76023a4453148d396. [FN52] Although certainly a biased commentator, James Cameron’s recent remarks in Beijing seem logical: “opening the doors in China… will raise the entire film industry [and] raise the “Chinese filmmakers’ ability to play their films.” Gillian Wong, James Cameron: China Should Let More Movies In, ABC News Online Dec. 23, 2009, available at http://abcnews.go.com/Entertainment/wireStory?id=9407012. [FN53] See Juliet Ye, China’s Avatar Restrictions Cause a Stir, Wall St. J., Jan. 20, 2010, available at http://blogs.wsj.com/chinarealtime/2010/01/20/china%E2%80%99s-avatar-restrictions-cause-a-stir/. [FN54] In China, artistic freedom in domestic film production is severely restrained and this impacts upon the ability of domestic film producers to compete vigorously with Hollywood movies. See Louisa Lim, Film Director Battles for Soul of Chinese Cinema, NPR.org, Jan. 4, 2010, available at http://www.npr.org/templates/story/story.php?storyId=121570362&ft=1&f=1004. [FN55] In U.S. law journals. [FN56] A similar power struggle is occurring between the U.S. and China over allegations that China is not allowing the yuan to appreciate in value. Similar to the film debate, the power of external influence vs. internal incentive has arisen. It has been suggested that “foreign cajoling may not do the trick. But inflation might.” Chinese Foreign Policy: Not Pointing or Wagging, But Beckoning, Economist, Mar. 20, 2010, at 5. [FN57] China – Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Productssupra note 7, at ¶ 7.868. [FN58] Jing Zhang argues that because China has no freedom of speech, “a hasty drive for copyright enforcement may pose a threat to the already terribly meager freedom Chinese people enjoy.” Jing Zhang, Pushing Copyright Law in China: A Double Edged Sword, 18 DePaul-LCA J. Art & Ent. L. 27, 76 (1997).

Foreign Formats – Licensing Optional?: Why ABC’s “Bombshell” Memo regarding Foreign Formats Isn’t Scandalous at All

by Alexandra Schwartz* A pdf version of this article may be downloaded here. I.  Introduction On June 24, 2008, ABC Executive Vice President Howard Davine wrote a memo to ABC’s executive producers and show-runners which raised eyebrows in the industry when it was leaked. The memo suggested that there may be no need to license a foreign television show (“foreign format”) when all that is being taken from the show is the “underlying premise.” [FN1] He strenuously urged the executive producers and show-runners to first go to ABC’s Creative Affairs group when they had seen or were about to see a show that they were potentially interested in licensing so that ABC could decide, both creatively and legally, whether licensing was truly necessary. Mr. Davine made four main points regarding business reasons that licensing these formats are to the disadvantage of ABC and should be avoided. First, he noted that the foreign format copyright holders will want recognition and seek Executive Producer credit as well as a degree of creative control, typically to be rendered from a foreign location — adding an “unnecessary layer” to the creative process. [FN2] Second, he argued against licensing because there would likely be a decrease in profits from format rights fees and Executive Producer fees as well as the reality that a large portion of the backend [FN3]would have to be shared with the format’s right holder. [FN4] Third, the studio may be limited in its ability to exploit derivative works from the show depending on the stature of the rights holder. Fourth, if a show is licensed, the deal may be dependent upon the studio’s ability to sell the U.S. series internationally without restriction and the interest of the foreign rights holder to sell episodes of their underlying series in the U.S. market — motivations that are often not compatible or economically equivalent. [FN5] The entertainment community’s reaction to this memo has been quite mixed, with some saying that Mr. Davine was merely protecting ABC and doing his job, and others viewing the memo as an example of the studios cheating writers. [FN6] Of course, foreign producers have been particularly critical of the memo since their shows are at the heart of the matter and are perhaps less likely to be licensed after this memo. [FN7] Also, certain intellectual property watchdog organizations have raised alarm about the potential implications of the memo. [FN8] This paper addresses what appears to be a contentious and unsettled issue — at what point does copyright law force studios to compensate foreign format producers for the adoption of their shows, if ever? The paper concludes that, in fact, there is no difference in the decision between whether a U.S. company needs to license a U.S. format versus whether it needs to license a foreign format. While Mr. Davine’s memo may be provocative, it nonetheless reaches a sensible legal solution. Simply put, show-runners and executive producers need not contract and pay for every concept they produce as a result of seeing or hearing about a foreign TV show, movie, or book. II.  