Monday, September 22, 2014


Ramifications of New Technology 
The future in home entertainment technology is ever more rapidly approaching as headlines herald "mega-mergers" between and among cable, computer, electronics, telecommunications and entertainment conglomerates. The rapid development of interactive computer technology and the imminent availability of an infinite number of cable channels means that the electronic information superhighway is just over the horizon. The entertainment marketplace of the future could consist solely of a wall of interactive computer catalogues; consumers will go shopping with a compact disc and a credit card. With the addition of computer modems and/or fiber optic cable hook-ups, the consumer would not even have to leave home to choose music, video games, and movies stored in a central databank, and with the "virtual reality" apparatus, viewers may be able to experience the sensation of actually being in a film and partaking in a gunfight with Clint Eastwood or experience the sensation of sex with Marilyn Monroe. The ramifications of this global computerized information network, and other related technological developments, will be enormous for the entertainment industry, the legal community, and the world.
Telephone software already exists which will allow a consumer to listen to 90-second samples of a favorite recording artist's new album, and then, by touch-tone selection, order it shipped to him and have it charged to his telephone bill. Not only does this software facilitate sale of product, it compiles a consumer profile on the purchaser which can then be provided to record label marketing departments. This software has the capability, once appropriate fiber optic cable is in place, to transmit the product directly to the consumer at the push of a button.
For better or for worse, the arrival of computer driven consumption is eventually going to reshape the way business is conducted, from the way product is packaged, shipped and marketed to the way radio is programmed. Businessmen and lawyers in the entertainment industry will be confronted by new concepts in copyright and contract law not currently addressed in existing contracts. These delivery systems also raise new concerns regarding privacy and free speech.
Entertainment companies will soon be able to transmit their wares digitally instead of trucking them, dealing in the transfer of information rather than the shipment of product. Given the entertainment industry's investments in pressing plants, warehouse facilities, and distribution networks, this transition may not be an easy one. However, such a system will ultimately economize on packaging and transportation expenses. It will also eliminate the ecological issues surrounding the wasted plastic and paper used to package CDs and videocassettes.
With the advent of electronic distribution of music, the most basic concepts that govern contractual relationships will be effected. Fundamental movie and record contract issues could be completely eliminated from recording contracts.
With the coming of the one-world, global marketplace, transfer could be instantaneous and worldwide, and the issue of reduced "foreign" royalty rates payable to actors, artists and performers could be abolished. Sales figures for product could be compiled with absolute accuracy, and sales charts released on a daily rather than a weekly basis. Whether retail record stores and video outlets will disappear completely or continue to survive (the way radio continued to endure despite the advent of television, or people continue to go to the movies even after the arrival of home video) remains to be seen.
A particularly troublesome issue with respect to direct computer driven consumption is how to prevent the consumer from copying the transmission and circulating it (the way some computer software programs are currently copied from PC to PC in any given business office). An anti-copying code still needs to be developed and programmed into each album or movie transmission.
As we move into the future, barriers will continue to come down between telephone companies, cable TV, and video programming companies. The development of digital fiber optic networks will provide consumers with more choices and easier access to hundreds of channels as well as electronic home delivery of audio and video programs. Most troublesome is the fact that digital technology will make it possible for the consumer to make a virtually identical copy of any audio transmission royalty-free. Record companies and artists will increasingly find their products being transmitted and sold by way of cable networks or via computer modems and, yet, be precluded from collecting any revenue because such transmissions will arguably be deemed to be "broadcasts". As previously mentioned, even though these new broadcast and cable companies transmit record company product to consumers for their own commercial gain, they have no clear obligation either to secure record company permission or to compensate the label or the artist for the commercial use they make of the copyrighted works.
One apparent way to circumvent this problem would be for each major record label and movie company to develop its own cable TV channel which would allow viewers to order movies, albums and other related merchandise directly. Then, for example, the record label or movie company could charge the consumer a retail price equivalent for the transmission of a particular album.
Although such a solution has its obvious benefits, there is a downside. Operation of such a venture could prove to be costly and burdensome, specifically for a record label. In addition, there would still be nothing preventing a cable operator unaffiliated with a particular artist's label from establishing its own competing home-shopping music cable network, and then undercutting the prices offered by the artist's source label. In fact, it would be fairly easy for such an unaffiliated competitor to offer the transmission of a particular artist's album at a lower price because it does not have to bear the record company's financial investment in recording costs. Since the competitor would argue that it is merely broadcasting the product, not selling copies, the artist and its label could be without legal recourse. The competitor would only be liable for performance royalties which, at this point in time, are not payable on the sound recording.
Electronic distribution also has certain disturbing ramifications of the "Big Brother" variety. Popular culture has always thrived on decentralization - on garage bands, basement tapes, and independent film releases. If the larger entertainment conglomerates control the central databanks, what would the consequences be for independent releases and street music? Government intervention analogous to FCC regulation may be necessary to insure fair access to the databanks. New technology raises other questions: - What effect will credit card ordering directly through computer or cable hook-ups have on rights of privacy?; Would the databank also compile a wealth of personal information on each consumer?; If so, who will have access to this information?; Will centralized distribution make suppression of disturbing or "obscene" work much easier?; Will works be automatically transmitted in edited form? If so, who will decide what is suppressed and how a work is edited?
With respect to interactive technology, myriad intellectual property and related legal issues will be raised. If the consumer is enabled to manipulate the characters, the story line, and the action in a movie, movie companies need to consider how all of the alternative versions would be copyrighted. Since, in effect, the viewer would now be the creator of some essential portion of the work, the viewer might have an argument that certain derivative rights vest in him by virtue of his contribution to the work.
Interactive technology pundits predict that, with the advent of "virtual reality" apparatus, viewers will be able to truly experience a film by inserting themselves into the action and manipulating it such that the viewer could partake in a gunfight with Clint Eastwood, a prize fight with Sylvester Stallone, or experience the sensation of sex with Marilyn Monroe. As a preliminary matter, the manufacturers of the applicable interactive software would need to get appropriate clearance from the movie companies before altering the copyrighted works. However, with the proliferation of multi-national, vertically-integrated entertainment conglomerates, the company doing the altering might already be the owner of the copyright in the film (as was the case with "colorization" where Ted Turner had purchased certain films and later had them colorized). Nevertheless, supplemental legal issues would still be raised: If the viewer were to knockout Stallone, would this in some way subject the viewer to legal action by Stallone for disparagement of the actor? In the case of the Marilyn Monroe scenario, could intercourse with her image be said to violate certain privacy rights in some way, and who would assert those rights?
The ramifications of the new computer and communications technologies are simultaneously exciting and frightening. The next wave of technological developments is almost upon us and it is best that the entertainment industry and the legal profession confront the pertinent issues, review the relevant revenue streams, and resolve the outstanding legal issues now in order to capitalize on the coming changes as expeditiously as possible.
Wallace Collins is an entertainment lawyer. Tel: (212) 661-3656; He was a recording artist for Epic Records before attending Fordham Law School. 

