LOYOLA OF LOS ANGELES

ENTERTAINMENT LAW REVIEW

Volume Thirty-Two

2011–2012

Number 1

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LOYOLA

OF LOS ANGELES

ENTERTAINMENT

LAW REVIEW

Volume 32

2012

Number 3

TABLE OF CONTENTS

ARTICLE

THE SCOOP ON BETTY BOOP: A PROPOSAL TO LIMIT OVERREACHING TRADEMARKS

by Lee B. Burgunder

COMMENTS

MAJOR LEAGUE BASEBALL TEAM BANKRUPTCIES: WHO WINS? WHO LOSES?

by John Dillon

QUID PRO QUO: PIERCING THE REPORTER’S PRIVILEGE FOR MEDIA WHO RIDE ALONG

by Dina Hovsepian

EXTRA!! EXTRA!! THE VIABILITY OF THE HOT NEWS MISAPPROPRIATION CLAIM IS IN JEOPARDY

by Sean Winston Montgomery

LOYOLA OF LOS ANGELES

ENTERTAINMENT LAW REVIEW

Please cite this issue as: 32 LOY. L.A. ENT. L. REV. — (2012).

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THE SCOOP ON BETTY BOOP: A PROPOSAL TO LIMIT OVERREACHING TRADEMARKS

Lee B. Burgunder[*]

The Ninth Circuit temporarily stunned marketers in 2011 when it ruled that Betty Boop did not serve as a trademark on merchandise due to aesthetic functionality and because protection would conflict with the copyright system. The opinion endangered merchandising rights in all trademarks and jeopardized the duration of trademark rights in images and media characters. The court soon withdrew the decision and substituted it with one that denied protection on technical grounds, leaving the controversies for another day. This article demonstrates that the court’s apprehension about copyrights made sense, and proposes a new approach to distinguish when copyrighted images might also serve as trademarks.

I. INTRODUCTION

In February 2011, a panel of the Ninth Circuit Court of Appeals decided that the purported owners of trademark rights in the character Betty Boop could not prevent another company from authorizing the production of merchandise, such as t-shirts, bearing two Betty Boop images.[1] The majority opinion was based on two very controversial conclusions: (1) the use of a trademark on merchandise is aesthetically functional, and thus noninfringing, when consumers purchase that merchandise to publicly display their affection for the trademark;[2] and (2) copyrighted images cannot serve as trademarks after copyright protection has terminated.[3] A storm of protest ensued, and the panel quickly withdrew the opinion and substituted it with one that denied protection simply on the grounds that the plaintiff could not satisfactorily prove that Betty Boop’s image served as a trademark.[4] By denying Betty Boop’s trademark status, the panel found a way to avoid both of the issues that clearly troubled it but that raised such heated rebukes when it attempted to address them.[5] Unfortunately, these problems are likely to someday resurface—and next time, the court will probably be unable to hide.[6]

The Ninth Circuit panel was right to be concerned about extending trademark protection to media characters such as Betty Boop. After all, unless something is done, the Walt Disney Company (“Disney”), for example, will be able to use the trademark system to prevent companies from displaying images of Mickey Mouse long after its copyright expires.[7] This result would violate public policy and must be addressed.[8] However, the court’s original reasoning was incorrect and over-extensive, which is why it provoked such an outcry of opposition.[9] For instance, the consequences of the decision would have prevented entities ranging from Nike to Yale University from exclusively licensing their trademarks for t-shirts or key chains.[10] It also would have caused trademarked images, such as the one used by Starbucks, to fall into the public domain after expiration of their copyright term.[11] Thus, the court will need a more coherent and focused approach the next time it addresses a trademark merchandising situation involving copyrighted material.

This article argues that trademark protection should not be extended to the overall general appearances of images and characters that are primarily developed for copyright purposes. This approach would allow trademark merchandising for names such as Nike, and would permit Starbucks to keep its trademark forever.[12] However, Disney would no longer be able to lay claim to all images recognized as Mickey Mouse.[13] Instead, Disney could only enjoy trademark rights to particular individual images that are consistently used as trademarks to identify it as the source of products and services.[14] Such a result is consistent with the ways courts treat trademark protection for famous celebrities,[15] which makes sense given the fame of many media characters. Of course, Disney will likely object, and at first, some confusion may result. Nevertheless, in the long run, this approach will preserve the goals of trademarks while preventing policy conflicts with copyrights.

II. PERTINENT FACTS OF THE BETTY BOOP LITIGATION

Betty Boop is a well known cartoon character whose appearance juxtaposes a childish demeanor with a sophisticated air by placing on top of a “very small body,” “a large round baby face with big eyes,” a small nose, and a carefully tailored coiffure.[16] Max Fleischer created Betty Boop and served as President of Fleischer Studios (“Fleischer”), which developed several films based on the character beginning in 1930.[17]

In 1941, Fleischer Studios dissolved after selling all of its assets and intellectual property rights to Paramount Pictures, Inc. (“Paramount”).[18] In the early 1970s, Max Fleischer’s family was determined to revive the Fleischer cartoon business, and so it reestablished Fleischer Studios and embarked on efforts to repurchase the interests in the Betty Boop character.[19] This was not a simple task since the intellectual property rights had been transferred several times over the thirty-year period.[20] Of most importance, Paramount assigned its rights to the Betty Boop films in 1955 to UM&M TV Corp. (“UM&M”)[21] but retained the copyright interests in the separate Betty Boop character.[22] Fleischer successfully acquired the interests in the films that originated from UM&M through a series of transfers.[23] However, Paramount transferred its copyright interests in the Betty Boop character to Harvey Films,[24] and what happened to these rights, or whether they were even preserved, remains unclear.[25]

Beginning in 1972, Fleischer authorized numerous companies to produce merchandise bearing images of Betty Boop.[26] In 2002, Art & Vintage Entertainment Licensing Agency, Inc. (“A.V.E.L.A.”), which was not one of the companies working with Fleischer, registered copyrights for two restored Betty Boop movie posters and then licensed images from the posters, including the Betty Boop character, for use on merchandise such as t-shirts and handbags.[27] In 2006, Fleischer sued A.V.E.L.A. for copyright and trademark infringement.[28] Both the district court and the Ninth Circuit agreed that Fleischer could not win on the copyright claims since it could not demonstrate that it owned the copyright to the Betty Boop character.[29] The trademark claims, though, proved to be more challenging.[30] For example, Fleischer had several federal registrations for the word mark “Betty Boop,” which appeared on the A.V.E.L.A. merchandise.[31] However, since the registrations were not incontestable,[32] this opened the door for the courts to disagree about the validity of the registrations.[33] The issues regarding the word marks, though, are not the subject of this article. Rather, the focus is on how the courts approached Fleischer’s trademark rights to the Betty Boop image.

The district court judge granted summary judgment for A.V.E.L.A. on the trademark image claim.[34] Although Fleischer had evidence that it owned a federally registered trademark for an image of Betty Boop, the district court judge refused to consider it because Fleischer submitted evidence of such too late.[35] Thus, Fleischer had to establish common law trademark rights by demonstrating that it was the owner of the mark and that the mark had acquired “secondary meaning.”[36] In other words, Fleischer had to establish that the image actually represented the source of goods or services bearing it. The district court dispensed with the topic based on the issue of ownership, which requires proof of first use in commerce.[37] Since Fleischer could not establish whether other companies may have sold Betty Boop merchandise prior to its use in 1972, it failed to prove that it owned the common law trademark rights to the image.[38] The court did note, however, that when litigants are able to prove trademark ownership in cartoon characters or other media images, they typically can also establish secondary meaning.[39] Thus, it acknowledged that under the appropriate circumstances, companies can establish trademark rights to the general appearance of characters, which may prevent others from using those characters on merchandise due to a likelihood of confusion.[40]

On appeal, the parties raised numerous arguments regarding the district court’s trademark decision as to Betty Boop’s image, including issues about federal registration, ownership of common law trademark rights, and whether A.V.E.L.A. infringed upon the mark.[41] Nonetheless, the court initially ignored these arguments, claiming they were all “mooted by controlling precedent that neither party cited . . . .”[42] This precedent was International Order of Job’s Daughters v. Lindeburg & Co., a case involving a jewelry manufacturer that displayed the Job’s Daughters’ fraternal insignia on its products without permission from the trademark owner.[43] In that case, the court stated, “[t]rademark law does not prevent a person from copying so-called ‘functional’ features of a product which constitute the actual benefit that the consumer wishes to purchase, as distinguished from an assurance that a particular entity made, sponsored, or endorsed a product.”[44] In Job’s Daughters, the court noted that consumers often purchase merchandise bearing trademarks to indicate their allegiance to the brands or organizations displayed and not because they perceive any connection to, or sponsorship by, the trademark owners.[45] Thus, trademark protection does not extend to these kinds of merchandising practices because the actual benefit that consumers seek in the transaction typically is the trademark itself.[46]

Based on the logic of Job’s Daughters, the Ninth Circuit ruled that the Betty Boop name and image were “functional aesthetic components of the product, not trademarks.”[47] In support of this conclusion, the court noted that Betty Boop was a prominent feature of the merchandise and that A.V.E.L.A. did nothing to falsely indicate that Fleischer officially sponsored the items.[48] The court determined that under these circumstances, there could be no infringement.[49]

Obviously, trademark owners were alarmed by this decision because it seemingly gave merchandise manufacturers a green light to apply marks to their wares without paying licensing fees.[50] However, the court did not stop there.[51] The court also objected to Fleischer’s attempt to use trademark law as a copyright substitute.[52] In this regard, the court cited Dastar Corp. v. Twentieth Century Fox Film Corp.,[53] which involved an accusation of reverse passing off[54] with films that were no longer copyrighted.[55] In particular, Fox accused Dastar of violating its trademark when it copied its Crusades television series (after the copyright had ended) and repackaged it into a shorter series without attributing the source of the original video material.[56] The Supreme Court noted that the “rights of a patentee or copyright holder are part of a carefully crafted bargain,”[57] and denied the trademark claim because “in construing the Lanham Act, [the Court had] been ‘careful to caution against misuse or over-extension’ of trademark and related protections into areas traditionally occupied by patent and copyright.”[58] Based on these considerations, the Ninth Circuit stated, “[i]f we ruled that A.V.E.L.A.’s depictions of Betty Boop infringed Fleischer’s trademarks, the Betty Boop character would essentially never enter the public domain.”[59]

This aspect of the Court’s ruling also raised fears because many trademarks include copyrighted material.[60] For instance, the Starbucks logo, which serves as a trademark, also includes pictorial works subject to copyright protection.[61] When the copyright expires, will any company be able to attach the well known graphic to their products despite the very likely possibility of confusion?[62] Even if the images within a trademark are not registered with the Copyright Office, they still bear automatic copyright protection if they are original and minimally creative.[63] So, if the Nike Swoosh meets these standards, will the company lose its exclusive rights to use the Swoosh for brand identification once the copyright term expires? Would this mean that Tony the Tiger may someday die, at least as a brand symbol for Kellogg’s?

As one might expect, Fleischer petitioned the court for a rehearing.[64] However, before the court responded to the petition, it withdrew its previous opinion and superseded it with a new decision, thus making a rehearing unnecessary.[65] The revised decision makes no mention of Job’s Daughters, functionality, or conflicts between trademarks and copyrights.[66] Instead, at least with regard to Betty Boop’s image, the court avoided the potentially difficult issues by handling them summarily on procedural grounds.[67] First, the court determined that the district judge did not abuse her discretion by excluding Fleischer’s untimely evidence, showing that the image had been federally registered as a trademark.[68] The court also refused to take judicial notice of the Betty Boop image registration on appeal.[69] Of course, the court still had to consider the possibility that the image served as an unregistered trademark, and if so, whether A.V.E.L.A.’s use might cause a likelihood of confusion.[70] But again, the court took the easy road by ruling that Fleischer did not submit legally sufficient evidence that the image had attained secondary meaning.[71] Thus, after previously noting all the thorny issues that trademarks raise with merchandising, especially with respect to copyrighted images, the court found a way to take cover and leave the battle for another day.[72]

The result is unfortunate because the issues are extremely important and are certain to rise again, but under circumstances that will force the court to address the obvious concerns.[73] Numerous media companies aggressively guard the copyright and trademark interests in the characters depicted in their works, and unlike Fleischer, leave no procedural stone unturned.[74] Consider, for instance, the attention Disney invests in protecting its interests in Mickey Mouse. If one is comfortable with the notion that Mickey Mouse might serve as a distinctive identifier for the source of the films in which he appears, then the character perhaps may serve as a trademark.[75] Once that leap is made, it will be easy to demonstrate secondary meaning because five years of exclusive and continuous use provides prima facie evidence of distinctiveness.[76] Thanks to copyright, no other company has been allowed to reproduce and use the character on their wares, except under very special circumstances, for far longer than five years.[77] Thus, it is essentially impossible to destroy opportunities for a character to achieve trademark status.[78] After that, the trademark owner has wide powers, through dilution principles, to prevent others from displaying the character in almost any other context.[79]

The Ninth Circuit understandably felt uncomfortable with the notion that trademarks could allow Fleischer to control Betty Boop’s image when copyrights are not up to the task.[80] In this regard, the court accurately recognized that care must be taken to ensure that trademarks do not interfere with the public policy balance underlying the copyright system.[81] However, when the court addressed the issue, it reached a confusing and potentially over-extensive conclusion that would jeopardize the longevity of practically all artistic trademarks. This article, therefore, proposes a coherent and workable approach that distinguishes the trademark treatment of media characters such as Betty Boop from other artistic identifiers, such as the Nike Swoosh.

III. OOPS!: BETTY BOOP AND THE ISSUE OF AESTHETIC FUNCTIONALITY

A. The Rationales for Intellectual Property Protection

The United States economic system is based on the fundamental notion that public welfare is best advanced by free competition.[82] Allowing competitors to freely copy products and services leads to lower costs, better features, and reduced prices.[83] However, inventors and artists may be reluctant to invest in creative activities if they know that others can freely utilize them as soon as they are disclosed to the public.[84] Thus, they may decide to forego development of the ideas, or if possible, distribute them through secret channels.[85] In either event, social welfare is diminished because members of the public do not get to widely benefit from creations that they otherwise might have enjoyed.[86]

The patent and copyright systems are intended to solve this problem by granting inventors and artists a limited period of exclusivity so that they have an opportunity to profit from their creativity before facing free competition.[87] Both regimes are theoretically characterized by a finely tuned balance that provides just the right length and degree of protection to sufficiently reward innovators before competitors in the marketplace gain full access to their creative works.[88] The patent system, for instance, provides developers of useful products and processes the exclusive right to make, use, and sell their inventions for twenty years.[89] To earn this protection, the inventions have to meet several specified standards, such as novelty and non-obviousness.[90] Those useful inventions that fail to meet these requirements are not deemed worthy of a patent, and so should remain free for the public to copy.[91] The same goes when inventors opt not to protect their useful inventions by patents.[92] Again, the public must be free to copy those inventions, or the balance of the patent system will be unduly displaced.[93] Likewise, and perhaps most obviously, the public must gain full rights to the invention after the patent expires.[94] Thus, any legislative attempts by state governments to protect unpatented or un-patentable inventions typically will be preempted because they will interfere with the policy objectives of the federal patent laws.[95] Also, Congress must take great care when devising its laws to ensure that they do not upset the delicate balance crafted for patents, and the courts must assume that federal laws are not intended to interfere with that balance unless Congress specifically states otherwise.[96]

The same considerations are true for design patents and copyrights.[97] The former provides fourteen years of protection to novel and non-obvious product designs.[98] Copyrights grant a relatively long period of protection for original material in expressive works such as books, movies, paintings, and sculpture.[99] Thus, a copyright provides the creators of a movie, like Finding Nemo, the power to prevent others from making a movie that is substantially similar to the original for the duration of the copyright period.[100] In addition, courts have determined that certain well-developed characters, such as Nemo, are sufficiently creative that they can have copyright protection independently from the works in which they appear.[101] Thus, any other company that displays an image substantially similar to the character, Nemo, would violate the copyright, unless its use falls under a special exception such as fair use.[102]

While patents and copyrights provide exclusive rights so that creative individuals might earn suitable profits from their innovations, trademarks are intended to serve an altogether different role.[103] In an unrestrained marketplace, competitors would be free to duplicate every observable attribute of a product,[104] which could make it very difficult for consumers to locate products from a particular source that they desire. The primary goal of the trademark system is to address this problem by giving companies exclusive rights to identification symbols so that consumers can distinguish their products from those made by competitors.[105] Thus, trademarks are intended to reduce the likelihood that consumers might be confused about the sources of competitive products that otherwise might look identical.[106]

The protection of trademarks leads to several beneficial social effects.[107] First and foremost, trademarks prevent unscrupulous competitors from trying to fool unsuspecting consumers into buying their inferior products by mistake.[108] Thus, trademarks preserve standards of commercial ethics.[109] Also, trademarks make it easy for consumers to locate the goods and services that they want, thus reducing the amount of time and resources they otherwise might have to invest to complete a successful search.[110] In this way, trademarks enhance market efficiency.[111] In addition, companies are more likely to invest in quality when competitors cannot easily siphon off and confuse customers with inferior products or services.[112]

In a perfect world, the trademark system provides these benefits without any countervailing social harms. As a starting matter, trademarks in their purest forms are simply identification symbols that are included with goods or services to designate source.[113] In this sense, the trademark system prevents competitors from copying the protected identification symbol, but allows them to freely duplicate the underlying products that the consumers primarily want.[114] Thus, trademarks achieve their purposes without overstepping into the functions that patents and copyrights are designed to perform.[115]

Trademarks also typically improve efficiency without raising competitive roadblocks.[116] It is hard to imagine how exclusive rights to a word, such as EXXON, might hurt competing oil companies since they can choose from literally millions of other names to identify their products.[117] However, not all selections may be so benign, and when that happens, trademark rights have to be handled more cautiously.[118] For instance, providing trademark rights to the generic name of a product, such as “BASEBALL,” would clearly provide market advantages because competitors might have a hard time assuring consumers that their products suitably achieve the same functions.[119] Thus, trademarks are never appropriate for words that are, or become, generic.[120]

Likewise, potential competitive concerns arise when companies select descriptive words and phrases, such as “ROLLERBLADE,” to serve as trademarks. In one sense, these choices do not even act as trademarks by designating source because consumers usually perceive them at first as merely describing the product. Also, if there are only a few other equally good ways to describe the product, then providing trademark protection might be advantageous to the lucky registrants of these effective names since all the other choices are inferior shorthand tools for marketing.[121] For both of these reasons, the trademark system does not provide protection to words that primarily have descriptive meanings.[122] However, when a company uses a descriptive term exclusively for a long period of time and makes efforts to have consumers associate the phrase with an individual source, then consumers might be confused if other companies were then permitted to use it.[123] Under these circumstances, the term is said to have “secondary meaning,”[124] which refers to the source identification properties that became subsequently associated with it.[125] In this instance, protection may be allowed if the potential for consumer confusion outweighs concerns about the competitors’ access to equally informative names.[126]

B. The Increasing Problems with Overlapping IP Protection Systems

As described, patents and copyrights have been devised to provide incentives toward different forms of creative innovations, while trademarks serve different purposes.[127] Patents are intended to protect useful machines and processes, as well as the designs of useful products, while copyrights cover expressions, but not ideas, processes, or systems of operation.[128] Trademarks, on the other hand, are simply identification symbols that companies include with products to help consumers find their products by reducing potential confusion with competitive offerings.[129] Over time, though, courts and Congress have expanded the range of protections offered by each of the systems,[130] leading to overlapping coverage that challenges the fundamental balances that respectfully underlie them.[131]

For instance, due to both new laws and court interpretations, copyrights now may protect computer programs[132] and the architecture of buildings,[133] despite their clearly useful purposes. The expansion with trademarks is even more profound. Trademarks are no longer confined to separate identification symbols; now the actual components of products, such as their color,[134] smell,[135] sound,[136] or overall design,[137] may qualify.[138] These trends cause obvious tensions with the patent and copyright systems, which have very limited and circumscribed standards for protection to maintain the appropriate social balance.[139] In addition, trademarks no longer simply address the likelihood of confusion with competitive products.[140] Rather, companies owning certain trademarks have rights against non-competing uses through the doctrine of dilution, and against applications that may cause confusion as to sponsorship or affiliation.[141] Both of these movements increasingly allow companies to own more than a simple means to reduce source confusion; instead they can exercise almost complete control over any use of an identification device.[142]

The increasing overlap of potential protection from these disparate systems leads to significant questions about the unintended impacts that each might have on the policy objectives of the others and requires policy makers to fashion appropriate limits to preserve social welfare.[143] As just one example, consider the body design of the Mazda3 automobile. It is possible to argue that the design could be subject to a utility patent due to airflow characteristics, a design patent for its ornamental appearance, a copyright for its sculptural beauty, and a trademark for its distinctive look. How should the courts parcel out which forms of protection are appropriate, when each is applicable, and to what degree? Cartoon and other media characters, such as Betty Boop, may pose challenges as well.[144] Since product attributes may now serve as trademarks, one can argue that distinctive characters can represent the source of the films or books in which they appear.[145] Coupled with dilution and sponsorship rights, the trademark owner perhaps could control all uses of the character in any commercial context, even after copyright privileges are lost or expire.[146] How should courts address this obvious conflict with the policy goals of copyright?

1. The Copyright-Patent Overlap

Although applications of Betty Boop’s image will almost never raise patent issues, the tests that courts have devised to address potentially overlapping copyright and patent protections are instructive in the more pertinent context involving trademarks and copyrights.[147] The essential questions are what will happen when works of art are turned into useful articles? or alternatively when are useful articles so creatively expressive or beautiful that they also qualify as works of art?[148] Patent protection lasts for fourteen to twenty years,[149] depending on the circumstances, but if copyright protection were available, the owner could extend protection over the design for far longer.[150]

One way that the Copyright Act attempts to deal with the potential overlap is with the following provision:

[T]he design of a useful article . . . shall be considered a pictorial, graphic, or sculptural work only if, and only to the extent that, such design incorporates pictorial, graphic, or sculptural features that can be identified separately from, and are capable of existing independently of, the utilitarian aspects of the article.[151]

Courts have struggled with the application of this language in cases dealing with lamp bases and fixtures,[152] belt buckles,[153] mannequins,[154] and bike racks,[155] among other topics. The easiest way to handle the situation would be to permit copyright protection for the artistic elements only when they can be physically removed from the product without affecting its ability to function.[156] In a sense, this would effectively bar the overlap since the copyright only applies to elements that have no function.[157] However, courts have not been willing to take such an extreme position,[158] and instead entertain the notion of conceptually separating the artistic elements from the useful functions.[159]

The difficulty, then, has been devising tests that inform when appropriate conceptual separation exists. To this end, courts have considered several tests, including: (1) whether the primary use of the article is as an artistic work; (2) whether the artistic aspects are primary; (3) whether the article is marketable as art; and (4) whether the article was first developed as art uninhibited by functional considerations.[160] Although all of these tests are slightly different, two overriding considerations do stand out.[161] One relates to the importance of the artistic elements.[162] The more that the artistry can somehow be viewed as “primary,” the more that dual coverage seems to be appropriate.[163] The other involves the creator’s intent—whether the purpose was to create a work of art as opposed to an industrial design.[164] Putting these together, one might ask whether the developer’s primary purpose in creating the piece was to make an aesthetic work of art, which would point toward dual protection, or whether the primary goal was to make a useful article, which would serve to exclude copyright protection.

The Copyright Act also attempts to avoid dual coverage with patents through its definition of copyrightable subject matter.[165] The statute provides that copyrights are available to protect original expressions in works of authorship, but the rights cannot extend to ideas, processes, systems, or methods of operation.[166] In this regard, the most difficult issues have arisen in the context of computer programs and user interfaces since they rely on written instructions and displays to make the computers work and help customers operate them.[167]

Although computer programs are clearly patentable as useful processes,[168] the courts, at first, gave copyrights a significant role in their protection as well, thus making the degree of overlapping coverage somewhat great.[169] For instance, copyrights protected not only the lines of code selected to instruct the machine, but also the structure, sequence, and organization of the program.[170] Likewise, with user interfaces, copyrights protected almost anything that appeared on the screen, including the choice and arrangement of command terms.[171] In both instances, the courts allowed coverage because other developers had several alternative options to achieve the program’s overall goals.[172] Thus, the concept of the idea or system was seen in very abstract terms, thereby opening the door to significant copyright coverage.[173]

More recently, though, courts have significantly reduced the role of copyrights by taking a more practical approach to the utilitarian characteristics of computer programs and interfaces.[174] With computer programs, courts now focus on each characteristic and feature to determine the importance of its individual role to the overall utility, efficiency, and industry acceptance of the product.[175] These attributes, which are viewed as primarily suited to patents, are filtered from the realm of copyright, so that all that remains is a small nugget or core of protectable expression.[176] In fact, in the leading computer program case, Computer Associates International, Inc. v. Altai, Inc., the court believed that the copyright system is not ideally suited for protecting computer technology at all, but that Congress required copyrights to have a role.[177] Nonetheless, the court refused to impair the overall integrity of copyright law.[178] The same trend also emerged with user interfaces, so that courts now tend to view the entire menu system as a method of operation solely within the purview of patents.[179] Here, too, courts have sought to remove much of the overlapping protection and more clearly delineate the separate and independent roles of patents and copyrights.[180]

2. The Trademark-Patent Overlap and the Functionality Doctrine

As previously noted, the courts over time have expanded the forms of identification devices that may serve as trademarks,[181] so that distinctive product designs and features now may qualify.[182] Since product attributes have become subject to trademarks, overlap with the patent system necessarily results because patents protect both utilitarian features and ornamental product designs.[183] As always, the overlap leads to potential conflicts between the policy goals of each, but in this regard, the patent system must always take precedence since it was specifically devised to protect these kinds of innovations.[184]

Recent Supreme Court decisions bear this out, since they have called for greater caution before extending trademark rights to product designs.[185] For instance, one might ask if a highly unusual product design could be so immediately distinctive that it would automatically serve as a trademark, not unlike the word “EXXON.” The Supreme Court ruled that product designs, no matter how distinctive, should always be treated like descriptive marks, since consumers typically view them, at first, as simply an attractive aspect of the product rather than as an identifier.[186] Thus, the Court required that secondary meaning be proven under every circumstance.[187] In this regard, the Supreme Court recognized that this additional hurdle might sometimes increase instances of consumer confusion.[188] However, in doing so, the Court also determined that “[c]onsumers should not be deprived of the benefits of competition with regard to the utilitarian and esthetic purposes that product design ordinarily serves.”[189] In other words, when the goal of preventing confusion might interfere with rights to fairly compete, then competition must prevail.

a. Utilitarian and aesthetic functionality

More pertinent to the Betty Boop litigation is the application of what is called the “functionality doctrine,” since the Ninth Circuit, on its first pass, relied on this doctrine to sanction Art & Vintage Entertainment Licensing Agency, Inc.’s (“A.V.E.L.A.”) use of the character.[190] The functionality doctrine was specifically developed to prevent the trademark system from protecting product designs when such protection would upset the carefully crafted objectives of the patent regime.[191] In this regard, the courts are concerned with two associated but slightly different issues. The first relates to the notion that useful inventions and product designs are supposed to be subject to free competition, unless they are covered by patents.[192] Thus, tensions inevitably arise whenever trademarks are used to protect unpatented useful articles.[193] The other issue relates to the overarching goal of patents, which is to stimulate creativity via the profits inventors might earn from exercising control over what they hope are superior product attributes.[194] For this reason, trademark protection of product designs is troublesome when exclusivity offers competitive advantages.

