IP/Entertainment Law Weekly Case Update for Motion Picture Studios and Television Networks -- June 28, 2012



Table of Contents

Federal Communications Commission v. Fox Television Stations, Inc., U.S. Supreme Court, June 21, 2012
 Click here for a copy of the full decision.

  • U.S. Supreme Court finds FCC's indecency rulings regarding isolated utterances of profanity and brief depictions of female anatomy to be unconstitutionally vague and a violation of due process.

In a unanimous ruling, the U.S. Supreme Court affirmed the Second Circuit’s decision, overturning Federal Communications Commission indecency orders relating to fleeting utterances of profanity broadcast during the 2002 and 2003 Billboard Music Awards on Fox television channels and a fleeting view of a nude woman’s buttocks and breast during an episode of NYPD Blue on ABC television channels. (Click here to read our summary of the Second Circuit’s decision.) The FCC had issued notices of violation that these broadcasts were “actionably indecent” under revised FCC policy, even though FCC policy at the time of the incidents suggested that fleeting utterances of expletives or fleeting nudity were not actionably indecent. The Supreme Court held that the FCC’s change of policy after the instances occurred, and its subsequent issuance of notices of violation against Fox and ABC under the new policy, violated the networks’ right to due process because neither Fox nor ABC had sufficient notice of the applicable FCC policy.

The cases revolved around three incidents that occurred during television broadcasts in 2002 and 2003 – two “isolated utterances” of expletives on Fox ‘s Billboard Music Awards show in 2002 and 2003, and a third incident, in a 2003 episode of the ABC television drama NYPD Blue, involving a seven-second view of a female actor’s nude backside and a momentary glimpse of the side of her breast.

At the outset, the Court gave an overview of the FCC regulations, the FCC’s prior rulings on similar matters, and the Court’s landmark 1978 decision in FCC v. Pacifica Foundation. From 1978 until 2001, the FCC based its rules concerning the use of indecent language on radio and broadcast television on the Pacifica case, which arose from comedian George Carlin’s “Filthy Words” monologue. The case set forth a blanket prohibition on the use of seven specific words, regardless of context. Citing the need for a more flexible policy for indecency enforcement, the FCC set forth the underlying rule for its “fleeting expletives” policy in its 2001 Industry Guidance, explaining that an indecency finding involved two determinations: first, whether the material describes or depicts sexual or excretory organs or activities, and second, whether the broadcast is “patently offensive” as measured by contemporary community standards for the broadcast medium. The “patently offensive” determination depends on three factors: “(1) the explicitness or graphic nature of the description or depiction, (2) whether the material dwells on or repeats at length, and (3) whether the material appears to pander or is used to titillate, or whether the material appears to have been presented for its shock value.” Under the guidelines, the FCC took into account whether a station’s broadcast of allegedly indecent material was an isolated occurrence, and therefore not actionable, or repetitive behavior, which violated the policy.

After the three incidents at issue occurred, but before it issued a notice of liability against either station, the FCC issued an order (the Golden Globes order), declaring for the first time that a single, nonliteral use of an expletive (a so-called “fleeting expletive” and in the Golden Globes case, band member Bono’s utterance of an expletive during the broadcast of the 2003 show) could be actionably indecent. As it eventually developed, the fleeting expletives policy also included a blanket prohibition, with limited exceptions, on the use of the words “shit” and “fuck.” At around the same time, the FCC also began interpreting penalty assessments as being on a per-broadcast, rather than a per-program basis, with each licensee accounting for at least one broadcast. Along with Congress’s increase of the maximum indecency fine from $32,500 to $325,000, this change in enforcement policy subjected violators to fines which could easily run into the tens of millions of dollars.

In 2006, the FCC issued an order against Fox and ABC, among others, finding the incidents actionably indecent. Although it did not levy a monetary penalty against Fox, it declared the isolated utterances to have violated its decency standards. As to ABC, the Commission assessed a fine of $27,500 on each of the 45 ABC-affiliated stations that broadcast the episode, finding that the airing of the actor’s body parts was indecent under its Industry Guidance. Fox and its fellow petitioners sought review of the order and, in a two-to-one decision, the Second Circuit invalidated the “fleeting expletives” policy as arbitrary and capricious under the Administrative Procedure Act. The Supreme Court granted certiorari and, in a 5-4 decision, reversed the Second Circuit’s decision and remanded, instructing the Second Circuit to consider constitutional challenges to the FCC’s policy not addressed in its first decision. In that decision, the Court ruled that the FCC’s modification of its decency rules to ban fleeting expletives was neither arbitrary nor capricious, and returned the case to the Second Circuit for consideration of whether the policy was constitutional, since the court of appeals had not yet ruled on that issue. (Click here to read our summary of the Supreme Court’s prior decision.)

