How Much for that Man On the Coffee Can in the Window?

Former model, Russell Christoff, was recently awarded a $15.6 million judgment against Nestle USA for use of his image without permission on its Taster's Choice coffee labels. A school teacher in the Bay Area, Christoff posed for a two-hour photo shoot in 1986. He assumed the shoot was a bust until he caught a glimpse of his likeness on a coffee jar while shopping at a drug store in 2002. He was paid $250.00 for the shoot with the “understanding” that he was to be paid a further $2,000 if his image adorned the Canadian version of the label. No doubt Christoff had one of those eerie eureka moments where he burst out “That’s Me!,” somewhere between the toothpaste and the deodorant aisles. And indeed he was correct.

Nestle had begun using his image on Taster's Choice cans in 1986 and sold labels with his likeness in Mexico, South Korea, Japan, Israel, Kuwait and the United States. Christoff sued the Swiss-based food and drink giant alleging Lanham Act violations and right of publicity infringement. After brining suit, Nestle attempted to settle its obvious infringement of Christoff’s right of publicity with a $100,000 offer, but was rebuffed. Ultimately, Nestle rebuffed Christoff’s counteroffer of roughly $8,000,000. The issue went to trial and a jury awarded Christoff a staggering $15,600,000. That’s allot of coffee beans.

Although Nestle is appealing the Los Angeles County Superior Court jury verdict, this entire affair serves as a potent reminder of the need and power of rights clearance in a world where the picture says 10,000 words. Hence the sheer irony of this case, as a company as large as Nestle lost sight of the chain of title for a photo taken almost 20 years ago. This is just the largest snafu I can think of, in that Nestle no doubt would have paid Christoff a meager fee for a general release, but simply got sloppy.

A glaring oversight like this will only become more painful in the future with the global marketplace shrinking and the accelerating confluence of language, technology and distribution. Now more than ever the image is the key player in marketing, branding, and identity. In other words, it’s not the pen, it’s the shutter that moves product. Images have increasing value and as highly publicized digital rights cases indicate, these images are less secure than ever. Hence, everyone from Nestle to your small business neighbor should be more careful.

Ironically, there is no federal right of publicity and any claim relies on a pastiche of state statutes and common law. For a discussion of that right you can read a basic article from our firm and an article arguing for a uniform right.

To Corp or Not to Corp--Structuring Start-Ups for Venture Capital Financing

When establishing a startup venture, it’s easy to get distracted by the taxation and liability plays in the game, but scoring points often means getting financing. And Jordan will tell you that you can’t win if you don’t have the right shoes. Choosing the right entity is exactly the same—sprinting, long distance running, cleats or not—are you looking for the best VC financing vehicle or is your primary concern streamlined management? For the VC minded, LLC’s may not be the right shoes for you.

When venture capitalists examine the viability of a start-up, one of the primary factors they consider is whether the company’s legal structure is appropriate and conducive for financing. Generally, start-ups have already chosen the type of legal entity under which they will be conducting business by the time venture capital financing is being infused. In the vast majority of cases the choice has been made between a regular business corporation and a limited liability company (“LLC”). An LLC is a hybrid form of organization, combining the flow-through tax treatment of a partnership with the limited liability of a corporation, among other characteristics. Despite rapidly becoming the entity of choice for many types of businesses, a company seeking venture capital may be better served establishing itself as a regular corporation rather than an LLC. The following are the top reasons to “Corp. it”:

• Since venture capital firms are themselves generally organized as partnerships, an interest in an LLC exposes the venture capital firm’s non-profit limited partners to an unrelated business income tax without providing the corresponding tax dollars to pay the tax.

• LLCs are not eligible for a tax-free re-organization (e.g. a stock for stock exchange) thereby precluding one well-established way in which the start-ups merge with and into public or private companies.

• While LLCs can issue options, they cannot issue Incentive Stock Options and establish a Stock Option Plan, thereby impacting their ability to recruit talent and supplement its employee cash compensation.

Although some attorneys advise their start-up clients to establish as an LLC and then flip into a corporate structure once venture capital financing is to be infused, this approach is expensive, time-consuming, a distraction to management and may have negative tax implications. It is important to consider your long and mid term when choosing your entity form.