According to the Supreme Court, a product feature is functional and cannot serve as a trademark “if it is essential to the use or purpose of the article or if it affects the cost or quality of the article.”[195] This is true, according to the Court, even if the attribute has acquired secondary meaning.[196] Thus, the doctrine is an absolute bar, and trumps potential confusion.[197]

Until recently, there had been substantial debate about the application of the functionality doctrine to designs that contribute to the product’s utility.[198] Many courts determined that a feature was not “essential to the use or purpose of the article” if competitors might be able to configure the product in alternative ways to achieve the same function.[199] Thus, the focus was on whether trademark protection would result in competitive advantages.[200] In TrafFix Devices, Inc. v. Marketing Displays, Inc., the Supreme Court ruled that this was an incorrect approach.[201] Instead, courts must prevent trademark protection whenever the feature contributes to the operation of the article in more than an incidental fashion.[202] This is true even when there might be other ways to achieve the same function.[203] Consequently, the Supreme Court criticized the lower courts for allowing trademarks to overreach into the province of patents.[204]

Often, companies want to use trademarks to protect product designs that are attractive but have little relation to the product’s utility.[205] Although the Supreme Court has taken a rather absolute stand regarding useful features, its approach to aesthetic designs is a little more permissive.[206] Thus, the Court has concluded that aesthetic product designs are functional only when exclusive rights would give the trademark owner a competitive advantage in the market.[207] Such an advantage may arise if consumers consider the aesthetic attribute to be an important reason to purchase the product.[208] Companies also may gain an advantage if the feature is more attractive or desirable than other potential options that competitors might use with their products.[209] Based on these considerations, Owens-Corning was able to register the color pink as a trademark for home insulation because (1) color is not an important factor in a consumer’s decision to purchase insulation, and (2) other companies had numerous other color options that they might use on their insulation.[210] On the other hand, an Italian shoe company has recently faced questions about whether a red sole may serve as a trademark because consumers may consider color to be an important factor in a fashion purchase decision.[211]

It is important to reemphasize that the objective of aesthetic functionality is to ensure that companies do not unfairly benefit by obtaining exclusive rights to attractive product features through trademarks. For this reason, the focus of the analysis is on the inherent or comparative value of the feature itself before trademark rights are even obtained. Thus, pink could be registered as a trademark because it provided no competitive advantages in selling insulation.[212] However, there is no question that Owens-Corning has invested heavily in the quality of its products and advertising so that many customers actually prefer pink insulation.[213] This preference, though, results from the reputation that Owens-Corning has built around the colorexactly what a trademark is supposed to encourage.[214] Therefore, it would be wrong for competitors to rely on functionality to argue that they now should be able to use the color pink on their products based on competitive need. As the Supreme Court has made clear several times, functionality is about “non-reputation-related disadvantage.”[215]

Another relevant fact is that several courts once questioned the breadth of the aesthetic functionality doctrine or whether it should exist at all.[216] By so doing, they expanded the potential overlap between trademarks and design patents.[217] The Supreme Court, though, has more recently stepped into the fray and confirmed that aesthetic functionality must be fully addressed.[218] This, once again, demonstrates the Court’s determination to more clearly demarcate the independent and exclusive roles of the separate intellectual property regimes.

C. The Ninth Circuit’s Dangerous Misapplication of Aesthetic Functionality

The Ninth Circuit panel clearly believed that Fleischer should not have been able to use trademark law to prevent A.V.E.L.A. from displaying Betty Boop’s image on t-shirts and other merchandise, but had difficulty devising the legal theory to substantiate its intuition.[219] The panel is certainly not alone in disapproving of the wide powers that trademark owners now wield to prevent almost anyone from displaying their trademarks on commercial products without permission through a license.[220] Nonetheless, its original reliance on the aesthetic functionality doctrine to address its concerns was definitely the wrong approach.

The Ninth Circuit panel, in its first opinion, claimed that Fleischer’s trademark rights in Betty Boop did not extend to A.V.E.L.A.’s use on merchandise because her image was a functional aesthetic component of the products.[221] Drawing on the “important factor” test, it reached this conclusion because the image was the actual benefit that the consumer wished to purchase.[222] This conclusion, of course may be correct; many people do buy these shirts to demonstrate their affection for the character.[223] But individuals also buy merchandise bearing more traditional trademarks, such as “NIKE,” “BOSTON CELTICS,” or “UCLA” for the very same reason. Thus, the notion that aesthetic functionality applies to the prominent display of trademarks on merchandise would jeopardize a wide range of existing practices.[224]

Aesthetic functionality, though, is not about the use of an established trademark.[225] Rather, the proper application should be confined to the initial acquisition of trademark rights. Thus, one might use aesthetic functionality to question whether Fleischer can acquire trademark rights in Betty Boop, but once that hurdle is passed, the doctrine is no longer relevant. Interestingly, the Ninth Circuit had already dispensed with this issue five years earlier in Au-Tomotive Gold, Inc. v. Volkswagen of America, Inc.,[226] which involved unapproved uses of AUDI and VOLKSWAGEN trademarks on keychains and license plate covers. The court, in that instance, appropriately determined that aesthetic functionality did not apply, despite the fact that consumers purchased the products primarily because they wanted the marks that were displayed on the merchandise.[227] In this instance, the court correctly followed the Supreme Court’s directive and determined that “aesthetic functionality has been limited to product features that serve an aesthetic purpose wholly independent of any source-identifying function.”[228]

What is perhaps more intriguing is that the defendant selling the automobile merchandise in Au-Tomotive Gold could have made the colorable claim that consumers were not so much interested in the reputation behind the marks, but rather wanted their license plates and keychains to match their existing cars.[229] This might put the unlicensed distributor at a “significant non-reputation-related”[230] disadvantage because the company needs the trademarks to satisfy the consumers’ desire for décor compatibility.[231] Although courts have refuted the relevance of décor compatibility to functionality, the decision in Au-Tomotive Gold nevertheless should have been a closer call than the one involving Betty Boop.[232] Thus, it is odd that the court even momentarily resurrected aesthetic functionality to address A.V.E.L.A.’s use of Betty Boop’s image.

As previously noted, the court ultimately avoided the hard issues by ruling that Betty Boop’s image lacked secondary meaning.[233] But the Ninth Circuit surely will not be so lucky in future cases. Thus, if it is concerned about the breadth of merchandising rights in beloved media characters, the court will need to formulate other theories besides aesthetic functionality that are more consistent with the role of trademark policies within the intellectual property system.

Although it did not do so, the court might have tried to apply aesthetic functionality principles as they were intended—to question whether Betty Boop’s image could actually serve as a trademark to represent the source of the films in which she appears. On first blush, one might think that aesthetic functionality should not limit Betty Boop’s potential trademark status because other media companies have enormous freedom to create other characters to star in their works. However, this is not the end of the inquiry because the appearance of Betty Boop’s character in a film may be the most important reason that an audience chooses to watch it. In a very real sense, characters are important to storytelling just as color is important to fashion.[234] One can thus take this as a signal that governing intellectual property policies perhaps should not provide broad trademark rights to characters. The problem is that the functionality doctrine was conceived and developed to address overlaps between the trademark system and patents.[235] Films and books, however, as opposed to patents, are the subjects of copyrights,[236] so the principles underlying the functionality doctrine do not directly apply. Therefore, it is more appropriate to address these issues in view of potential overlaps and policy conflicts between trademarks and copyrights.

IV. TRADEMARK PROTECTION OF MEDIA CHARACTERS: A PROPOSAL

In its first decision, the Ninth Circuit not only ruled that Art & Vintage Entertainment Licensing Agency, Inc.’s (“A.V.E.L.A.”) use of Betty Boop’s image was aesthetically functional, but it also concluded that a trademark action would unduly interfere with copyright policies.[237] The first rationale was clearly wrong, especially in light of the court’s previous decision in Au-Tomotive Gold, Inc. v. Volkswagen of America, Inc., so the court had good reason to withdraw its original decision. Unfortunately, the court found a way in its revised opinion to avoid addressing both issues by concluding that Fleischer provided insufficient proof of secondary meaning.[238] Since Betty Boop’s character had not attained trademark status, the court did not have to consider any potential “defenses” to trademark infringement. It certainly would have been more useful, though, if the court had not skirted the opportunity to provide more guidance in the field. There is still some lingering concern that the court will resurrect the aesthetic functionality doctrine in future litigation involving well protected and distinctive character trademarks. What is most unfortunate, though, is that the court correctly identified a significant problem with character trademarks in light of the Copyright Act, but decided to avoid the issue.

A. The Trademark-Copyright Overlap

The United States Constitution empowers the federal government to pass laws that give authors exclusive rights to their works for limited periods of time.[239] Accordingly, the federal government passed the Copyright Act, which provides authors of original expressions with rights against various uses, such as making, displaying, and distributing substantially similar reproductions.[240] Thus, the maker of a film has tremendous rights to prevent another company from producing a movie that has a substantially similar concept and feel as the original.[241] However, that author also can prevent others from making a substantially similar reproduction of a qualitatively creative component, such as a character’s image.[242] In fact, the author may enjoy separate copyright privileges in the appearance of the character itself.[243] The end result is that the Copyright Act effectively provides its full range of protections to distinctive characters, such as Mickey Mouse or Betty Boop.[244] The copyright owner also enjoys these rights against almost any conceivable application of the character, whether as a two-dimensional image on a t-shirt or keychain, or as a three-dimensional representation on a doll or costume.[245]

As required by the Constitution, the Copyright Act limits the duration of the exclusive rights,[246] albeit for a period that many believe is far too long.[247] Nonetheless, Congress has deemed the long period necessary to achieve the copyright’s task of providing authors the appropriate monetary incentives to develop their creatively artistic works and share them with the public.[248] As one can imagine, the potential profits from characters may be enormous, as Disney can use copyright law to control all substantially similar depictions of Mickey Mouse, barring independent creation, which would be very difficult to prove.[249] But that is the bargain, albeit lucrative, that the copyright system offered to Disney to encourage it to take the risks of developing its films and characters, and sharing them with the public. However, the other part of the bargain is that when a copyright’s period of exclusivity ends, the public reacquires its fundamental right to free competition,[250] which includes making slavish copies to the minutest detail in every possible context. If the trademark system allowed authors to extend the lives of characters that they primarily developed within the sphere of copyright’s incentive structure, then it would create a clash with the fundamental policy balance that underlies the Copyright Act. In addition, it would violate the constitutional requirement that the exclusive rights enjoyed by these authors be of limited duration, given that trademarks theoretically can last forever.[251]

Despite these legitimate policy objections, many courts have concluded that trademark protection is appropriate for copyrighted characters to combat confusion as long as the typical trademark requirements are met.[252] Although Betty Boop ultimately did not make the grade, other characters, such as Superman and Barney certainly have.[253] Nevertheless, other courts have perceived the problem with the copyright conflict and, like the Ninth Circuit, have found other trademark-related reasons to deny protection.[254] For example, a California district court noted problems with recognizing trademark rights in the character Zorro because the original film was “protected by copyright,” but it ultimately reached its conclusion based on insufficient proof of secondary meaning.[255] Likewise, a court was willing to acknowledge trademark rights in specific illustrations of Peter Rabbit but questioned whether trademark and unfair competition theories might serve to protect a character beyond the term of copyright applicable to the underlying work.[256]

The time has come for courts to step up to the plate and more actively defend copyright law’s incentive structure from unwarranted intrusion by trademarks. The Supreme Court clearly set the tone in TrafFix Devices, Inc. v. Marketing Displays, Inc. by absolutely prohibiting trademarks for useful product designs, even when there might be potential confusion or other ways to compete.[257] In Dastar Corp. v. Twentieth Century Fox Film Corp., the Supreme Court also cautioned courts to prevent over-extension of trademark protection into areas traditionally occupied by copyright.[258] The Ninth Circuit certainly was moved by this instruction although it did not address certain important distinctions.[259] For instance, the court did not indicate whether its conclusion denying trademark protection for Betty Boop (based on the copyright conflict) would apply equally to all copyrightable materials or whether Betty Boop was somehow special.[260] Such clarification is obviously important because the sweeping approach would prevent trademark protection for any uncopyrighted artistic element of an identification symbol.

Fortunately, the answer is not all that difficult to formulate. The Supreme Court in Dastar was very clearly focused on authors who first sought to benefit from copyright’s rewards, and then tried to use the trademark system to increase those rewards.[261] It is very unlikely that the Court would be equally worried when the trademark system protects artistic designs that are primarily developed to serve as identifiers, such as the Nike Swoosh.[262] In these instances, the designers intend to be rewarded by enhancing the reputation of the company that the trademark identifies—just what trademarks are supposed to do.[263] In contrast, the creators of the original film in Dastar primarily intended to create a work of authorship, hoping that copyrights would lead to profits.[264] Based on this distinction, one can conclude that trademark protection is appropriate when copyrightable materials are developed primarily to serve as trademarks, but should be denied when those materials are created primarily as attributes within works of authorship. Thus, the trademark/copyright overlap should be governed by a “primary purpose test.”

Application of the primary purpose test would prohibit trademark protection for most media characters, including Betty Boop and Mickey Mouse, even under circumstances that might result in customer confusion. Although some scholars have questioned the propriety of trademark protection for media characters, most typically approve of it, but with limitations.[265] Few would deny trademark status to Mickey Mouse, even after the copyright expires.[266] The primary purpose test, though, would prevent Disney from enjoying trademark rights in Mickey Mouse from the very start. The consequence is not really all that important while the copyright is maintained, since no other company may legally display a substantially similar image, except under limited circumstances. And of course, the term of copyright protection has somewhat recently been lengthened to ninety-five years.[267] However, after the copyright ends, other companies would generally be free to display Mickey Mouse or similar media characters in any way that they choose.[268] Having said this, it is important to recognize that trademark status would be available for some media characters, but only those that were primarily developed to serve as identifiers for goods and services. Tony the Tiger, for instance, provides one striking example, since the character was primarily created to identify Kellogg’s Frosted Flakes.[269]

Although explicit adoption of the primary purpose test to address the trademark/copyright overlap would be a new approach, the concept has been used by courts to address trademark issues in other contexts. For instance, in Knitwaves, Inc. v. Lollytogs Ltd., the Second Circuit addressed copyright and trademark infringement claims involving two sweater designs having a “fall” motif that consisted of seasonal elements such as leaves, acorns, and squirrels on muted colors.[270] The court determined that the defendant violated the Copyright Act by selling sweaters with a substantially similar appearance.[271] However, the court rejected the trademark claim, stating: “As Knitwaves’ objective in the two sweater designs was primarily aesthetic, the designs were not primarily intended as source identification.”[272] Likewise, since the objective in creating media characters is primarily aesthetic (that is, for copyright-related purposes) and not primarily for source identification, trademark protection should be denied.

Despite this ruling, some observers believe that the Supreme Court legitimized trademark protection for primarily aesthetic elements in Wal-Mart Stores, Inc. v. Samara Bros., Inc.,[273] which also involved sweater designs.[274] However, this conclusion is incorrect. In the Samara litigation, the appeals court determined that Samara purposefully designed its entire line of seersucker children’s clothes with consistent elements so that the look would be identified with Samara.[275] Thus, it distinguished the result in Knitwaves because Knitwaves’ objective was primarily aesthetic whereas Samara’s goal was primarily motivated by source identification.[276] For this reason, the underlying facts should have created little concern for the Supreme Court about overlapping protection.

The approaches used to address the other forms of intellectual property system overlaps also support use of the primary purpose test to address trademarks for media characters. For instance, as we have seen, the courts recognize that dual protection for copyrights and patents is only appropriate if the copyright purposes are primary, or if the aesthetic elements are devised without function (the patent purposes) in mind.[277] Also, in the computer context, courts have scaled back the degree of overlap by requiring filtration of elements that primarily serve patent-related purposes.[278] Likewise, in the trademark/copyright context, courts should filter out those elements, such as characters, that are primarily intended to advance the stories in films.

In addition, the principles that have been adopted in the trademark/patent context support the relevance of the primary purpose test with copyrights. First and foremost, the Supreme Court has made it clear that the goals of the patent and copyright systems trump confusion.[279] Thus, strict rules, such as the primary purpose test, are appropriate even if some confusion will result. Beyond this general notion, the Court confirmed the dominance of patents over trademarks by preventing trademark protection of product design elements that primarily serve functional ends or are an important reason for purchase.[280] Again, analogous dominance principles should apply to media characters that are primarily developed within the context of a creative film or other copyrightable work.

Although the primary purpose test will foreclose the general appearance of media characters from trademark protection, this does not mean that copyright owners cannot obtain trademark protection for individual images of characters that they consistently use on products or services to identify source. For instance, Flesicher should not have been able to claim trademark protection for Betty Boop, even if the character did have secondary meaning, because she was primarily created in the 1930s as the centerpiece of a cartoon.[281] Nevertheless, Fleischer could still consistently use a particular image of Betty Boop to represent the original source of the film and other products made or authorized by the company. The rights in this trademark would be very thin and would only extend to the distinctive elements that can be conceptually separated from the general appearance of Betty Boop.[282] In other words, trademark rights in a particular Betty Boop image, for instance with crossed legs and a yellow garment, would not prevent other companies from generally displaying Betty Boop, but they might not be able to include crossed legs and a yellow garment if consumers, over time, come to recognize those elements as source identifiers. One district court adopted this concept with regard to Peter Rabbit when it accepted trademark rights in particular images but not necessarily in the character itself.[283] It also would conform to trademark policy regarding identifiers that include un-protectable elements, such as generic words or images. For instance, the Coca-Cola Company has trademark rights to Coca-Cola;[284] nonetheless, other companies are free to use the word “cola” as long as they don’t combine it with other terms that are confusingly similar to “coca.”[285]

B. Media Characters and the Analogy to Celebrities

Media characters have such a ubiquitous role in modern society that they perhaps should be treated in many ways like famous celebrities. The analogy is particularly insightful because the trademark treatment of celebrities leads to results that are consistent with the proposed primary purpose test.

Several celebrities have claimed that their general appearance should serve as a trademark, essentially representing their own persona or the services that they provide.[286] In a case involving Tiger Woods, the Sixth Circuit noted that the celebrity was asking to be treated as a “walking, talking trademark,” so that all uses of any image would constitute trademark infringement.[287] According to the Sixth Circuit, “this is an untenable claim,”[288] holding that “as a general rule, a person’s image or likeness cannot function as a trademark.”[289] This conclusion followed the precedent set in previous cases involving Elvis Presley and Babe Ruth, in which the courts made the same determination.[290] One may argue that media characters are different because they do not simply represent themselves, but also the works with which they appear. This claim, however, is not compelling. For instance, the Sixth Circuit relied on the celebrity cases to conclude that images of the Rock and Roll Hall of Fame could not represent the museum’s services as a trademark.[291]

Having said this, these cases do recognize that there is an exception to the general rule barring trademark status for celebrities—when a particular image is used consistently to designate source.[292] For instance, in a dispute involving Elvis Presley, the court determined that one particular image of Presley had been consistently used with the advertising and sale of Elvis Presley entertainment services to identify those services and could be protected as a trademark.[293] On the other hand, Tiger Woods did not allege that any particular photograph had been consistently used on specific goods, and therefore his trademark claim was denied.[294] This again supports the notion that the trademark system should not be available to protect media characters in general, but that it could provide rights to specific distinctive images of characters that are consistently used to identify a source.[295]

V. CONCLUSION

In the Betty Boop litigation, the Ninth Circuit broached an important subject regarding trademark rights for media characters. To honor the respective economic roles of trademarks and copyrights, trademark rights should only be available for media characters that are primarily created for source identification purposes.[296] At first blush, this may seem to be troubling news for companies such as Disney, which will lose copyright protection for their film stars relatively soon. However, they still can develop goodwill in particular images to identify and distinguish themselves in the marketplace.[297] Also, any worry about potential confusion is certainly misplaced. Once consumers recognize that media characters cannot serve as identifiers, they will rely on the symbols that do function legally as trademarks. Thus, customers who specifically want a filmmaker’s products will seek the logos and tags that bear its legitimately protected marks. The end result thus serves to preserve the independent roles of copyrights and trademarks without raising any serious risk of market confusion.

* Professor of Business Law & Public Policy, California Polytechnic State University, San Luis Obispo. J.D., Stanford Law School, 1981; M.B.A., Stanford Graduate School of Business, 1981; A.B., Dartmouth College, 1977.

1. See Fleischer Studios, Inc. v. A.V.E.L.A., Inc., 636 F.3d 1115 (9th Cir. 2011), withdrawn and superseded, 654 F.3d 958, 968 (9th Cir. 2011).

2. See id. at 1123–24.

3. See id. at 1124.

4. See Fleischer Studios, Inc. 654 F.3d 958; see also Dick Schulze, Betty Boop in Wonderland or Through the Licensing Glass, 19 NEV. LAW. 16 (2011) (providing an example of a commentator’s critical view).

5. See Schulze, supra note 4, at 16.

6. Cf. Frederick Warne & Co., Inc. v. Book Sales, Inc., 481 F. Supp. 1191, 1197 n.3 (S.D.N.Y. 1979) (regarding the issue of using trademarks to protect characters after copyrights have expired, the court stated, “[t]his provocative question need not be reached, since plaintiff does not seek to establish exclusive trademark rights in the characters themselves but only to protect its limited right to use specific illustrations of those characters.”) (emphasis added).

7. See, e.g., 15 U.S.C. §§ 1058(a), 1059 (2006) (stating that the registrant can retain a federal trademark as long as it files an affidavit of use after five years and requisite renewals every ten years); see also 15 U.S.C. § 1064(3) (2006) (stating that an incontestable trademark can only be cancelled for limited reasons, such as where the mark has become generic or is functional).

8. See infra Parts III.A., IV.A.

9. See Schulze, supra note 4, at 16.

10. See infra Part III.C.

11. A trademark owner can renew a trademark registration every ten years by filing an affidavit demonstrating that the mark is being used in commerce. See 15 U.S.C. §§ 1058, 1059. After a trademark becomes incontestable, protection can only be lost on limited grounds, such as where the mark has become generic or is functional. See 15 U.S.C. § 1064(3) (regarding generic marks); 15 U.S.C. § 1115(b)(8) (2006) (regarding functional marks).

12. A trademark owner can renew a trademark registration every ten years by filing an affidavit demonstrating that the mark is being used in commerce. 15 U.S.C. §§ 1058, 1059. After a trademark becomes incontestable, protection can only be lost on limited grounds, such as where the mark has become generic or is functional. See 15 U.S.C. § 1064(3) (regarding generic marks); 15 U.S.C. § 1115(b)(8) (regarding functional marks).

13. See infra Part IV.A.

14. Id.

15. See infra Part IV.B.

16. See generally Fleischer Studios, Inc. v. A.V.E.L.A., Inc., 654 F.3d 958, 961 (9th Cir. 2011) (providing the underlying history of Betty Boop’s creation and ownership).

17. See id.

18. See id.

19. See id.

20. See id.

21. See id.

22. See Fleischer Studios, 654 F.3d at 963.

23. See id. at 961.

24. See id. at 964–65.

25. See id. at 965. Fleischer argued at trial that it purchased these rights from Harvey Films, but the district court ruled for A.V.E.L.A., and Fleischer failed to raise the issue on appeal. Id.

26. See Fleischer Studios, Inc. v. A.V.E.L.A., Inc., 772 F. Supp. 2d 1155, 1157 (C.D. Cal. 2009), aff’d, 636 F.3d 1115 (9th Cir. 2011), withdrawn and superseded, 654 F.3d 958.

27. See id. at 1159–60.

28. See id. at 1160.

29. See Fleischer Studios, 654 F.3d at 962–65.

30. See id. at 967.

31. See id.

32. Fleischer did not submit any evidence that it filed the required affidavit for incontestability, stating that the mark had been in continuous use for five consecutive years after registration. See Fleischer Studios, Inc., 772 F. Supp. 2d at 1164. The Ninth Circuit refused to recognize additional evidence that might have established incontestability. See Fleischer Studios, Inc., 654 F.3d at 967.

33. See Fleischer Studios, 654 F.3d at 966–67.

34. See Fleischer Studios, 772 F. Supp. 2d at 1171–72.

35. See Fleischer Studios, 654 F.3d at 965–66.

36. See, e.g., Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 851 n.11 (1982) (“To establish secondary meaning, a manufacturer must show that, in the minds of the public, the primary significance of a product feature or term is to identify the source of the product rather than the product itself.”) (quoting RESTATEMENT (THIRD) OF UNFAIR COMPETITION § 13 cmt. E (1995)); see also Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 766 n.4 (1992) (“Secondary meaning is used generally to indicate that a mark or dress ‘has come through use to be uniquely associated with a specific source.’”); Wal-Mart Stores, Inc. v. Samara Bros., Inc., 529 U.S. 205, 211 n.* (2000) (demonstrating that the Supreme Court has suggested that in the context of non-word marks, it might be better to use the phrase “acquired meaning” “since non-word marks ordinarily have no primary meaning.”).

37. See Fleischer Studios, 772 F. Supp. 2d at 1168 (quoting Quicksilver, Inc. v. Kymsta Corp., 466 F.3d 749, 756 (9th Cir. 2006)) (“Trademark rights are acquired by the party that first uses a mark in connection with the sale of goods.”).

38. See id.

39. See id. at 1168 n.23 (“The Court recognizes that courts that have upheld trademark rights in the physical appearance of characters have generally found secondary meaning associated with the characters.”).

40. See id. at 1168.

41. See Fleischer Studios, Inc., 636 F.3d at 1122, withdrawn and superseded, 654 F.3d 958.

42. Id. at 1122.

43. See Int’l Order of Job’s Daughters v. Lindeburg & Co., 633 F.2d 912, 914 (9th Cir. 1980).

44. Id. at 917.

45. See id.

46. See id. at 918 (“Our jewelry, clothing, and cars are emblazoned with inscriptions showing the organizations we belong to, the schools we attend, the landmarks we have visited, the sports teams we support, the beverages we imbibe. Although these inscriptions frequently include names and emblems that are also used as collective marks or trademarks, it would be naive to conclude that the name or emblem is desired because consumers believe that the product somehow originated with or was sponsored by the organization the name or emblem signifies.”).

