[This is the latest column from Tubefilter News' resident new media legal expert, James C. Roberts. Last time he tackled reader questions on when a producer actually needs to get signed model release forms in new media and online entertainment. This week's reader question is all about how to interpret the ever-resent Letter of Intent (LOI). ]
Q: A company wants our company to sign an LOI. What happens if we do sign it?
A: Don’t you just love it when an attorney’s reply is “It depends?” Well, it does depend. It depends on evidence as to what the parties intended when they signed the LOI (Letter of Intent).
We’d all like to believe that contracts are actual documents that parties sign with ink (or in Hollywood with blood). Well, we cannot, because the binding legal obligations created by a contract can arise from many exchanges—whether of real documents, emails, or even conversations. It depends on what the parties intended.
The operative word is binding. If it is primarily a sort of agenda for further discussions, then make that intent clear. If you want it to be obligations of both parties, then make it clear in the document itself.
It is pretty helpful, then, to include in the language of an LOI the statement whether or not the document is binding upon the parties. Include the language either way: “This
non-binding LOI sets forth some of the terms under discussion by the Parties.” It is also prudent to have in any email exchange a statement to the effect that nothing is binding
until both Parties sign a written agreement that sets forth all terms between the parties. You can even include in the LOI something to the effect that says the same thing (i.e., a
written agreement in the future that will be binding, once executed).
So you can see why the first answer is “it depends.”
Perhaps this begs another question: Why would someone want to sign a non-binding LOI? In some cases, one of the parties needs the LOI to show evidence of interest in their product or services—i.e., if they can show that someone in their relevant market is interested then an investment might follow. And another reason is that there is now a document that shows the intent of the parties.
Most lawyers would like 30 or 40 pages of disclaimers (OK, I exaggerate: 25 pages) in any LOI. It is not necessary to go overboard—unless you are buying or selling a company worth gejillions (or half a gejillion). You just need enough to show that the parties intended to be bound by the LOI or not when they signed it. It does not mean that someone will not challenge the existence or non-existence of a binding contract; it just means that the language will help.
James C. Roberts III is the Managing Principal of Global Capital Law Group and CEO of the strategic consulting firm, Global Capital Strategic Group. Between the two groups there are offices in California, Colorado, the East Coast, Shanghai and Milan. He heads the international, mergers & acquisitions and transactional practices and the industry practices concentrating on digital, media, mobile and cleantech technologies. Mr. Roberts speaks English and French and, with any luck, Italian in the distant future. He received his JD from the University of Chicago Law School, his MA from Stanford University and his BS from the University of California Berkeley. Have a question? Email James
This ‘Ask the New Media Attorney’ post discusses general legal issues, but it does not constitute legal advice in any respect. No reader should act or refrain from acting on the basis of any information presented without seeking the advice of counsel in the relevant jurisdiction. Tubefilter, the author and the author’s firm expressly disclaim all liability in respect of any actions taken or not taken based on any contents of this post.
Top photo by Mushroom and Rooster.
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Comments
What use case precedents exist for using copyrighted materials in reviews, segments, and discussions? My understanding is that it’s ok to, say, show a clip of a film during a review as long as the clip is under a certain length and the rights holder (usually a studio) is credited as the copyright holder. In practical terms though, are there ruling on record that might help determine where the line between Fair Use and infringement is in the case of reviews?
Jeff Koenig: You asked about using a clip in a review and saying that it is “OK” if it is under a certain length and you provide attribution. Not technically so. There are NO legal standards as to length. Attribution only has a marginal effect, showing to a judge or jury that you are nice and conscientious.
Use of copyrighted materials in reviews is expressly “protected” by the “Fair Use” doctrine enshrined in federal law BUT that doctrine amounts to an affirmative defense if you are sued–i.e., you get to raise it in court filings or in court itself. Obviously, you would raise it in an exchange of letters if someone sued you and any good attorney would probably back off but not all attorneys are good. In other words, it is not a replacement for permission.
Now, don’t panic and start deleting clips from reviews. Reviews are recognized by courts as critical to the discourse essential to any society. Court opinions SUGGEST that a judge would give a reviewer substantial leeway.
As a practice, reviewers will limit their clips to a very short length. There are four factors and a reply examining them would be way too lengthy. Essentially, it would go to things like the amount used relative to the length of the copyrighted work and whether or not the clip goes to the heart of the copyrighted material. A quote of 300 words from a 30,000 word soon-to-be-published book was considered infringement; seven seconds of the view of copyrighted artwork was an infringement, though 20+ seconds of another one was not.
