Tag Archive for licensing

NBA2K16 should pay for the “Extra Value” Added to the Games by Players’ Tattoos

April 15, 2016 articles Comments Off on NBA2K16 should pay for the “Extra Value” Added to the Games by Players’ Tattoos

A tattoo is undoubtedly a work of art, and once inked onto a person’s skin, that art is permanently “fixed” as a part of that person. But is it “fixed in a medium” as required for protection under the Copyright Act?

That is the question posed by the makers of the wildly popular basketball video game series, NBA2K, in answering a lawsuit brought by the owners of the copyrights to the tattoo designs featured on some NBA players in this and prior years’ games. After making a deal with the tattoo artists to exploit their designs in return for a royalty, Solid Oak Sketches, LLC offered 2K Games, the makers of the NBA2K series, a license for the tattoo designs, but they declined. Ultimately Solid Oak filed suit for copyright infringement against the video game makers and developers, Visual Concepts LLC, 2K Games Inc., and Take-Two Interactive Software, Inc. on February 1, 2016 after this year’s video game, NBA2K16, was released.[1]

Tattoos meet copyright standards

The Copyright Act has two requirements for copyrightability: the work must be an original work of authorship,[2] and it must be “fixed in a tangible medium of expression.”[3] The “fixation” requirement is not limited, but may be “any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.”[4]  The definition section bolsters this wide view of the requirement: “A work is “fixed” in a tangible medium of expression when its embodiment in a copy or phonorecord, by or under the authority of the author, is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration.” (Emphasis supplied.)[5] No one would argue that an individual’s body is not permanent or stable enough to be a medium of expression.

The issue of the copyrightability of tattoo designs is well settled, as they are original works of authorship registrable in the Copyright Office just like any other art.[6]  The copyrightability of a tattoo design on a person’s skin, which is only one “copy”, has been questioned by legal scholars and the defendants in this case. However, a tattoo on a person can be copied, reproduced, and communicated, just like other works, through copies of the tattoo on a person’s skin reproduced in other media. In the case of the tattoos on NBA players in the NBA2K games, the works are copied and reproduced not only hundreds, but MILLIONS of times in the games.

Owners have exclusive rights

Under the Copyright Act, the owner of the copyright, whether the original artist or his or her assignee, has the exclusive right to exploit the work. This includes the right to copy and reproduce the work, to publicly perform or display the work, and to prepare derivative works.[7] The very fact that 2K Games reproduced the tattoos on NBA players’ bodies for its games, and also reproduced them on their product packaging and in their advertising materials, shows that the tattoos on a body are capable of being reproduced in other media. Making these copies and exploiting them commercially is the sole right of the copyright owner. Even LeBron James could not make copies or license others to make copies of his own tattoos in this case, since without a waiver, it is assumed that tattoo designs are owned by their creator, not the person who pays to have that design inked on their skin. This was illustrated in the lawsuit filed by the tattoo artist who created Mike Tyson’s tribal face tattoo against Warner Brothers for reproducing the tattoo on a cast member of the movie “The Hangover 2” and using it prominently in its advertising. Tyson had signed an agreement that the tattoo design was solely owned by the tattoo artist, so he alone had the right to reproduce the design. Warner Brothers settled the case with the artist shortly after the movie was released.[8] There have been several other cases in which tattoo artists have sued to stop the reproduction of their tattoo art in other media for profit. Tattooist Matthew Reed sued NBA star Rasheed Wallace and Nike to stop the use of the tattoo in a sneaker ad which actually featured a simulation of the tattoo’s creation. Soccer icon David Beckham’s tattooist sued him over a proposed advertising campaign which revolved around a tattoo created for him. Both athletes and Nike settled out of court with the artists.