47. See Fleischer Studios, 636 F.3d at 1124, withdrawn and superseded, 654 F.3d 958 (quoting Job’s Daughters, 633 F.2d at 920).

48. See id.

49. See id.

50. See Deborah S. Cohn, Mere Ornamentation and Aesthetic Functionality: Causing Confusion in the Betty Boop Case?, 101 TRADEMARK REP. 1218, 1222 (2011) (discussing the problems posed by the Ninth Circuit Betty Boop case that was later overturned).

51. See Fleischer Studios, 636 F.3d at 1124.

52. See id.

53. Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23 (2003).

54. See Dastar Corp., 539 U.S. at 27 n.1 (“Passing off . . . occurs when a producer misrepresents his own goods or services as someone else’s. “Reverse passing off” . . . is the opposite: The producer misrepresents someone else’s goods or services as his own.”).

55. See id. at 27.

56. See id.

57. Id. at 33 (quoting Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 150–51 (1989)).

58. Id. at 39 (quoting TrafFix Devices, Inc. v. Mktg. Displays, Inc., 532 U.S. 23, 29 (2001)).

59. Fleischer Studios, 636 F.3d at 1124, withdrawn and superseded, 654 F.3d 958.

60. See Jonathan Bailey, Trademark, Copyright and Logos, PLAGIARISM TODAY (Aug. 12, 2010), http://www.plagiarismtoday.com/2010/08/12/trademark-copyright-and-logos/.

61. See STARBUCKS COFFEE, U.S. Registration No. 1,542,775; Starbucks Coffee Siren Logo, U.S. COPYRIGHT REGISTRATION NO. VA0000875932 (illustrating that the graphic Starbucks logo is protected by both federal trademark and copyright registrations).

62. See generally 17 U.S.C. § 302 (2006). The Copyright Act specifies that the duration of the copyright term is the life of the author plus seventy years, or in the case of a work made for hire, ninety-five years after the year of first publication. See id.

63. See id. § 102 (2006) (stating that copyright subsists “in original works of authorship fixed in any tangible medium of expression”); see also Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 345 (1991) (stating that the term “original” under the Copyright Act means the work is not copied from other works and possesses at least some minimal degree of creativity); 17 U.S.C. §§ 408(a), 412 (2006) (stating that copyright registration is permissive and provides certain benefits, such as the ability to collect statutory damages and attorney’s fees).

64. See Fleischer Studios, Inc., 654 F.3d at 960.

65. See id.

66. See id. at 958.

67. See id. at 966.

68. See id.

69. See id.

70. A word, symbol, or image may be protected as a trademark without federal registration by demonstrating that the alleged identifier is inherently distinctive or has attained secondary meaning. 15 U.S.C. § 1125(a) (2006). See Wal-Mart Stores, Inc., 529 U.S. at 210. To prove infringement, an owner of an unregistered trademark must demonstrate that an unauthorized individual used the mark with knowledge of its previous use as a trademark in a way that is likely to cause confusion. See, e.g., United Drug Co. v. Theodore Rectanus Co., 248 U.S. 90, 100 (1918); Hanover Star Milling Co. v. Metcalf, 240 U.S. 403, 419 (1916); Lee Burgunder, Trademark Registration of Product Colors: Issues and Answers, 26 SANTA CLARA L. REV. 581, 587 (1986). Federal registration primarily provides procedural advantages, such as constructive notice of previous use and a presumption of validity. 15 U.S.C. §§ 1072, 1057(b) (2006).

71. See Fleischer Studios, 654 F.3d at 967.

72. See id.

73. See Michael Helfand, When Mickey Mouse Is as Strong as Superman: The Convergence of Intellectual Property Laws to Protect Fictional Literary and Pictorial Characters, 44 STAN. L. REV. 623, 626–27 (1992) (arguing that sophisticated owners will put in place more protective measures for their characters).

74. See id. at 626–28 (describing generally the legal actions media companies take to protect the copyright and trademark interest in the characters depicted in their works).

75. See DC Comics, Inc. v. Filmation Assocs., 486 F. Supp. 1273, 1277 (S.D.N.Y. 1980) (“[O]ur reading of the cases in this circuit shows that where the product sold by plaintiff is ‘entertainment’ in one form or another, then not only the advertising of the product but also an ingredient of the product itself can amount to a trademark protectable under § 43(a) because the ingredient can come to symbolize the plaintiff or its product in the public mind.”).

76. See 15 U.S.C. § 1052(f) (2006).

77. See 17 U.S.C. § 302(c) (stating that in business contexts that often involve works made for hire, copyright protection lasts for 95 years); see also 17 U.S.C. §§ 107–122 (2006) (outlining several exceptions to copyright privileges).

78. See 15 U.S.C. § 1052(f).

79. See id. § 1125(c). Owners of famous trademarks have rights under federal law to prevent dilution of their marks due to blurring and tarnishment. See id. This protection gives owners of famous trademarks far more extensive rights than traditionally enjoyed under likelihood of confusion principles, allowing them to prevent application of similar marks on almost any product or service offered in the market. Trademark infringement requires that the defendant sell goods that are either competitive or related to the plaintiff’s goods. See AMF Inc. v. Sleekcraft Boats, 599 F.2d 341, 348 (9th Cir. 1979). With dilution, the plaintiff has rights against any substantially similar use that impairs the distinctiveness of its mark, regardless of competition or likelihood of confusion. See 15 U.S.C. § 1125(c). Owners of famous marks also may have dilution rights under several state unfair competition laws. See, e.g., Michael Travis, In Search of a Consistent Trademark Dilution Test, 58 U. CIN. L. REV. 1449, 1453–58 (1990); Robert Brauneis & Paul Heald, Trademark Infringement, Trademark Dilution, and the Decline in Sharing of Famous Brand Names: An Introduction and Empirical Study, 59 BUFF. L. REV. 141, 149–50 (2011) (discussing various state trademark dilution statutes).

80. See Fleischer Studios, Inc., 636 F.3d at 1124, withdrawn and superseded, 654 F.3d 958 (9th Cir. 2011) (“If we ruled that A.V.E.L.A.’s depictions of Betty Boop infringed Fleischer’s trademarks, the Betty Boop character would essentially never enter the public domain. Such a result would run directly contrary to Dastar . . . .”).

81. See id.

82. See E. Wine Corp. v. Winslow-Warren, Ltd., 137 F.2d 955, 958 (2d Cir. 1943) (“[T]here is a basic public policy, deep-rooted in our economy and respected by the courts, resting on the assumption that social welfare is best advanced by free competition . . . .”); see also Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 146 (1989) (stating that imitation and refinement through imitation are the very lifeblood of a competitive economy).

83. See Burgunder, supra note 70, at 583.

84. See generally Paul Goldstein, The Competitive Mandate: From Sears to Lear, 59 CAL. L. REV. 873, 878 (1971) (arguing that the purpose of copyright, patent, and trademark law is to ensure protection of incentivizing participation in the creation of ideas).

85. See id. at 878 (stating that although short range competitive interests would benefit from immediate and free public access to technological and artistic innovation, such access would destroy incentive to innovate).

86. See Burgunder, supra note 70, at 583 (“[S]ocial net welfare will be maximized if disclosed ideas are freely accessible to all.”).

87. See U.S. CONST. art. I, § 8, cl. 8 (allowing exclusive rights for limited times to authors and inventors); see also Bonito Boats, 489 U.S. at 146 (“From their inception, the federal patent laws have embodied a careful balance between the need to promote innovation and the recognition that imitation and refinement through imitation are both necessary to invention itself and the very lifeblood of a competitive economy.”).

88. See Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23, 33–34 (2003) (“The rights of a patentee or copyright holder are part of a ‘carefully crafted bargain,’ under which, once the patent or copyright monopoly has expired, the public may use the invention or work at will and without attribution.”) (internal citations omitted)).

89.35 U.S.C. § 154(a)(2) (2006) (providing a twenty-year term from the effective filing date).

90. See id. §§ 102–103 (2006).

91. See Bonito Boats, 489 U.S. at 151 (“The novelty and nonobviousness requirements of patentability embody a congressional understanding, implicit in the Patent Clause itself, that free exploitation of ideas will be the rule, to which the protection of a federal patent is the exception.”).

92. See id. at 149 (“Once an inventor has decided to lift the veil of secrecy from his work, he must choose the protection of a federal patent or the dedication of his idea to the public at large.”).

93. See id. at 152 (noting that Congress strikes a balance in patent laws between the desire to exploit freely the “full potential of our inventive resources” and the need to incentivize the use of these resources).

94. See id. (“We have long held that after the expiration of a federal patent, the subject matter of the patent passes to the free use of the public as a matter of federal law.”).

95. See, e.g., id. at 152; Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 231 (1964); Compco Corp. v. Day-Brite Lighting Inc., 376 U.S. 234, 237 (1964).

96. See Qualitex Co. v. Jacobson Products Co., Inc., 514 U.S. 159, 164–65 (1995) (stating that federal trademark law must be interpreted to prevent interference with the patent law’s objectives of encouraging innovation); Bonito Boats, 489 U.S. at 168 (“It is for Congress to determine if the present system of design and utility patents is ineffectual in promoting the useful arts in the context of industrial design.”); see also Digital Millennium Protection Act of 1998, Title V, Pub. L. No. 105-304, 112 Stat. 2860 (1998) (enacting a federal equivalent of the law struck down in Bonito Boats).

97. See e.g., Sears, Roebuck & Co., 376 U.S. at 230–31 (providing that federal design patent standards are “carefully used to promote invention while at the same time preserving free competition.”); see also Dastar Corp., 539 U.S. at 33–34 (noting that copyrights are part of a carefully crafted bargain which can only be altered with specificity by Congress).

98. See 35 U.S.C. § 173 (2006).

99. See 17 U.S.C. § 102(a) (2006) (stating that copyright subsists “in original works of authorship fixed in any tangible medium of expression” including literary works, musical works, motion pictures, and pictorial, graphic, and sculptural works, among others).

100. See Taylor Corp. v. Four Seasons Greetings, LLC, 403 F.3d 958, 966–67 (8th Cir. 2005) (explaining that one infringes the reproduction right not just by making an exact duplication, but also by making a work that is substantially similar to the copyrighted expression).

101. See, e.g., Fleischer Studios, Inc. v. A.V.E.L.A., Inc., 654 F.3d 958, 962 (9th Cir. 2011) (“There is no doubt that a separate Betty Boop character copyright exists.”). See generally Rice v. Fox Broad. Co., 330 F.3d 1170, 1175–76 (9th Cir. 2003) (stating that characters that are “especially distinctive” receive copyright protection apart from the copyrighted work) (emphasis added).

102. See 17 U.S.C. § 107 (2006). The Copyright Act provides that it is not an infringement to make a fair use of a work “for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship or research . . . .” The Act provides four factors that are relevant to determine whether a use of copyrighted work is a fair use: “(1) the purpose and character of the use, including whether such use if of a commercial nature or is for nonprofit educational purposes; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work.”

103. See TrafFix Devices, Inc. v. Mktg. Displays, Inc., 532 U.S. 23, 34 (2001) (“The Lanham Act does not exist to reward manufacturers for their innovation in creating a particular device; that is the purpose of the patent law and its period of exclusivity.”).

104. See Lee B. Burgunder, Product Design Protection After Bonito Boats: Where it Belongs and How It Should Get There, 28 AM. BUS. L.J. 1, 8 (1990).

105. See 15 U.S.C. § 1115 (2006); see also Burgunder, supra note 104, at 7–10.

106. See 15 U.S.C. §§ 1114(1), 1125(a)(1) (2006) (providing that trademark infringement results when a company uses a trademark in a way that is likely to cause confusion, mistake, or deception). See generally William M. Landes & Richard A. Posner, Trademark Law: An Economic Perspective, 30 J. L. & ECON. 265, 270 (1987) (noting in a freely competitive marketplace, competitors would routinely copy identifying marks because the cost of copying those characteristics would typically be less than the value of the goodwill that could be appropriated through consumer confusion).

107. See e.g., Dastar Corp., 539 U.S. at 34 (“Federal trademark law . . . ‘reduces the customer’s costs of shopping and making purchasing decisions,’ and ‘helps assure a producer that it (and not an imitating competitor) will reap the financial, reputation-related rewards associated with a desirable product.’”) (quoting Qualitex Co., 514 U.S. at 163–64).

108. See Burgunder, supra note 70, at 587; Gary Spratling, The Protectability of Package, Container and Product Configurations (Part I), 5 U.S.F. L. REV. 451, 465–66 (1971); Brown Chemical Co. v. Meyer, 139 U.S. 540, 544 (1891).

109. See Burgunder, supra note 70, at 587; Spratling, supra note 108, at 465–66; Brown Chemical Co., 139 U.S. at 544.

110.See generally Ralph Folsom & Larry Teply, Trademarked Generic Words, 89 YALE L. J. 1323, 1336 (1980).

111. See id. at 1336.

112. See S. REP. NO. 1333 (1945), reprinted in 1946 U.S.C.C.A.N 1274, 1275 (“Trade-marks encourage the maintenance of quality by securing to the producer the benefit of the good reputation which excellence creates. To protect trade-marks, therefore, is . . . to secure to the business community the advantages of reputation and good will by preventing their diversion from those who have created them to those who have not.”).

113. See 15 U.S.C. § 1127 (2006) (stating that the Lanham Act allows registration of “any word, name, symbol, or device” that is capable of identifying and distinguishing goods or services).

114. The trademark system now allows product attributes to potentially serve as trademarks, making it more difficult to distinguish the identifier from the underlying product. Still, the identifier must at least be conceptually separable from the notion of the basic or generic product. See e.g., Duraco Prods., Inc. v. Joy Plastic Enters., Ltd., 40 F.3d 1431, 1449–50 (3d Cir. 1994) (“[T]he configuration for which protection is sought must not appear to the consumer as a mere component, or the essence, of the product gestalt, but rather must appear as something attached (in a conceptual sense) to function in actuality as a source designator—it must appear to the consumer to act as an independent signifier of origin rather than as a component of the good.”) (emphasis added); see also Burgunder, supra note 70, at 282–85.

115. See Duraco Prods., Inc., 40 F.3d at 1449–50 (“[T]he configuration for which protection is sought must not appear to the consumer as a mere component, or the essence, of the product gestalt, but rather must appear as something attached (in a conceptual sense) to function in actuality as a source designator—it must appear to the consumer to act as an independent signifier of origin rather than as a component of the good.”) (emphasis added); see also Burgunder, supra note 70, at 282–85.

116. See Lee B. Burgunder, Trademark Protection of Live Animals: The Bleat Goes On, 10 J. MARSHALL REV. INTELL. PROP. L. 715, 720 (2011); see also United Drug Co. v. Theodore Rectanus Co., 248 U.S. 90, 98 (1918) (“In truth, a trade-mark confers no monopoly whatever in a proper sense, but is merely a convenient means for facilitating the protection of one’s good-will in trade . . . .”).

117. See Abercrombie & Fitch Co. v. Hunting World, Inc., 537 F.2d 4, 11 (2d Cir. 1976); see also Landes & Posner, supra note 106, at 290.

118. See infra Part III.A.

119. See Lee B. Burgunder, Trademark and Copyright: How Intimate Should the Close Relationship Become?, 29 SANTA CLARA L. REV. 89, 97 (1989); Landes & Posner, supra note 106, at 291–96.

120. See Abercrombie & Fitch Co., 537 F.2d at 9 (providing that the Lanham Act, 15 U.S.C. §§ 1127, 1064(B) (2006), only allows registration of marks that are capable of distinguishing the goods or services of the applicant, and allows cancellation of marks that become common descriptive names). Although registration for generic words is not permitted, trademarks are allowed for phrases that include generic words, as long as the entire phrase is distinctive. See generally COCA-COLA, Registration No. 0022406 (reciting a soda with the generic word “cola” included in the mark).

121. See Burgunder, supra note 70, at 599; see also Landes & Posner, supra note 106, at 290.

122. See 15 U.S.C. § 1052(e) (2006).

123. See Burgunder, supra note 70, at 599.

124. Wal-Mart Stores, Inc. v. Samara Bros., 529 U.S. 205, 211 (2000).

125. See id. at 210.

126. See Lee B. Burgunder, Trademark Protection of Smells: Sense or Nonsense, 29 AM. BUS. L. J. 459, 472 (1991); see also Landes & Posner, supra note 106, at 290.

127. See supra Part II.

128. See supra Part III.A.

129. See id.

130. See id. Courts have also expanded patent rights to cover new realms, such as computer programs, business methods, and possibly human genes. See, e.g., Bilski v. Kappos, 130 S.Ct. 3218 (2010); Diamond v. Diehr, 450 U.S. 175 (1981); State St. Bank & Trust Co. v. Signature Fin. Grp., Inc., 149 F.3d 1368 (Fed. Cir. 1998); Ass’n for Molecular Pathology v. U.S. Patent & Trademark Office, 653 F.3d 1329 (Fed. Cir. 2011), vacated, 2012 U.S. LEXIS 2356.

131. See infra Part III.A.

132. See, e.g., 17 U.S.C. § 101 (2006). Courts have interpreted the Copyright Act to protect computer programs because the Act provides a definition of the phrase, “computer programs.” See, e.g., Apple Computer, Inc. v. Franklin Computer Corp., 714 F.2d 1240, 1246–48 (3d Cir. 1983); Lotus Dev. Corp. v. Borland Int’l Inc., 49 F.3d 807 (1st Cir. 1995); see also 17 U.S.C. § 117 (providing limitations to the extent of protection for computer programs); Lotus Dev. Corp. v. Paperback Software Int’l., 740 F. Supp. 37, 49 (D.C. Mass. 1990) (“Although Congress did not include ‘computer programs’ in this list of examples of ‘works of authorship,’ computer programs fall squarely within the statutory definition of literary works.”).

133. See, e.g., 17 U.S.C. § 102(a)(8) (listing architectural works as within the scope of copyright protection); see also Diehr, 450 U.S. 175; State St. Bank & Trust Co., 149 F.3d 1368; Ass’n for Molecular Pathology, 653 F.3d 1329, vacated, 2012 U.S. LEXIS 2356.

134. E.g., Qualitex Co., 514 U.S. at 164–65 (stating that the green-gold color of dry cleaning press pad qualifies for trademark registration).

135. E.g., In re Clarke, 17 U.S.P.Q.2d 1238 (T.T.A.B. 1990) (considering whether the smell of plumeria blossoms for yarn qualified for trademark registration).

136. See, e.g., Registration No. 0916522 (reciting the trademark of a sequence of chime-like musical notes).

137. See, e.g., Wal-Mart, 529 U.S. at 211 (establishing that product designs may be protected as trademarks with proof of secondary meaning).

138. See 35 U.S.C. § 271 (2006).

139. See Richard H. Stern, Scope-of-Protection Problems with Patents and Copyrights on Methods of Doing Business, 10 FORDHAM INTELL. PROP. MEDIA & ENT. L.J. 105, 135–40 (1999).

140. See 15 U.S.C. § 1051 (2006).

141. See 15 U.S.C. §§ 1125(a)(1), 1125(c).

142. See Viva R. Moffat, Mutant Copyrights and Backdoor Patents: The Problem of Overlapping Intellectual Property Protection, 19 BERKELEY TECH. L. J. 1473, 1495 (2004) (providing that some scholars refer to this trend as a “propertization of trademarks”).

143. See id. at 1474, 1531 n.274.

144. See, e.g., Laurie Richter, Reproductive Freedom: Striking a Fair Balance Between Copyright and Other Intellectual Property Protections in Cartoon Characters, 21 ST. THOMAS L. REV. 441 (2009); Helfand, supra note 73, at 623.

145. See, e.g., Dr. Seuss Enter., L.P., v. Penguin Books USA, Inc., 109 F.3d 1394, 1396 (9th Cir. 1997) (stating that the Cat in the Hat character is a common law trademark representing the source of the Cat in the Hat stories); Lyons P’ship, L.P. v. Morris Costumes, Inc., 243 F.3d 789, 804 (4th Cir. 2001) (stating that the Barney character serves as a trademark representing the source of the “Barney and Friends “television show); DC Comics, Inc. v. Filmation Assocs., 486 F. Supp. 1273, 1277 (S.D.N.Y. 1980) (stating that the physical appearances of the Aquaman and Plastic Man characters may serve as trademarks for the entertainment media in which they appear).

146. See Moffat, supra note 142, at 1513–21.

147. Betty Boop might conceivably raise design patent issues if her image were used as a sculptural component of a useful item, such as a toy robot. See Mazer v. Stein, 347 U.S. 201, 215–19 (1954) (allowing copyright registration for statuettes that served as table lamp bases).

148. See generally Burgunder, supra note 104, at 7–10.

149. Patents, U.S. PATENT & TRADEMARK OFF., http://www.uspto.gov/inventors/

patents.jsp (last visited Nov. 23, 2012).

150. See 17 U.S.C. § 302 (2006) (providing that for works made for hire and anonymous works, copyright protection lasts ninety-five years from the date of first publication (or 120 years from the year of creation), and that copyrights in other works last for the life of the author plus seventy years).

151. See 17 U.S.C. § 101.

152. See Mazer, 347 U.S. 201; Esquire, Inc. v. Ringer, 591 F.2d 796 (D.C. Cir. 1978).

153. See Kieselstein-Cord v. Accessories by Pearl, Inc., 632 F.2d 989 (2d Cir. 1980).

154. See Carol Barnhart Inc. v. Econ. Cover Corp., 773 F.2d 411 (2d Cir. 1985).

155. See Brandir Int’l, Inc. v. Cascade Pac. Lumber Co., 834 F.2d 1142 (2d Cir. 1987).

156. See Darren Hudson Hick, Conceptual Problems of Conceptual Separability and the Non-Usefulness of the Useful Articles Distinction, 57 J. Copyright Soc’y U.S.A. 37, 49–51 (2010).

157. See id. at 39–40.

158. Id.

159. See Kieselstein-Cord, 632 F.2d at 993.

160. Carol Barnhart, Inc., 773 F.2d at 421–22 (Newman, J., dissenting); Brandir Int’l, Inc., 834 F.2d at 1144.

161. See Mazer, 347 U.S. at 203–05; see also Carol Barnhart, Inc., 773 F.2d at 415–18.

162. See Mazer, 347 U.S. at 203–05.

163. See id.

164. See Carol Barnhart, Inc., 773 F.2d at 415–18.

165. See 17 U.S.C. § 102(b).

166. See id.

167. See, e.g., Gates Rubber Co. v. Bando Chemical Indus., Ltd., 9 F.3d 823 (10th Cir. 1993); Atari Games v. Nintendo, 975 F.2d 832 (Fed. Cir. 1992); Computer Assocs., Int’l, Inc. v. Altai, Inc., 982 F.2d 693 (2d Cir. 1992); Whelan Assocs., Inc. v. Jaslow Dental Lab., Inc., 797 F.2d 1222 (3d Cir. 1986); Apple Computer, Inc., 714 F.2d 1240; Lotus Dev. Corp., 49 F.3d 807; Lotus Dev. Corp., 740 F. Supp. 37.

168. See In re Alappat, 33 F.3d 1526, 1545 (Fed. Cir. 1994). The Federal Circuit stated, “a computer operating pursuant to software may represent patentable subject matter.” Id. The major debate with computer programs is the degree to which physical processes must be included with the claims. See Bilski, 130 S.Ct. 3218.

169. See Moffat, supra note 142, at 1501.

170. See Whelan Assocs., 797 F.2d at 1248.

171. See Lotus Dev. Corp., 740 F. Supp. at 68.

172. See Whelan Assocs., Inc., 797 F.2d at 1240; see also Lotus Dev. 740 F. Supp. at 67–68.

173. See Lee B. Burgunder & Carey E. Heckman, An Emerging Theory of Computer Software Genericism, 2 HIGH TECH. L. J. 229, 240–42 (1987).

174. See Computer Assocs., Int’l, Inc., 982 F.2d 693.

175. See id. at 701–12.

176. See id. at 710.

177. Id. at 712.

178. Id.

179. Lotus Dev. Corp., 49 F.3d at 815–18.

180. Id. at 816–19.

181. See, e.g., Wal-Mart Stores, 529 U.S. 205.

182. See generally id. at 216 (holding distinct product designs are protected under the Lanham Act).

183. See 35 U.S.C. §§ 101, 171 (2006).

184. See, e.g., TrafFix Devices, Inc., 532 U.S. at 29; Qualitex Co., 514 U.S. at 164.

185. See Wal-Mart Stores, 529 U.S. at 214–15; see also TrafFix Devices, Inc., 532 U.S. at 29.

186. See Wal-Mart Stores, 529 U.S. at 213. Prior to this decision, some lower courts, including the Second Circuit in the Samara litigation, determined that product designs might be inherently distinctive and could be protected by the trademark laws without proof of secondary meaning. See, e.g., Samara Bros., Inc. v. Wal-Mart Stores, Inc., 165 F.3d 120, 124–25 (2d Cir. 1998) (determining that product designs might be inherently distinctive and could therefore be protected by the trademark laws without proof of secondary meaning).

187. Wal-Mart Stores, 529 U.S. at 215.

188. See id. at 214 (“[G]iven the unlikelihood of inherently source-identifying design, the game of allowing suit . . . [is] not worth the candle.”).

189. Id. at 213.

190. See generally Fleischer Studios, Inc., 654 F.3d 958.

191. See, e.g., TrafFix Devices, Inc., 532 U.S. at 29; Qualitex Co., 514 U.S. at 164–65; W.T. Rogers Co. v. Keene, 778 F.2d 334, 338 (7th Cir. 1985).

192. See, e.g., TrafFix Devices, Inc., 532 U.S. at 29 (“In general, unless an intellectual property right such as a patent or copyright protects an item, it will be subject to copying.”); Qualitex Co., 514 U.S. at 164–65 (“If a product’s functional features could be used as trademarks, however, a monopoly over such features could be obtained without regard to whether they qualify as patents and could be extended forever.”).

193. See e.g., Burgunder, supra note 119, at 725.

194. See Burgunder, supra note 70, at 593 (“Only the patent and copyright laws are designed to allow a producer to achieve supranormal profits.”).

195. Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 850 n.10 (1982).

196. Qualitex Co., 514 U.S. at 165 (stating that the functionality doctrine “therefore would require, to take an imaginary example, that even if customers have come to identify the special illumination-enhancing shape of a new patented light bulb with a particular manufacturer, the manufacturer may not use that shape as a trademark . . . .”).