On remand, the Second Circuit ruled that the policy was unconstitutionally vague and set aside the FCC’s orders, finding that, at the time the broadcasts occurred, the FCC’s policies towards similar incidents were inconsistent. For example, the FCC found no violation if the expletives occurred during a bona fide news interview or were “demonstrably essential to the nature of the artistic or educational work.” This vagueness made it difficult for broadcasters to determine whether a particular scene would pass muster or not, leading to self-censorship to avoid large fines or the loss of their broadcasting license.

The Supreme Court granted certiorari and affirmed the Second Circuit’s ruling, holding that the FCC’s standards were unconstitutionally vague and failed to provide fair notice to the broadcasters of the words or behavior that could be found to violate those standards.

The Supreme Court rejected the government’s arguments, noting that it had conceded that Fox “did not have reasonable notice at the time of the broadcasts that the Commission would consider non-repeated expletives indecent.” The Court also found the argument that no forfeiture had been imposed on Fox and that the FCC would not hold the violation against Fox when it was time to renew its licenses unpersuasive, noting not only that the FCC had the statutory power to take prior offenses into account, but that promising not to do so would not remedy the constitutional violation. Fox would also suffer reputational injury, which would have an economic impact, if the FCC rulings stood.

The Court likewise rejected the government’s argument that ABC had notice that the brief nude scene would be considered indecent under a 1960 FCC decision, finding that an “isolated and ambiguous statement from a 1960 Commission decision does not suffice for the fair notice required when the Government intends to impose over a $1 million fine for allegedly impermissible speech.” FCC rulings in this area also had been inconsistent, noted the Court, since the Commission had declined to find violations of its rules in other cases involving brief nudity.

As the Court stated, “[e]ven when speech is not at issue, the void for vagueness doctrine addresses at least two connected but discrete due process concerns: first, that regulated parties should know what is required of them so they may act accordingly; second, precision and guidance are necessary so that those enforcing the law do not act in an arbitrary or discriminatory way.”

Because the Court decided the case on Fifth Amendment Due Process grounds, it specifically declined to rule on whether the FCC’s policies violated the First Amendment, whether the Court’s prior decision in Pacifica should be revisited, or whether the indecency policy in the Golden Globes order is constitutional. The Court left it to the FCC to decide whether a policy change was in order, and to other courts to issue further rulings on the FCC’s policies.

Justice Kennedy wrote the opinion, in which Justices Roberts, Scalia, Thomas, Breyer, Alito, and Kagan joined. Justice Ginsburg wrote a brief concurring opinion, while Justice Sotomayor took no part in the decision.

Forest Park Pictures v. Universal Television Network, Inc., USCA Second Circuit, June 26, 2012
 Click here for a copy of the full decision.

  • Second Circuit vacates district court’s dismissal of plaintiffs’ claim for breach of implied-in-fact contract for payment for use of their idea, holding that Copyright Act did not preempt claim.

Plaintiffs Forest Park Pictures, and Tove and Hayden Christensen, individuals affiliated with Forest Park, brought suit against defendant USA Network, a division of Universal Television Network, a television production company, alleging that defendant misappropriated an idea for a television series they developed, using the concept without compensation. Finding that the law of the Second Circuit and not California law applied, the district court dismissed the single-claim complaint, holding that plaintiffs’ breach of implied-in-fact contract was preempted by the Copyright Act. (Click here to read out summary of the district court’s decision.) The Second Circuit vacated the dismissal and remanded the case for further proceedings, holding that the Copyright Act did not preempt plaintiffs’ breach of implied-in-fact contract claim and that plaintiffs had properly pleaded that claim.