NBA2K series is a multimillion seller

According to sales figures, NBA2K16 shipped an impressive and record breaking $4 million copies the first week of its release.[9] Revenue for Take-Two rose substantially in the second quarter of 2015, when NBA2K was released, to $364.9 million, a 169% increase from the previous year. Also digital downloads of the game doubled from the prior year.[10]  Take-Two’s 2K Sports game developers have been called “The kings of customization”, and are described by reviewers as having “upgraded their tattoo game” by allowing gamers to choose from 1500 tattoo designs that can be used to create “almost and endless array of virtual body art.”[11] So 2KSports can offer 1500 tattoo designs to customize their new game, but they do not want to pay for those designs that help them make their millions.

License offer rejected

Solid Oak Sketches, through their attorneys, attempted to negotiate a license for future uses of their copyrighted tattoo designs in early summer 2015, before the latest version of the game was released. The attorneys for Solid Oak offered a confidential settlement in compensation for 2K’s “ongoing acts of copyright infringement” in their unlicensed use of the tattoo designs in earlier years’ versions of the game. The letter pointed out that several of their clients’ copyrighted tattoo designs, namely those on LeBron James and Kobe Bryant, were featured prominently not only in the games, but also on the cover photos and advertising for those games. LeBron James was pictured on the cover of NBA2K14, with the disputed tattoos visible; that version sold over 7 million units. Those tattoos on LBJ were said to be “the face” of the 2014 game, making the tattoos’ marketing and promotional value several times higher than the other tattoos. After several correspondences between the Solid Oak attorney and the principals of 2K Sports, the game company terminated the negotiations and continued with the production and release of NBA2K16.[12]

Damages for Copyright infringement

Under the Copyright Act, damages for infringement can be calculated from the copyright owner’s actual damages suffered as the result of the infringement, or the owner can elect at any time before judgment to recover an award of statutory damages, which can range from $750 to $150,000 per infringement, depending on the willfulness of the infringement.[13] In addition, the court has the discretion under the law to allow recovery of full costs by or against a party, including reasonable attorney’s fees to the prevailing party.[14]

In their attempt to negotiate a settlement and license for future use of its tattoo designs with the heads of 2K Sports and the other defendants, Solid Oak attorneys set out what they considered a reasonable license fee. Since the courts have not decided the issue of damages for tattoo design infringement due to out of court settlements in several recent cases, and Solid Oak did not have access to 2K’s sales and revenue numbers for sales of the infringing games, the attorneys calculated the potential damages according to the only public damage award known for tattoo infringement. That award of $22,500 by a bankruptcy court to the tattoo artist Christopher Escobedo, who created a tattoo visible on an athlete in the video game “UFC Undisputed” which sold 4.1 million copies, was appealed as inadequate, and the artist settled for an undisclosed amount. Although the attorneys for Solid Oak allowed that the ultimate payout probably exceeded the $22,500 amount, they used that amount along with the publicly available sales figures for the 2K game and came up with $819,500 as compensation for prior infringements, and offered a perpetual license for all future uses of the specified tattoos of $1,144,000. They noted that most of the athlete’s careers will surpass four additional years as represented by the license fee.[15]

Alternative theories and trademark defenses

Some writers have posed different solutions to the tattoo licensing situation, including defending on the fair use theory that some of the tattoos in the games are not always visible, or are a very small or “de minimis” part of the games. That of course does not hold water with some of the tattoos on the NBA players in the games which are not only prominently featured in the game but are used in its cover art and advertising.[16] This defense ties in with another which assumes an implied license from the artist to the bearer of the tattoo, which would allow a sublicense to third parties to show the players’ tattoos in any commercial depictions of him or her. However, under copyright law implied licenses are disfavored; the burden of proof is on the defendant to prove the existence of a license by a preponderance of the evidence.[17]