One minute from a six-minute webTV episode? Probably a Bozo No-No. 20 seconds? If one discloses the mystery at the heart of the series then it might be a problem. Otherwise, the risk is probably less. And reviewers, as mentioned above, have a certain “special place” in the hearts and minds of judges.
And to answer your question if there are rulings, yes, there are many. If there is interest, I’ll try to publish a long-ish piece on this topic, with references. Let me know.
:):):)
James,
First, let me thank you for taking the time to personally answer my question. I sincerely appreciate you going to the trouble.
As to whether or not there may be interest in a piece on fair use, I can only speak for myself, by I strongly believe so.
Fair Use is one of the most cited and least understood laws applicable to webseries. Countless shows rely on references to copyrighted materials they may or may not have express permission to use, including:
Chad Vader (tacit permission from Lucasfilm Ltd., but only after the show became popular),
Autotune the News (according to Next New Networks, operates under the assumption of Fair Use parody clause but has to date never been challenged, that I’m aware of, by a rights holder),
The Legend of Neil (no idea what their legal standing with Nintendo and The Legend of Zelda is),
MysteryGuitarMan and MeTonyV on YouTube do mash-ups/new arrangements of copyrighted music (assume citing fair use),
And there are hundreds of other examples, including the aforementioned movie/media review shows like Stupid For Movies, This Week in YouTube, and others.
In short, even experienced, savvy creators and companies in this industry put a tremendous amount of faith in the idea that, through either critical review, collaborative rearrangement, or parody, the Fair Use laws protect us in our (generally) unauthorized use of copyrighted materials.
Any time you may spend further educating us on this subject is – again, in my opinion – not only welcome but extremely helpful.
Sincerely,
-Jeff Koenig
OK, Jeff Koenig (and others), here are some excellent resources on the Web on Fair Use:
fairuse.stanford.edu/
http://www.copyright.gov/fls/fl102.html
And what has now become a useful starting point:
en.wikipedia.org/wiki/Fair_use
Again, if you want me to post a long-ish discussion just say the word!
“It does not mean that someone will not challenge the existence or non-existence of a binding contract; it just means that the language will help.”
Oh dear…. the 436 has infiltrated TF. This will not end well…
The more on “Fair Use” the better!!!! BRING IT!!!!!!!
Excellent point about length when it comes to fair use. For instance, those 300 words from the Gerald Ford book were quotes dealing with pardoning Nixon. The court concluded that, that was the main reason most people would buy the book. Also, courts tend to give greater protection to unpublished works. The major factor is the affect on the market or the ability of the ‘creator’ to make money.
Jeff, et al., OK, the Mutual Admiration Society will now convene its Friday meeting . . .. Thank you for your kind words.
That these people rely on Fair Use means that it works pretty well as a statutorily defined basis for use. Creators, producers, distributors look at their “stuff” and they look at the Fair Use provisions and then they say “OK, we can do this” and they do it. But many people assume that what they are saying is “OK, we can do this and because of Fair Use nobody can sue us for copyright infringement. And besides, if the XYZ Show on ABC can do it, then we should be able to do so because we are smaller and we are providing attribution.” Wrong.
Everybody does it. Everybody exceeds the speed limit, too, some saying “Well, there is a general rule that the police will not ticket me if I go just seven miles an hour above the speed limit.” Raise your hand if you have found that seven mile an hour “exception” codified.
Here’s another example in the legal world. Many companies go public. They follow a host of regulations as to what is in their disclosure documents. And people buy their stock. But they always have a risk of what is called a “10b-5″ claim that means that someone was misled because they misstated something or that they failed to include something. In some cases, someone will sue them on that basis. There isn’t a lot of guidance in the statute as to what PREVENTS such a lawsuit. The case law provides pretty good guidance but it is not enough. Sometimes the plaintiff will win and sometimes the plaintiff will lose. And companies will continue to go public.
The Fair Use statutory provisions and the many, many cases provide some guidance but you will not find and legally compelling rules, regulations or even exceptions to the speed limit listed anywhere. Indeed, if you take the cases (legal opinions), you will find that in one district–let’s say, Chicago–one case finds that the use of a one-minute clip is protected by Fair Use but in another district–say, Austin–a 45 second clip is found to be infringing. And in some situations, you can find opinions in the same district that seem to contradict each other.
What the judges will look at is not only the length but also the type of use and the impact on the original work. They actually try to look at the real world. So, let’s say a reviewer includes five quotes from a “Whodunnit” book, each of which is roughly three lines long and the book is 30,000 words. The review is published in a church magazine. The reviewer is a volunteer and the church only receives donations when people receive the magazine. So, non-commercial use. Well, the length and number of the quotes look pretty small relative to the work. That might work.