Copyright Law U.S. law protects works copyrighted in foreign jurisdictions from infringement within the United States. [FN9] [FN10] Under U.S. law, to state a claim for copyright infringement, a plaintiff must prove “(1) ownership of a valid copyright and (2) copying [by the defendant] of constituent elements of the [copyrighted] work that are original.” [FN11] A.  Ownership of Valid Copyright To determine ownership of a valid copyright, a plaintiff must prove that (1) he owns the copyright, and (2) the copyright is valid. [FN12] 1.  Determining Ownership of a Copyright. In determining who owns a copyright issued in a foreign country — as is likely the case with foreign formats — U.S. courts will look to either international treaties or the jurisdiction in which the work was copyrighted. The Berne Convention, to which the United States is a party, applies to all parties to it and expressly provides that “[o]wnership of copyright in a cinematographic work shall be a matter for legislation in the country where protection is claimed.”[FN13] Thus, if the creators of a show reside in Brazil, and the show is initially broadcast there, Brazilian law will determine who is entitled to copyright ownership. [FN14] Regarding protection of that copyright, according to the “national treatment” principle of the Berne Convention and the Universal Copyright Convention (“U.C.C.”), to which the United States is also a party, “an author who is a national of one of the member states of either Berne or the U.C.C., or one who first publishes his work in any such member state, is entitled to the same copyright protection in each other member state as such other state accords to its own nationals.” [FN15] If the law of the country of infringement, here it would be the U.S., applies to the scope of substantive copyright protection, the court will apply that law uniformly to foreign and domestic authors. [FN16] Thus, while the law of the country of origin will determine initial ownership, once it has been assigned, the owners may sue in U.S. courts under domestic law for infringement and compensation. [FN17] However, it is worth noting that if the plaintiff is capable of bringing suit in his home country against a defendant who also has operations there (in addition to the United States), he may lose the ability to bring suit in the United States under forum non conveniens.[FN18] B.  Valid Copyright Under U.S. Law As the Davine memo does not discuss a specific instance of a foreign format television show being used — and thus does not have a reference country for the law of ownership — this paper uses U.S. law as a baseline for discussing what constitutes a valid copyright. Normally, however, the law of the country in which the copyright originated would govern. In order to be within the subject matter of copyright law, a work must be an (1) original work of authorship and (2) fixed in a tangible medium of expression.[FN19] An original work of authorship is one that possesses an “independent origin and a minimal amount of creativity.” [FN20] Thus, if a show is the result of a creator’s individual thoughts, experiences, or creative urges and is not merely identical to something that he has previously seen, it meets the standard for an original work of authorship. Secondly, a work is considered “fixed” in a tangible medium of expression when “it is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration.” [FN21] In order to be fixed in a tangible form, a work only need be recorded in some manner “capable of identification and having a more or less permanent endurance.” [FN22] Thus, a show that has already been recorded, or even the expression of ideas in treatment, index cards, tapes or the like embody a stable enough form to be considered fixed in a tangible medium. Under these criteria, it appears that virtually any idea for a show that came to an executive as a result of viewing, reading, or listening to a foreign television program would likely fall within the subject matter of copyright law. C.  