Others have seen the issue as one of personal freedom, with the person bearing the tattoo having the right to publicly display the tattoo, even in commercial settings for athletes and celebrities. This argument is similar to the “nominative use” defense in trademark law, which allows the natural portrayal of trademarks and logos seen and referred to in real life situations.[18] For example, under the nominative use theory, Lebron James can appear in a film as himself with his real tattoos visible, since they are part of the “landscape” of him and of the movie. However, it would not be nominative use if Lebron James’ tattoos were focused on in the film and prominently displayed in the trailer and advertising for the movie. That would imply an association with the tattoo artist as having a connection with the film, which would help market and advertise the film, even though the artist is not connected to the movie and may not want his or her designs used in that movie. However it is clear the defense does not quite fit here, as usually it is a prominent company’s logo which has been wrongfully co-opted by the moviemakers to bolster sales of the film by association with that company. Unless a tattoo artist is famous worldwide and his or her designs well known, there is little value (or harm) in associating a movie (or game) with that artist. On the other hand, the association with the game implies that the tattoo artists or their representatives have agreed to their tattoo designs being in the game, and are being paid for them, which they are not.

Public policy argument

Other writers want to amend the Copyright Act to deny tattoo artists copyright protection for their designs by changing the definition of “copies” to exclude the human body. They argue there is a “public policy” that would prevent the potential for intrusion on the human rights of the tattoo artist’s clients by giving the artist some control over what is done with the tattoo once it is on the client’s body. The vague notion that tattoos are becoming so ubiquitous in today’s society that it would be difficult to control the use of them, and therefore the artist creating them should not be paid for reproductions of that art (while on a body) in some other medium is weak at best. Singling out this type of art may violate the tattoo artists’ constitutional right to obtain copyright protection for their creations which are legitimately protectable.

Athlete unions involved

The NFL Players Association is the only athlete union so far to address this tattoo situation by encouraging players to get an assignment, release or waiver from the tattoo artist agreeing to indemnify the game maker against third party claims before they would be allowed to have their tattoos depicted on merchandise. Several NFL players have done just that and relieved the makers of games they are depicted in from paying for the use of their tattoos. Colin Kaepernick got permission from the two artists who inked his tattoos to use them in the video game “Madden 15” released by Electronic Arts.[19] The combination of the popularity of video games featuring professional athletes as they appear in actual games and the number of athletes with tattoos makes the issue of releases and waivers a real concern for both athletes and game makers.

Enhancement of the games

As mentioned before, the reason athletes’ tattoos are so valuable to video game developers is that they make the games as realistic as possible. They are seen as an important feature of the games, partially responsible for the increase in the games’ popularity and sales.[20] The artwork provided by the tattooists is obviously a subject of negotiation for the game makers, as they make more money from the realistically enhanced depictions of the players. It is not an acceptable excuse that it would be too difficult for these game developers to get waivers from all athletes involved or a license from all the tattoo artists. You have to spend money to make money, as all filmmakers who have to pay for the music and artworks depicted in their movies know. Similarly, as the game makers’ revenue is enhanced by realistic depictions of tattoo art, the copyright owner artists responsible for their increased revenue should also share in the wealth.

 

©2016 Mary Ellen Tomazic

 

[1] Complaint for Copyright Infringement, Solid Oak Sketches, LLC v. Visual Concepts LLC, 2K Games Inc., Take Two Interactive Software, United States District Court, Southern District of New York, No. 16-00724.

[2] Id., § 102(a) (5). “… the requisite level of creativity is extremely low; even a slight amount will suffice.”  Feist Publications, Inc. v. Rural Telephone Service Co., Inc., U.S.Kan.1991, 111 S.Ct. 1282, 499 U.S. 340, 113 L.Ed.2d 358, 18 U.S.P.Q.2d 1275.

[3] Id.

[4] Id.

[5] Id., § 101.

[6] Tattoo Art v. TAT International LLC, 498 Fed.Appx. 341 (C.A. Va., 2012).

[7] 17 U.S.C. § 106(5).

[8] “Who Owns Your Tattoo? By Marisa Kakoulas, Inked Magazine, March 9, 2012, available at http://www.inkedmag.com/articles/who-owns-your-tattoo/.