197. See, e.g., TrafFix Devices, Inc., 532 U.S. at 34–35 (stating that the Lanham Act “does not protect trade dress in a functional design simply because an investment has been made to encourage the public to associate a particular functional feature with a single manufacturer or seller”); W.T. Rogers Co., 778 F.2d at 338 (“[T]he concept of functionality is intended to screen out from the protection of trademark law certain design features even if they have become so far identified with the manufacturer of a particular brand that consumers may be confused about the origin of the good if another producer is allowed to adopt the feature.”).

198. See, e.g., Mktg. Displays, Inc. v. TrafFix Devices, Inc., 200 F.3d 929, 940 (6th Cir. 1999), rev’d sub nom. TrafFix Devices, Inc. v. Mktg. Displays, Inc., 532 U.S. 23 (2001) (concluding that a dual-spring design for a sign-holding mechanism was not functional because it did not take much imagination to conceive of other ways to achieve the function without using the trade dress); In re Morton-Norwich Prods. Co., 671 F.2d 1332, 1342 (C.C.P.A. 1982); Kohler Co. v. Moen Inc., 12 F.3d 632, 643 (7th Cir. 1993); Sunbeam Prods., Inc. v. W. Bend Co., 123 F.3d 246, 257 (5th Cir. 1997).

199. See, e.g., Mktg. Displays, Inc., 200 F.3d at 939–40; In re Morton-Norwich Prods. Co., 671 F.2d at 1342; Kohler Co., 12 F.3d at 643; Sunbeam Prods., Inc.,123 F.3d at 257.

200. See e.g., Mktg. Displays, Inc., 200 F.3d at 940; Vornado Air Circulation Sys., Inc. v. Duracraft Corp., 58 F.3d 1498, 1507 (10th Cir. 1995) (holding that in evaluating utilitarian fan grill designs, functionality is defined “in terms of competitive need”).

201. See TrafFix Devices, Inc., 532 U.S. 23.

202. See id. at 32–34.

203. See id. at 33 (“There is no need, furthermore, to engage, as did the Court of Appeals, in speculation about other design possibilities . . . .”).

204. See id. at 34 (“The Lanham Act does not exist to reward manufacturers for their innovation in creating a particular device; that is the purpose of the patent law and its period of exclusivity.”).

205. See Burgunder, supra note 116, at 727–29.

206. The U.S. Constitution provides some explanation for this because it empowers the federal government to provide exclusive rights to inventors and writers for only limited periods of time. U.S. CONST. art. I, § 8, cl. 8 (“The Congress shall have the Power . . . To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries . . . .”). Since trademarks may potentially last forever, significant constitutional questions arise whenever they might protect items that fundamentally are useful inventions or expressive materials. See TrafFix Devices, Inc., 532 U.S. at 35 (stating that we do not need to resolve the question whether “the Patent Clause of the Constitution, Art. I, § 8, cl. 8, of its own force, prohibits the holder of an expired utility patent from claiming trade dress protection”). Strictly speaking, aesthetic product designs are outside of the Constitutional mandate, which only specifically applies to “the useful Arts,” so Congress may have more flexibility to regulate them. U.S. CONST. art. I, § 8, cl. 8. Also, some courts claim that the market could be a dull and unimaginative place if designers had to rely solely on the design patent system to protect aesthetic innovation. See LeSportsac, Inc. v. K Mart Corp., 754 F.2d 71, 77 (2d Cir. 1985); Keene Corp. v. Paraflex Indus., Inc., 653 F.2d 822, 825 (3d Cir. 1981). The Supreme Court has acknowledged that states may use unfair competition laws to protect aesthetic trade dress, even though the designs may be proper subjects for design patent protection. Bonito Boats, 489 U.S. at 154.

207. See TrafFix Devices, Inc., 532 U.S. at 33 (“It is proper to inquire into a ‘significant non-reputation related disadvantage’ in cases of aesthetic functionality.”).

208. See, e.g., Qualitex Co., 514 U.S. at 165; Pagliero v. Wallace China Co., 198 F.2d 339, 344 (9th Cir. 1952) (holding that floral design of china pattern was aesthetically functional because it was an important ingredient in commercial success); Industria Arredementi Fratellin Saporti v. Charles Craig, Ltd., 725 F.2d 18, 20 (2d Cir. 1984) (holding that the design of an Italian sofa was aesthetically functional because it was a principle characteristic of the sofa that enhanced its salability).

209. See, e.g., W.T. Rogers Co., 778 F.2d at 342–43 (holding that a hexagonal end-panel of a stacking tray is not aesthetically functional if effective competition is possible without it, such as by using other shapes that are equally appealing); Qualitex Co., 514 U.S. at 165 (evaluating the aesthetic functionality of color in terms of whether it makes a product more desirable).

210. See In re Owens-Corning Fiberglas Corp., 774 F.2d 1116, 1121 (Fed. Cir. 1985) (“[D]epriving the public of the right to color fibrous residential insulation ‘pink’ (1) does not hinder competition and (2) does not take from the goods . . . something of substantial value.”) (emphasis and quotation marks omitted).

211. Although Christian Louboutin has a trademark registration for the red soles on shoes, a federal district court denied a motion for summary judgment against Yves Saint Laurent’s sale of red-soled shoes “[b]ecause in the fashion industry color serves ornamental and aesthetic functions vital to robust competition . . . .” See Christian Louboutin S.A. v. Yves Saint Laurent Am., Inc., 778 F. Supp. 2d 445, 449 (S.D.N.Y. 2011). Also, in the context of fashion, color “performs a creative function” because “[i]t is a feature purposely given to an article of art or design to depict the idea as the creator conceived it . . . .” Id. at 452. This decision was appealed to a panel of the Second Circuit, which had ruled, at the time this Comment went to press, that the Loubouton red sole is in fact entitled to limited trademark protection. Don Jeffrey & Cotton Timberlake, Louboutin Wins Appeal Over Saint Lauren Red Sole Shoes, BLOOMBERG BUSINESSWEEK (Sept. 5, 2012), http://www.bloomberg.com/news/2012-09-05/louboutin-wins-appeal-over-saint-laurent-red-soles-shoes.html.

212. In re Owens-Corning Fiberglas Corp., 774 F.2d at 1121.

213. Id. at 1125.

214. See Au-Tomotive Gold, Inc. v. Volkswagen of Am., Inc., 457 F.3d 1062, 1073 (9th Cir. 2006) (“[A]esthetic functionality has been limited to product features that serve an aesthetic purpose wholly independent of any source-identifying function.”).

215. Qualitex Co., 514 U.S. at 165; TrafFix Devices, Inc., 532 U.S. at 33.

216. See, e.g., Robert Unikel, Better By Design: The Availability of Trade Dress Protection for Product Design and the Demise of “Aesthetic Functionality”, 85 TRADEMARK REP. 312 (1995); Clicks Billiards, Inc. v. Sixshooters, Inc., 251 F.3d 1252, 1260 (9th Cir. 2001); Pebble Beach Co. v. Tour 18 I Ltd., 155 F.3d 526, 540 n.6 (5th Cir. 1998).

217. By not considering aesthetic functionality, courts limited the arguments one could make to defeat trademark rights in aesthetic features. See, e.g., Sno-Wizard Mfg., Inc. v. Eisemann Prods. Co., 791 F.2d 423, 426 n.3 (5th Cir. 1986) (rejecting the defendant’s argument that the configuration of a snowball machine was aesthetically functional because it contributed to the commercial success of the product). This in turn increases the chances for possible dual coverage with design patents, which also protects aesthetic product attributes.

218. See TrafFix Devices, Inc., 532 U.S. at 33.

219. See Fleischer Studios, Inc. v. A.V.E.L.A., Inc., 636 F.3d 1115, 1124–25 (9th Cir. 2011), withdrawn and superseded, 654 F.3d 958 (9th Cir. 2011).

220. See Irene Calboli, The Case for a Limited Protection of Trademark Merchandising, 11 U. ILL. L. REV. 865, 888–91 (2011).

221. See Fleischer Studios, Inc., 636 F.3d at 1124.

222. See id. at 1123 (quoting Int’l Order of Job’s Daughters v. Lindeburg & Co., 633 F.2d 912, 917 (9th Cir. 1980)).

223. See Fleischer Studios, Inc., 654 F.3d at 961 (noting that Betty Boop merchandise has reached a very high level of popularity).

224. In reaching the conclusion that the use of Betty Boop’s image was functional, the court recognized that the image was a prominent feature of each item so as to be visible to others when worn. See id. at 1124.

225. See RESTATEMENT (THIRD) OF UNFAIR COMPETITION § 17 cmt. c (1995).

226. See generally Au-Tomotive Gold, Inc., 457 F.3d 1062.

227. See id. at 1074 (“Volkswagen and Audi’s trademarks undoubtedly increase the marketability of Auto Gold’s products. But their ‘entire significance’ lies in the demand for goods bearing those non-functional marks.”).

228. Id. at 1073.

229. See id. at 1065 (noting the defendant’s argument that consumers who own Volkswagens or Audis want Volkswagen or Audi license plate covers).

230. Id. at 1071.

231. W.T. Rogers Co., 778 F.2d at 343–44.

232. See id. at 344 (indicating that there is superficial appeal to the argument of décor compatibility, but rejecting it as “an open sesame to trademark infringement”).

233. Fleischer Studios, Inc., 654 F.3d at 967.

234. Christian Louboutin S.A. v. Yves Saint Laurent Am., Inc., 778 F. Supp. 2d 445, 454 (S.D.N.Y. 2011).

235. See, e.g., Qualitex Co., 514 U.S. at 164–65; W.T. Rogers Co., 778 F.2d at 338.

236. 2 JOHN GLADSTONE MILLS III ET AL., PATENT LAW FUNDAMENTALS § 7:21 (2d ed. 2012).

237. Fleischer Studios, Inc. v. A.V.E.L.A., Inc., 636 F.3d 1115, 1124 (9th Cir. 2011), withdrawn and superseded, 654 F.3d 958 (9th Cir. 2011).

238. Fleischer Studios, Inc., 654 F.3d at 968.

239.U.S. CONST. art. 1, § 8, cl. 8.

240. See Copyright Act, 17 U.S.C. §§ 101–1332 (2006) (having first passed in 1790 and amended numerous times thereafter); see also PAUL GOLDSTEIN, COPYRIGHT’S HIGHWAY: FROM GUTENBERG TO THE CELESTIAL JUKEBOX (Hill & Wang 1994) (providing an excellent treatment of the history and purposes of copyrights).

241. See, e.g., Sid & Marty Krofft Television Productions Inc. v. McDonald’s Corp., 562 F.2d 1157, 1167 (9th Cir. 1977) (finding that McDonaldland commercials were substantially similar to the H.R. Pufnstuf television show because they captured the total concept and feel of Pufnstuf).

242. See MELVILLE NIMMER, NIMMER ON COPYRIGHT § 13.03 (1990) (“[E]ven if the [copied] material is quantitatively small, if it is qualitatively important, the trier of fact may properly find substantial similarity.”).

243. See Fleischer Studios, Inc., 654 F.3d at 962 (“[C]haracters that are especially distinctive . . . receive protection apart from the copyrighted work.”) (quoting Rice v. Fox Broad. Co., 330 F.3d 1170, 1175–76 (9th Cir. 2003)).

244. See id.

245. See, e.g., Lyons P’ship, L.P. v. Morris Costumes, Inc., 243 F.3d 789 (4th Cir. 2001) (holding that the copyright on Barney applies to the use of the character in costume); see also 17 U.S.C. §§ 107–22 (providing several exceptions to copyright privileges, most notably one for fair use).

246.U.S. CONST. art. I, § 8, cl. 8.

247. See generally Elred v. Ashcroft, 537 U.S. 186 (2003) (holding that extensions of copyright are within Congress’s authority).

248. See id. at 205–06 (discussing that Congress has also established a long term of copyright protection to make U.S. law consistent with international copyright treaties).

249. Since copyright infringement requires a reproduction, one suing for copyright infringement must prove that the defendant incorporated protected elements from the copyrighted work to make the allegedly infringing copy. See Sid & Marty Krofft Television Prods., Inc., 562 F.2d at 1164. This hurdle typically is fulfilled by demonstrating that the defendant had access to the copyrighted work and then created a work having substantially similar expression. See id. Characters such as Mickey Mouse are so ubiquitously omnipresent that it would be extremely easy to prove that the defendant had access. See Moffat, supra note 142, at 1507. The burden would thus shift to the alleged infringer to rebut a presumption of copying and prove independent creation. See Taylor Corp. v. Four Seasons Greetings, LLC, 403 F.3d 958, 967 (8th Cir. 2005).

250. See Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23, 33–34 (2003) (“The rights of a patentee or copyright holder are part of a ‘carefully crafted bargain’ under which, once the patent or copyright monopoly has expired, the public may use the invention or work at will and without attribution.”) (internal citation omitted).

251. See U.S. CONST. art. I, § 8, cl. 8.

252. See, e.g., Lyons P’ship, 243 F.3d at 803–04; DC Comics, Inc. v. Filmation Assoc., 486 F. Supp. 1273, 1277 (S.D.N.Y. 1980); In re DC Comics, Inc., 689 F.2d 1042 (C.C.P.A. 1982).

253. See Lyons P’ship, 243 F.3d at 803–04; In re DC Comics, 689 F.2d 1042.

254. See, e.g., Sony Pictures Entm’t v. Fireworks Entm’t Group, Inc., 137 F. Supp. 2d 1177, 1197 (C.D. Cal. 2001); Frederick Warne & Co., Inc. v. Book Sales, Inc., 481 F. Supp. 1191, 1197 n.3 (S.D.N.Y. 1979).

255. See, e.g., Sony Pictures Entm’t, 137 F. Supp. 2d at 1197; Frederick Warne & Co., 481 F. Supp. at 1197 n.3.

256. See Frederick Warne & Co., 481 F. Supp. at 1197 n.3.

257. See TrafFix Devices, Inc. v. Mktg. Displays, Inc., 532 U.S. 23, 29 (2001).

258. See Dastar Corp., 539 U.S. at 33.

259. Compare id. at 38 (holding that Dastar was not liable for reverse passing off by misrepresenting the “origin” of the goods because Dastar, which edited an uncopyrighted film series and sold the product on its own, actually was the origin of the edited movies), with Fleischer Studios, Inc., 636 F.3d at 1118, withdrawn and superseded, 654 F.3d 958 (finding that Fleischer’s suit claims that A.V.E.L.A., by displaying Betty Boop, is confusing consumers into thinking that Fleischer is the origin or sponsor, which it is not).

260. See Fleischer Studios, Inc., 636 F.3d at 1124, withdrawn and superseded, 654 F.3d 958 (“[W]here a copyright is in the public domain, a party may not assert a trademark infringement action against an alleged infringer if that action is essentially a substitute for a copyright infringement action.” Based on this, the court initially ruled that Fleischer could not succeed on a trademark infringement claim since Betty Boop might then never enter the public domain.).

261. See Dastar Corp., 539 U.S. at 34 (stating that Twentieth Century Fox’s attempt to use trademark laws to prevent Dastar from copying its film “would create a species of mutant copyright law that limits the public’s ‘federal right to copy and to use,’ expired copyrights.”) (internal quotations omitted).

262. See, e.g., Park ‘N Fly, Inc. v. Dollar Park and Fly, Inc., 469 U.S. 189, 205 (1985) (holding that a trademark including a logo of an airplane was incontestable).

263. See 15 U.S.C. § 1127 (2006) (clarifying this principle by defining a trademark as “any word, name, symbol or device intended to be used to identify and distinguish [a producer’s] goods.”) (emphasis added).

264. See Dastar Corp., 539 U.S. at 25–26.

265. See, e.g., Moffat, supra note 142, at 1531–32 (claiming that Congress needs to more directly address overlapping protection by copyright and trademark, by perhaps requiring a company to elect between copyrights and trademarks for protection); Richter, supra note 144, at 442 (claiming that the conflict should be addressed by revising the fair use doctrine in copyright); Helfand, supra note 73, at 670–71 (claiming that using trademarks on the product is presumed not to infringe, assuming the seller includes a disclaimer, but using the character on tags or labels does infringe. However, when famous characters such as Mickey Mouse are used on the product, one cannot presume that this does not infringe trademark rights.).

266. See Helfand, supra note 73, at 671.

267. Sonny Bono Copyright Term Extension Act of 1998, Pub. L. No. 105-298, 112 Stat 2827 (extending copyright protection for works made for hire by twenty years). In other instances, the term may be measured as the life of the author plus seventy years. 17 U.S.C. § 302.

268. An exception is for consistent use of individual images that are primarily developed and used to represent Disney as the source. Supra notes 232–33.

269. See The Advertising Century: Tony the Tiger, ADVERTISING AGE (Mar. 29, 1999), http://adage.com/century/icon09.html. Tony the Tiger was created in 1951 to serve as the official mascot for the Kellogg Company’s Sugar Frosted Flakes cereal (subsequently renamed Frosted Flakes). Id.

270. Knitwaves, Inc. v. Lollytogs Ltd. (Inc.), 71 F.3d 996 (2d Cir. 1995).

271. See id. at 1002–05.

272. Id. at 1009.

273. Wal-Mart Stores, Inc. v. Samara Bros., Inc., 529 U.S. 205 (2000).

274.Moffat, supra note 142, at 1527 (stating that “it is clear that the Supreme Court is not offended by the notion of overlapping protection” because the Court did not reject the trademark claim in Samara).

275. Samara Bros., Inc. v. Wal-Mart Stores, Inc., 165 F.3d 120, 125 (2d Cir. 1998), rev’d on other grounds, 529 U.S. 205 (finding that the facts are distinguishable from Knitwaves because the clothing line used consistent design elements specifically to identify Samara and build brand loyalty).

276. See Wal-Mart Stores, 529 U.S. at 212.

277. See, e.g, Carol Barnhart, Inc. v. Econ. Cover Corp., 773 F.2d 411, 421–22 (2d Cir. 1985) (Newman, J., dissenting); Brandir Int’l, Inc. v. Cascade Pac. Lumber Co., 834 F.2d 1142, 1144 (2d Cir. 1987).

278. See, e.g., Computer Assoc. Int’l., Inc. v. Altai, Inc., 982 F.2d 693, 710 (2d Cir. 1992); Lotus Dev. Corp. v. Borland Int’l. Inc., 49 F.3d 807, 815–18 (1st Cir. 1995).

279. See, e.g., TrafFix Devices, 532 U.S. at 34–35 (“[The Lanham Act] does not protect trade dress in a functional design simply because an investment has been made to encourage the public to associate a particular functional feature with a single manufacturer or seller.”); W.T. Rogers Co. v. Keene, 778 F.2d 334, 338 (7th Cir. 1985) (“[T]he concept of functionality is intended to screen out from the protection of trademark law certain design features even if they have become so far identified with the manufacturer of a particular brand that consumers may be confused about the origin of the good if another producer is allowed to adopt the feature.”); see also Dastar Corp., 539 U.S. at 33–34.

280. See supra notes 124–34.

281. See Fleischer Studios, Inc., 654 F.3d at 961.

282. Feist Publ’ns, Inc. v. Rural Tel. Serv., 499 U.S. 340, 349 (1991) (articulating the notion of thin rights in intellectual property, explaining that the copyright in a compilation of facts was “thin” since it only extended to the creative selection and arrangement of facts, and not to the facts themselves).

283. See Frederick Warne & Co., 481 F. Supp. at 1197 n.3.

284.COCA-COLA, Registration No. 0022406.

285. See, e.g., PEPSI-COLA, Registration No. 0349886 (reciting PepsiCo’s federal trademark registration for PEPSI-COLA); see also AMF, Inc. v. Sleekcraft Boats, 599 F.2d 341, 351 (9th Cir. 1979) (in comparing Sleekcraft with Slickcraft, the court noted that “craft” is frequently used with boats and thus is not protectable, but that the difference between “Slick” and “Sleek” was insufficient to overcome the overall similarity).

286. See Pirone v. MacMillan, Inc., 894 F.2d 579, 581 (2d Cir. 1990); Estate of Presley v. Russen, 513 F. Supp. 1339, 1344 (D.N.J. 1981).

287. ETW Corp. v. Jireh Publ’g Inc., 332 F.3d 915, 922 (6th Cir. 2003).

288. Id. at 922.

289. Id.

290. See Estate of Presley, 513 F. Supp. at 1344; Pirone, 894 F.2d at 581.

291. See Rock & Roll Hall of Fame & Museum, Inc. v. Gentile Prods., 134 F.3d 749, 755 (6th Cir. 1998).

292. See Pirone, 894 F.2d 579; Estate of Presley, 513 F. Supp. 1339.

293. Estate of Presley, 513 F. Supp. at 1363–64.

294. See ETW Corp., 332 F.3d at 923.

295. See generally 15 U.S.C. § 1125(a)(1)(A) (2006) (establishing that celebrities cannot protect their general appearances as trademarks, but they do have the ability to bring false endorsement claims under section 43(a) of the Lanham Act and right of publicity claims under state law); see also Lugosi v. Universal Pictures, 603 P.2d 425, 428 (1979) (state laws protecting the right of publicity vary slightly in their terms, but in general protect the unauthorized “appropriation, for defendant’s advantage, of the plaintiff’s name and likeness.” Such personal rights, as opposed to trademark rights, are not relevant to media characters, for if they were, A.V.E.L.A. would need to get permission from Betty Boop to put her image on merchandise).

296. Supra Part IV.A.

297. See W.T. Rogers, Co. v. Keene, 778 F.2d 334, 347–48 (7th Cir. 1985) (noting that the loss of trademark rights “is not a disaster for the owner of a trademark.” If the trademark owner has to share the design, it can “imprint a verbal or other trademark more emphatically, in order to identify its brand to consumers who can no longer look to the . . . [design] for identification of source.”).

MAJOR LEAGUE BASEBALL TEAM BANKRUPTCIES: WHO WINS? WHO LOSES?

John Dillon[*]

Baseball is America’s sport. It evokes a sense of tradition and a love for the home team. Like all professional sports teams, however, baseball teams are part of a league, which restricts team ownership through contractual “constitutional” provisions and agreements and limits the number of teams that exist. In this limited and restricted entertainment market, professional sports teams operate highly lucrative businesses that sometimes seek bankruptcy protection through Chapter 11 reorganization. Bankruptcy generally allows the debtor to alter existing contractual rights and restructure its operations to avert the financial crisis that precipitated the bankruptcy filing. However, professional sports leagues have pre-existing contractual rights and remedies in place for the benefit and protection of all of their member teams that may conflict with bankruptcy laws, and the leagues try to enforce those rights, even in the bankruptcy arena. The league’s existing contractual rights may conflict with bankruptcy laws that afford the debtor team to free itself from such obligations. This Comment discusses the extent to which professional sports teams can make material business decisions affecting their Chapter 11 reorganization without complying with the league’s constitution and associated agreements. These conflicts are at the forefront of all professional sports team bankruptcies. The Dodgers bankruptcy provides a classic example of the clash between a debtor team’s rights in bankruptcy and MLB’s existing “constitutional” rights.

I. INTRODUCTION

Baseball is America’s sport.[1] A classic form of entertainment, baseball provides daily drama and culminates in the World Series—the “Fall Classic.”[2] Baseball thrives because millions of fans “can open up the sports page, digest the box scores, and learn whether their team triumphed or failed the night before.”[3]

However, baseball is more than a game; it is a business.[4] Like any other business, baseball teams can reap great profits or falter into bankruptcy.[5] When a club files for Chapter 11 bankruptcy, Major League Baseball (“MLB”) must confront the intricacies of that bankruptcy.[6] However, resorting to bankruptcy is a relatively rare occurrence in professional sports.[7]

Recently, the Los Angeles Dodgers became baseball’s third team in three years to file for bankruptcy.[8] Although MLB supported the bankruptcy filings of the Chicago Cubs and the Texas Rangers, it did not support the Dodgers’ bankruptcy.[9] When the Dodgers filed for bankruptcy on June 27, 2011,[10] Frank McCourt, the Dodgers’ owner, and MLB were locked in a highly publicized public dispute for ultimate control over the Dodgers,[11] the third most valuable team in baseball.12

[12]McCourt alleged the Dodgers were forced to file for bankruptcy after Commissioner Allan “Bud” Selig refused to approve an approximately $3 billion telecast agreement that McCourt needed to meet payroll and other financial obligations.[13] However, Commissioner Selig contended that the bankruptcy filing “does nothing but inflict harm to this historic franchise.”[14] McCourt expected the bankruptcy to allow him to obtain temporary financing to meet payroll and other obligations and retain control of the team.[15] McCourt also anticipated the bankruptcy would allow him to sell the television rights to the highest bidder and, in the process, override MLB rules governing the clubs, including the Dodgers.[16]

Typically, bankruptcy allows the debtor sports club to alter certain contractual rights and to restructure its operations to avert the financial crisis that precipitated the bankruptcy filing.[17] However, professional sports leagues have pre-existing contractual rights and remedies in place for the benefit and protection of all member teams, and the leagues try to enforce those rights, even in the bankruptcy arena.[18] For example, in professional baseball, MLB is governed by a constitution, an “agreement” among MLB clubs.[19] Like other professional sports leagues’ constitutions (e.g., National Football League[20] and National Hockey League[21]), the MLB Constitution contains rules governing the sale, transfer, or assignment of ownership interests in the teams,[22] and other important approval and consent provisions.[23]

However, the “constitutional rights” guaranteed by MLB may conflict with bankruptcy laws, which are supposed to afford the debtor the right to free itself from onerous contracts, leases, restrictive covenants, and other obligations.[24] The Dodgers’ bankruptcy filing represents the most recent example of this clash between bankruptcy law and professional sports.[25] The fundamental debate centers on who should win and who should lose the game when the parties enter the “bankruptcy” arena.[26]

This comment will address the extent to which MLB teams can make material business decisions affecting their Chapter 11 reorganization without complying with the terms of the MLB Constitution and associated regulations.[27] These competing interests are at the forefront of all contested sports team bankruptcies.[28] The Dodgers’ bankruptcy provides a classic case study of the clash between a debtor team’s rights in bankruptcy and MLB’s existing “constitutional” rights.[29] Although MLB and the Dodgers have settled their differences,[30] the legal issues addressed in this bankruptcy case are likely to recur in other sports team bankruptcies as other teams face economic problems.[31] Also, recurrence is likely because the law is unsettled and each side can present persuasive arguments.[32]

Section II of this comment will summarize MLB’s structure and highlight prior sports team bankruptcies. Section III will evaluate the events that led to the Dodgers’ bankruptcy filing, and Section IV will provide an overview of bankruptcy reorganization. Section V will address the bankruptcy issues raised in the Dodgers bankruptcy, but are likely to reoccur in other future sports team bankruptcies. The section will analyze whether the debtor sports team can assume or assign league and other agreements if the team is in incurable breach of those agreements. In addition, it will discuss whether MLB’s consent is required as a predicate to the assumption or assignment of such agreements. Compliance with such agreements is the very foundation of a debtor sports team’s ability to reorganize successfully and continue to operate the team as a member of the league. Finally, this Comment will discuss whether MLB can terminate a team from the league for filing bankruptcy, or whether termination on such grounds would constitute an unenforceable ipso facto clause.

