Thursday, July 30, 2015

James Bond Musical Faces Copyright Quandary

Our resident musical theater guru, Dan Tenenbaum, passed along an interesting news item about a musical in the works based on James Bond.  Although I’m having a difficult time picturing the debonair spy breaking out in song when confronting a villain or tap dancing at a roulette table, just imagine the lyrics for a number by Q demonstrating his latest gadget, or a dance number called “shaken, not stirred” performed by Oddjob and all of the Bond women.  But my creative musings were not the reason that Dan called this production to my attention.

The article noted that the official 007 Facebook page questioned the legality of the production claiming that the producers of the musical had not acquired the necessary rights.  Danjaq LLC and Metro-Goldwyn-Mayer Studios Inc., which apparently control the live stage rights to the Bond brand (presumably as licensees of Ian Fleming Publications Ltd, which owns and administers Fleming’s copyright interests), confirmed that they have not licensed any rights for the proposed musical production and stated that their permission is required for the stage production.

The executive producer of the musical claims that they don’t need any permission from the rights holders because the production is to be a “parody.”  So who is right?

The proposed musical is to have an original storyline – not based on any of Ian Fleming’s books or any of the subsequently written Bond novels authorized by the Fleming copyright owners.  But available information suggests that the stage production, entitled James Bond: The Musical, will use Fleming’s characters, including the Fleming names.

It is generally held that unique or distinctive, well-developed characters are protected by copyright.  One need not delve into the legal analysis of this issue to conclude that many of the iconic characters in the Bond novels would qualify–not British spies, government bureaucrats, evil villains or beautiful women, generally, but the specific Fleming-created personages.  (If they are not entitled to copyright protection, what characters would be?)

But even strong character adoption, if used in parody, can constitute fair use under copyright law. 

Broadly speaking, parody covers a work (story, song, poem, film, theatrical presentation, etc.) that makes fun of, imitates or comments on another work, or the subject, author, style or other aspect of the work.  A classic example is the Carol Burnett sketch “Went With the Wind!,” with Carol portraying "Starlet O’Hara", Harvey Korman as "Ratt Butler", Dinah Shore as "Melody" and Vicki Lawrence as "Sissy", in a scene at "Terra" Plantation.

Even if you haven’t read Gone with the Wind or seen the movie, you could appreciate the character parody, but you may not entirely appreciate Carol’s green dress fully equipped with a curtain rod.  Despite the obvious references to the original work, the sketch does not appear to have been the subject of any claims of infringement.  On the other hand, Alice Randall’s book The Wind Done Gone  (the same basic story told from the slaves’ point of view) was the subject of a preliminary injunction by a trial court finding that it likely constituted copyright infringement.  Although the appeals court subsequently held that the book might qualify as commentary parody, the case was settled before a final determination.
  
The risk with anything such as the proposed staging of James Bond: The Musical is that qualification as parody can’t really be determined until after the work is completed.  It might be capable of analysis based on the book (script) and song lyrics, but the theatrical presentation of the written word could be equally important in judging whether or not the work should be considered parody.  Given the statements of the parties that are acknowledged to possess the live stage rights to Bond, it seems that the musical producers are taking a big gamble.  James Bond would be proud.

[Editor’s note: The editor incorrectly changed the names of the characters in the Carol Burnett sketch in an earlier version of this post.  This has now been corrected.  Our humblest apologies to the author.]

Thursday, July 23, 2015

SPIDERMAN FAILS TO DEFEAT ARCH NEMESIS BRULOTTE

In this recent post, I reported on the upcoming Supreme Court consideration of the long-held rule established by Brulotte v.Thys Co. prohibiting the payment of royalties based upon patent rights after the patent has expired. On June 22, 2015, the Supreme Court, in Kimble v Marvel Entertainment, upheld Brulotte.

Stephen Kimble, the inventor of a popular Spiderman toy that shoots pressurized foam string, lost his battle to obtain continued royalties based upon his agreement with Marvel.

Marvel had agreed to purchase Kimble’s patent for the Spiderman toy in exchange for a lump sum plus a three percent royalty on future sales. The agreement set no date for when royalty payments would end. As the patent term was about to expire, Marvel discovered Brulotte and obtained a declaratory judgment that it could stop paying Kimble royalties. This judgment was affirmed and Kimble looked for relief from the United States Supreme Court.

Despite arguments from several amici that Brulotte stifles technological innovation and commercial agreements, the Supreme Court upheld the Brulotte decision, from more than 50 years ago, that held a patent holder cannot charge royalties for the use of an invention after its patent term has expired. Even if the parties specifically agree in writing to permit such payments, the obligation may be void.  In Brulotte the Court had held that a post-patent royalty provision in an agreement was “unlawful per se” because it continued “the patent monopoly beyond the [patent] period” and, in so doing, was in conflict with the long-held patent law policy that granted the public unrestricted rights to make or use a patented invention once the patent expires and is in the public domain.