[9] “NBA 2K16 Breaks Records With 4 Million Copies Shipped in Under One Week,” GameSpot.com, Oct. 2, 2015,

available at http://www.gamespot.com/articles/nba-2k16-breaks-records-with-4-million-copies-ship/1100-6431093/.

[10] Id.

[11] “NBA 2K16: Breaking Down Best New Features for This Year’s Game,” BleacherReport.com, Aug. 31, 2015,

available at http://bleacherreport.com/articles/2558410-nba-2k16-breaking-down-best-new-features-for-this-yearsgame.

[12] Id., fn. 1

[13] 17 U.S.C. § 501. § 504.

[14] Id. at § 505.

[15] Complaint for Copyright Infringement, Solid Oak Sketches, LLC v. Visual Concepts LLC, 2K Games Inc., Take Two Interactive Software, United States District Court, Southern District of New York, No. 16-00724. Confidential Settlement Communication.

[16]http://espn.go.com/nba/story/_/id/14693836/makers-nba2k-sued-graphically-representing-tattoos-players-permission

[17] 3 Melville B. Nimmer and David Nimmer, Nimmer on Copyright §10.03[A] [7] and §12.11(D) (2006).

[18] 15 U.S.C. § 1125. See, New Kids on the Block v. News America Pub., Inc., 971 F.2d 302, 308 (9th Cir.1992).

[19] http://espn.go.com/nba/story/_/id/14693836/makers-nba2k-sued-graphically-representing-tattoos-players-permission.

[20] “NBA 2K16: Breaking Down Best New Features for This Year’s Game,” BleacherReport.com, Aug. 31, 2015,

available at http://bleacherreport.com/articles/2558410-nba-2k16-breaking-down-best-new-features-for-this-yearsgame.

Fan Films – Breaking the Unwritten Rules and Defining Profit

February 11, 2016 articles Comments Off on Fan Films – Breaking the Unwritten Rules and Defining Profit