II. THE STRUCTURE OF MAJOR LEAGUE BASEBALL AND TEAM BANKRUPTCIES

Professional baseball is one of America’s oldest organized league sports, which dates back to 1869.[33] Every year, “[f]rom April through October . . . , [Major League Baseball (“MLB”)] runs a 162-game regular season and a post-season playoff that determines that season’s World Series Champion. [MLB] teams are divided into two leagues (American and National) and six divisions ([American League East, Central, and West; and National League East, Central, and West]).”[34] Doing business as “MLB,” the Office of the Commissioner of Baseball is an unincorporated association of its thirty member clubs.[35] MLB’s primary purpose is to undertake centralized activities on behalf of the thirty clubs.[36]

A. Historical Overview

Since the beginning of professional baseball in the mid-nineteenth century, the game has been governed by an associational structure.[37] The first structure, the “National Association of Base Ball Players,” created a National Commission, consisting of a three-person body with supervisory control of professional baseball.[38] The National Association, a loose assemblage of players, was ineffective at controlling the gambling and bribery that became widespread in baseball; therefore, it was replaced by the “National League of Professional Base Ball Clubs” (“National League”).[39]

The National League was set apart from the National Association because it was an organization of baseball clubs, rather than a players’ association.[40] Although the National League was still maintained by a group of committees, a group of five directors had most of the administrative power.[41] Shortly after formation of the National League, other leagues were formed, which resulted in increased competition amongst the teams for players.[42] To control the appropriation of players from league to league, the three major leagues committed to the “Triparte Agreement,” later renamed the “National Agreement,” which served as the “central law” of the three-league system.[43]

The 1919 Black Sox scandal led to the demise of baseball’s initial structure.[44] In response, the National League proposed to eliminate the National Commission and replace it with “one leader, a man ‘of unquestionable reputation and standing in fields other than baseball’ whose ‘mere presence would assure that public interest would first be served, and that therefore, as a natural sequence, all existing evils would disappear.’”[45] On January 12, 1921, “the position of Baseball Commissioner was created . . . with the ratification of the new Major League Agreement.”[46] Baseball’s first Commissioner was United States District Court Judge Kenesaw Mountain Landis, who served as a Commissioner for twenty-four years, the longest tenure of any Commissioner to date.[47] The current baseball commissioner is Allan H. “Bud” Selig.[48]

B. The Major League Constitution

Originally adopted as the Major League Agreement of 1921, the MLB Constitution entitles each club to the benefits of the Constitution, but also binds each club to its terms and provisions.[49] For example, Article VIII specifies the thirty-team membership and requires its members to “act at all times in the best interests of Baseball.”[50]

Article II establishes the Office of the Commissioner of Baseball.[51] The Commissioner’s functions include serving as the “Chief Executive Officer” and investigating “any act, transaction or practice” alleged or suspected “to be not in the best interests” of baseball.[52] With the appropriate vote of the MLB clubs, the Commissioner may take “punitive action” to correct offenses deemed not to be in the “best interests” of baseball.[53] The penalties range from a reprimand or a fine to removal of “any owner, officer or employee of a Major League Club.”[54]

The Commissioner’s powers and remedial measures are extremely broad and extend to “such other actions as the Commissioner may deem appropriate.”[55] The “best interests of baseball” clause authorizes the Commissioner to protect and regulate the conduct of each MLB club so that each club operates in the best interests of baseball, baseball fans, and sponsors.[56] Furthermore, this clause protects the integrity of the game.[57] Specifically, the Commissioner’s authority extends to “any matter that involves the integrity of, or public confidence in, the national game of Baseball.”[58]

Importantly, each club has agreed to act in the “best interests of baseball” as required by the MLB Constitution.[59] The Constitution’s “Superseding Effect” clause provides as follows:

This Constitution, and all actions taken pursuant to this Constitution, shall supersede any conflicting provisions of any other agreement, as amended, whether now existing or hereinafter entered into, to which any Major League Club is a party and any conflicting actions taken pursuant thereto.[60]

Moreover, the MLB Constitution addresses the issue of the “involuntary termination” of a club.[61] With the approval of three-fourths of all MLB clubs, the “rights, privileges, and other property rights of a Major League Club” may be terminated involuntarily “if the Club in question shall do or suffer” certain specified conditions.[62] The most important of these “involuntary termination” conditions include the following:

(f) Fail or refuse to comply with any requirement of the Commissioner; . . .

(j) Fail or refuse to fulfill its contractual obligations; . . . or

(l) [F]ile a voluntary petition in bankruptcy . . . or if reorganization proceedings in bankruptcy are instituted by or against the Club.[63]

The MLB Constitution also contains rules governing the sale or transfer of control interests in each club, which often are at the heart of sports teams’ bankruptcies.[64]

C. Professional Sports Team Bankruptcies

Although uncommon, professional sports teams occasionally file for bankruptcy.[65] The financial viability of a professional sports team is driven by a complex combination of revenues and expenses: (a) ticket sales; (b) broadcast media revenue; (c) venue revenues; (d) license revenues; (e) naming rights revenues; (f) concessions; (g) player costs; (h) venue costs; and (i) operating expenses.[66] Teams are typically forced into bankruptcy due to huge debt, bad investments, or the financial hardship of the owner’s primary business.[67] When a default in significant financing is imminent,[68] or when expenses exceed revenues, a Chapter 11 reorganization becomes an option.[69] Of the nine professional teams that have filed for bankruptcy in the past forty years (with the Pittsburgh Penguins filing twice), six are National Hockey League teams and three are MLB teams.[70] Over that time, the bankruptcies did not lead to a forfeiture or dissolution of the sports team, but rather resulted in a shift in ownership.[71]

In contrast, in the Dodger’s bankruptcy, MLB has taken the position that the Dodgers, as debtors, should be compelled to abide by the MLB Constitution and other baseball agreements or reject them and effectively terminate the debtors’ rights to the team.[72] This approach is at odds with other MLB bankruptcies. For example, MLB’s Seattle Pilots played one season in Seattle, but the owners did not have sufficient funds to continue operating the team.[73] As a result, in March 1970, the owners filed for bankruptcy after a state court granted the State of Washington an injunction to prevent the owners from relocating the team.[74] Placing the team into bankruptcy allowed the approximately $10 million sale of the team to Bud Selig, the current MLB Commissioner.[75] The sale took place in time for the 1970 season.[76] The team later relocated to Milwaukee[77] and was renamed the “Milwaukee Brewers” as a result of the bankruptcy.[78]

Second, in 1989, Eli Jacobs led a group that purchased the Baltimore Orioles for $70 million.[79] In 1992, the Baltimore Orioles opened the season in Camden Yards, the first of the “retro” ballparks.[80] However, even with consistent attendance,[81] Eli Jacobs filed for bankruptcy in his other primary business venture, Memorex Telex, and was forced into bankruptcy in March 1993.[82] During the bankruptcy, the Orioles were sold at auction with MLB’s approval to lawyer Peter Angelos, who paid $173 million.[83]

Third, in 2009, the Tribune Company placed the Chicago Cubs into bankruptcy as a technical maneuver to help expedite the sale of the team, which was approved by the Tribune’s creditors.[84] The sale received MLB’s approval as well.[85]

Finally, in 2010, Texas Rangers’ owner Tom Hicks incurred over $500 million in debt and defaulted, which caused chaos.[86] To raise funds, Hicks agreed to sell the team to Nolan Ryan and attorney Chuck Greenberg for $525 million.[87] However, when the creditors did not approve the sale, the Texas Rangers filed for Chapter 11 bankruptcy.[88] In an August 2010 auction, Ryan and Greenberg purchased the team for a reported $593 million, after besting Dallas Mavericks owner Mark Cuban and others.[89] In that bankruptcy, “the court was presented with, but did not ultimately resolve, the issue of whether the debtor could sell the team to a lower bidder because [MLB] had approved that bidder.”[90] However, the court implied that the debtor could not sell the team without the league’s approval, provided the league exercised its approval rights in good faith.[91] While the Texas Rangers’ bankruptcy was contentious, it did not compare to the “tangled web” surrounding the Los Angeles Dodgers’ Chapter 11 bankruptcy.[92]

III. THE LOS ANGELES DODGERS CALAMITY

The well publicized calamity associated with the Los Angeles Dodgers began with the Frank McCourt acquisition of the team in 2004 and culminated in a hotly disputed bankruptcy in 2011, with accusations of wrong-doing by both McCourt and Major League Baseball (“MLB”).[93] The dispute has forced both sides to raise legal issues not yet answered in the context of professional sports team bankruptcies.[94] To provide context for the legal issues presented in the Dodgers’ bankruptcy, some background is needed of the team, the McCourt acquisition, the messy divorce that spotlighted the McCourt financial woes, and the bankruptcy filing.[95]

A. The Los Angeles Dodgers

The Los Angeles Dodgers, located in the second most populous metropolitan area in the United States, is one of only thirty MLB clubs and one of three clubs in southern California.[96] The Dodgers have a storied history,[97] which dates back to the late 1800s.[98] In 1947, the Dodgers broke baseball’s color barrier by hiring Jackie Robinson, the first African American Major League Baseball player.[99] The Dodgers won their first World Series Championship in 1955.[100] In 1962, the Dodgers moved from New York to their new home at Dodger Stadium, located in Chavez Ravine, Los Angeles, where they continue to play.[101] The Dodgers have won six World Series Championships (five in Los Angeles).[102] The Dodgers’ most recent World Series championship occurred in 1988.[103]

In 1998, Fox Sports purchased the Dodgers and created a regional sports network.[104] Thereafter, in November 2001, the Dodgers and Fox Sports entered into a Telecast Rights Agreement.[105] In 2003, Fox Sports decided to sell the team along with the surrounding real estate (stadium and parking lots), and in early 2004, McCourt purchased the Dodgers and the associated real estate.[106] In connection with the purchase, Fox Sports and McCourt agreed to an amendment to the Telecast Rights Agreement.[107] Under the amended agreement, the term of the Telecast Rights Agreement was extended to grant Fox Sports the right to telecast Dodger games through the 2013 season.[108] Furthermore, Fox Sports received an exclusive renegotiation right for an additional five-year term, with negotiations to take place from October 15 to November 30, 2012.[109] Fox also received a right of first refusal as to third-party offers.[110]

B. 2004: The McCourt Era

In February 2004, Frank McCourt acquired the Dodgers and associated real estate from Fox Sports for $430 million.[111] MLB unanimously approved the sale to McCourt;[112] however, the acquisition of the team was based almost wholly on borrowed funds.[113] Further, there were important conditions to the acquisition. First, McCourt and the Dodgers were required to acknowledge their obligation to comply with all the terms and conditions imposed by MLB, including the MLB Constitution and other rules and regulations.[114] Second, MLB “required that Mr. McCourt agree to provide an additional $30 million in liquid equity within three years [of acquisition] through the sale of certain real estate assets or by securing equity investors.”[115]

Under the McCourt ownership, the Dodgers performed well.[116] For example, in 2004, the Dodgers won their first playoff game in several years, and in both 2008 and 2009, the team advanced to National League Championship Series games for the first time in several decades.[117] However, on October 14, 2009, while the Dodgers entered into its second championship series, Frank and Jamie McCourt announced their separation after thirty years of marriage.[118] A few days later, Frank McCourt claimed he owned one hundred percent of the team; Jamie claimed otherwise, stating she held a fifty percent ownership interest.[119] On October 22, 2009, Frank McCourt fired his wife as the Chief Executive Officer of the Dodgers.[120] This action triggered Commissioner Bud Selig to announce that the league would track the McCourts’ ongoing and much publicized dispute.[121] Shortly thereafter, on October 27, 2009, Jamie McCourt filed for divorce and spousal support.[122]

In May 2010, the divorce court ordered McCourt to pay Jamie $640,000 per month in support, including $225,000 in spousal support, and $412,159 per month for costs associated with their real property.[123] Overall, McCourt was ordered to pay more than $7.6 million per year.[124] To cover the spousal support and other financial obligations, McCourt entered into a proposed transaction with Fox Sports, which involved the sale of the Dodgers’ future telecast rights.[125] The transaction was reportedly valued at about $1.7 billion in telecast fees,[126] but also involved Fox Sports making a $385 million loan to one of the McCourt-owned entities to pay for the proposed divorce settlement and to satisfy other financial obligations.[127]

The telecast rights transaction was subject to MLB approval and required the consent of Jamie McCourt due to her claimed ownership interest in the Dodgers and related assets.[128] Moreover, if MLB did not approve the proposed Fox transaction, it would be “null and void.”[129] Jamie McCourt consented to the proposed Fox transaction[130] but MLB did not immediately respond to McCourt’s request for approval.[131]

Meanwhile, the divorce proceedings exposed the McCourts’ lavish lifestyle and use of Dodgers funds for personal purposes.[132] On December 7, 2010, the court invalidated the post-nuptial marital agreement that Frank McCourt had claimed provided him with sole ownership of the Dodgers.[133] The divorce left McCourt financially distressed and exposed him to a potential loss of fifty percent of the team and its assets.[134]

Additionally, at the beginning of the 2011 season, a violent fight occurred at Dodger Stadium.[135] A San Francisco Giants fan, Bryan Stow, was attacked in the Dodger Stadium parking lot after the Dodgers’ opening day game.[136] As a result, Stow was in a coma for several weeks and suffered brain damage, raising the prospect of a suit for substantial damages.[137] On April 20, 2011, Commissioner Selig announced that he would appoint a monitor to oversee the Dodgers’ day-to-day operations, effectively taking control of the team from McCourt.[138]

With attendance down and financial pressures mounting, McCourt pushed MLB for its approval of the proposed Fox transaction—a transaction that would bail out McCourt from financial ruin for the time being.[139] However, on June 20, 2011, Commissioner Selig advised McCourt by letter that MLB would not approve the proposed Fox transaction.[140] Commissioner Selig declined to approve the transaction for multiple reasons, including: (a) McCourt did not obtain other offers for the telecast rights and, therefore, did not maximize the value of those rights; (b) the loan advance would “hamstring” the Dodgers going forward and would sacrifice the Dodgers’ future in exchange for an immediate payoff; (c) a substantial portion of the loan advance would be used to pay for McCourt’s other financial obligations unrelated to the Dodgers; and (d) it represented a short-term fix with the Dodgers facing liquidity issues again as early as 2013.[141]

C. 2011: Bankruptcy Filing

Based on Commissioner Selig’s refusal to approve the proposed Fox transaction, the Los Angeles Dodgers LLC did not have sufficient funds to meet payroll and other expenses in June 2011.[142] Accordingly, on June 27, 2011, the Los Angeles Dodgers LLC and other debtors[143] negotiated a debtor-in-possession financing commitment and filed for Chapter 11 bankruptcy.[144] In response to the filing, the Bankruptcy Court in Delaware directed the procedural consolidation and joint administration of the Chapter 11 cases[145] and allowed the debtor entities to continue to manage their assets as debtors-in-possession,[146] pursuant to sections 1107(a) and 1108 of the Bankruptcy Code.[147]

Throughout the bankruptcy proceedings, the Dodgers contended that the purpose of the bankruptcy was to obtain court permission to hold a competitive sale of the Dodgers’ exclusive telecast rights, a move that would permit McCourt to maintain control of the team and allow for the payment of all outstanding financial obligations.[148] To implement the McCourt plan, the Dodgers and other debtors filed a motion to establish bidding procedures for an auction and sale of the Dodgers’ telecast rights under section 363 of the Bankruptcy Code.[149]

At issue was whether the McCourt bankruptcy plan required MLB approval, with MLB having previously rejected the telecast rights transaction because it was not “in the best interests of Baseball.”[150] Also at issue was whether the filing of the bankruptcy itself was a material breach of the MLB Constitution, subjecting the Dodgers to possible involuntary termination.[151]

The McCourt bankruptcy plan was further complicated because the telecast rights were not yet “ripe” for sale. The current telecast rights with Fox Sports[152] ran through 2013; therefore, the McCourt plan to sell such rights as part of the bankruptcy would arguably breach the Dodgers’ Telecast Rights Agreement with Fox Sports.[153] In fact, on September 25, 2011, Fox Sports filed suit against the Dodgers in bankruptcy court, alleging the team breached the Telecast Rights Agreement by pursuing the competitive sale of such rights through bankruptcy.[154] In response, Fox Sports sought damages for such breach, injunctive relief, and requested that the court reject any such sale except in accordance with the terms and conditions of Fox’s existing agreement with the Dodgers.[155] According to Fox Sports, the telecast rights to the Dodgers baseball games are an “inherently unique and irreplaceable” asset and business opportunity.[156] Further, Fox Sports argued the McCourt bankruptcy plan and its timing appeared to be tied to McCourt’s proposed divorce settlement payment obligations with his ex-wife Jamie McCourt.[157]

MLB vigorously opposed the bankruptcy filing and contended that McCourt was using the bankruptcy as a ploy to avoid preexisting contractual obligations with MLB and Fox Sports.[158] Further, MLB contended that McCourt and the debtor entities could not avoid their obligations by commencing Chapter 11 bankruptcy and that the Bankruptcy Code did not displace MLB’s approval rights under the MLB Constitution and other agreements.[159] MLB also contended that the sale of the Dodgers’ telecast rights without MLB approval would subject one or more of the debtors to severe discipline including possible termination from MLB.[160]

According to MLB, compliance with the MLB Constitution and other agreements was “the price of membership in Major League Baseball.”[161] Further, MLB claimed that the debtor entities cannot “cure” the breaches of the MLB Constitution and other agreements or assign or have a third party assume those agreements due to material breaches.[162] As a result, the McCourt bankruptcy plan would result in valueless broadcast rights if the Dodgers were terminated from MLB.[163]

As a consequence, MLB asserted that the only successful path through bankruptcy was the sale of the Dodgers.[164] In fact, MLB proposed its own reorganization plan for the Dodgers.[165] The plan was to request that the Bankruptcy Court terminate the exclusive periods during which the debtors may file a Chapter 11 reorganization plan.[166] The request, if granted, would allow MLB to file and seek confirmation of the “MLB Plan,” which would provide for: (a) “a competitive auction and sale of the Dodgers to a new owner”; (b) payment in full of all allowed bankruptcy claims; and (c) distribution of surplus funds to McCourt and other equity interest holders, “all without breaching the Baseball Agreements and the Fox Telecast Rights Agreement.”[167] Alternatively, MLB requested an order compelling the debtors to seek assumption or rejection of the relevant baseball agreements, pursuant to Bankruptcy Code section 365(d)(2) and Bankruptcy Rule 6006.[168] The Dodgers countered, asserting that they had the right under the bankruptcy laws to seek court approval to sell their future telecast rights.[169]

Further, the Dodgers claimed that in Chapter 11 bankruptcy cases, “liquidation is the last resort, not the first choice.”[170] The Dodgers also argued that agreements governing MLB’s relationship with the team were “no different from other business contracts” and MLB’s interpretation of those contracts was not subject to “any greater deference” by the court.[171] Fox Sports then filed an adversary proceeding in bankruptcy court against the Dodger debtors.[172] Fox Sports also joined with MLB “in an effort to compel the sale of the Dodgers, pursuant to the MLB Plan.”[173] As the parties became further entrenched in the struggle over control of the Dodgers, the bankruptcy court ordered the parties to mediation.[174] As a result, on November 2, 2011, MLB, McCourt, and the debtors reached a settlement.[175]

Approved by the bankruptcy court, the settlement provided for the sale of the Dodgers, pursuant to a plan of reorganization, on or before April 30, 2012.[176] In addition, the Dodgers debtors were entitled to seek the sale of the telecast rights, subject to the Dodgers filing an amended telecast rights motion.[177] In that motion, the Dodgers claimed they could obtain a higher sale price by marketing their telecast rights without abiding by Fox Sports’ exclusive negotiation rights time frames.[178] Fox Sports, on the other hand, asked for enforcement of its contract, which precluded the Dodgers from negotiating with other broadcast entities before the expiration of Fox Sports’ exclusive negotiation date of November 30, 2012.[179]

The bankruptcy court invalidated Fox Sports’ exclusive renegotiation time frame in the telecast agreement.[180] The court also granted the Dodgers’ amended motion to market the telecast rights, along with the sale of the team.[181] Fox Sports promptly appealed the bankruptcy court ruling,[182] and the U.S. District Court Judge Leonard Stark ruled that the bankruptcy court erred in relieving the Dodgers from its contractual obligations under the Fox Sports/Dodgers telecast agreement.[183] Along with the future telecast rights, Judge Stark also stayed the Dodgers’ plans to sell the team.[184]

Thereafter, in January 2012, Fox Sports and the Dodgers settled their dispute.[185] Under the Fox Sports/Dodgers settlement, the Dodgers agreed to abandon its proposed sale of the telecast rights and Fox Sports agreed to withdraw its objections to the settlement between the Dodgers and MLB.[186] As a result, McCourt could proceed with the sale of the Dodgers pursuant to the Dodgers/MLB settlement agreement.[187]

IV. OVERVIEW OF BANKRUPTCY LAW

Chapter 11 reorganization begins by filing a petition with the bankruptcy court.[188] The petition may be voluntarily filed at the election of the debtor, or involuntarily filed by creditors to force a debtor into bankruptcy.[189] The debtor may file a plan of reorganization with the court.[190] Generally, the debtor has the exclusive right to file the reorganization plan until 120 days after the petition date or 180 days, if a small business.[191] However, at the request of a party-in-interest, the bankruptcy court may, for “cause,” reduce the debtor’s exclusive time periods for filing a reorganization plan.[192] In practice, one or more creditors also may seek to file a “competing” reorganization plan after the debtor’s exclusivity period has expired, or after the “for cause” request has been granted to reduce the debtor’s exclusivity rights.[193]

Generally, Chapter 11 is used to reorganize a business and allow it to continue to manage its property and assets as a debtor-in-possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code.[194] The Office of the United States Trustee (“U.S. Trustee”) plays an important role in monitoring a Chapter 11 case and supervising its administration, including conducting a meeting of the creditors and appointing the official committee of unsecured creditors.[195] This committee consults with the debtor-in-possession, investigates the business and its operations, and participates in formulating a reorganization plan.[196]

A Chapter 11 bankruptcy petition operates as an automatic stay, suspending all creditor activity associated with any debts or claims arising before the petition.[197] The automatic stay provides the debtor with relief from creditor claims and actions, protects property that may be needed for the debtor’s “fresh start[,] and provides breathing space to permit the [debtor] to focus on its reorganization efforts.”[198] “Any action taken in violation of the stay is ineffective even if the creditor has no actual knowledge of the bankruptcy.”[199] The stay’s scope is quite broad and protects virtually any type of action against the debtor or its property and assets.[200] Only under specified circumstances can creditors seek a court order granting relief from the automatic stay.[201]

Once the Chapter 11 bankruptcy petition is filed, a debtor can file a motion with the court to receive authorization for post-petition financing.[202] “Oftentimes, post-petition financing is arranged prior to filing the bankruptcy petition through negotiations with a pre-petition lender.”[203] The purpose of the post-petition financing is to allow the debtor “to be able to pay its current operating expenses in order to . . . reorganize its affairs.”[204]

After notice, the court is required to hold a confirmation hearing on the reorganization plan.[205] A party-in-interest may file an objection to the plan’s confirmation.[206] Before confirmation, the court must be satisfied that the plan is in compliance with all applicable requirements, even in the absence of any objections.[207] “[T]o confirm the plan, the court must find, among other things, that: (1) the plan is feasible; (2) it is proposed in good faith; and (3) the plan and the proponent of the plan are in compliance with the Bankruptcy Code.”[208] To satisfy the feasibility requirement, the court must find that the plan confirmation is not likely to be followed by liquidation or the need for further financial reorganization.[209] Once the plan is confirmed, and after any post-confirmation modifications and administration, a final decree closing the case must be entered by the court, declaring that the case has been “fully administered.”[210]

V. BANKRUPTCY ISSUES ARISING FROM PROFESSIONAL SPORTS TEAM BANKRUPTCIES

A. Can the Debtor Sports Team Assume or Assign the League Agreements if the Debtor Is in Breach and Cannot Cure the Breach?