Kaiser Wahab & Simon Riveles

Name of the Game has Special Import in Business--Jerry Garcia's Estate Sues for TM Infringement

Established businesses, entrepreneurs and franchisees in particular, should be cautious when using the name or likeness of a celebrity or public person to sell their product. While the foregoing is self-evident to most attorneys, start-up companies often naively associate themselves or their product with a celebrity only to find as they become established that their brand identity is intimately linked to the public figure(s). All too often such unlicensed use of a name or likeness results in costly lawsuits and damages -- not to mention the exorbitant licensing fees celebrities or their estates can extract once the company is dependent on their mark. In the event the celebrity refuses the license the negative impact on the company’s brand identity can be severe.

Witness the recent suit by Jerry Garcia’s estate against Moe’s Southwestern Grill, one of the hottest start-up restaurant franchises in the country. The restaurant’s name is an acronym for Musicians, Outlaws and Entertainers, and its 130 franchise operations feature dishes named after dead celebrities, such as Jim Morrison, Janis Joplin and Elvis. Its signature dish is The Alfredo Garcia. According to a lawsuit filed December 8 paintings of the late Grateful Dead star have been hung in all its restaurants and that Moe's advertising uses Garcia’s unlicensed image with the words to "Casey Jones" changed to "Trouble ahead, Trouble behind/Just have my taco ready on time." (COMPLAINT)

Garcia's name and likeness have been officially licensed to companies in connection with a line of neckties, wine and Ben & Jerry's ice cream. According to the estate, Moe's unauthorized use of the famous musician’s name and likeness and the words to a Grateful Dead song, diminishes the value of these authorized endorsement. The suit alleges trademark infringement and dilution, unfair competition and a variety of other causes of action.


Simon Riveles

The Big Apple it Ain't No More

The Big Apple flexes its IP muscle in preparation for the 2012 Olympics. Following NYC's 1970s slogans of the "Big Apple" and "I (heart) NY", the City now seeks to register the slogan "The World's Second Home" for the exclusive right of promoting business and tourism. If the application is accepted, NYC could use the slogan in connection with the sale of over 200 goods and services. If NYC is indeed the chosen one, put aside your RNC flashbacks and brace yourself for the influx of out-of-towners...

Olivera Medenica

Could Searchable Video Stream Past Copyright?

Google recently unveiled a new search function that allows internet users to search for video stills of recent television programs. While Google Video is in beta, a limited number of sources are available. Currently, these include PBS, Fox News, C-SPAN, C-SPAN2 and select San Francisco Bay Area stations. To search for a particular program by title, use the title (title:) qualifier. Note this qualifier differs slightly from the general search command (intitle:). You can also search specific stations with the channel (channel:) qualifier. For example, try: channel:fox "Condoleezza Rice". Now this search only generates still images plucked from the video stream in question coupled with a brief synopsis of the content.

The interesting thing not addressed by the wow factor of this nice feature and reminder that Google is poised to take over the world is the policing of copyright in the underlying video streams. While Google’s beta run is limited to participating TV stations and does not actually provide the video (yet), as the Internet has turned visual copyright on its head, it is poised to the same to copyright in video and film footage outside the P2P realm. But has Google made a choice to limit itself to being a search on demand byte size TV Guide?

Since the P2P debate is too lively and heated, I doubt Google at its current MVP peak would want to expand this service to scan random web pages for downloadable video streams like its image crawler currently does--it simply is not worth the trouble or development. Query also if Google will place bandwidth / resolution caps to offset vicarious liability, if video streams are provided and sources are expanded to private web sites.

However, Google might see it differently – in their own words:

Can I play the videos that Google Video finds?
Not yet, but stay tuned...

Death, Taxes, and Data--States to Build National Net Tax System

Forty states and the District of Columbia are collaborating to establish a national online sales tax system and have approached software vendors for bid solicitations. "By October 2005, the states hope to have a voluntary collection system working in at least 15 states.... With that in place, they hope, Congress would be more likely to endorse a mandatory, national Internet sales tax system," says the Washngton Post (reg’t required).

If you’re feeling industrious, here is some early testimony on the topic from Michael S. Greve, Director, of the Federalism Project and American Enterprise Institute, who compellingly argues for the need of such a system.