Wednesday, September 3, 2014

Judicial Approval of Contracts With Minors

As a recent Wall Street Journal cover story pointed out, technology start-ups and other computer software companies like Apple and Google often compete to employ young teenage whiz kids to write code or create new apps. With media giants like Disney and Viacom creating shows featuring younger and younger performers, and YouTube, Spotify and other online companies hosting content by eager young creators, content from minors is in ever-increasing demand by corporations. All of this raises the predicament of employing or dealing with contracts with minors (or contracts which involve a contracting party under the age of 18). I have handled many court proceedings concerning contracts with minors so the following might be of interest to my colleagues in legal departments of tech firms.

A minor may disaffirm a contract at any time during minority or upon reaching majority. Without a valid written agreement the employment is "at will" under the law of most states which means the minor can depart at any time. Copyright law, which is applicable to computer code, requires a signed writing to transfer copyrights and applies to authors of all ages, so without a valid written agreement the content created by the minor may not be validly transferred from its author to the employer. The dilemma created by a minor's ability to disaffirm a contract is that it may seriously jeopardize the employer's financial investment in the services of the minor.

The mere exercise of having the parent or guardian of the minor co-sign, approve or "guarantee" the contract does not resolve the problem. The minor may still repudiate the contract on the ground of infancy, asserting that the parent or guardian lacked authority to make the contract. In some jurisdictions, courts deem it against public policy to even enforce such guarantee language against the parent or guardian since it would subvert the purpose of the laws concerning the judicial approval of contracts with minors. So-called "working papers" under state law might work for purposes of a fast food chain or similar hourly wage employment but probably are insufficient for a tech company's purposes.