Copyright Infringement Once a plaintiff has shown that he is the owner of a valid copyright, he must next show that the defendant undertook “copying of constituent elements of the [copyrighted] work that are original.” [FN23] This copying must have amounted to “an improper or unlawful appropriation.” [FN24] An unlawful appropriation is established by showing that the work at issue bears a “substantial similarity” to the original copyrighted expression of the earlier work. [FN25] Where a plaintiff cannot show a reasonable opportunity for the defendant to have accessed the work, proof that the protected and accused works are “strikingly similar” suffices to give rise to an inference of copying. [FN26] To show a “striking similarity” between works, a plaintiff must produce evidence that the accused work could not have been the result of independent creation.[FN27] i.  Originality In order to establish a claim for copyright infringement, the owner of a valid copyright must prove not only copying and substantial similarity, but also ”copying of constituent elements of the [copyrighted] work that are original.”[FN28] Thus, a plaintiff cannot make out a claim of infringement if the allegedly infringing work copied a non-original part of the copyrighted work. “The sine qua non of copyright is originality…[which] means only that the work was independently created by the author…and that it possesses at least some minimal degree of creativity.” [FN29] “[T]he requisite level of creativity [needed to establish originality] is extremely low,” and “[t]he vast majority of works make the grade quite easily, as they possess some creative spark, no matter how crude, humble or obvious it might be.” [FN30] However, where the “quantum of originality is slight and the resulting copyright is ‘thin,’ infringement will be established only by very close copying because the majority of the work is unprotectable.” [FN31] Thus, the degree of originality and the closeness of copying form a matrix that, depending on the balance from each side, determine whether a copyright has in fact been infringed. ii.  Substantial Similarity To prove a claim for copyright infringement, a plaintiff must first prove access and substantial similarity between the two works. [FN32] The specific test used in order to evaluate substantial similarities varies by court. The Second Circuit has held that a court may ask if the copying is qualitatively and quantitatively sufficient to be considered “substantially similar.” [FN33] If one of these two factors is particularly strong, it can help to balance out the relative weakness of the other – “even if a copied portion be relatively small in proportion to the entire work, if qualitatively important, the finder of fact may properly find substantial similarity.” [FN34] In contrast, the Ninth Circuit has employed the “Ordinary Observer” test, which asks whether an ordinary observer who has read, seen, or heard both the plaintiff’s and the defendant’s work would be able to recognize that defendant’s work was based on or used plaintiff’s work. [FN35] [FN36] More recently, the Ninth Circuit appears to be employing a modified version of the Ordinary Observer test, requiring a plaintiff pass both an extrinsic and intrinsic test. The extrinsic test evaluates whether there are objective similarities of ideas and expression between the two works and, where the works are literary in nature, focuses on similarities between the plot, sequence of events, theme, characters, dialogue, mood, setting, and pace of each work.[FN37] The Ninth Circuit requires a court that is applying the extrinsic test to distinguish between the expressive elements of the two works that are protectable versus not protectable. [FN38] [FN39] Under the extrinsic component, a court should engage in “analytic dissection” and compare “the individual features of the works to find specific similarities between the plot, theme, dialogue, mood, setting, pace, characters, and sequence of events.”[FN40] The intrinsic test looks at “expression subjectively.” [FN41] iii. Expression The Copyright Act does not protect ideas, systems or discoveries; rather, it protects an author’s particular expression of an idea. [FN42] Unprotectable elements of a work include general plot ideas and “scenes a faire,” which are scenes that flow naturally from unprotectable basic plot premises and “remain forever the common property of artistic mankind.” [FN43] Nor does copyright protection extend to “‘stock’ themes commonly linked to a particular genre.”