Senate Passes Family Entertainment Copyright Bill

Last week the Senate approved legislation that would create criminal penalties for those who pirate movies "and other copyrighted materials before copyright owners have had the opportunity to market fully their products." The idea is to stop the increasingly rampantmovie theater camcorder recording of newly released movies for illegal distribution on the Internet. The bill, called the Family Entertainment and Copyright Act of 2005 would also let parents control what their children watch through the use of technology that facilitates the bypassing of particular types of content. The House will consider the legislation next.

Lokitorrent Locked Out

I have to say that I am impressed with the MPAA's swift dispatch of the bittorrent thorn. Lokitorrent.com has joined the ranks of Suprnova and others as a result of MPAA lawsuits. This is a victory for not just the MPAA but other major industries, including the music and software industries. Although, the Lokitorrent splash page has been replaced with a scarecrow that reminds me of something of a "wanted poster":

This website has been permanently shut down by court order because it facilitates the illegal downloading of copyrighted motion pictures. The illegal downloading of motion pictures robs thousands of honest, hard-working people of their livelihood, and stifles creativity. Illegally downloading movies from sites such as these without proper authorization violates the law, is theft, and is not anonymous. Stealing movies leaves a trail. The only way not to get caught is to stop.

The next question for the MPAA is can they keep up the momentum? As soon as Suprnova imploded, beta versions of Exeem were already in hot circulation, boasting to eliminate the need for torrent trackers altogether. Then there is the thornier question about off shore torrent servers. The MPAA does not want to see this story turn into the Empire Strikes Back, where they become the once buoyant rebels that must turn to retreat.

Kaiser Wahab

Silicon Architecture and the Regime Change of Revenue--IBM Toshiba and Sony Near Unveiling of Cell

For some time now the drama that was the processor wars has faded into relative clam. The back to back blows of AMD and Intel, like some Joe Frazier newsreel, has even been described as sleepy. While 64 bit architecture was cause for celebration, the party has yet to be any fun for end users. Nonetheless, while revenue forecasts for the semiconductor making giants have been sober, the prevailing design philosophy has been the mounting of multiprocessor setups on single boards, instead of increasing processor output.

This may change in a major way as “Cell” the proprietary chip technology in development for several years by IBM, Toshiba, and Sony will be introduced commerically soon. A regime change may be in the works as a major boost in processing power output is being heralded by a new power party. If this is so the PC architecture that Intel rode to shareholder stardom could take a serious blow. At the very least, there will be something to talk about.

While many of our clients come to us for their licensing, tie in, and merchandising needs, we know that the game is not always about the good, but how you get it to market, with as little loss of control as possible. Legal and business analysis will focus on the proprietary licensing and end manufacture collaborations that the Cell trio makes in order to capture market share. For example, Sony is already hyping its decision to use cell processors in its upcoming Playstation 3 console, while Toshiba promises to further enhance its flat screen television foothold with Cell enabled units. How the trio further disseminates the chip technology and the sweetheart deals used to lure Intel loyalists away will definitely be a good show.

Kaiser Wahab

Anti-Spam Legislation and Pop-Up Advertising

Although many states have enacted statutes aimed at stemming the prohibition of unsolicited commercial email, or spam, computer users continue to be plagued by ubiquitous pop-up advertisements that appear virtually anytime a commercial website is accessed. A recent Utah case examined whether the state’s anti-spam statute could be used to prohibit pop-up ads as well as spam and determined that it could not be. The plaintiff in the case alleged that a pop-up ad he received when visiting the Los Angeles Times travel section, which had enticed him to enter his personal information to win a free cruise, violated the Utah Anti-Spam Act.

The Act defines "e-mail" as "an electronic message, file, data or other information that is transmitted [either] between two or more computers, computer networks or electronic terminal [or] within a computer network." The plaintiff claimed that the pop-up ad was technically a message transmitted between two computers. The Utah Court of Appeals disagreed, however, finding that the Act’s literal meaning was trumped by the legislature’s clear intent to restrict the statute to e-mail alone. The legislative history of the Act revealed that e-mail is a communication sent "through an intermediary of an e-mail service provider" or "to an e-mail address" - defined in the Act as ""a destination, commonly expressed as a string of characters, to which e-mail may be sent or delivered."