Before an executory contract may be assumed or assigned, the debtor must cure all defaults under that contract or provide adequate assurance that all such defaults will be cured.[211] The ability of the debtor to cure the default is particularly important in a professional sports team bankruptcy because a successful reorganization requires the team to assume or assign key agreements with the league.[212] An incurable breach of the league agreements would render them non-assumable in sports team bankruptcies.[213] The practical effect of non-assignment of such agreements is the “death knell” of the team.[214]

For example, in the Dodgers’ bankruptcy case, Major League Baseball (“MLB”) claimed it would be futile to allow the Dodgers to sell the team’s future telecast rights, because the sale of such rights over the objection of MLB would breach the League Agreements, precluding the assumption or assignment of those agreements.[215] Further, MLB claimed that its approval was required by the League Agreements, citing the MLB Constitution, which requires a vote of three-fourths of the MLB Clubs to approve “the sale or transfer of a control interest in any Club.”[216]

Additionally, MLB claimed that consummating the sale of the Dodgers’ future telecast rights would result in an incurable breach of the Fox Sports/Dodgers telecast rights agreement.[217] Relying again on the MLB Constitution, MLB asserted that the Dodgers’ breach of the Fox Sports/Dodgers telecast rights agreement provided grounds for involuntary termination because the Dodgers, as an MLB club, failed or refused to “fulfill its contractual obligations.”[218] According to MLB, the Dodgers’ proposed sale of its future telecast rights would violate Fox Sports’ exclusive negotiation provisions of the existing Fox Sports/Dodgers telecast rights agreement.[219]

Moreover, MLB argued that McCourt and the Dodgers committed other incurable breaches precluding the assumption and assignment of the League Agreements without MLB’s consent.[220] Specifically, MLB claimed that McCourt and the Dodgers failed to act in the best interests of baseball and breached the team’s obligations under the League Agreements when McCourt (a) siphoned over $100 million from the Club “to fund personal and business obligations unrelated to the business of baseball, leaving the club insufficiently capitalized and ultimately in need of bankruptcy protection”; (b) failed to disclose and obtain MLB approval for loans secured by the Club in violation of the League Agreements; (c) failed to comply with the condition, at purchase, to make an additional $30 million liquid equity contribution to the Dodgers; (d) refused to comply with the Commissioner’s 2011 Directive to appoint a monitor to oversee day-to-day operations of the Dodgers; (e) filed a voluntary petition in bankruptcy without the approval of the Monitor; and (f) pursued economically inferior debtor-in-possession financing.[221]

There is legal support for precluding the assumption and assignment of the league agreements and other key agreements.[222] The case of In re Lee West Enterprises involved an analogous franchise setting, in which a court denied a trustee’s motion to assume and assign franchise agreements because the debtor/franchisee had committed an incurable default.[223] Further, the court in In re Deppe found that the debtor, a gasoline station operator, failed to comply with non-monetary provisions of its gasoline supply agreement, which required no lapse in business operations for seven consecutive days.[224] The court found that the debtor’s default was incurable, precluding the debtor from assuming and assigning its rights under that agreement, stating:[225]

[t]he lapse in operations took place. The estate simply cannot overcome that historical fact. Neither can it deny the significance given to such a lapse under the agreements . . . ; as two courts have noted, the steady maintenance of gasoline station operations . . . fixed by franchise agreements is a key goodwill value to the refiner/distributor, which is given special deference in franchise litigation involving such businesses.  . . . . The estate cannot “undo” the historical event at this point.[226]

Like the debtor in In re Deppe, MLB argued that the Dodgers committed numerous defaults with respect to the League Agreements and that the defaults are “historic events” the Dodgers could not “undo.”[227] In contrast, the Dodgers argued it was not futile for the debtors to pursue a plan of reorganization premised on the marketing of the Dodgers’ future telecast rights.[228] To support this contrary view, the Dodgers claimed that “vague” allegations of an alleged breach are insufficient to constitute a material default.[229]

In In re Pyramid Operating Authority, Inc., the court held that a contract provision was too vague and subjective where it required the downtown sports arena to be operated “as a first class facility” and “in the best interest” of the city, particularly where the contract also required the notice of default to identify specific acts or omissions to show willful default.[230] The court permitted the debtor to assume the executory contract, notwithstanding the alleged breached claims.[231] However, the agreement at issue in that case required specific acts or omissions to show the default.[232] In contrast, operative MLB League Agreements do not require such specificity before a breach can be determined.[233] Thus, if MLB can establish that the Dodgers defaulted under the League Agreements, the Dodgers should be precluded from assigning the League Agreements without MLB’s consent.[234]

As to the alleged breach of the Fox Sports/Dodgers telecast rights agreement, the Dodgers argued that the exclusive negotiation provisions in that agreement were unenforceable in bankruptcy.[235] While there is some case law to support the Dodgers’ contention,[236] MLB cites to a more persuasive line of cases. Exclusivity provisions are enforceable, even in bankruptcy.[237]

In summary, compliance with league and other key agreements is the foundation of the sports team’s ability to operate the team as a member of the league.[238] Incurable defaults under such agreements will likely render them non-assignable, even in bankruptcy reorganization.[239] The end result will likely preclude a sports team from using bankruptcy to achieve a successful reorganization.[240]

B. Can the Debtor Professional Sports Team Assume or Assign the League Agreements Without the League’s Consent?

Membership in a professional sports league is the critical asset for any club that files Chapter 11 reorganization.[241] Membership is recognized through the League Agreements.[242] As part of the Chapter 11 reorganization, the debtor sports team is authorized to assume or reject several types of executory contracts.[243] The debtor’s ability to assume or assign such agreements is “vital” to a successful Chapter 11 reorganization.[244]

League Agreements also are executory contracts,[245] and, therefore, a key legal issue in any professional sports team bankruptcy is whether such agreements can be assumed or assigned under the Bankruptcy Code.[246] If the League Agreements are not capable of being assumed or assigned as part of the reorganization, the “practical effect is the death knell” for the debtor sports team.[247] The reason is obvious: without the League Agreements, the debtor team does not exist as a member of the league, and “the value of the Debtor’s estate is nominal” at best.[248]

Section 365(c) of the Bankruptcy Code codifies the rule that certain executory contracts cannot be assumed or assigned.[249] Section 365(c) provides, in relevant part:

The [debtor in possession] may not assume or assign any executory contract . . . of the debtor, whether or not such contract . . . prohibits or restricts assignment of rights or delegation of duties, if—

(1)(A) applicable law excuses a party, other than the debtor, to such contract . . . from accepting performance from or rendering performance to an entity other than the debtor or the debtor in possession, whether or not such contract . . . prohibits or restricts assignment of rights or delegation of duties; and

(B) such party does not consent to such assumption or assignment . . . .[250]

In analyzing whether a debtor sports team may assume League Agreements in light of section 365(c) of the Bankruptcy Code, the Third Circuit has adopted the “hypothetical test.”[251] Under this test, if the contract cannot be assigned under non-bankruptcy “applicable law,” it cannot be assumed or assigned by the debtor, absent the sports league’s consent.[252] In applying the hypothetical test, courts emphasize that the “applicable law” rendering a contract non-assumable or non-assignable under section 365(c) must prove that the identity of the contracting party is critical to the contract at issue.[253]

In a professional sports team bankruptcy context, there are no published decisions definitively holding that League Agreements are delegable under applicable law, absent the league’s consent.[254] Perhaps this is because the stakes are so high.[255] For example, if the league prevails and League Agreements are not delegable, the value of the debtor’s estate would be minimal, hindering a successful reorganization.[256] If, however, the debtor team can successfully convince the bankruptcy court to interpret such agreements as assumable/assignable, membership in the league would be changed by judicial fiat and not by consent of the league and the other member teams.[257]

These precise issues were at the forefront of the Los Angeles Dodgers’ bankruptcy.[258] MLB asserted that the League Agreements are neither assumable nor assignable under applicable state law and federal intellectual property law.[259] The Dodgers, in contrast, claimed that there was no “applicable law” preventing the assumption or assignment of the League Agreements.[260] Thus, the relevant inquiry is whether “applicable law” can excuse a professional sports league from accepting performance from, or rendering performance to, any entity other than the debtor sports team.[261]

1. Are the League Agreements Non-Assignable Because the League Is an Unincorporated Association?

In the Dodgers’ bankruptcy, MLB argued that applicable law uniformly established that membership in an unincorporated association is not assignable without the consent of the association.[262] The reasoning is that courts generally do not interfere with the internal workings of unincorporated associations.[263] League Agreements are not assignable without consent, precisely because membership in the unincorporated association generally is considered a privilege that may be granted or withheld, not a right that can be obtained independently and then forced upon the unincorporated association.[264]

In response, the Dodgers argued that “interests” in the membership of an unincorporated association are “somewhat assignable.”[265] Thus, there was no “applicable law” precluding the assumption or assignment of the League Agreements.[266] Therefore, the focus should be on the identity of the third party assignee based upon the nature of the entity in question.[267] With that focus, the debtor sports team will contend that League Agreements should be assignable provided that the entity has the financial strength and expertise to manage the sports team, even if the consent of the league is not obtained.[268]

The Dodgers also relied on cases involving seats on stock or commodities exchanges, contending that the exchanges are unincorporated associations and that the membership seats are assignable.[269] Such cases do not support the proposition that League Agreements can be assigned without the league’s approval because they dealt with the stock exchange, not sports leagues.[270] In fact, the MLB Constitution prohibits the transfer of a controlling interest in any team without first obtaining the required vote of a majority of the teams.[271]

Similarly, in Hyde v. Woods, the issue was whether membership in the San Francisco Stock Exchange, a voluntary association, may be transferred after an individual member filed bankruptcy pursuant only to the association’s rules.[272] The Supreme Court held:

[a] seat in this board is not a matter of absolute purchase. Though we have said it is property, it is encumbered with conditions when purchased, without which it could not be obtained. It never was free from . . . conditions . . . , neither when . . . [the debtor] bought, nor at any time before or since. That rule entered into and became an incident of the property when it was created, and remains a part of it into whose hands soever it may come.[273]

Thus, even in bankruptcy, the League Agreements should prevail.[274] These agreements should prevail because applicable unincorporated association law precludes assumption or assignment of such agreements without the league’s consent.[275] Further, even if the bankruptcy court allows the assumption or assignment of the League Agreements, the court should make the assumption or assignment subject to the rules and regulations set forth in such agreements.[276]

2. Are the League Agreements Non-Assignable Because the League Is Akin to a Sports Franchise?

In the Dodgers’ bankruptcy, MLB argued that the law governing professional sports leagues (a subset of the law of unincorporated associations) controls the identity of its members by precluding assumption or assignment of memberships in such leagues.[277] The basic premise is that the economic interdependence of membership in the professional sports league requires protection against unilateral assumption or assignment of such membership.[278]

For example, a league’s refusal to grant a new franchise was found not to constitute an antitrust violation, because the business “interdependence” of the team owners, through their leagues, required that the sale of the franchise be approved by a majority of the team owners rather than only by the selling owner.[279] Similarly, a debtor’s attempt to sell its NHL franchise to a third party, notwithstanding the NHL’s membership approval rights, was rejected by the court, which held that section 363(e) of the Bankruptcy Code required the courts to prohibit any sale where there is no “adequate protection.”[280] Although the court relied on Bankruptcy Code section 363(e), rather than section 365(c)(1), the court’s reasoning sought to protect the NHL’s membership selection rights.[281] In an analogous setting, a court also prohibited the sale of a golf membership because “[t]he interests of the persons presently involved . . . cannot adequately be protected in any manner, except by prohibiting the sale and assignment of the membership.”[282]

However, the Dodgers contended that such cases were decided in the context of contractual anti-assignment provisions contained in the league’s governing documents or under different provisions of the Bankruptcy Code, and therefore, they were inapplicable or distinguishable.[283] Further, the Dodgers argued that where the law is equivocal, as here, the court ultimately must make a factual determination concerning the “materiality” of the identity of the proposed assignee.[284] The Dodgers asserted that any future assignee would have the required financial strength and expertise to manage the team, even if MLB withholds its consent.[285]

Professional sports leagues, which are unique and economically interdependent, should not have membership imposed on the league.[286] There is “applicable law” prohibiting assignment of such membership, absent the requisite approval.[287]

3. Are the League Agreements Non-Assignable Because the League Is Akin to a Joint Venture or Partnership?

Similarly, MLB has contended that the League Agreements are similar to partnership or joint venture membership agreements and that partnership/joint venture law prevents assumption or assignment of a partner’s membership without consent of all the partners/members.[288] The Dodgers, of course, argued otherwise.

The Dodgers asserted that partnership/joint venture’s economic interests are “somewhat assignable” and, therefore, the legal analysis is no different from the law governing unincorporated associations.[289] Because partnership/joint venture membership is not assignable, but the economic interests in those entities may be, the Dodgers claimed that the law remained ambiguous, prompting application of the rule that requires a factual evaluation of the “materiality” of the assignee’s “identity.”[290]

In assessing the merits of each position, the fundamental issue centers on the League Agreements and whether they are assumable/assignable. Without those agreements, a professional sports team cannot become a member of the league, an unincorporated association.[291] Applicable law appears to preclude assumption or assignment of such agreements because courts are not willing to impose such agreements absent the other parties’ consent or approval.[292] As a result, the bankruptcy court should recognize and apply MLB’s consent/approval rights as a condition of any assumption/assignment of any league agreements.

4. Are the League Agreements Non-Assignable Because They Are Based on Personal Confidence and Trust, Akin to Personal Services?

Non-bankruptcy “applicable law” provides that executory contracts involving personal services cannot be assumed or assigned without the consent of the other party.[293] In the Dodgers’ bankruptcy, MLB relied on such law by analogy, and contended that the League Agreements were not delegable because they were based on the personal trust and confidence between MLB and its thirty clubs.[294] MLB also relied on its Constitution, which required a vote of three-fourths of the MLB clubs to approve the “sale or transfer” of a controlling interest in any club.[295]

The Dodgers asserted otherwise.[296] The Dodgers argued persuasively that the League Agreements should not be construed as personal services contracts because the Dodgers’ assets could be transferred to an adequately capitalized entity with little or no impact upon MLB or the other MLB clubs; therefore, no reason existed to extend the law of non-assignable personal services contracts to the professional sports context.[297]

The issue of whether membership in a professional sports league is akin to a personal services contract has been raised, but not yet answered.[298] Therefore, again, the stakes are high in presenting the issue for judicial resolution.[299] If MLB prevails, the League Agreements would not be assignable, precluding a team’s reorganization plan, unless it obtains MLB’s consent.[300] If the team prevails, however, it could clear the way for the assumption and assignment of the League Agreements to another adequately capitalized entity, without MLB’s consent.

On balance, the League Agreements are not likely to fall within a personal service contract exception to otherwise assignable executory agreements.[301] No reason exists to extend or broaden the limited personal services contract exception to cover professional sports teams; and, in any case, MLB’s other grounds for precluding assumption/assignment are more persuasive (e.g., applicable law precluding assignment of MLB membership in an unincorporated association).[302]

5. Are the League Agreements Non-Assignable Because They Contain Intellectual Rights Owned by the League that Are Not Assignable Under Federal Law?

Interestingly, MLB League Agreements, like those of other professional leagues, include intellectual rights (e.g., trademarks, copyrights) that may not be delegable under section 365(c) of the Bankruptcy Code.[303] Such rights are generally considered personal and non-delegable.[304] Federal law prohibits the assignment of both copyrights and trademarks because holders of such rights “share a common retained interest in the ownership of their intellectual property—an interest that would be severely diminished if a licensee were allowed to sub-license without the licensor’s permission.”[305] MLB relied on this federal law, arguing that the League Agreements contain both trademark and copyright rights, which prohibit the assumption and assignment of such rights.[306]

The Dodgers argued that federal trademark and copyright law do not clearly prohibit the assignment of MLB intellectual property rights.[307] However, the Dodgers’ attempt to distinguish the federal law cited by MLB is unpersuasive. For example, the Dodgers rely heavily on In re Golden Books Family Entertainment, Inc.[308] However, the legal issue in that case turned on whether the subject executory agreement was exclusive or non-exclusive.[309] The court held that the agreement was an exclusive license, which was freely transferable.[310] However, the court also recognized that non-exclusive licensing rights are personal in nature and may not be assigned in bankruptcy.[311]

In the context of professional baseball, neither MLB nor the Dodgers appear to dispute that the trademarks and copyrights held by MLB are non-exclusively granted for use by all thirty MLB clubs.[312] As such, MLB’s licensing rights should be construed as non-exclusive and, therefore, personal in nature to the MLB clubs and may not be assigned in bankruptcy without MLB’s consent.[313] Again, no case has decided this question in the context of a professional sports league. The issue, therefore, remains unresolved.

B. Can Major League Baseball Terminate the Los Angeles Dodgers from the League by Filing Bankruptcy or Does Such Termination Constitute an Unenforceable Ipso Facto Clause?

Ipso facto clauses, which terminate a contract upon the bankruptcy, insolvency, or change in financial condition of a party, generally are unenforceable in bankruptcy.[314] Nonetheless, a professional sports team’s bankruptcy filing often constitutes grounds for termination of the team’s membership in the league.[315] For example, the MLB Constitution provides for involuntary termination of a team, with approval of three-fourths of all MLB clubs, if a team files for bankruptcy.[316] Relying on the MLB Constitution, MLB argued in the Dodgers’ bankruptcy that such ipso facto bankruptcy default previsions are enforceable pursuant to section 365(e)(2)(A) of the Bankruptcy Code to the extent that the League Agreements are found to be non-assignable pursuant to applicable law.[317]

Bankruptcy Code section 365(e)(2)(A) provides an exception to the unenforceability of ipso facto bankruptcy default provisions when the subject executory contract is non-assumable/assignable.[318] As shown above, in the Dodgers’ bankruptcy, MLB contended that the League Agreements are not delegable under non-bankruptcy applicable law.[319] Therefore, MLB claimed that the Third Circuit precedent applies to render such ipso facto provisions enforceable, citing Watts v. Pennsylvania Housing Finance Co.[320]

In Watts, debtors who had received benefits under a mortgage assistance program brought suit against government officials for terminating their benefits upon filing for bankruptcy.[321] Among other things, the debtors contended that the loan program’s ipso facto bankruptcy default provision violated the automatic stay provisions under section 362 of the Bankruptcy Code.[322] The Third Circuit rejected the debtor’s argument, holding that the commitment to provide mortgage assistance was a non-delegable executory contract to “make a loan or extend other debt financing or financial accommodations, to or for the benefit of the debtor” under sections 365(c)(2) and 365(e)(2)(B) of the Bankruptcy Code.[323] The Third Circuit also found that the automatic stay provisions were inapplicable to such a contract; therefore, the automatic stay provisions were not violated.[324]

While the Watts decision was decided under a different Bankruptcy Code provision, the same rationale applies to render ipso facto clauses enforceable to the extent they are found to be part of a non-assignable executory contract, pursuant to section 365(e)(2)(A) of the Bankruptcy Code. Indeed, the Bankruptcy Code generally provides for parallel treatment of loans or other “financial accommodation” contracts and non-assignable executory contracts.[325]

In the Dodgers’ bankruptcy, MLB did not vigorously advance the validity of the ipso facto bankruptcy default provisions in the MLB Constitution.[326] The likely reason is that the MLB Constitution itself requires the approval of three-fourths of all MLB clubs in order to initiate an involuntary termination.[327] This approval cannot be obtained because the Bankruptcy Code automatic stay provision suspends all such creditor activity.[328] The automatic stay’s broad scope would likely preclude MLB from initiating a vote from three-fourths of all the MLB clubs to effectuate involuntary termination.[329] MLB, of course, could seek a court order granting relief from the automatic stay in order to initiate involuntary termination voting procedures.[330] However, MLB did not seek any such relief during the Dodgers’ bankruptcy.[331] The likely reason for not seeking such relief is that it would require twenty-three of the thirty MLB clubs to approve the termination of McCourt’s membership in the league, a daunting endeavor at best.[332]

VI. CONCLUSION

Several unanswered legal issues are raised in the context of professional sports team bankruptcies.[333] Definitive judicial resolution of such issues may prove beneficial or detrimental depending upon the perspective of the entity.[334] As a practical matter, it is likely that any plan of reorganization by a professional sports team will be forced to abide by the duties and restrictions in the league and other key agreements.[335] After all, such agreements represent valid executory contracts that must be in place to successfully reorganize a team and still maintain the team’s membership in the league.[336] Without that membership, the team is essentially without substantive value.[337]

There will be winners and losers when the field of play is the bankruptcy court.[338] Baseball is a game; it is America’s game.[339] But, it is also a business – a serious, high stakes multi-billion dollar business.[340] In the end, the better play may be for the parties to create a level playing field based on resolution.[341] The winner in that contest would be the game of baseball.[342]

* J.D. Candidate, Loyola Law School, 2013; B.A., University of California, Los Angeles, 2010. The author would like to thank his parents and brother (Mark, Kim, and Matt) for their guidance and support throughout the author’s life. In addition, the author would like to thank his wife Logan for her constant support through this publication process. The author would also like to thank Loyola Law School Professor Dan Schechter and the author’s father, Mark Dillon, for their continuous help with editing this article. Finally, the author would like to give special thanks to Chief Production Editor Jenna Spatz and the rest of the editors and staffers of the Loyola of Los Angeles Entertainment Law Review for their tireless efforts and help in making this publication possible.

1. See generally Andrew P. Hanson, The Trend Toward Principled Negotiation in Major League Baseball Collective Bargaining, 15 SPORTS LAW. J. 221, 221 (2008).

2. See World Series Overview, MLB.COM, http://mlb.mlb.com/mlb/history/postseason/

mlb_ws.jsp (last visited Nov. 26, 2012).

3. Hanson, supra note 1, at 221.

4. SCOTT R. ROSNER & KENNETH L. SHROPSHIRE, THE BUSINESS OF SPORTS xi (Scott R. Rosner & Kenneth Shropshire eds., 2d ed. 2011).

5. Ralph C. Anzivinio, Reorganization of the Professional Sports Franchise, 12 MARQ. SPORTS L. REV. 9, 9–10 (2001).

6. Id.

7. Dodgers Just Latest Team to File for Bankruptcy, YAHOO! SPORTS (June 28, 2011), http://sports.yahoo.com/top/news?slug=ys-cnbc_dodgers_not_first_bankrupty_team_062811.

8. Tom Hals, Dodgers Win Court Approval for $60 Mln Bankruptcy Loan, REUTERS (June 28, 2011), http://www.reuters.com/article/2011/06/28/losangelesdodgers-bankruptcy-idUSN1E

75R06120110628.

9. Maury Brown, Sizing Up the Dodgers Bankruptcy to the Cubs, Rangers, and Coyotes, THE BIZ OF BASEBALL (June 28, 2011), http://bizofbaseball.com/index.php?view=article&

catid=26%3Aeditorials&id=5301%3Asizing-up-the-dodgers-bankruptcy-to-the-cubs-rangers-and-coyotes&tmpl=component&print=1&layout=default&page=&option=com_content&Itemid=39.

10. Voluntary Petition, In re: Los Angeles Dodgers LLC, No. 11-12010 (KG) (Bankr. D. Del. 2011).

11. Eryn Doherty, The Dodger Debacle, MARQ. U. L. SCH. FACULTY BLOG (Aug. 18, 2011), http://law.marquette.edu/facultyblog/2011/08/18/the-dodgers-debacle/.

12. Full List: Baseball’s Most Valuable Teams, FORBES, http://www.forbes.com/2011/03/

22/mets-yankees-phillies-dodgers-baseball-valuations_slide_4.html (last visited Nov. 26, 2012). In March 2011, Forbes ranked the Dodgers as baseball’s third most valuable team, at $800 million, with only the New York Yankees and Boston Red Sox worth more. Id.

13. Bill Shaikin, In Filing for Bankruptcy, Dodgers Will Ask Judge to Override MLB Rules, L.A. TIMES (June 27, 2011), http://articles.latimes.com/2011/jun/27/sports/la-sp-dodgers-bankruptcy-20110628.

14. Commissioner Allan H. (Bud) Selig, MLB Statement Regarding Dodgers Chapters 11 Filing, MLB (June 27, 2011), http://mlb.mlb.com/content/printer_friendly/mlb/y2011/m06/d27/

c21076822.jsp.

15. Shaikin, supra note 13.

16. Id.

17. Anzivinio, supra note 5, at 10–11.

18. Id. at 29.

19. MAJOR LEAGUE CONST. art. I (2005), available at http://bizofbaseball.com/docs/ML

ConsititutionJune2005Update.pdf.

20. NAT’L FOOTBALL LEAGUE CONST. art. III § 3.5 (2006), available at http://static.nfl

.com/static/content//public/static/html/careers/pdf/co_.pdf.

21. NAT’L HOCKEY LEAGUE CONST. art. III § 3.5, available at http://www.bizofhockey.com

/docs/NHLConsitution.pdf.

22. MAJOR LEAGUE CONST. art. V, § 2(b)(2).

23. Id. § 2(a).

24. See generally Anzivinio, supra note 5, at 28–36.

25. See generally Alicia Jessop, For the Love of The Game: Why “The Game” Prevents MLB’s Takeover of The Dodgers, RULING SPORTS: A SPORTS L. BLOG (July 6, 2011, 12:13 AM), http://rulingsports.com/2011/07/06/for-the-love-of-the-game-why-the-game-presents-a-challenge-to-mlb-overtaking-dodgers.

26. Jeffrey I. Golden & Robert S. Marticello, Sports Team Bankruptcies: Home Runs or Strikeouts?, L.A. DAILY J., Aug. 11, 2011, at 3.

27. Id.

28. Id.

29. Id.

30. Debtors’ Motion for Order, Pursuant to Sections 363(b) and 105(a) of the Bankruptcy Code and Bankruptcy Rule 9019, Approving Settlement Agreement with the Office of the Commissioner of Baseball, Doing Business as Major League Baseball at ¶ 1, In re: Los Angeles Dodgers LLC, No. 11–12010 (KG) (Bankr. D. Del. Dec. 6, 2011), 2011 WL 6057895.

31. For example, the New York Mets lost $70 million in 2011 and cut payroll by $52 million in 2012 due to mounting liabilities and cash-strapped ownership. Bill Shaikin, Steven Cohen, Dodgers Bidder, May Buy a Piece of the Mets, L.A. TIMES (Feb. 1, 2012), http://articles.

latimes.com/print/2012/feb/01/sports/la-sp-0202-dodgers-steve-cohen-20120202.

32. Golden & Marticello, supra note 26.

33. Objection of Major League Baseball to Debtors’ Motion to Obtain Post-Petition Financing and for Related Relief at 5, In re: Los Angeles Dodgers LLC, No. 11–12010 (KG) (Bankr. D. Del. June 28, 2011), 2011 WL 2678238 [hereinafter Objection of Major League Baseball].

34. Id.

35. Id.

36. Id. at 5–6.

37. The Commissionership: A Historical Perspective, MLB.COM, http://mlb.mlb.com/mlb/

history/mlb_history_people.jsp?story=com (last visited Nov. 26, 2012).

38. Id.

39. Id.

40. Id.

41. Id.

42. Id.

43. The Commissionership: A Historical Perspective, supra note 37.

44. Id. Eight players from the Chicago White Sox allegedly took bribes to intentionally lose the 1919 World Series against the Cincinnati Reds. Id.

45. Id.

46. Id.

47. Commissioner, BASEBALL-REFERENCE, http://www.baseball-reference.com/bullpen/

Commissioner (last modified Feb. 9, 2010).

48. Id.

49. MAJOR LEAGUE CONST. art. I (2005), available at http://bizofbaseball.com/docs/MLConsititutionJune2005Update.pdf.

50. Id. at art. VIII, § 1.

51. Id. at art. II, § 1.

52. Id. at art. II, § 2; see Atlanta Nat’l League Baseball Club, Inc. v. Kuhn, 432 F. Supp. 1213, 1220–21 (N.D. Ga. 1977) (relying on the “best interests clause” to suspend an owner for tampering with a potential free agent).

53. MAJOR LEAGUE CONST. art. II, § 3.

54. Id. at art. II, § 3(a)–(g).

55. Id. at art. II, § 3(g).

56. Objection of Major League Baseball, supra note 33, at 4.

57. MAJOR LEAGUE CONST. art. II, § 4.

58. Id.

59. Id. at art. VIII, § 1.

60. Id. at art. VII (emphasis added).

61. Id. at art. VIII, § 4.

62. Id.

63. MAJOR LEAGUE CONST. art. VIII, § 4(f), (j), (l). Due to the Dodgers’ bankruptcy filing, Article VIII of the Major League Constitution allows MLB, acting through its Commissioner, to eject the Dodgers from the league, with the approval of three-fourths of all major league clubs. Id. (examining the legal permissibility of such an expulsion).

64. Id. at art. V, § 2(b)(2). In the Dodgers’ bankruptcy, MLB’s refusal to approve a new agreement between the Dodgers and Fox Sports Net West 2, LLC (“Fox Sports”) for the sale of telecast rights was one of the alleged reasons for the Dodgers’ bankruptcy filing. See In re: Los Angeles Dodgers LLC, No. 11–12010 (KG) (Bankr. D. Del. Dec. 15, 2011), 2011 WL 6257336.