[FN44] Such customary themes, or “scenes a faire,” are not copyrightable as a matter of law. [FN45] [FN46] Expressions that are protectable, in comparison, include the specific details of an author’s rendering of ideas, or “the actual concrete elements that make up the total sequence of events and the relationships between the major characters.” [FN47] The primary objective of copyright is to promote the progress of science and art and to this end, “copyright assures authors the right to their original expression, but encourages others to build freely upon the ideas and information conveyed in the work.” [FN48] However, deciding when something is just an idea versus a protected expression is not always a straightforward endeavor, and requires a stringent analysis of what a work presents. [FN49] iv.  Originality Threshold As discussed supra, to be copyrightable, a work must have a modicum of original expression. Moreover, the contribution of the second author must be made to the specific portion of the work that was copied, as merely adding wholly dissimilar scenes and not sufficiently modifying those copied is not sufficient to escape a charge of copyright infringement. [FN50] This means that, in theory, works which are derivative from other works may have a more difficult time establishing originality. However, to be considered original every feature of a work must not be new— if that were the case then it would be hard to obtain a copyright for any artistic work since plots, materials, ideas and circumstances are constantly repeated but in a different form or combination.[FN51] *** The case law suggests that copyright holders face significant hurdles in successfully pursuing a claim: not only must they first prove that they own a valid copyright, but they also must prove access and substantial similarity in order to prove copying (or if the former is lacking, then striking similarity), that what was copied was a protectable element of the work, and then finally contend with the fact that they still might not be able to recover if the purportedly infringing author has made some “non-trivial” contribution to what he copied. III.  Case Examples The question of whether a work (or portion of it that is original) has been copied improperly is one of fact to be determined by the court. [FN52] While Mr. Davine’s memo did not refer to any specific examples, previous examples in the case law are instructive to whether his memo set forth proper legal advice concerning copying foreign formats. A.  Domestic Television Shows i.  Infringement Proven In Minniear v. Tors, the Court upheld a jury’s award of damages and found that copyright infringement had occurred when the defendant’s producer attended a showing of a pilot film for a series entitled “Sea Divers” and later produced the “Sea Hunt” series. The “Sea Divers” film was made and shown to prospective purchasers, sponsors, and TV stations for the purposes of developing the first underwater series on television. [FN53] Both of the series featured ex-Navy Frogmen doing deep-sea dives and featured stories about recovering jet pilots. [FN54] The Court decided there were enough similarities in the basic plot ideas, themes, sequences, and dramatic hooks to demonstrate that plaintiff’s ideas and precise format were the inspiration for the defendant’s series. In Universal Pictures Co. v. Harold Lloyd Corp.,  the Court found that substantial similarity existed between two films because fifty-seven consecutive scenes were “lifted almost bodily from [the original production]” and it was “not just the reproduction of an isolated single incident or event.”[FN55] In the plaintiff’s work, “Movie Crazy,” the star of the film attends a dinner dance and mistakenly dons the coat of a magician. He then proceeds to dance with the hostess during which time various comedic incidents occur, and persist even after he changes partners. These incidents include doves fluttering, white mice crawling, and eggs rolling down the sleeves. During the resulting uproar, the magician enters and reproaches the star for stealing the coat and the star is discovered to be present without credentials and is literally thrown out. In “So’s Your Uncle,” the main character goes to a night club and while there, through the aid of a waiter in the club seeks a change of clothing in order to appear to be both himself and his uncle. The waiter gives him a magician’s coat unknowingly. He then dances with one of his companions, and the comedy incidents occur, almost exactly as they do in “Movie Crazy” with practically the same results. The star leaves with his dancing partner and the waiter is blamed by the magician for the loss of his coat. [FN56] Due to the striking similarity displayed between the two films in these scenes, the Court found infringement – “the whole picture need not be copied to constitute infringement; the mere copying of a major sequence is sufficient.” [FN57] ii.  