Invoking one of several Spiderman references in her opinion, Justice Kagan states, “Indeed, Brulotte’s close relation to a whole web of precedents means that overruling it could threaten others,” and argues that Congress is the place to set patent policy and not the courts.

Justice Kagan could not refrain from slipping in several more references to Spidey, including the following to the 1960s Spiderman cartoon theme song: “The parties set no end date for royalties, apparently contemplating that they would continue for as long as kids imitate Spider-man (by doing whatever a spider can).’’ She also quotes Stan Lee and Steve Ditko’s Amazing Fantasy No. 15, the 1962 comic where Spiderman first appears: “[I]n this world, with great power there must also come–great responsibility”. Finally Justice Kagan reminds us that “Patents endow their holder with certain superpowers, but only for a limited time.”

So we are now left to negotiate agreements under one of the most widely criticized intellectual property and competition law decisions of the Supreme Court. Economic arguments that Brulotte suppresses innovation and the freedom to contract failed. It is now up to Congress to act.

In the meantime, Spidey has some practical advice for how you can avoid the evil reach of Brulotte. If appropriate, use a hybrid agreement that establishes ongoing royalties for trade secrets. The Marvel Court specifically mentions that “post-expiration royalties are allowable so long as tied to a non-patent right –even when closely related to a patent.” Such hybrid licenses and other creative approaches to licensing can help you avoid the web of despair when patent royalties come to an end.

Judgment: Affirmed, 6-3, in an opinion by Justice Kagan. Justice Alito filed a dissenting opinion, in 
which Chief Justice Roberts and Justice Thomas joined. 

Tuesday, July 14, 2015

What: Harry Mount, My Brief Career: The Trials of a Young Lawyer (Short Books, 2004).

Why:  Some insight for entrepreneurs on their lawyers, including how legal education probably has very little to do with creating a successful and satisfying life as a practicing lawyer.

It is no secret that the Great Recession dampened the hopes of many a young would-be lawyer fresh out of law school. Fewer jobs, in turn, have led to declining law school enrollments. We have even begun to see some consolidation of law schools as they struggle to survive in the “new normal” environment. Some commentators have even suggested that law school itself is an outdated concept, and that it should be replaced by a shorter academic course followed by on-the-job training of the kind found, for example, in England.

Enter Harry Mount, whose memoir of his year spent as a pupil in a London barrister’s chambers is particularly illuminating along these lines. His is an engaging and often humorous story, told as one might expect by someone who ultimately abandoned the law for a successful career as a journalist.  

He had high expectations. He came to the legal profession believing that any lawyer could shape society through his work, that he “might be responsible for changing the law...by creating a legal precedent.”

What followed was a frustrating year as an apprentice during which any excitement he felt about the profession was leached out of him by inattentive tutors and repetitive work. “When man is capable of the funniest, saddest and most exciting acts of imagination,” he writes, “it is hard to be one of the few members of mankind who are forced to read, day in, day out, paragraphs like ‘Reasonable financial provision—s.1(2)(b) such financial provision as it would be reasonable in all the circumstances of the case of the applicant to receive for his maintenance.’”

As Mount notes, “Law is one of the great and necessary disciplines of a civilized society.” But it most definitely is not everyone’s cup of tea. Someone who imagines herself a modern-day Perry Mason may, through practical exposure to the day-to-day workings of a legal career, discover that “real legal life is mostly about the dreariest bits that happen before the trial begins, that are more often than not about trying to stop the trial going ahead altogether.”

Unlike Mount, many of us—and I’m thinking here in particular of my colleagues in the Entrepreneurial Services Group here at Gray Plant Mooty—have succeeded in finding meaning in such day-to-day tasks by focusing on results, by interacting with interesting clients (who often become friends), and by trying to add value to the enterprise however we can. I doubt such things can be taught, whatever system of legal education you embrace.

Thursday, July 9, 2015

Hot Off The Press—Seed Capital reVIEW for 2nd half of 2014

We just released our Seed Capital reVIEW report analyzing seed and angel capital raised by early-stage companies in Minnesota during the second half of 2014.

I know, the first half of 2015 is already over—what took us so long? You may or may not be surprised to learn that, for a bunch of lawyers trying to get information about financings from a bunch of busy CEOs and CFOs, it takes some time.

As you may recall, Seed Capital reVIEW is our attempt to compile data regarding what types of companies are raising early-stage capital in Minnesota (typically between $100,000 and $2,000,000) and the terms relating to that fundraising activity.