The Utah litigation raises the issue of whether pop-ups should be equated with spam in the first place? Both spam and pop-ups are generally unwanted and annoying, but are they otherwise the same? The court compared e-mails to letters, since both are sent to a specific person at a specific address. In contrast, the Court equated pop-ups to public advertisements in newspapers or on Web sites, viewable by anyone, and "not sent to specifically predefined destination." Up to this point, the Court's analysis is compelling. But, the court went further to say that pop-up ads like the ones at issue might be viewed as similar to solicited e-mail (which was outside the Utah Act's scope) since "[the plaintiff] chose to surf the Internet and, apparently, to visit the Los Angeles Times Web site looking for travel information" - a dubious claim since the plaintiff could hardly have been said to have solicited the pop-up at issue.

As more and more Web sites rely on advertising to fund their free content, we are likely to witness the further proliferation of pop-up advertising. It will be interesting to see whether lawmakers feel compelled on enact anti-popup legislation, as they have done to address spam, or whether they will rely on technological innovations to help consumers combat this new form of web-based solicitation.

Kaiser Wahab

Movies Over IP Gets Bigger

Universal Pictures has publicly, albeit cautiously, via CinemaNow endoresed download to PC exhibition of its movies via "streaming" technology only. The studio did not embrace the full download and unlock system at Cinema-Now, which gives a time limited decryption key for a fee. As we all know, streaming is the downloads ugly little sister, with smaller viewable areas, lower frame rates, and generally poorer quality overall. CinemaNow does currently offer DVD quality downloadable non streaming movies from other studios.

CinemaNow is the first wave of I-tunes for movies. As the entertainment PC becomes of age with full AV capability coupled with ample storage and output options, downloadable movies are a logical distribution choice. Again the Internet is stealing wind from other traditional cottage distribution industries, like it did with Vonage Voice over IP phone service. Cable TV and Blockbuster will certainly take note of this development.

Kaiser Wahab

The Intersection of Sarbanes-Oxley and Intellectual Property

Sarbanes-Oxley was adopted in 2002 with the requirement that companies must list, value and disclose any “impairment” to their IP assets. The Act mandates that all publicly held companies audit their IP assets at least once a year to determine whether a material impairment to those assets has occurred that would materially impact the company’s financial operations. Section 404 of the Act requires that a company’s officers certify that internal procedures are in place to identify IP assets, value and disclose any impairment to such assets. Since executives and auditors are accustomed to dealing with non-IP assets and may not be able to identify IP that is not covered by issued patents or trademarks, WRM recommends that a multi-disciplinary IP audit team be assembled that is composed of management, scientists, researchers and IP lawyers who have the experience and breadth of understanding to ensure that any material impairment to an IP asset is identified and disclosed.

Kaiser Wahab

Microsoft has more Fingers than there are Pies

Microsoft in a smart bid to push its brand and demonstrate that it is still prepared to compete in entrenched waters, finally unveiled its new build of its search engine. With MSN as the fifth most popular search engine this is a move that will surely create market share erosion for Yahoo and Google. Moreover, while Microsoft faces minor retreats in the EU over Media Player, robust XBOX sales and its recent foray into anti-virus software, show that the giant is prepared to open other offensive fronts and capitalize on markets with its enviable ability to leverage economy of scale in product development.

Kaiser Wahab

An Offer You can't Refuse--Video Games and the RIght of Publicity

Electronic Arts in developing its long anticipated Godfather games, based on the famous movie trilogy has scored the acting talents of James Caan, Robert Duvall and Marlon Brando...from the grave. Before his recent death, Brando conveyed rights to his use his voice and likeness to Electronic Arts for use in their upcoming game series. This is another example of the increasing cinematic flair that video games are taking on and, as far as I am concerned, their bid to replace film as the primary mass consumption entertainment product worldwide. It also underscores the fact the commodities that video game companies and their legal departments are increasingly drawing upon--art directors, producers, writers, and actors--increasingly parallel those of film studios.

The permutation of uses by synthetic versions of living actors present unique challenges to counsel on both sides--actors will want to make sure they are not distorted beyond recognition or parodied, while game studios will want to maximize the scope of their potential application of the source material. Unlike film, where edited or processed footage of an actor cannot deviate that far from the raw footage, a polygon approximation of that actor is nearly limitless in application or modification. The negotiation of these agreements will be something worth watching as the game industry gains more leverage and posts bigger numbers. Given the fact that Brando is dead, it will also be interesting to see how his estate will view the grant given to EA in light of the final product.

Kaiser Wahab