Infringement Not Proven In Olson v. National Broadcasting Co., Inc., the Court employed the two-part extrinsic and intrinsic test and held the defendant’s television series “A-Team” did not infringe on plaintiff’s “Cargo” because the shows were not substantially similar even though some of the characters were similarly depicted and they were both shows about Vietnam veterans shown in a positive light. The Court found that while some episodes of “The A-Team” may have included some of the plot incidents presented in “Cargo,” such similarities were “insufficient to constitute the type of congruence of plot relevant to the substantial similarity inquiry” and more was needed. [FN58] Ultimately, the plots — the “Cargo” crew was coerced into breaking up a drug-smuggling ring while the A-Team was hired to find a reporter missing somewhere in Mexico — were simply too divergent to be considered substantially similar. [FN59] In Hendried v. Four Star Television, the Court held that copyright infringement had not occurred when both plaintiff’s proposed television series and defendant’s produced series featured heroes that traveled in chauffeur-driven Rolls-Royces because the shows were otherwise not substantially similar. The hero in one show was a millionaire playboy detective while the heroes in the other were a father and son duo of international troubleshooters. [FN60] As the Court noted, a “resemblance based solely on the use of a well publicized, even bromidic, symbol for wealth and luxury seems grossly inadequate to sustain a claim of substantial or material similarity.” [FN61] B.  Foreign Format Television Shows Like claims based on copyright infringement of domestic television shows, those based on foreign shows are also determined based on the facts — meaning an evaluation of the substantial similarity and/or additional original expression of the two shows’ plots, characters, sequence of events, and other relevant components. i.  Recent Foreign Format Infringement Suits In RDF Media Ltd. v. Fox Broadcasting Co., plaintiffs, the creators of “Wife Swap UK,” a British reality show about switching spouses from disparate families and watching the ensuing interactions, sued the creators of ‘Trading Spouses,” a U.S.-based reality show of the same concept for copyright infringement. [FN62] The defendants tried to get the copyright infringement claims thrown out based on procedural grounds, but the Court would not dismiss them. [FN63] The failure of the defendants to make a motion to dismiss based on the merits of the case (i.e. that “Trading Spouses” did not infringe upon the format of “Wife Swap”) as well as settlement outside of court [FN64]suggests that the plaintiffs would likely have prevailed in their copyright infringement claims or at least had a strong case. Similarly, in Tokyo Broadcasting System, Inc. v. American Broadcasting Companies, Inc., the Court rejected the defendant’s motions to dismiss on grounds other than copyright infringement were rejected by the Court. [FN65]Tokyo Broadcasting Systems (“TBS”), a Tokyo-based company, brought suit under the allegations that several of its shows formats had been copied by the American show Wipeout. TBS specifically argued that Wipeout “incorporates not only the total concept and feel of the Shows but also the most significant, original and expressive elements of the Shows including the use of silly but difficult physical challenges on huge obstacle courses, the comical portrayal of contestants’ failed attempts, the methods of highlighting such failed attempts, the use of two commentators who make humorous comments, similar camera angles, instant replay and slow-motion devices, and the use of the same challenges and obstacle courses.” [FN66] ABC attempted to get the case throw out, but did not refute the copyright infringement charges. Once again, the lack of challenge on the merits of the copyright infringement claim suggests that the defendants, here notably ABC, the company that Mr. Davine represents, is tacitly admitting culpability for copying. IV.  Conclusion Copyright infringement is not an automatic result when a television producer or show-runner creates a show based on what he has seen or read.  