65. Dodgers Just Latest Team to File for Bankruptcy, supra note 7.

66. Anzivino, supra note 5.

67. Dodgers Just Latest Team to File for Bankruptcy, supra note 7.

68. Anzivino, supra note 5, at 14.

69. Id. at 63–64.

70. Dodgers Just Latest Team to File for Bankruptcy, supra note 7; Brown, supra note 9; Darren Rovell, 10 Sports Franchises That Have Gone Bankrupt, CNBC (June 28, 2011), http://www.cnbc.com/id/39915632?__source=yahoosports&par=yahoosports.

71. Dodgers Just Latest Team to File for Bankruptcy, supra note 7.

72. Motion of Major League Baseball to Terminate Exclusivity or, in the Alternative, to Compel the Debtors to Seek Assumption or Rejection of the Baseball Agreements at 23, In re: Los Angeles Dodgers LLC, No. 11–12010 (KG) (Bankr. D. Del. Oct. 7, 2011), 2011 WL 4945134.

73. Ten Franchises that Filed for Bankruptcy: Seattle Pilots—1970, REAL CLEAR SPORTS (Apr. 26, 2011), http://www.realclearsports.com/lists/franchise_bankruptcy/seattle_pilots_

1970.html.

74. Dodgers Just Latest Team to File for Bankruptcy, supra note 7.

75. Id.

76. Id.

77. Id.

78. Id.

79. Ten Franchises that Filed for Bankruptcy: Baltimore Orioles—1993, REAL CLEAR SPORTS (Apr. 26, 2011), http://www.realclearsports.com/lists/franchise_bankruptcy/baltimore_

orioles_1993.html.

80. Rovell, supra note 70.

81. Id.

82. Ten Franchises That Filed for Bankruptcy: Baltimore Orioles—1993, supra note 79.

83. Id.

84. Brown, supra note 9.

85. See Steven Church, Cubs File Bankruptcy, Plan Sale to Ricketts Family (Update3), BLOOMBERG (Oct. 12, 2009), http://www.bloomberg.com/apps/news?pid=newsarchive&sid=

a7Piey9m.a7g.

86. See Brown, supra note 9.

87. Dodgers Just Latest Team to File for Bankruptcy, supra note 7.

88. In re Texas Rangers Baseball Partners, 434 B.R. 393, 399 (Bankr. N.D.Tex. 2010).

89. Dodgers Just Latest Team to File for Bankruptcy, supra note 7.

90. Golden & Marticello, supra note 26.

91. Id.

92. Mark Harriman, Dodgers Bankruptcy: A Tangled Web Woven, BOS. SPORTS DESK (July 10, 2011), http://bostonsportsdesk.wordpress.com/2011/07/10/dodgers-bankruptcy-a-tangled-web-woven.

93. See Houston Mitchell, Frank McCourt and the Dodgers: A Chronology, L.A. TIMES (June 27, 2011), http://articles.latimes.com/2011/jun/27/sports/la-sp-0628-mccourt-chronology-20110628.

94. Golden & Marticello, supra note 26.

95. See generally Jessop, supra note 25.

96. Objection of Major League Baseball, supra note 33, at 6.

97. U.S. Bankruptcy Judge Kevin Gross, who presided over the Los Angeles Dodgers’ bankruptcy, described the Dodgers’ history as “rich and successful” and “of mythical proportions.” Judge Gross captured that history: “Its great former players, managers and executives could justify their own hall of fame. Formerly the Brooklyn Dodgers, the team name is derived from fans who used to ‘dodge’ that city’s trolleys.” Voluntary Petition, In re: Los Angeles Dodgers LLC, No. 11–12010 (KG) (Bankr. D. Del. 2011).

98. Declaration of Jeffrey J. Ingram in Support of Debtors’ Chapter 11 Petitions and First Day Motions at 4, Voluntary Petition, In re: Los Angeles Dodgers LLC, No. 11–12010 (KG) (Bankr. D. Del. June 27, 2011).

99. Id.

100. Objection of Major League Baseball, supra note 33, at 6.

101. Id.

102. Declaration of Jeffrey J. Ingram, supra note 98.

103. Id. Kirk Gibson’s two-run home run in the ninth inning of the first game of the 1988 World Series is an indelible memory from that World Series. World Series Summary, MLB, http://mlb.mlb.com/mlb/history/postseason/mlb_ws.jsp (last visited Apr. 22, 2012).

104. Memorandum Opinion at 2, Voluntary Petition, In re: Los Angeles Dodgers LLC, et al., No. 11-12010 (KG) (Bankr. D. Del. Dec. 15, 2011).

105. Id.

106. Id.

107. Id.

108. Id.

109. Id.

110. Memorandum Opinion, supra note 104, at 2.

111. Declaration of Jeffrey J. Ingram, supra note 98.

112. Id.

113. Objection of Major League Baseball to Final Approval of Debtors’ Emergency Motion for Interim and Final Orders (I) Authorizing Debtors to Obtain Post Petition Financing, Pursuant to 11 U.S.C. §§ 105, 362, and 364, and (II) Scheduling Final Hearing Pursuant to Bankruptcy Rules 4001(B) and 4001(c) at 8, Voluntary Petition, In re: Los Angeles Dodgers LLC, et al., No. 11–12010 (KG) (Bankr. D. Del. July 14, 2011).

114. Id. at 7–8.

115. Id. at 8.

116. See Declaration of Jeffrey J. Ingram, supra note 98, at 6.

117. Id.

118. Helene Elliot & Bill Shaikin, Dodgers Owner Frank McCourt, Wife Jamie Separate, L.A. TIMES (Oct. 15, 2009), http://articles.latimes.com/2009/oct/15/sports/sp-mccourts15.

119. Mitchell, supra note 93.

120. Jessop, supra note 25.

121. Id.

122. Order to Show Cause to Modify Pendente Lite Spousal Support, In re Marriage of McCourt, No. BD 514309 (Cal. Super. Ct. Oct. 27, 2009).

123. Court’s Ruling on Submitted Matter at 44–45, McCourt v. McCourt, No. BD514309 (Cal. Super. Ct. May 7, 2010), 2010 WL 1848207.

124. See id.

125. Marie-Andrée Weiss, Take Me Out to the Courts: The Los Angeles Dodgers File For Bankruptcy, ENT., ARTS & SPORTS L. BLOG (July 1, 2011, 8:24 AM), http://nysbar.com/blogs/

EASL/2011/07/take_me_out_to_the_courts_the.html.

126. Motion of Major League Baseball to Terminate Exclusivity, supra note 72, at 23–24.

127. See Binding Term Sheet at 1, In re Marriage of McCourt, No. BD 514309 (Cal. Super. Ct. Jun. 17, 2011), 2011 WL 2420345.

128. See id. at 1–2.

129. Id. at 1.

130. Id. at 4.

131. Declaration of Jeffrey J. Ingram, supra note 98, at 11.

132. Doherty, supra note 11.

133. Mitchell, supra note 93.

134. Doherty, supra note 11.

135. Jessop, supra note 25.

136. Id.

137. Doherty, supra note 11.

138. Mitchell, supra note 93.

139. Declaration of Jeffrey J. Ingram, supra note 98, at 8–13.

140. Order to Show Cause, supra note 121.

141. Motion of Major League Baseball to Terminate Exclusivity, supra note 72.

142. Declaration of Jeffrey J. Ingram, supra note 98, at 14.

143. The Debtors are Los Angeles Dodgers LLC; Los Angeles Dodgers Holding Company LLC; LA Holdco LLC; LA Real Estate Holding Company LLC; and LA Real Estate LLC. See Order Directing Joint Administration of The Debtors’ Chapter 11 Cases and Granting Related Relief, In re: Los Angeles Dodgers LLC, No. 11–12010 (KG) (Bankr. D. Del. Jun. 28, 2011).

144. Declaration of Jeffrey J. Ingram, supra note 98, at 14.

145. Order Directing Joint Administration, supra note 143.

146. Section 1107 of the Bankruptcy Code allows debtors to remain in control of the business entities that file bankruptcy; the debtor-in-possession acts as a fiduciary and must perform the functions and duties of a Chapter 11 trustee, which include accounting for property, examining and objecting to claims, and filing reports as required by the Bankruptcy Court. 11 U.S.C. § 1107 (2006); see also Chapter 11 Reorganization Under the Bankruptcy Code, U.S. COURTS, available at http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Chapter11.aspx (last viewed Nov. 27, 2012).

147. Objection of Major League Baseball to Final Approval, supra note 113, at 8.

148. Declaration of Jeffrey J. Ingram, supra note 98, at 14.

149. Los Angeles Dodgers LLC’s Motion for Orders: (I) Approving Marketing Procedures for the Licensing of Telecast Rights, Including the Scheduling of an Auction, Objection Deadline, and Disposition Hearing; and (II) Approving and Authorizing the Licensing of Telecast Rights to the Highest Bidder, In re: Los Angeles Dodgers LLC, No. 11–12010 (KG) (Bankr. D. Del. Sept. 16, 2011).

150. Motion of Major League Baseball to Terminate Exclusivity, supra note 72, at 1–6.

151. Id.

152. The Los Angeles Dodgers, LLC is a party to a telecast agreement (“Fox Telecast Agreement”) with Fox Sports Net West 2, LLC (“Fox Sports”), under which Fox Sports has been granted exclusive television rights until the end of the 2013 baseball season and exclusive negotiation rights through November 30, 2012 for a future long-term telecast agreement. See id. at 8.

153. Id. at 9–10.

154. Complaint for Declaratory Judgment, Specific Performance, Temporary and Permanent Injunctive Relief, Breach of Confidence, Intentional and Negligent Interference with Contract Regarding Telecast Rights Agreement and California Business and Professions Code Section 17200 at 1–2, Fox Sports Net West 2, LLC v. Los Angeles Dodgers LLC, No. 11–12010 (KG) (Bankr. D. Del. Sept. 27, 2011), 2011 WL 4469526.

155. Id. at 11–12.

156. Id. at 5.

157. Motion of Major League Baseball to Terminate Exclusivity, supra note 72, at 4.

158. Id. at 1–2.

159. Id. at 4–5.

160. Id. at 5. McCourt and the Dodger-related entities disputed MLB’s position, claiming the bankruptcy court should make the decisions based on applicable bankruptcy law and not on Commissioner approval requirements. Id. They also contended that seizing ownership of the team was not enforceable under applicable bankruptcy law. Katie Thomas, Dodgers File for Bankruptcy, Increasing Tension With Selig, N.Y. TIMES, June 27, 2011, at B15.

161. Motion of Major League Baseball to Terminate Exclusivity, supra note 72, at 5–6.

162. Id.

163. Id. at 6.

164. Id.

165. Id.

166. Id. at 30.

167. Motion of Major League Baseball to Terminate Exclusivity, supra note 72, at 30.

168. Id.

169. MLB Seeks Sale of the Dodgers, WORLD BREAKING NEWS, http://uworldnews.

blogspot.com/2011/09/mlb-seeks-sale-of-dodgers.html (last visited Nov. 29, 2011).

170. Id.

171. Fox Sports Sues Dodgers, ESPN L.A. (Sept. 28, 2011), http://espn.go.com/los-angeles/mlb/story/_/id/7027852/fox-sports-sues-los-angeles-dodgers-stop-tv-rights-sale.

172. Memorandum Opinion, supra note 104, at 1.

173. Id.

174. Id. at 1–2.

175. Id. at 2.

176. Id.

177. Id.

178. Memorandum Opinion, supra note 104, at 4.

179. Bill Shaikin, Dodgers and Fox Sports Settle Dispute, L.A. TIMES (Jan. 10, 2012), http://articles.latimes.com/print/2012/jan/10/sports/la-sp-0111-dodgers-fox-20120111.

180. Memorandum Opinion, supra note 104, at 8.

181. Id.

182. See Fox Sports Net West 2, LLC’s Designation of Items to Be Included on Appeal and Statement of Issues on Appeal, In re: Los Angeles Dodgers LLC, No. 11–12010 (KG) (Bankr. D. Del. Dec. 15, 2011).

183. Judge Explains Dodgers-Fox Decision, ESPN (Dec. 27, 2011), http://espn.go.com/

espn/print?id=7393074&type=story.

184. Id.

185. Shaikin, supra note 179.

186. Id.

187. Id.

188. 11 U.S.C. §§ 301, 303 (2012).

189. Id.

190. 11 U.S.C. § 1121 (2012); see Chapter 11 Reorganization Under the Bankruptcy Code, supra note 146 (referencing “How Chapter 11 Works” section).

191. Id. § 1121(b)–(d).

192. Id. § 1121(d)(1); see also In re Grossinger’s Assoc., 116 B.R. 34, 36 (Bankr. S.D.N.Y. 1990) (terminating exclusivity for cause where debtor had not filed a plan with “serious reorganizational possibilities”).

193. Chapter 11 Reorganization Under the Bankruptcy Code, supra note 146.

194. Id. (referencing “How Chapter 11 Works” and “The Chapter 11 Debtor in Possession” sections).

195. 11 U.S.C. §§ 341, 1102 (2012).

196. 11 U.S.C. § 1103 (2012).

197. 11 U.S.C. § 362(a) (2012).

198. Anzivinio, supra note 5, at 24.

199. Id.

200. See 11 U.S.C. § 362(a)(1)–(8).

201. See id. § 362(d)(1).

202. 11 U.S.C. § 364 (2012).

203. Anzivinio, supra note 5, at 19.

204. Id.

205. 11 U.S.C. § 1128(a) (2012); FED. R. BANKR. P. 3020(b).

206. 11 U.S.C. § 1128(b).

207. 11 U.S.C. § 1129 (2012).

208. Chapter 11 Reorganization Under the Bankruptcy Code, supra note 146 (referencing “Acceptance of the Plan of Reorganization” section); see also 11 U.S.C. § 1129.

209. Chapter 11 Reorganization Under the Bankruptcy Code, supra note 146; see also 11 U.S.C. § 1129.

210. FED. R. BANKR. P. 3022.

211. 11 U.S.C. § 365(b)(1)(A) (2012).

212. Anzivinio, supra note 5, at 31.

213. Id.

214. Id.

215. Motion of Major League Baseball to Terminate Exclusivity, supra note 72, at 62.

216. MAJOR LEAGUE CONST. art. V, § 2(b)(2) (2005); see Motion of Major League Baseball to Terminate Exclusivity, supra note 72, at 62.

217. Motion of Major League Baseball to Terminate Exclusivity, supra note 72, at 62.

218. MAJOR LEAGUE CONST. art. VIII, § 4(j); see also Motion of Major League Baseball to Terminate Exclusivity, supra note 72, at 62.

219. Reply of Major League Baseball in Further Support of Its Motion to Terminate Exclusivity or, in the Alternative, to Compel the Debtors to Seek Assumption or Rejection of the Baseball Agreements at 29, In re: Los Angeles Dodgers LLC, No. 11–12010 (KG) (Bankr. D. Del. Oct. 24, 2011), 2011 WL 5170773.

220. Id. at 31–40.

221. Id. at 33–35.

222. In re Lee West Enters., Inc., 179 B.R. 204, 208–09 (Bankr. C.D. Cal. 1995); In re Deppe, 110 B.R. 898, 900, 903 (Bankr. D. Minn. 1990).

223. In re Lee West Enters., 179 B.R. at 208–09.

224. In re Deppe, 110 B.R. at 900, 903.

225. Id. at 904.

226. Id. (internal citations omitted).

227. Id.; Motion of Major League Baseball to Terminate Exclusivity, supra note 72, at 37–38.

228. Debtors’ Objection to Motion of Major League Baseball to Terminate Exclusivity or Compel Assumption or Rejection of the Baseball Agreements at 45–55, In re:  Los Angeles Dodgers LLC, No. 11-12010 (KG) (Bankr. D. Del. Oct. 7, 2011), 2011 WL 4945134.

229. Id.

230. In re Pyramid Operating Auth., Inc., 144 B.R. 795, 823 (Bankr. W.D. Tenn. 1992).

231. Id.

232. See id.

233. MAJOR LEAGUE CONST. art. VIII, §§ 3, 4.

234. See In re Deppe, 110 B.R. at 904 (finding franchisee’s rights could be forfeited by termination of the agreement).

235. Debtors’ Objection to Motion of Major League Baseball, supra note 228, at 52–55.

236. In re Big Rivers Elec. Corp., 233 B.R. 739, 751–52 (W.D. Ky. 1998) (finding that the no-shop clause prohibiting the debtor from entertaining competing offers for the sale or lease of its assets was “void as a violation of public policy”); In re Mr. Grocer, Inc., 77 B.R. 349, 353 (Bankr. D. N.H. 1987) (finding unenforceable a right of first refusal in a lease where the landlord did not show any substantial economic detriment if the provision were not enforced).

237. In re IT Group Inc., 302 B.R. 483, 488 (D. Del. 2003) (holding that the right of first refusal was not an impermissible ipso facto clause that restricted assignment and was enforceable, notwithstanding that the debtor was in bankruptcy); see also In re Capital Acquisitions & Mgmt. Corp., 341 B.R. 632, 637 (Bankr. N.D. Ill. 2006); In re Wauka, Inc., 39 B.R. 734, 735, 738 (Bankr. N.D. Ga. 1984).

238. Anzivinio, supra note 5, at 28.

239. Id. at 31.

240. Id. at 28.

241. Id.

242. Id.

243. 11 U.S.C. § 365(a).

244. See NLRB v. Bildisco & Bildisco, 465 U.S. 513, 528 (1984).

245. Anzivinio, supra note 5, at 28–29.

246. See 11 U.S.C. § 365(c) (indicating when a trustee may assign or assume a debtor’s contract).

247. Anzivinio, supra note 5, at 31.

248. Motion of Major League Baseball to Terminate Exclusivity, supra note 72, at 9.

249. 11 U.S.C. § 365(c).

250. Id. (emphasis added).

251. In re W. Elecs., Inc., 852 F.2d 79 (3d Cir. 1988). The hypothetical test also has been adopted by the Fourth, Ninth, and Eleventh Circuits. See In re Sunterra Corp., 361 F.3d 257 (4th Cir. 2004); In re Catapult Entm’t, Inc., 165 F.3d 747 (9th Cir. 1999); In re James Cable Partners, L.P., 27 F.3d 534 (11th Cir. 1994) (per curiam).

252. In re W. Elecs., Inc., 852 F.2d at 83.

253. In re ANC Rental Corp., 278 B.R. 714, 721 (Bankr. D. Del. 2002) (“[W]e follow the majority of courts addressing this issue and conclude that, for section 365(c)(1) to apply, the applicable law must specifically state that the contracting party is excused from accepting performance from a third party under circumstances where it is clear from the [law] that the identity of the contracting party is crucial to the contract or public safety is at issue.”).

254. See Anzivinio, supra note 5, at 32–36 (discussing the various approaches courts have adopted when identifying delegable contracts, all requiring league consent).

255. See id. (discussing three ways to view franchise contracts all of which would have terrible repercussions for the league).

256. Id. at 32.

257. Id. at 32–36.

258. Motion of Major League Baseball to Terminate Exclusivity, supra note 72, at 39–46.

259. Id.

260. Debtors’ Objection to Motion of Major League Baseball, supra note 228, at 56–73.

261. Id.

262. Motion of Major League Baseball to Terminate Exclusivity, supra note 72, at 39–41.

263. Professional Sports: Restraining the League Commissioner’s Prerogatives in an Era of Player Mobility, 19 WM. & MARY L. REV. 281, 284 (1977); see, e.g., In re Dewey Ranch Hockey, LLC, 414 B.R. 577, 591–93 (Bankr. D. Ariz. 2009) (acknowledging the league’s “right to admit only new members who meet its written requirements” and denying sale of a hockey team’s assets over the NHL’s objection because the debtor could not provide adequate protection of the NHL’s interest in enforcing its approval rights); In re Magness, 972 F.2d 689, 696 (6th Cir. 1992) (finding that an Ohio law prohibiting courts from interfering in the internal workings of associations in the application of their rationally developed rules and procedures prevented debtor from assigning contract for golf membership in private club); Affiliated Gov’t Employees’ Distrib. Co. v. Comm’r Int. Rev., 322 F.2d 872, 873 (9th Cir. 1963) (noting that membership in California retail association was not transferable).

264. See, e.g., 6 AM. JUR. 2D Assocs. & Clubs § 17 (2008) (“Membership in a voluntary unincorporated association generally is held to be a privilege which may be accorded or withheld, and not a right which can be gained independently and then enforced. Generally, courts will not compel admission to a voluntary association . . . .”) (footnote omitted).

265. Debtors’ Objection to Motion of Major League Baseball, supra note 228, at 58–59.

266. Id.; see also Allentown Ambassadors, Inc. v. Northeast American Baseball, LLC (In re Allentown Ambassadors, Inc.), 361 B.R. 422, 449 (Bankr. E.D. Pa. 2007) (finding that under North Carolina law, an LLC interest was “somewhat assignable”).

267. Debtors’ Objection to Motion of Major League Baseball, supra note 228, at 65.

268. Id.

269. Id. at 64; e.g., Bd. of Trade of Chicago v. Johnson, 264 U.S. 1, 12 (1924) (finding that a seat was transferable property and should pass to the bankruptcy trustee, subject to the rules of the exchange); O’Dell v. Boyden, 150 F. 731, 735–36 (6th Cir. 1906) (finding that membership in the New York Stock Exchange was personal to the holder, but could only be transferred to a new member satisfactory to them, subject to the rules of the exchange and by the consent of its admissions committee).

270. Johnson, 264 U.S. at 12 (finding that a seat was transferable property and should pass to bankruptcy trustee, subject to the rules of the exchange); O’Dell, 150 F. at 735–36 (finding that membership in the New York Stock Exchange was personal to the holder, but could only be transferred to a new member satisfactory to them, subject to the rules of the exchange and by the consent of its admissions committee).

271. MAJOR LEAGUE CONST. art. V, § 2(b)(2).

272. Hyde v. Woods, 94 U.S. 523, 524–25 (1876).

273. Id. at 525.

274. Id. (stating that transferring an ownership interest in an organization is subject to conditions stated in the governing body’s constitution).

275. See id. (holding that transfers are encumbered with conditions).

276. Id.

277. Motion of Major League Baseball to Terminate Exclusivity, supra note 72, at 41–42.

278. Id.

279. Mid-South Grizzlies v. Nat’l Football League, 550 F. Supp. 558, 566 (E.D. Pa. 1982) (quoting N. Am. Soccer League v. Nat’l Football League, 670 F.2d 1249, 1253 (2d Cir. 1982)).

280. In re Dewey Ranch Hockey, LLC, 414 B.R. at 591–92.

281. Id. at 591.

282. In re Magness, 972 F.2d at 697.

283. Objection of Major League Baseball, supra note 33, at 65–67.

284. Id. (citing In re Allentown Ambassadors, Inc., 361 B.R. at 454–55).

285. Objection of Major League Baseball, supra note 33, at 67.

286. Mid-South Grizzlies, 550 F. Supp. at 566 (quoting N. Am. Soccer League, 670 F.2d at 1253.

287. Id.

288. Motion of Major League Baseball to Terminate Exclusivity, supra note 72, at 42–43; see In re Schick, 235 B.R. 318, 325 (Bankr. S.D.N.Y. 1999) (refusing to force the objecting party to accept substitute performance from or render performance to a “stranger” in applying partnership law); see also In re New Era Co., 115 B.R. 41, 44 (Bankr. S.D.N.Y. 1990) (finding that a person cannot become a member of a partnership without “the consent of all the partners”).

289. In re Allentown Ambassadors, Inc., 361 B.R. 442; Debtors’ Objection to Motion of Major League Baseball, supra note 228, at 64.

290. Debtors’ Objection to Motion of Major League Baseball, supra note 228, at 64.

291. Motion of Major League Baseball to Terminate Exclusivity, supra note 72, at 42–43; see In re Schick, 235 B.R. at 325 (refusing to force the objecting party to accept substitute performance from or render performance to a “stranger” in applying partnership law); see also In re New Era Co., 115 B.R. at 44 (finding that a person cannot become a member of a partnership without “the consent of all the partners”).

292. See In re Schick, 235 B.R. at 325 (refusing to force the objecting party to accept substitute performance from or render performance to a “stranger” in applying partnership law); see also In re New Era Co., 115 B.R. at 44 (finding that a person cannot become a member of a partnership without “the consent of all the partners”).

293. See, e.g., Coykendall v. Jackson, 17 Cal. App. 2d 729, 731 (Cal. Dist. Ct. App. 1936) (precluding personal services contracts from being assigned); Bentley v. Textile Banking Co., 26 A.D.2d 112, 114 (N.Y. App. Div. 1966) (acknowledging that personal services contracts are not assignable without consent of the other party).

294. Motion of Major League Baseball to Terminate Exclusivity, supra note 72, at 44.

295. MAJOR LEAGUE CONST. art. V, § 2(b)(2).

296.Debtors’ Objection to Motion of Major League Baseball, supra note 228, at 67–71.

297. Id. at 69–71.

298. In re Lehigh Valley Prof’l Sports Clubs, Inc., 2000 WL 567905, *5, n. 17 (Bankr. E.D. Pa. 2000).

299. Richard L. Wynne et al., Sports Fanchises and Bankruptcy Law, ABI BANKR. BATTLEGROUND WEST, Mar. 19, 1999, at 10–11.

300. Id.

301. Anzivino, supra note 5, at 32–36.

302. Id.

303. 11 U.S.C. § 365(c).

304. See In re XMH Corp., 647 F.3d 690, 695 (7th Cir. 2011) (disallowing a debtor to assign a trademark under section 365(c) because “the universal rule is that trademark licenses are not assignable in the absence of a clause expressly authorizing assignment”); N.C.P. Mktg. Grp. v. Blanks (In re N.C.P. Mktg. Grp., Inc.), 337 B.R. 230, 236–37 (D. Nev. 2005), aff’d, 279 F. App’x 561 (9th Cir. 2008) (“Because the owner of the trademark has an interest in the party to whom the trademark is assigned so that it can maintain the goodwill, quality, and value of its products and thereby its trademark, trademark rights are personal to the assignee and not freely assignable to a third party.”).

305. Miller v. Glenn Miller Prods., 318 F. Supp. 2d 923, 938 (C.D. Cal. 2004), aff’d, 454 F.3d 975 (9th Cir. 2006).

306. Motion of Major League Baseball to Terminate Exclusivity, supra note 72, at 44–46.

307. Objection of Major League Baseball to Debtors’ Motion to Obtain Post-Petition Financing and for Related Relief, at 71–73, In re: Los Angeles Dodgers LLC, No. 11-12010 (KG), 2011 WL 4945134 (Bankr. D. Del. Oct. 7, 2011).