The word “fan” finds its origins in the word “fanatic”, defined as a person “unreasonably enthusiastic” or “overly zealous” about a specified performer, sport, movie or program. Some of the most enthusiastic fans of all are those who profess their love of certain movies or television shows by producing a “fan film.”
Fan films use copyrighted material to pay homage to the original, and under the unwritten rules of this practice, they are not to be sold and no profit is to be made from them. They are not supposed to be in competition with the original film or show, and they are not to be seen as a substitute for the original work. Usually these heartfelt homages are made by amateur filmmakers with their own money, and they do not rise to any significant competitive level with the original in quality, scope or length.
This noncommercial but still infringing use of copyrighted works is termed “tolerated use”, and is allowed by the rights holder despite knowing someone is infringing on their work. The understanding of fan film makers is that under these unwritten rules they cannot profit from their fan film in any way, and it must remain noncommercial (i.e. not for sale) and noncompetitive with the original work. The copyright holder may feel the fan film complements the original work, creates goodwill and adds value in keeping fans engaged and favorite characters alive. On the other hand, it is still direct infringement of copyrights and trademarks that the rights holder may to put a stop to at any time. It is possible that the movie and television studios have allowed fan films to this point because they were not any competition and did not made profits from the use of their copyrights, so committing serious money to sue them did not make sense.
Fan films have been made for decades and many rights holders have unofficially sanctioned them by not suing the makers for copyright infringement. Some rights holders not only tolerate fan films, they encourage them. Lucasfilm holds an annual “Star Wars Fan Film Awards” which they call “the ultimate celebration of Star Wars fan creativity”. However, the rules for this contest state that “SW fan films are limited to 5 minutes in length and nobody that is union affiliated is allowed to be involved.” Obviously a five minute video is by definition not in competition with the full length Star Wars films.
Another issue for rights holders is the use of their logos and other trademarks in fan films which may not square with the reputation and goodwill that are represented by the marks. The fan film may make use of subject matter or topics that the rights holder does not want associated with its trademarks. Or the use can be so poorly executed that it may reflect badly on the rights holder by association, so that it tarnishes the company’s brand. Of course any use by fan filmmakers of the trademarks of the original work in any kind of commerce, either distributing or selling items with the logo or trademarked characters is a violation of the Lanham Act and can be the subject of a separate lawsuit.
These issues all came into sharp focus with the filing of a copyright infringement lawsuit in U.S. District Court in Los Angeles by Paramount Pictures and CBS Studios against Axanar Productions and its president, Alec Peters, along with twenty other “John Doe” defendants who assisted in the making of the film (Paramount Pictures Corp. & CBS Studios Inc. v. Axanar Productions, Inc.) When a group of filmmakers decided to make a Star Trek fan film called “Axanar” and raised over $1 million in donations through Kickstarter and Indiegogo campaigns to produce the movie, the copyright holders sat up and took notice. According to Variety, “(t)he suit notes that the two films are “substantially similar to the Star Trek Copyrighted Works, with Vulcans, Klingons and many of the original franchise’s characters portrayed throughout.” The suit alleges that in their unauthorized derivative works based on Star Trek, the Axanar producers “unabashedly” took CBS and Paramount’s intellectual property to make their movie “look and feel” like a true Star Trek movie. It claims that Axanar was intended to be a professional production, and infringes the plaintiffs’ works by “using innumerable copyrighted elements of Star Trek, including its settings, characters, species and themes.”
The studios in this case seem to have finally drawn the line on how much they will tolerate with fan films, and in their complaint are asking for injunctive relief restraining the Defendants, and anyone acting in concert with them, from directly or indirectly infringing the copyrights of the Star Trek Works, including but not limited to “continuing to prepare, reproduce, distribute, copy, publicly perform, market, advertise, promote, produce, sell or offer for sale the Axanar Works or any works derived or copied from the Star Trek Copyrighted Works”; statutory damages of $150,000 per each separate infringement of the Star Trek Copyrighted Works; reasonable attorney’s fees; and a declaratory judgment that the continued production of the Axanar Motion Picture specifically constitutes infringement of the Star Wars Copyrighted Works.
The case revolves around what “profiting” from a fan film includes – can a filmmaker hire actors, set designers and build out a studio with crowdfunded money to make a “fan” film? Can he pay himself a salary from the funds? Paramount and CBS say no, deciding that this Axanar movie is no fan film but a competing product made from their copyrights and trademarks. The lawsuit is their way of reining in their previous tolerance of unlicensed use of their intellectual property, and protecting their legal rights under federal law. It is the evident hope of CBS and Paramount that the court will set a precedent on what is a fan film that can be tolerated by the rights holders, and what is straight infringement by a rival producer.
The producer of Axanar, Alec Peters, has not made himself popular with the studios or even a lot of Star Trek fans, some of whom contributed money to the project. In his response to the lawsuit on his website, he claims his movie is a “labor of love” that “keeps fans engaged, entertained, and keeps favorite characters alive in the hearts of fans.” He claims to have been in contact with Paramount and CBS before the project was started, but does not say how far he may have been allowed to go with a Star Trek fan film.
Discussions among filmmakers and Star Trek fans reveal the theory that the Axanar movie may have been “too good” and the competition was too much for Paramount and CBS, so they decided to shut it down. The braggadocio exhibited by Peters in criticizing how the owners of Star Trek have exploited the franchise in the past, and that his movie was going to be better, probably did not help his cause. But the very fact that the production was staffed with “industry professionals” as Peters admits in his published response, and that a commercial production studio was being built with the million dollars’ worth of funds donated to make the film, shows that this was a for-profit project. The profit component is the real linchpin to gauge how future fan films will be treated by rights holders.
Some were suspicious that Peters mysteriously kept delaying the start of production while encouraging people to make more donations to his crowdfunding sites for the film. He announced that he was building out a studio “for the production of Axanar,” but also said he wanted to use it to make other films in the future. This plan added to the feeling among fans that Axanar was using another’s copyrighted work for their own profit. The admissions by Peters, along with a financial report sent out to donors that was said to have numerous red flags indicating that he and his girlfriend may have drawn salaries from donated funds, was evidently the last straw for Paramount and CBS.
Whether Peters and Axanar Productions are shut down by a permanent injunction or they settle with Paramount and CBS to voluntarily cease production of this copyright infringing movie is still to be seen. One question has been posed in discussions among filmmakers – will Peters have to return the donations made through Kickstarter and Indiegogo? The project only got as far as a small prequel, “Prelude to Axanar”, so the fans donating cash did not really get what they were promised, a full length Star Trek film. There have been some concerns voiced recently about how stringently the crowdfunding sites monitor projects they accept for the unlicensed use of others copyrighted material, and whether they would take any responsibility to enforce any reimbursement by Peters and Axanar Productions.
The Axanar lawsuit should serve as a cautionary tale for all fan film makers, as it will most likely result in strongly stated and probably strict parameters being set by other rights holders for future tolerated use of their intellectual property. Peters, by going too far in making a film that was no longer a fan film but a low budget film with paid professionals competing with Star Trek works, crossed that line. He may have made it more difficult for fans to pay homage to their favorite movies with a lovingly crafted but still unauthorized work.