It is not the inspiring idea itself, but rather its specific original expression that cannot be copied without modification. As the cases discussed above illustrate, whether a show infringes a validly held copyright on a different show requires a close analysis of the facts — exactly how similar were the plots, characters, and scenes? A studio may wish to protect itself against potential litigation by licensing foreign works when it would like to create a production that adheres very closely to that work. This is because if it is found to have infringed it may end up losing far more in damages or in settlement (not to mention legal fees) than it would have cost to pay for an initial license. However, acting as though a license is always needed without thorough scrutiny of the existing and proposed productions is just bad business. Mr. Davine’s proposal was a sensible one: defer to the experts in determining whether a contract is needed in order to avoid potentially unnecessary costs and production hurdles that come along with any licensing arrangement — domestic or foreign. This is likely an unwelcome conclusion for some creators of original content and it may indeed seem unfair.  However, as Justice Brennan correctly observed it is not “some unforeseen byproduct of a statutory scheme.” [FN67]Strong policy reasons exist to allow for this apparent “looseness” in copyright law. Some protection is indeed essential – content creators need to be able to protect and profit from their work – lest they lose the motivation and ability to make a livelihood from this creation. However, there needs to be flexibility within the system to allow for the continuation of thought in order “[t]o promote the Progress of Science and useful Arts.” [FN68] If the outrage sparked by Mr. Davine’s memo is indicative of a strong underlying feeling that the balance is off, those individuals should not shoot the messenger, but rather speak to their lawmakers. *** * B.A. 2005, Cornell University; J.D. 2010, NYU School of Law. [FN1] Howard Davine, Davine Memo, June 24, 2008, http://www.deadline.com/hollywood/bombshell-abc-studios-memo-a-blueprint-to-rip-off-foreign-tv-series. [FN2] Id. [FN3] Meaning royalties or payments that are made after a television show is aired. [FN4] Id. [FN5] Id. [FN6] See Nikki Finke, Bombshell ABC Studios Memo Is Blatant Blueprint to Rip Off Foreign TV Series, July 10, 2008, http://www.deadline.com/hollywood/bombshell-abc-studios-memo-a-blueprint-to-rip-off-foreign-tv-series (anonymous comments on Ms. Finke’s blog range from “Would someone please tell me what’s so exceptional about this? doesn’t it simply explain the legal need to differentiate between an inspirational source and a direct influence?” to “This leaves the company wide open to possibly gazillions in litigation from any foreign network with a show that even remotely resembles an ABC production. All they have to do is wave around this memo because it’s practically a confession.  And no doubt anyone with an unsold pilot with a passing resemblance to running ABC shows can probably also jump on the litigation bandwagon.  This behaviour is not only unethical, but writing it down as a memo passed all over town is damn stupid”). [FN7] See Leigh Holmwood, TV Execs Slam ABC Man’s Memo About Foreign Formats, The Guardian, Aug. 11, 2008. [FN8] See FRAPA Response to ABC Leaked Memo, The Format Recognition and Protection Association, Aug. 12, 2008, http://www.frapa.org/press/press-releases/28-frapa-response-to-leaked-abc-memo-.html (“Mr. Davine’s skillfully written memo does not use words like steal, theft or rip-off, but it certainly could be seen as encouraging his Producers and Show-runners not to license formats honestly…If ABC and Disney refuse to repudiate the content of the Davine memo, then Producers in the US and around the world might note their silence and help themselves to the ‘underlying premise’ of Miley Cyrus and Hannah Montana…Producers might even be persuaded by Mr. Davine’s memo to be inspired by the ‘general underlying premise’ of a well known Disney cartoon character. In the spirit of the memo, the rip-off rodent might be called Tricky Mouse”). [FN9] See generally Itar-Tass Russian News Agency v. Russian Kurier, Inc., 153 F.3d 82 (2d Cir. 1998). [FN10] When a work is not copyrighted in the United States but rather in a foreign country, as is likely the case with many foreign format shows that are the issue of this paper, there is an additional jurisdictional hurdle and choice of law question. “If the issue is the relatively straightforward one of which of two contending