While it is riveting reading (think “50 Shades of Grey,” but actually well written) and you’ll undoubtedly want to read the whole thing here, a few highlights from the survey include:
  • Not surprisingly, as in past survey responses, most of the companies raising capital identified themselves as being in the Medical/Healthcare (with 30% of respondents indicating they are involved in the sub-category of healthcare IT), Cleantech/Biotech, or Technology spaces.
  • Only 24% of respondents utilized MN Angel Tax Credit, likely a reflection of the limited available credits during the second half of last year.
  • Two-thirds of respondents reported offerings structured using equity (60% common equity and 40% preferred equity), with debt securities comprising the remaining third.
  • Consistent with prior surveys, the most frequent rights received by equity investors were:
    • Participation rights in future investment rounds.
    • In preferred equity deals, 80 percent reported a 1x liquidation preference.
    • A board seat or board observation right.
  • Debt offerings:
    • Almost all respondents again reported debt with an initial term of at least one year.
    • A majority of respondents reported receiving rights to participate in future financings.
    • Almost 82% of debt-structured offerings were convertible to company equity.
Please look for our call for survey responses for capital raised during the first half of 2015 soon.  If we can get our act together (no promises) and get quicker responses, we may even be able to publish the next report before Santa hitches up his sleigh this winter!

Wednesday, July 1, 2015

Independent Contractor or Employee? It’s Not Always Clear.

The question of whether to treat a worker as an independent contractor or employee is an age-old question that has plagued many an entrepreneur. The classification affects how much you, as a business owner, pay in taxes, whether you need to withhold from your workers’ paychecks, and what tax documents you need to file. The consequences of misclassifying can include debilitating tax liabilities and failure-to-pay and failure-to file penalties. There are many examples of “successful” businesses that ran into problems or even were forced out of business entirely because it was determined that they had misclassified individuals (even exotic dancers) as independent contractors.
  
But how do you know when a worker crosses the line from independent contractor to employee? The IRS generally uses a three-factor test: Behavioral control (i.e., whether your control how the work is done), financial control (i.e., whether you direct or control the financial aspects of a worker’s job), and type of relationship (i.e., how the workers and business owner perceive their relationship). Not surprisingly, however, the application of these factors still leaves some businesses questioning their determinations.  And, when the decision-making is left to a court, the results are sometimes surprising.  This article written by Kevin McGowan and recently published on BNA does a good job of summarizing the findings of the U.S. Court of Appeals for the Sixth Circuit regarding the classification of an installer of satellite dishes, which was ultimately sent to a jury for resolution. Some of the relevant parts of the summary are:

A jury must decide if a technician who installs satellite dishes in Michigan for a satellite-internet-dish service firm is an employee entitled to overtime pay under the Fair Labor Standards Act or an independent contractor, a divided U.S. Court of Appeals for the Sixth Circuit ruled March 26.

In a 2-1 decision reversing summary judgment for Miri Microsystems LLC, the court said under a nonexclusive six-factor economic realities test, Michael Keller raised triable issues he was a Miri employee entitled to overtime pay

Miri, which provides satellite installation services in Michigan for HughesNet and iDirect, argued Keller was an independent contractor, who was paid flat fees for each installation and repair, remained free to work for other installation companies and controlled the number of days he worked and how many jobs he accepted. Keller's evidence indicated he worked six days a week from dawn until midnight.

The Sixth Circuit, however, said after reviewing the relevant factors—permanency of the relationship, degree of skill required, Keller's investment in the enterprise, his opportunity for profit and loss, Miri's right to control how work is performed and whether Keller's services were “integral” to Miri's business—disputed issues remain that require a jury's resolution.

In dissent, Judge Alan E. Norris agreed Sixth Circuit precedent supports use of the six-factor test for determining employee or independent contract status in FLSA cases. But he said he would affirm Keller was an independent contractor, given the absence of an employment contract with Miri, his ability concurrently to work for other companies and Keller's control over his own schedule.

Some business owners believe it’s always less risky to classify a worker as an employee, simply because the added compliance costs today outweigh the potential misclassification liabilities. Before making worker classification decisions, be sure to carefully review the existing guidance and consult with your professional advisors, who routinely counsel businesses of all sizes through such matters.

Wednesday, June 24, 2015

Bill Aulet’s 24 Steps to Becoming an Entrepreneur

Guest author, Alice Campbell, Business Analyst at Gray Plant Mooty (and MIT Alumnus)

Last month, an outstanding group of our entrepreneurial clients, together with members and guests of the MIT Alumni Club of Minnesota, gathered at our offices for a time with Bill Aulet, Managing Director of the Martin Trust Research Center for MIT Entrepreneurship. Since 2004, Bill has taught three or four courses each year on entrepreneurship at MIT's Sloan School of Management. He is also the author of Discliplined Entrepreneurship: 24 Steps to a Successful Startup, which has been translated into 11 languages. Bill has raised over $100 million in funding for his companies and directly created hundreds of millions of dollars of market value.