Let’s change the facts. It’s the Catholic Church. The book is about the Church itself. The quotes reveal “who did it.” The book is a New York Times bestseller. Few Catholics buy it. Kosher? (OK, OK, forgive the joke.) Probably not. The quotes went to the heart of the book. There is a big market and there is evidence that members of that market did not buy it. Oops.
Just to anticipate a slew of replies: We can create any number of fact patterns and we’ll never get it right. The two examples I gave above are actually sort of “extremes.” (I thank my friend, Steve Katleman, for bringing to my attention the case regarding the review of Gerald Ford’s memoirs, which is the basis for this hypothetical). I promise, though: I will not address the hypotheticals you post. Well, not all of them. Well, a few of them.
People take risks all the time when relying on Fair Use. Common sense tells those people that they can probably take those risks, just as common sense tells people that they can probably go a few miles over the speed limit most of the time (those people obviously do not live in LA where a speed limit is aspirational during rush hour).
As for the shows you mentioned, I have no doubt that several of them have received threatening letters from the copyright holders. I have no doubt that some of them replied “Buzz off.” And I have no doubt that some of them get (tacit) permission.
Have you heard about the fracas between Wikipedia and the FBI? The FBI sent a letter demanding that Wikipedia remove the FBI logo from the page on the FBI. Well, their legal basis was somewhat more technical, but Wikipedia’s counsel fired back a letter that has been described as “sassy.” That is a synonym for “Buzz off.”
So:
1. The closer the use is to commercial–meaning direct commercial benefit;
2. The closer the indirect benefit is to gejillions of dollars (i.e., advertising);
3. The longer or larger the amount of the copyrighted material used;
4. The closer to the heart of the copyrighted material it is;
5. The further away from critical, journalistic or educational use it is;
6. The larger the plaintiff (in terms of resources, not body mass) relative to the defendant (or, conversely, the smaller the defendant);
7. The smaller the sense of humor or hip savviness of the plaintiff; and
8. The further away the use gets from providing some benefit (e.g., marketing, eyeballs, etc.);
Then the more likely that the person doing the Fair Using will (a) receive a “cease and desist” letter; and (b) will be sued; and (c) will lose in court.
And the moral? Don’t speed. Not more than seven miles an hour above the speed limit.
And don’t quote me.
Jeff, et al. I will post a more comprehensive article sometime in the next couple of weeks; the above post was just because I could avoid doing work!
ModelMotion: Your reference to “The 436″ escapes me. And I hope it never ends!
Anyone wishing to Tweet my comments please feel free to do so. However, please figure out a way to include reference to the disclaimer about legal advice.
Maybe we could also re-direct this conversation to the LOI? Or two tracks? (I must be really trying to avoid my work.)
James,
Thanks again for sharing your insight!
as requested, back to LOIs:
Do you know of any good online resources for a sample/template LOI?
Jeff Koenig,
You asked if there were any LOI templates on the Web. Well, yes and now (OK, OK, so another lawyer answer). There are many, because there are many, many different deals and deal terms. Try searching with the following terms–both their acronym and their full names:
LOI–Letter of Intent
MOU–Memorandum of Understanding
TS–Term Sheet
Try searching in the sector in which you have an interest (e.g., digital media) and even try a few other words. You will find that many of them refer to mergers & acquisitions, by the way.
Typically, a letter of intent is actually a letter (surprise). However, in almost all cases, we insert a tablebetween the address block and the signature block. Sorry to get into formatting but we find that paying attention to formatting really works. Thus, we use a two column format in Word, with the left-hand column at 2 inches and the right-hand column at four inches. The left-hand column is used to the headings; the right for the details on that topic. Each paragraph gets its own new row.
As lawyers who draft agreements we encourage clients to look at the LOI or Term Sheet, etc., as a roadmap for the lawyers to use to draft the agreement. We encourage clients to use the LOI or Term Sheet as the basis for negotiations because to use the agreement itself may enrich our law firm, it wastes a lot of time and money. As a consequence, in some cases the LOI/Term Sheet ends up being longer than the agreement itself, which is fine with us.
Some clients do NOT want to get into the details in the LOI, which we find is generally a bad idea; it’s a kind of “hide the ball” negotiating stance that can poison the relationship.
Hope this helps.
James
By the way, there was just a announcement relating to LOIs. A court dismissed a suit from a concert promoter against the estate of Michael Jackson. The concert promoter had claimed that there was an agreement with Jackson for a reunion concert, valued at $300 million. The court dismissed the suit, pointing out that there was a letter of intent.
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