parties owns a copyright, the issue is unquestionably an ownership issue, and the law of the country with the closest relationship to the work will apply to settle the ownership dispute. But in some cases…the issue is not simply who owns the copyright but also what is the nature of the ownership interest. Yet as a court considers the nature of an ownership interest, there is some risk that it will too readily shift the inquiry over to the issue of whether an alleged copy has infringed the asserted copyright. Whether a copy infringes depends in part on the scope of the interest of the copyright owner. Nevertheless, though the issues are related, the nature of a copyright interest is an issue distinct from the issue of whether the copyright has been infringed.” Itar-Tass Russian News Agency, 153 F.3d at 91. [FN11] Feist Pubs. Inc. v. Rural Tel. Serv. Co., Inc., 499 U.S. 340, 361 (1991). [FN12] Id. [FN13] Berne Convention, Art. 14 bis (2)(a); see also Restatement (Second) of Conflict of Laws, § 222, The General Principle (2009) (the interests of the parties in property are determined by the law of the state with “the most significant relationship” to the property and the parties). [FN14] There is, however, one procedural qualification. Under United States law, an owner (including one determined according to foreign law) may sue for infringement in a United States court only if it meets the standing test of 17 U.S.C. § 501(b), which accords standing only to the legal or beneficial owner of an “exclusive right.” Id. [FN15] Id. at 89 (citing Nimmer on Copyright § 17.05 (1998)); see also S.M. Stewart, International Copyright and Neighboring Rights § 3.17 (2d ed. 1989) (“Both the question of whether the right exists and the question of the scope of the right are to be answered in accordance with the law of the country where the protection is claimed”). [FN16] Id. [FN17] It is important to note that a foreign plaintiff cannot recover statutory damages under § 441(c) of the Copyright Act for “(1) any infringement of copyright in an unpublished work commenced before the effective date of its registration; or (2) any infringement of copyright commenced after first publication of the work and before the effective date of its registration, unless such registration is made within three months after the first publication of the work.” The Football Ass’n Premier League Ltd. v. YouTube, Inc., 633 F.Supp.2d 159, 162 (S.D.N.Y. 2009). This means that while “actual damages” are allowed, statutory damages will be prohibited unless the foreign format was registered in the U.S. within the above prescriptions. See also Itar-Tass Russian News Agency, 153 F.3d at 88. Although plaintiffs have argued this is in contravention to the Berne Convention, courts have insisted that “Section 412 [of the Copyright Act] has no exception excusing foreign works from its mandate it requires registration to obtain statutory damages for both domestic and foreign works.” The Football Ass’n Premier League Ltd., 633 F.Supp.2d at 162 (citations omitted). However, an exception exists for live broadcasts, such as of “sporting events, concerts, theatrical presentations and news and public affairs programs.” Id. at 165 (citing Works Consisting of Sounds, Images, or Both, 46 Fed.Reg. 28,846, at 28,849 (May 29, 1981)). [FN18] See Murray v. British Broadcasting Corp., 81 F.3d 287 (2d. Cir. 1996). [FN19] Uranita Foundation v. Maaherra, 114 F.3d 955, 958 (9th Cir. 1997); Melville B. Nimmer & David Nimmer, Nimmer on Copyright, § 2.02 2-18 (1999). [FN20] Baltimore Orioles v. Major League Baseball Palyers, 805 F.2d 663, 675 (7th Cir. 1986). [FN21] 17 U.S.C. § 101. [FN22] Nimmer § 1.08[C][2] 1-66.30. [FN23] Feist, 499 U.S. at 361. [FN24] Castle Rock Entertainment, Inc. v. Carol Pubs. Group, Inc., 150 F.3d 132, 137 (2d Cir. 1998). [FN25] Id. [FN26] Baxter v. MCA, Inc., 812 F.2d 421, 423 (9th Cir. 1987); Arnstein v. Porter, 154 F.2d 464 (2d Cir.1946), cert. denied, 330 U.S. 851 (1947). [FN27] See Walker v. Univ. Books, Inc., 602 F.2d 859, 864 (9th Cir. 1979). [FN28] Feist, 499 U.S. at 345. [FN29] Id. [FN30] Id. [FN31] Beaudin v. Ben and Jerry’s Homemade, Inc., 95 F.3d 1, 2 (2d Cir. 1996); see also I William F. Patry, Copyright Law and Practice 607, n. 639 (1994). [FN32] Palmer v. Braun, 287 F.3d 1325, 1330 (11th Cir. 2002); see alsoWarner Bros. Inc. v. American Broadcasting Cos., 654 F.2d 204, 207 (2d Cir. 1981) (“It is well settled that copying may be inferred where a plaintiff establishes that the defendant had access to the copyrighted work and that the