Although many tech companies may rely on the fact that they believe the minor is an employee creating intellectual property for the company, this may not be sufficient to transfer rights to the company in the computer code written by the teenage whiz kid as, for example, "work made for hire" under U.S. copyright law. It is beyond the scope of this article to address all of the factors courts consider when determining the issue of work for hire and the ramifications of the various outcomes of the cases concerning employers and computer programmers. Suffice to say that relying on the work for hire doctrine is an uncertain path for a tech company (all the more so when dealing with a minor).

State Laws

Several states, including New York and California, have laws specifically concerning judicial approval of contracts with minors. New York's Arts and Cultural Affairs Law §35.03 provides for judicial approval of certain contracts for services of "minors" under the age of 18. The procedure involved can be somewhat arduous to navigate, and may prove to be a difficult gauntlet to run for a lawyer inexperienced in this area. However, tech and media companies employing minors or contracting with minors should investigate the efficacy of pursuing court approval to protect their investment.

Once the court judicially approves the contract, the minor is held to a standard of adult responsibility for its contractual obligations assuring the employer company that it will get what it bargained for and that the contract is legally valid.

As a practical matter, a proceeding for judicial approval of a minor's contract in New York is commenced by the filing of a verified petition. It can be filed by a parent, the guardian, a relative of the minor or any interested person or entity such as the employer. The petition must contain a statement of the length of the employment term, compensation, and all other relevant, material terms of the agreement. A complete copy of the proposed contract must be annexed to the petition together with affidavits from the parents and/or guardians which consent to the petition and support the facts.
In addition to identifying the details of the nature of the minor's employment and the compensation to be paid, the petition must also contain a statement of who, other than the minor, is entitled to the minor's earnings and facts regarding the property and financial circumstances of the parent or parents so entitled. The petition may nominate a person to be appointed as limited guardian solely for purposes of establishing a trust account for the proceeding and should set forth the reasons why the person nominated would be proper and suitable.

Although a lawyer is usually appointed, a parent or other petitioner is not precluded from being appointed as limited guardian by reason of his or her interest in any part of the minor's earnings or in the contract provided such interest is disclosed. The court will designate how much is to be set aside and saved for the minor under guardianship until the minor becomes 18 years old. The court also has the option to appoint a special guardian to represent the interests of the minor at any time after the petition is filed.

As directed by the court, before the time at which the petition is noticed to be heard certain persons (other than the petitioner and anyone who has joined in the petition) must be served with an order to show cause why the petition should not be granted: (1) the minor; (2) the parents of the minor; (3) the minor's guardian(s); (4) each party to the contract; (5) any person having the care and custody of the minor; (6) the person with whom the minor resides; and, (7) the minor's spouse.

An order granting judicial approval of a contract for the services of a minor will rarely be granted on the papers alone. Usually a brief hearing is held at which the minor, the parent(s) and the various other interested parties may be questioned by the judge regarding the contract. Courts may require provisions in the court's order concerning how many hours the minor can work and may require that the employer provide tutors if regular schooling will be disrupted by the employment. Most terms and conditions of each arrangement will be affirmed as long as they are found by the court to be reasonable and not contrary to the best interests of the minor. Once the court does grant approval, an order will be issued which will, in effect, declare the minor an adult for purposes of fulfilling his or her contractual obligations.

California law concerning the judicial approval of minors' contract for artistic or creative services (Ca. Family Code §6750, et seq.), although similar, differs in certain respects. For instance, under California law there is no limitation on the length of the term of a minor's contract whereas in New York the limit is seven years. A hearing is usually required in California as in New York but under California law a maximum of only 50 percent of net earnings will be set aside until the minor becomes 18 years old whereas New York has no limit on what portion the court can direct to be set aside.

Once the court does grant approval, an order will be issued which will, in effect, declare the minor an adult for purposes of fulfilling his or her contractual obligations. Then all the results of the minor's services, including any copyrights in code or apps created by a minor during employment by the start-up or tech company, will be properly transferred as bargained for by the employer.

Wallace E.J. Collins III is an entertainment and intellectual property lawyer based in New York. He was a recording artist for Epic Records before receiving his law degree from Fordham Law School. Tel: (212) 661-3656; 

*reprinted with permission of The New York Law Journal 2014