Plaintiffs developed an idea for a television series titled "Housecall," based on the story of a doctor who, after being expelled from the conventional medical community for treating patients who could not pay their medical bills, moves to Malibu and makes house calls to the rich and famous residents – becoming a "concierge" doctor. Plaintiffs alleged that in 2005 they created materials, including character biographies, concepts, themes, and plot/story lines for the television series, and pitched the concept to defendant by sending the materials to and meeting with a representative of the network, with the objective of persuading defendant to purchase the ideas for development. After meeting and communicating with plaintiffs, defendant rejected “Housecall.” In 2009, the network premiered “Royal Pains,” a show about a doctor who, after being expelled from the conventional medical community for treating patients who are unable to pay, relocates to the Hamptons where he becomes a concierge doctor.

Plaintiffs then sued defendant, asserting a single cause of action for breach of implied-in-fact contract against defendant, based on allegations that defendant knew of the entertainment industry convention that writers and creators pitch creative ideas to purchasers for the purpose of selling those ideas for compensation and with the expectation that they would be compensated in the event of use. Defendant moved to dismiss the claim on the grounds that the Copyright Act preempted the claim and that the contract was too vague to be enforced. The district court dismissed the claim based on preemption and did not address the vagueness argument.

Under Section 301 of the Copyright Act, a state law claim is preempted only if (1) the work at issue “come[s] within the subject matter of copyright” and (2) the right being asserted is “equivalent to any of the exclusive rights within the general scope of copyright.” Under Second Circuit law, works may fall within the subject matter of copyright, and may be subject to preemption, even if they contain material that is uncopyrightable.

In this case, the Second Circuit found that the work at issue meets the subject matter requirement because the complaint adequately alleges that the defendant used the ideas (though themselves not copyrightable) that were embodied and fixed in the written series treatment. The court found, however, that the right being asserted was not equivalent to any of the exclusive rights within the general scope of copyright as specified by Section 106 of the Act, because extra elements are required instead of or in addition to the exclusive rights of reproduction, performance, distribution or display.

Regarding plaintiffs’ breach of contract claim, the Second Circuit found that (1) the Copyright Act does not provide an express right for the copyright owner to receive payment for the use of a work, (2) a plaintiff suing for payment under a breach of contract must prove extra elements beyond use or copying, including mutual assent and valid consideration, and (3) a breach of contract claim asserts rights only against the contractual counterparty, not the public at large as in a copyright infringement claim.

The Second Circuit also noted that this preemption analysis applies in the same way to express and implied-in-fact contracts with a promise to pay. Where the elements of a contract are properly pleaded, no difference exists, for preemption purposes, between an express contract and an implied-in-fact contract. If a plaintiff pleaded an implied-in-law contract, quasi-contract, or unjust enrichment, however, those claims may be preempted by the Copyright Act because under those theories, the plaintiff only needs to prove that the defendant was unjustly enriched through the use of his idea or work, which is not materially different from a claim for copyright infringement requiring a plaintiff to prove that the defendant used, reproduced, copied or displayed the copyrighted work.

After finding that the claim was not preempted, the Second Circuit considered whether the complaint pleaded an enforceable implied-in-fact contract containing a promise to pay – and found that it did. The court applied New York’s choice of law rules to determine that that California law applied to the claim, finding that, although it could not confidently say that no divergence between California and New York law existed, almost all of the significant contacts between the parties regarding the implied-in-fact contract were with California.

Under Desny v. Wilder, a plaintiff can prevail by proving that he submitted an idea with an understanding amounting to a condition that he would be paid for use of the idea and that the defendant knew or should have known of the condition. California law does not require exact price terms to enforce contracts as long as the parties’ intentions can be ascertained, and permits custom and usage to supply absent terms. The Second Circuit found that plaintiffs had properly pleaded a Desny claim by alleging that defendant accepted plaintiffs’ idea, and that it knew or should have known that by keeping the series treatment, scheduling a meeting with plaintiffs, allowing plaintiffs to pitch their idea uninterrupted, and communicating with them after the meeting, plaintiffs would have an understanding that they would be paid for use of their idea.

For more information, please contact Jonathan Zavin at jzavin@loeb.com or at 212.407.4161.

Westlaw decisions are reprinted with permission of Thomson/West. If you wish to check the currency of these cases, you may do so using KeyCite on Westlaw by visiting http://www.westlaw.com/.

Circular 230 Disclosure: To assure compliance with Treasury Department rules governing tax practice, we inform you that any advice (including in any attachment) (1) was not written and is not intended to be used, and cannot be used, for the purpose of avoiding any federal tax penalty that may be imposed on the taxpayer, and (2) may not be used in connection with promoting, marketing or recommending to another person any transaction or matter addressed herein.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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