©2016 Mary Ellen Tomazic

Mary Ellen Tomazic to speak at Cleveland On the Rise CLE

November 13, 2014 articles Comments Off on Mary Ellen Tomazic to speak at Cleveland On the Rise CLE

Contract Drafting Clairvoyance

June 22, 2012 articles Comments Off on Contract Drafting Clairvoyance

Almost no area of law is as litigious as the interpretation of contracts. Strict recording of every point discussed by the parties is helpful in making sure all aspects of the agreement have been included. The less specific the contract language, the more court time is needed to hash out what was intended by the parties. The attorney involved in the original drafting of the document is charged with the responsibility of capturing, in a snapshot moment in time, the parties’ agreements to do, give and refrain from doing certain things in their contractual relationship. If any of those understandings are discussed but not memorialized in the drafting of the contract, they may not be considered in the interpretation of the written agreement. Basic contract law tells you that any part of the discussion that does not end up in writing will be construed as “dehors” or outside of the contract, and cannot alter the written words. Most contracts add the boilerplate clause that the contract includes the parties’ entire agreement, which strengthens the interpretation that the contract is complete within its “four corners”.

Contracts drafted in rapidly changing areas such as the media and entertainment industry may detail the seemingly full outlines of the agreement, but the parties may later find that the court construes the language and provisions to exclude new formats, delivery systems, methods and contraptions not known or invented yet. James Brown, the Godfather of Soul, found that out the hard way with the employment contract he signed for his performance in the televised T.A.M.I. Awards in 1965. The contract was found by a court to be broad enough to include uses that were not invented or even imagined at that time, including sales of the program to the public in the home theater market for Beta and VHS tapes. The case came about mainly from the exploitation of a T.A.M.I. footage clip by its use in the 1991 movie, “The Commitments”, which featured James Brown’s performance on a television set watched by the characters. The contract included perpetual rights of exploitation of all parts of the performance including “all or any part of your acts, poses, plays and appearances of every kind and nature made or done by you … all instrumental, musical or sound effects produced by you, made or done by you in connection with the Performances and your services hereunder”, and the right to “exhibit, transmit, reproduce, distribute, broad cast and exploit … or the advertising or exploitation thereof, in and by all media and means whatsoever.” The contract also gave the TAMI Show producers “the right to use and display, and to license others to use and display, your name and likeness for advertising or publicizing the Performance in conjunction with and so called ‘commercial tie-ups”. Mr. Brown asserted that the phrase “in connection with” did not allow the performance in the T.A.M.I. Show to be used in separate contexts such as a full-length motion picture, but only in the publication and exploitation of the full show itself. The court pointed to the language allowing “portions” of the performance to be used The only use that was found to be prohibited by the contract were product endorsements from the footage, which Mr. Brown had a longstanding policy against. The language allowing “perpetual use … in all media and means whatsoever” was construed to allow use extending to media developed thereafter, even if not foreseen.