Bill’s presentation provided a snapshot of how he developed the 24 steps, following which he answered questions about all kinds of entrepreneurial activities and education. The energy at the event was palpable, and the event could have easily continued late into the evening. (Sorry to any attendee who planned an evening schedule around our projected ending time, which was off by about 90 minutes!)

Some experts think that entrepreneurship can’t be taught—that it’s a skill with which some people are born. But, for over 40 years, the Massachusetts Institute of Technology has been turning out ever larger numbers of graduates who already are or will become entrepreneurs. The 25,600 companies started by the entire pool of MIT alumni have generated approximately $2 trillion in revenue and have created 3.3 million jobs. If MIT were a country, it would be the 11th largest economy in the world—just about the size of the economy of Canada (but without all the great hockey players, eh?).

If you want a few of the benefits of MIT’s classes without the >$60k per year cost, MIT is one of the founders of www.edX.org, a website at which some of the finest universities have put courses online as massive online open courses (MOOCs). MIT’s entrepreneurial courses are well-represented among the MOOCs, including:

Entrepreneurship 101: Who is your customer? 
Entrepreneurship 102: What can you do for your customer?

Out of the 54,856 students who took Entrepreneurship 101 online, MIT selected 47 to participate in the inaugural MITx Global Entrepreneurship Bootcamp last summer. A similar number have confirmed for this August. If you thought MIT was hard to get into for an undergraduate degree (7.9%), the competition for bootcamp was even more brutal (0.086%), or slightly more than 100 times less likely.

Thursday, June 18, 2015

To Click or Not to Click

Late last year, CBS News offered a ‘’test” to determine its readers’ ability to spot emails that were used in phishing scams.  The object of the online quiz, conducted through Intel Security, was for readers to correctly identify the legitimate and phony emails from among 10 samples.  In May, CBS published its results.  Of the 19,458 persons participating from throughout the world, 80% missed at least one of the fake emails.  Only 3% of the participants got a perfect score.   

“Phishing” is the use of emails to obtain personal information (such as user names, passwords, account numbers or credit card details) for illegal or improper purposes.  While some of these will actually ask for information, most simply want the user to click on a link that activates malware allowing the phishing party to access information without the user’s knowledge.  

Early phishing scams involved massive distributions with the knowledge that even a small percentage of responses would be worthwhile.  Relatively quickly (and after broad public warnings), most recipients learned to look for things such as poor spelling, bad grammar and unknown/unusual URLs as tip-offs to nefarious activity.

While some of these scatter-gun approaches are still used (such as purported requests from the IRS to update information in order to facilitate online filing of a tax return or the payment of a refund), they are generally of a much higher quality due to the sophistication of both phishers and users.   The widespread use of social media/networking sites has enabled phishing to target particular individuals, groups or entities through the use of personal information available at such sites.  It should come as no surprise that such “spear phishing” has a much higher rate of return than the mass-distribution method.  Who isn’t more likely to respond to, or at least look at, an email from one’s own bank, credit card account or the resort where you recently stayed for a weekend?

What the CBS News study tells us is that it is more than likely that everyone has fallen for a phishing email at some time without knowledge.  Given the entrepreneurial bent of the phishers, it is also likely that the opportunities for being hooked will continue.

But there are things that everyone can do to reduce this possibility.  Install and maintain up-to-date security software.  Look closely at email addresses and text for anything out of the ordinary.  Even with spam/phishing editors – seriously, this is a currently available service– you may still note misspellings, poor grammar or funny sentence structure.  Do not EVER respond to an email requesting personal or financial information, and resist the urge to click on any link unless you are confident about the source of the email.  If you know that you have been scammed, you should forward the subject email to spam@uce.gov and to the company or institution that was impersonated in the email.  You can also file a complaint with FTC at ftc.gov/complaint.

Unfortunately, the high level of phishing traffic negatively affects the success of well-intentioned persons wanting to market via cold-call emailing.  How legitimate promotions may be perceived must be considered in light of the various ploys used for illegitimate purposes.  Case in point: the most frequently mistaken email in the CBS News/Intel test was actually from a legitimate source, but was perceived as likely fraudulent because it included free “click on” ads.

In deference to the subject matter of this article, I planned to insert no links, but relented and added links for the government complaint references.  I cannot speak to the other links that may appear, but am reasonably certain that the editor(s) of Entreview are not inclined to implement or use any method of misdirection or inappropriate information capture (assuming they were technically capable), so you should be safe to click away.