two works are substantially similar”). [FN33] Castle Rock Entertainment, Inc., 150 F.3d at 138. [FN34] Baxter v. MCA Inc., 812 F.2d 421, 425 (9th Cir. 1987). [FN35] Harold Llyod Corp. v. Witwer, 65 F.2d 1 (9th Cir. 1933); Kustoff v. Chaplin, 120 F.2d 551 (9th Cir. 1941); Twentieth Century-Fox Film Corp. v. Stonesifer, 140 F.2d 579 (9th Cir. 1944) (holding that the test of infringement is the observations and impressions of “the average reasonable reader and spectator”). [FN36] This standard has endured some criticism. The court in Golding v. RKO Radio Pictures, 193 P.2d 153 (Cal. Ap. 1948) said the test of the reaction of the ordinary person is “deceptive and unrealistic,” as it is obvious that the ordinary observer cannot differentiate between original and unoriginal material and could not say whether a substantial similarity between two works was with respect to original material or to matters in the public domain. In defense of the test, however, it can be said that if it takes an expert to find similarities or infringement in a particular case, the infringement, if any, may be too trivial or too doubtful to be actionable. [FN37] Metcalf v. Bocho, 294 F.3d 1069, 1073 (9th Cir. 2002). [FN38] Meaning, original versus non-original. [FN39] Apple Computer, Inc. v. Microsoft Corp., 35 F.3d 1435, 1446 (9th Cir. 1994). [FN40] Narell v. Freedman, 872 F.2d 907, 912 (9th Cir. 1989). [FN41] Apple Computer, 35 F.3d at 1442. [FN42] See Feist, 499 U.S. at 355 (“In no case does copyright protection for an original work of authorship extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery”) (citations omitted); see also Metcalf, 294 F.3d at 1074 (compilation of unprotectable facts may gain protection through selection and arrangement). [FN43] Id. [FN44] Walker v. Time Life Films, Inc., 784 F.2d 44, 50 (2d. Cir.), cert. denied, 476 U.S. 1159 (1986). [FN45] Hoehling v. Universal City Studios, Inc., 618 F.2d 972, 979 (2d Cir.),cert. denied, 449 U.S. 841 (1980). [FN46] Examples of scenes a faire include disgruntled police officers, superheros lifting cars to show strength and the setting of a POW camp in Hitler’s Germany. Walker, 784 F.2d at 50 (urban police milieu); Warner Bros. Inc. v. ABC, Inc., 654 F.2d 204, 210 (superheros and cars); Bevan v. CBS, Inc., 329 F.Supp. 601, 606 (S.D.N.Y.1971) (German POW camp). [FN47] Feist, 499 U.S. at 362. [FN48] Id. at 349-50. [FN49] See Nichols v. Universal Pictures Corp., 45 F.2d 119, 121 (2d Cir. 1930) (“[T]he line between mere ‘ideas’ and protected ‘expression’ is famously difficult to fix precisely”). [FN50] Malkin v. Dubinsky, 146 F. Supp. 111 (S.D.N.Y 1956). [FN51] Stanley v. Columbia Broadcasting System, 192 P.2d 495, 504 (Cal. App. 1948); Alfred Bell & Co. v. Catalda Fine Arts, Inc., 90 U.S. Pat. Q. 153 (N.Y. 1951) (“All that is needed to satisfy both the constitution and the statute is that the ‘author’ contributed something more than a ‘merely trivial’ variation, something recognizably ‘his own.’ Originality in this context ‘means little more than the prohibition of actually copying.’ No matter how poor artistically the author’s addition, it is enough to be his own.”); Ecclesiastes 1:9 (“[T]here is nothing new under the sun”). [FN52] Dezendorf v. Twentieth Century-Fox Film Corp., 99 F.2d 850 (CA2d 1938); Stanley v. Columbia Broadcasting System, 221 P.2d 73 (Cal. 1950); Yadkoe v. Fields, 151 P.2d 906 (Cal. 1944). [FN53] Minniear v. Tors, 266 Cal. App. 2d 495, 497 (2d Dist. 1968). [FN54] Id. at 504. [FN55] Universal Pictures Co. v. Harold Lloyd Corp., 162 F.2d 354, 361 (9th Cir. 1947). [FN56] Id. at 358. [FN57] Id. at 361. [FN58] Olson v. National Broadcasting Co., Inc., 855 F. 2d 1446, 1450 (9th Cir. 1988). [FN59] Id. at 1450-51. [FN60] Hendried v. Four Star Television, 266 Cal. App. 2d 435, 436-37 (2d. Dist. 1968). [FN61] Id. at 437. [FN62] See generally RDF Media Ltd. v. Fox Broadcasting Co., 372 F.Supp.2d 556 (C.D. Cal. 2005). [FN63] The court found the issue of copyright registration for the purposes of statutory recovery moot since, by the time it reviewed the dismissal motion, all of the episodes had been properly registered. Id. at 562. [FN64] Mindy Farabee, Can Reality Be Copyrighted?, June 24, 2009, http://www.linerlaw.com/data/1250106471.pdf. [FN65] See generally Tokyo Broadcasting System, Inc. v. American Broadcasting Companies, Inc., CV08-06550 SJO (C.D. Cal. 2008). [FN66] Id. [FN67] Feist, 499 U.S. at 349-50. [FN68] Id. (citing Art. I, § 8, cl. 8. Accord; Twentieth Century Music Corp. v. Aiken, 422 U.S. 151, 156, 95 S.Ct. 2040, 2044, 45 L.Ed.2d 84 (1975)).