Still, even with general language encompassing all future uses and inventions, some specific language is required in a world where new media and means of delivery are being rolled out daily, and questions may arise whether the drafter meant to include not only new ways to deliver or play the material to which rights have been granted. For example, does a reference to “the internet” include mobile applications, online streaming, downloading directly from “the cloud” or other ways devised to obtain the material? Does the language “all delivery systems” include not only wireless devices such as tablets, phones, and televisions, but also video game consoles?

Formats pose another dilemma, as the producers of the new 3D version of “Titanic” recently found out. The copyright holders to a Picasso painting used in the movie have brought suit against the producers for more licensing money, arguing that the 3D version is a totally separate and new work for which Producer James Cameron had no permission to use the painting. The Picasso heirs had a history of disputing how the painting was used in the original movie as well, objecting to historical differences and artistic license regarding how the painting was handled.

Contract provisions granting and reserving rights can specify certain delivery methods such as those listed above, and the language used should include references to “any and all media and methods in use now, in the past, or yet to be invented” with examples of uses given “including but not in limitation of” certain types of media, delivery systems, and formats. It does not hurt to list numerous examples when contracting for intellectual property rights, as that will help to show the intentions of the parties to encompass every possible use that could be made of the material in the future. Such inclusion also puts the parties in mind of the possibilities in the future of what may happen to the rights they are granting or purchasing.

Of course, attention must also be paid to the possibility of other parties being involved with those rights in the future. For example, the original party may die, leaving intellectual property rights to his or her estate, which will then receive the benefits of the bargain struck by the rights holder. Many disputes have involved the heirs and assigns of original copyright owners such as Andy Warhol, Mario Puzo, author of the Godfather novel, Pablo Picasso, and others who argued, sometimes successfully, that the rights granted by their ancestor did not include some future uses.

Another situation may arise when the rights granted or purchased are transferred to business entities such as corporations, or are acquired in mergers by successor entities which were not contemplated at the time of the original grant. In a slightly different but instructive context, the contract between Howard Stern and Sirius Satellite radio did not end up the way that Stern contemplated and thought he understood at the time it was made. The shock jock sued Sirius, arguing that stock awards based on subscriber targets should include subscribers obtained from XM after the merger between the Sirius and XM satellite radio companies. On his radio show, Stern argued that the discussions he had during the contract negotiations gave him to understand that any subscribers obtained during the contract period would be counted toward the bonus he would be awarded at certain levels, as they were all subscribers to the same service and the two companies had become one. However, Stern’s contract did contemplate a merger, but there was a specific bonus that would be paid in that event, and it seemingly superseded and replaced the original subscriber bonus. A New York state judge agreed, finding that the contract clearly intended that the merger subscribers should not be counted toward the bonus, and agreed to Sirius’s request to throw the suit out with prejudice. On his radio show, Stern argued that since the two companies were now one, he should be paid for the merged subscribers, which may have been a winning argument if not for the contract language about a possible merger. Contrary to his understanding of their discussions, the company was not the “Sirius” that paid the original bonus prior to the mergers. But was the “merged Sirius”, which did not have to pay those bonuses, but only the merger bonus.

In contracts, language is king, and aside from certain interpretations stemming from industry and trade usages, a contract made in a moment in time could be subject to a different interpretation in a future world where situations or definitions have changed. In drafting contracts, it is best to use language allowing for all possibilities, all situations, and all changes that could occur not only here and now, but perpetually, in the future and throughout the universe.

 

© 2012 Mary Ellen Tomazic

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