308. In re Golden Books Family Entm’t, Inc., 269 B.R. 311 (Bankr. D. Del. 2001).

309. Id. at 315–16.

310. Id. at 316, 319.

311. Id. at 314; see also In re Valley Medai, Inc., 279 B.R. 105, 135–36 (Bankr. D. Del. 2002) (holding that non-exclusive copyrights are not assignable under Bankruptcy Code section 365(c)); In re Patient Educ. Media, 210 B.R. 237, 242–43 (Bankr. S.D.N.Y. 1997) (holding that debtor could not assign its non-exclusive license without copyright owner’s consent).

312. Motion of Major League Baseball to Terminate Exclusivity, supra note 72, at 44–46 (Oct. 7, 2011); Objection of Major League Baseball, supra note 33, at 71–73.

313. See In re XMH Corp., 647 F.3d at 695 (disallowing a debtor to assign a trademark under section 365(c) because “the universal rule is that trademark licenses are not assignable in the absence of a clause expressly authorizing assignment”); In re N.C.P. Mktg. Grp., Inc., 337 B.R. at 236–37, aff’d 279 F. App’x 561 (“Because the owner of the trademark has an interest in the party to whom the trademark is assigned so that it can maintain the goodwill, quality, and value of its products and thereby its trademark, trademark rights are personal to the assignee and not freely assignable to a third party.”).

314. 11 U.S.C. § 365(e)(1).

315. MAJOR LEAGUE CONST. art. VIII, § 4(f), (j), (l).

316. Id. § 4(l); see also Anzivinio, supra note 5, at 35 n.225.

317. Motion of Major League Baseball to Terminate Exclusivity, supra note 72, at 62, n. 73.

318. 11 U.S.C. § 365(e)(2)(A).

319. Motion of Major League Baseball to Terminate Exclusivity, supra note 72, at 36–50.

320. Watts v. Pa. Hous. Fin. Co., 876 F.2d 1090, 1095–96 (3d Cir. 1989).

321. Id. at 1091–92.

322. Id. at 1092.

323. Id. at 1095.

324. Id.

325. Compare 11 U.S.C. § 365(e)(2)(A), with 11 U.S.C. § 365(e)(2)(B).

326. Motion of Major League Baseball to Terminate Exclusivity, supra note 72, at 62, n.73.

327. MAJOR LEAGUE CONST. art. VIII, § 4(l).

328. 11 U.S.C. § 362(a) (2012).

329. Id. § 362(a)(1)–(8).

330. Id. § 362(d)(1).

331. Motion of Major League Baseball to Terminate Exclusivity, supra note 72.

332. MAJOR LEAGUE CONST. art. VIII, § 4(l).

333. Wynne et al., supra note 299; Golden & Marticello, supra note 26.

334. Wynne et al., supra note 299.

335. Id.

336. Anzivinio, supra note 5, at 28.

337. Id. at 31.

338. Golden & Marticello, supra note 26.

339. Hanson, supra note 1.

340. ROSNER & SHROPSHIRE, supra note 4.

341. Golden & Marticello, supra note 26.

342. At the time this article went to press, the sale of the Dodger franchise was still in a bidding process. See Alex Ben Block, Sale of Dodgers Officially Completed, HOLLYWOOD RPTR. (May 1, 2012), http://www.hollywoodreporter.com/news/la-dodgers-sale-magic-johnson-318581. Subsequently, however, on April 14, 2012, a Delaware bankruptcy judge approved the sale of the Dodgers, and on May 1, 2012, the Gughenheim Group finalized and closed a historic $2.15 billion dollar deal for the team’s acquisition. Id.  The new ownership is led by Guggenheim group CEO Mark Walter, Earvin “Magic” Johnson, and Stan Kasten. Id. In addition to maintaining an ownership interest in the nearby land that is used for parking around Dodger stadium, Frank McCourt is expected to gain nearly $1 billion dollars from this deal. Id.

QUID PRO QUO: PIERCING THE REPORTER’S PRIVILEGE FOR MEDIA WHO RIDE ALONG

Dina Hovsepian[*]

The reporter’s privilege, also known as the reporter’s shield law, exists to protect reporters from forced disclosure regarding confidential information and sources. Stemming from the First Amendment right to freedom of press, this privilege seeks to safeguard the free flow of information. However, reporters are frequently participating in media ride-alongs during which they are permitted to accompany police officers in their daily duties. As a result of these ride-alongs, reporters witness arrests, search warrant executions, and crime scene investigations. When subsequently subpoenaed to testify during the criminal trial related to those events, these reporters assert their privilege and refuse to testify. Often times, courts uphold their privilege. However, doing so infringes on the criminal defendant’s Sixth Amendment right to a fair trial. An exception to the reporter’s privilege should be implemented when a reporter participates in a media ride-along since testifying to their eyewitness accounts would not violate the purpose of the privilege. Mandating that the reporters testify would not disrupt the free flow of information, nor would it require disclosure of confidential information. Instead, such an exception would only require reporters to testify to information witnessed as the result of the police-permitted ride-along. Moreover, the Sixth Amendment right to a fair trial trumps the First Amendment right to freedom of press in this context, further supporting an exception to the reporter’s privilege.

“Over the last several decades, the media’s role has morphed from that of watchdog against police abuse to cheerleader for the prosecution. The protections afforded the reporter to shield them as against a Defendant’s right to a fair trial have become quaint in our modern 24/7 media age. Reporters who embed themselves with the police must realize that the price for such access comes at the expense of the First Amendment not the Sixth Amendment guarantee of a defendant’s right to fair trial.”[1]

I. INTRODUCTION

A. The Crime Scene, the Police, and the Reporter

Imagine it is 11:37 PM on a Tuesday night when a swarm of Los Angeles Police Department officers arrive at an underground brothel where a murder has taken place. Riding along with the police is a reporter from the Los Angeles Times. At the scene, the reporter documents evidence of the murder and watches the police conduct the crime scene investigation. The reporter observes an officer surreptitiously take a knife from the scene and slip it into his pocket, clearly obstructing evidence.[2]

Two months later, at the trial for the murder, the reporter is subpoenaed to testify. He refuses, asserting the reporter’s privilege. As a result, the jury never learns of the police officer’s obstructive actions. The criminal defendant, who might have been acquitted had the reporter testified, is found guilty of first-degree murder and sentenced to life in prison without the possibility of parole.[3]

A criminal defendant’s right to a fair trial is inscribed in the Sixth Amendment of the United States Constitution, which provides:

In all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury of the State and district wherein the crime shall have been committed, which district shall have been previously ascertained by law, and to be informed of the nature and cause of the accusation; to be confronted with the witnesses against him; to have compulsory process for obtaining witnesses in his favor, and to have the Assistance of Counsel for his defence.[4]

The reporter’s privilege, a lesser but nonetheless recognized right, now stands in the way of that constitutional right.[5]

B. A Need for an Exception to the Privilege

Privileges, such as the attorney-client privilege, the physician-patient privilege, and the reporter’s privilege are established to encourage candor within those practice areas.[6] However, the reporter’s privilege, more than the others, infringes upon a criminal defendant’s right to a fair trial.[7] Because police departments allow media members to ride along with them during critical events such as crime scene investigations, reporters are often exposed to evidence that is crucial for the defense.[8] However, those reporters frequently refuse to testify during the subsequent criminal trial.[9]

During a media ride-along, the police department allows a member of the media to “ride along” with them in the course of their daily activities.[10] Media members take footage of crime scene investigations,[11] photograph houses during the execution of search warrants,[12] participate in witness interviews,[13] and record detailed notes of their observations.[14] While some of this information is released in newspaper articles and news programs, some significant details remain secrets with the reporter.[15]

This Article proposes an exception to the reporter’s privilege that would only apply to reporters who have participated in media ride-alongs and who have been subpoenaed to testify in a criminal case. Section II will trace the historical development of media ride-alongs and their interaction with criminal cases. Section III will explore the history of the reporter’s privilege, including its development and limitations. Finally, Section IV will suggest that in order to ensure a fair trial for the criminal defendant, reporters who participate in media ride-alongs should be required to preserve and produce at trial all notes taken during media ride-alongs. Incidentally, this narrow exception would protect the underlying policy of the reporter’s privilege[16] while simultaneously protecting the rights of criminal defendants.[17]

II. A NEW PHENOMENON: THE MEDIA RIDE-ALONG

Generally, the reporter’s privilege allows reporters to refuse to testify about confidential sources and specific information obtained in the newsgathering process.[18] The development of this privilege stems from a combination of the First Amendment, state statutes, and case law.[19]

The media has become increasingly intertwined with the judicial system.[20] In light of the public’s insatiable appetite for news regarding the criminal justice system,[21] police departments are now frequently allowing media members to go on a “ride”[22]—and the “ride” referred to is not just a tour of the streets.[23] Instead, members of the media are exposed to arrests, executions of warrants, accident reports, and abuse incidents.[24] During this “ride,” reporters are allowed to take notes and film footage for use in subsequent articles and television clips.[25]

However, it is not mandatory for the reporters to produce the material obtained during the ride-along upon demand—the reporter’s privilege allows them to refuse any request for disclosure of confidential sources or private information.[26] This refusal is allowed despite the fact that the reporter is exposed to an enormous amount of information during the ride-along, and that producing that information would further the defendant’s Sixth Amendment right to a fair trial.[27] Therefore, in light of the criminal defendant’s constitutional rights at stake, it should be mandatory that reporters on ride-alongs produce their notes and footage when subpoenaed in order to ensure a fair trial for the criminal defendant.[28]

A. A Brief History of the Media Ride-along and Its Relationship with the Reporter’s Privilege

In an effort to educate community members regarding police officers’ daily duties, police departments allow “ride-alongs.”[29] These ride-alongs are not only available to the general public, but to the media as well.[30] It is quite simple to apply for the opportunity.[31] For example, the Los Angeles City Police Department only requires applicants to complete and submit a one-page form titled “Ride-Along Agreement Assuming Risk of Injury or Damage Waiver, Indemnity and Release of Claims.”[32] The agreement requires standard contact information—such as name, address, and phone number—and a signature releasing the City of Los Angeles and the Police Department from liability in the event of an injury or resulting damage.[33]

Other municipalities have more onerous requirements.[34] For example, the City of New York Police Department requires the applicant to release the City of New York from potential lawsuits and to abide by certain rules of conduct.[35] The application provides that “the use of cameras, recording devices and cell phones are prohibited.”[36] In addition, the application requires that “[m]embers of the Media . . . must state, on a separate sheet, the reason(s) for participating in the Ride Along [sic].”[37] Additional requirements, such as a separate explanation of the reason for a ride-along, are required in some departments, and suggest that some police departments are aware of the negative implications of the media ride-along.[38]

Indeed, unforeseen consequences have led to lawsuits that clarify the legal scope of ride-alongs.[39] For instance, on April 16, 1992, the United States Marshals Service invited a Washington Post reporter and photographer to witness the execution of a search warrant against Dominic Wilson.[40] After realizing that Wilson was not in the house, the Marshals left with the media crew, but not before the reporter investigated the house and the photographer took a few pictures.[41] The United States Supreme Court found that although the media’s presence sufficed as a violation of Wilson’s Fourth Amendment rights,[42] the Court had not previously made clear that such a presence would constitute a violation, and, therefore did not hold the police liable.[43] However, the Court did discuss the media’s presence at length and concluded that the reasons provided by the police for the media ride-along in that case were not justified.[44] Wilson was not the first, nor will it be the last civil case to stem from a media ride-along.[45]

Criminal defendants have also taken issue with the presence of the media in their homes or during arrests.[46] In Miami Herald Publishing Co. v. Morejon, a Miami Herald journalist witnessed an arrest for possession of cocaine during a media ride-along.[47] The Florida Supreme Court affirmed the district court’s denial of a reporter’s privilege assertion, but noted Justice White’s distinction in Branzburg v. Hayes that the restriction only applied to “grand jury investigations conducted in good faith.”[48] More specifically, the court cited Justice Powell’s concurring opinion, which stated that on a case-by-case basis, the “‘privilege should be judged on its facts by striking the proper balance between freedom of the press and the obligation of all citizens to give relevant testimony with respect to criminal conduct.’”[49]

Robert Blake’s 2005 murder trial further addressed the new phenomenon of media ride-alongs.[50] Former Los Angeles Times reporter Miles Corwin spent a year shadowing the Los Angeles Police Department while doing research for his book.[51] As a result, Corwin was present during the homicide investigation of Robert Blake for the murder of his wife in 2001.[52] Subsequently, Corwin was subpoenaed to testify in the Blake trial.[53] Corwin attempted to raise the reporter’s privilege as his shield, but the court denied him the privilege.[54] The court ruled that “Corwin had waived his shield law rights” because of a signed agreement between Corwin and the Los Angeles Police Department explaining “that his work product may be subject to subpoena and production in either criminal and/or civil litigation.”[55]

If the reporter’s privilege exists to maintain the flow of truthful information to the public,[56] then the truth should also be communicated during the criminal defendant’s trial.[57] As in the case of Miles Corwin,[58] courts must require reporters to continue this flow of information where necessary.[59] Therefore, it is vital to appreciate why this privilege exists and to understand that the reasons to expose the information obtained during a media ride-along outweigh the policy justifications behind the privilege.

B. A Philosophical Interjection: Why Are Reporters Even Allowed on Ride-alongs?

If the reasons for concealing information outweighed the benefits, then one might understand why the reporter’s privilege would be upheld in a criminal case.[60] However, they do not.[61] The Wilson v. Layne opinion illuminates the reasoning behind the media ride-along.[62] Similarly, other possible justifications for the media ride-along are thoroughly analyzed in the article, “An ‘Unholy Alliance’: The Law of Media Ride-Alongs.”[63] While Wilson and “An ‘Unholy Alliance’” take different approaches, they ultimately conclude that there is no legitimate justification for a media ride-along.[64]

1. Wilson v. Layne: The United States Supreme Court’s Opinion on the Justifications for Media Ride-Alongs

In Wilson v. Layne, the United States Supreme Court considered the justifications for allowing media ride-alongs during the execution of a search warrant.[65] The Court rejected the police department’s argument that “officers should be able to exercise reasonable discretion about when [the ride-alongs] would ‘further their law enforcement mission . . . in executing a warrant.’”[66] The Court held that allowing media to enter the homes of suspects would defeat the underlying purpose of the Fourth Amendment and the protection it provides for private homes.[67]

The Court also rejected the police department’s argument that because the reporter’s privilege stems from the First Amendment and seeks to encourage a flow of information to the public, the “presence of third parties could serve the law enforcement purpose of publicizing the government’s efforts to combat crime, and facilitate accurate reporting on law enforcement activities.”[68] The Court held that when balancing the First Amendment right with the Fourth Amendment right at stake, the Fourth Amendment right must take precedence.[69] Although “the need for accurate reporting on police issues” is important, this interest “in general bears no direct relation to the constitutional justification for the police intrusion into a home in order to execute a felony arrest warrant.”[70]

The Court also pointed out that the search warrant did not permit the media’s presence inside the house.[71] As the Court explained, the Fourth Amendment is a representation of respect—a “centur[y]-old principle”—that is deemed necessary to protect the private home.[72] Although the police in Wilson had obtained a valid search warrant, the Court found that the presence of the media members did not further the objectives that allowed the police into the private home pursuant to that warrant.[73] For this reason, the media’s presence was not in congruence with the intentions of the respected and superior Fourth Amendment.[74]

Finally, the police department argued that the “presence of third parties could serve . . . to minimize police abuses and protect suspects, and also to protect the safety of the officers.”[75] Since the police did not limit this argument to instances where the media entered a suspect’s home with the police, this policy could extend beyond media ride-alongs during search warrants to arrests that occur outside of the home.[76] Although the Court found this to be a plausible interest, it nonetheless rejected the police department’s argument because it did not believe the police department had allowed the media to videotape for “quality control.”[77] Instead, the Court found the ride-along was for the benefit of the media company.[78]

2. A Categorical Approach to the Policy Behind Media Ride-Alongs

In An “Unholy Alliance”: The Law of Media Ride-Alongs, Karen Markin discusses two theories to justify media ride-alongs.[79] She purports that “ride-alongs [might serve as a] . . . check on government, a press function that flows from libertarian theory . . . [and might] satisfy the public’s right to know, a press function that flows from the social responsibility theory.”[80] The libertarian theory values the “free and open exchange of ideas as the best means of achieving truth,”[81] while the social responsibility theory is based on “the need of a self-governing people to be informed.”[82] Nonetheless, when analyzed under the First Amendment, neither theory justifies the media ride-along.[83]

There is insufficient evidence to support the media’s claim that it is acting as a “watchdog” during these ride-alongs.[84] Rather, the media is “colluding with the government when it rides along.”[85] This is contrary to the libertarian theory that requires the media to serve as a check on the government.[86] Similarly, the social responsibility theory does not support ride-alongs, as there is no real promotion of democracy with the accompanying of media.[87] In fact, instead of guarding the rights of suspects during police intrusion, the reporter’s presence serves only to benefit the reporter’s own financial and entertainment purposes.[88]

In conclusion, neither the United States Supreme Court, nor Markin could find a sufficient justification for media ride-alongs.[89] Media ride-alongs are mainly a benefit to the reporter.[90]

III. THE DEVELOPMENT OF THE REPORTER’S PRIVILEGE

A. What Is the Reporter’s Privilege and Why Does It Exist?

The First Amendment’s right to freedom of the press is at the core of the reporter’s privilege.[91] If journalists and reporters were required to disclose their sources of confidential information, people would be reluctant to give them such information.[92] This would have a chilling effect on a reporter’s work product.[93] As a result, the reporter’s privilege exists to protect journalists and reporters from being forced to disclose sources and information in an effort to prevent “disrupting the ‘free flow of information protected by the First Amendment.’”[94]

While there is no federal statute that recognizes the reporter’s privilege,[95] forty states and the District of Columbia have enacted statutes establishing a reporter’s privilege, also known as shield laws.[96] Subsequently, case law has defined the privilege so that both reporters and those who are in need of the reporters’ testimony understand the privilege and the ways around it.[97] Case law has established that the privilege is protected by the Constitution, and has recognized “that society’s interest in protecting the integrity of the newsgathering process, and in ensuring the free flow of information to the public, is an interest of sufficient social importance to justify some incidental sacrifice of sources of facts needed in the administration of justice.”[98] Despite the occasional need for such sacrifice, “[c]ourts have rigorously protected reporters asserting [this] privilege.”[99]

Among the cases recognizing the reporter’s privilege is a 1958 decision regarding famed actress/singer Judy Garland.[100] Garland brought suit against CBS after learning that a CBS executive’s comments about her had been published in an article written by Marie Torre of the New York Herald Tribune.[101] Torre was imprisoned because she refused to disclose the identity of the executive who had made the comments.[102] On appeal, Torre raised the Constitutional defense of the First Amendment’s freedom of speech.[103] This was the first time a reporter had raised this defense.[104] Torre argued that requiring her to testify would “impose an important practical restraint on the flow of news from news sources to news media and would thus diminish pro tanto the flow of news to the public.”[105] The Second Circuit unanimously acknowledged that while the privilege stemmed from the freedom of press, since the information sought was at the heart of the case and there were no alternative sources for the information, “the Constitution conferred no right to refuse an answer.”[106]

It would not be until 1972 that the United States Supreme Court would issue an opinion on the constitutionality of this issue.[107] In the case of Branzburg v. Hayes, the Supreme Court clarified the privilege.[108] Branzburg consolidated four separate cases[109] that stemmed “from the repeated clashes of the period between government, on the one hand, and allegedly violent, politically dissident groups and the so-called ‘drug culture,’ on the other.”[110] The cases concerned the groups that had confided in reporters about specific information pertaining to themselves in exchange for the reporters’ promise that their names would remain confidential.[111] In an effort to prosecute these groups, the government asked the courts to compel the reporters to testify as to the sources of information regarding the groups’ illegal and violent habits despite their claim to a reporter’s privilege.[112]

The United States Supreme Court concluded that reporters qualify for some First Amendment protection, but that the protection is not absolute.[113] The Court explained that reporters are subject to a privilege to avoid a violation of their freedom of press and to minimize eliminating the flow of information to the public.[114] However, the Court refused to find a First Amendment defense applicable in this particular case since the burden of testifying did not outweigh the need for law enforcement and effective grand jury proceedings.[115] The Court stated:

[A] reporter should not be forced either to appear or to testify before a grand jury or at trial until and unless sufficient grounds are shown for believing that the reporter possesses information relevant to a crime the grand jury is investigating, that the information the reporter has is unavailable from other sources, and that the need for the information is sufficiently compelling to override the claimed invasion of First Amendment interests occasioned by the disclosure.[116]

Despite this conclusion, the United States Supreme Court made clear that construction of the privilege would be at the discretion of state legislatures, but with limited restrictions.[117] Following the Branzburg opinion, many state and federal courts have addressed the scope of the reporter’s privilege.[118] As Justice White anticipated, “[s]ooner or later, it would be necessary to define those categories of newsmen who qualified for the privilege.”[119] This Article addresses Justice White’s suggestion and argues that reporters who participate in media ride-alongs and are later asked to testify in a criminal trial should be prevented from seeking the protection of the reporter’s privilege.

B. The Scope of Enforcement: When and Why Has the Privilege Been Enforced?

Reporters and journalists have not been hesitant in asserting the reporter’s privilege.[120] The privilege has been raised in cases ranging from defamation suits,[121] to First Amendment violations,[122] and criminal proceedings.[123]

Compelling a reporter to testify is not uncommon, especially in a criminal case where the reporter was an eyewitness.[124] In Delaney v. Superior Court, Los Angeles Times reporter Roxana Kopetman and photographer Roberto Santiago Bertero accompanied the Long Beach Police Department during their daily duties.[125] While on duty at the Long Beach Plaza Mall, the police officers arrested Sean Patrick Delaney for misdemeanor possession of brass knuckles.[126] Kopetman and Bertero were later subpoenaed to testify regarding Delaney’s consent to the search, but refused, asserting their reporter’s privilege.[127] The Supreme Court of California compelled the reporter and photographer to testify, and after applying the balancing test, held that the factors were overwhelmingly in favor of the defendant.[128]

If all other courts were to follow the conclusion of the Supreme Court of California, the exception to the reporter’s privilege would not be at issue.[129] However, since states are allowed to develop their own standards for the reporter’s privilege,[130] there is no promise that they will follow California’s lead. In fact, there is a wide range of both civil and criminal cases that have addressed the reporter’s privilege nationwide.[131] In some instances, the privilege has been denied, while in others, the courts have respected the reporter’s privilege.[132] In order to maintain consistency, most courts have adopted a three-pronged test to help determine whether the reporter’s privilege trumps the subpoena.[133]

C. Compelling a Reporter to Testify

The reporter’s privilege, commonly asserted by reporters who refuse to testify about sources and other confidential materials, is subject to a three-pronged test that pre-dates Branzburg v. Hayes.[134] This test has been solidified through decades of case law and legislation.[135]

To compel a reporter to testify, there must be a “clear and specific” showing of each element of the test.[136] First, the information must be highly material and relevant to the underlying claim;[137] the information cannot be “merely cumulative,”[138] nor can it be “vague and wholly unsupported.”[139] Second, the information must be necessary or critical to the maintenance of the party’s claim.[140] In other words, the information must be at the “heart of the case.”[141] In Delaney, however, the Supreme Court of California lowered this standard for criminal cases so that “a criminal defendant must show a reasonable possibility the information will materially assist his defense,”[142] not that the information affected the heart of his case.[143] Lastly, the party compelling disclosure must have exhausted all other alternative sources of obtaining the information.[144] However, the court in Delaney lowered this standard as well, concluding “a universal and inflexible alternative-source requirement is inappropriate in a criminal proceeding.”[145]

Furthermore, most states have adopted some variation of the reporter’s privilege, and, in doing so, have given depth to the scope of the privilege.[146] However, reporter’s privilege statutes in California, Illinois, and New York, demonstrate that variations exist between the states.[147] For example, New York draws clear distinctions between an absolute protection for confidential information,[148] and a qualified protection for non-confidential information,[149] while California adopts a more general protection for all information.[150] Moreover, Illinois has separated the reporter’s privilege among nine different statutes, each of which expands upon a specific type of information.[151] Despite their differences, most states have been faced with criminal cases in which reporters who participated in media ride-alongs witnessed an arrest and refused to testify.[152]

Despite the variety between state statutes, none of the statutes create an absolute exemption from the privilege for media ride-along participants.[153] Some cases, like Delaney, have indirectly asserted this exception by lowering the standards of the three-pronged test, thus compelling reporters to testify.[154] However, a more concrete exemption is necessary. The media ride-along has helped further the free flow of information; in return for this benefit, reporters who participate in media ride-alongs should waive their right to assert the reporter’s privilege.

IV. HOW TO ADJUST TO THE PHENOMENON OF RIDE-ALONGS

Media ride-alongs have had a significant impact on the judicial system.[155] As with all other rapidly evolving forms of communication, such as e-mail, and social media, such as Facebook and Twitter,[156] the Supreme Court or Congress must adjust to the prevalence of media ride-alongs. They should mandate that reporters who are allowed to go on media ride-alongs be exempt from the reporter’s privilege and be required to maintain any notes and information gathered during these ride-alongs to provide a fair trial for criminal defendants.[157] This proposed exception will not only protect a criminal defendant’s Sixth Amendment right to a fair trial but will also maintain the freedom of press firmly established by the First Amendment.[158]

A. Reporters on Ride-Alongs Lose Their Privilege and

Enter the Class of “Police”

Members of the media become constructive members of the police force when they partake in ride-alongs. When police officers arrest someone, they write an incident report.[159] If the prosecution files a case against the individual who was arrested, the police officers may be subpoenaed to testify to the events of that arrest.[160] This procedure exists as part of the defendant’s right to a fair trial.[161] Reporters or journalists should be subject to the same rule. The notes they take during these media ride-alongs are just like the incident reports that the police officers write.[162] During the ride-along, the reporters and journalists record every incident that may later lead to a criminal arrest.[163] Just like police incident reports, these recorded initial incidents can become crucial facts in a criminal proceeding.[164]

Moreover, some police departments acknowledge that a person on a ride-along becomes a member of the police force.[165] For example, before Los Angeles Times reporter Miles Corwin could accompany the Los Angeles Police Department for a year, he was required to sign an agreement.[166] Specifically, the agreement stated that “by his involvement in homicide investigations, [he] becomes an ‘agent’ of the Police Department.”[167]

Finally, any media member who accompanies police officers should be thought of as an agent of the police department because the police department’s resources allow the reporter to obtain his or her information.[168] For example, search warrants allow reporters to enter the homes of private residents.[169] The police department’s communication system also leads reporters to locations where crimes may occur.[170] Additionally, the tips from police department insiders result in drug busts.[171] Without the approval and insight of the police department, members of the media who go on ride-alongs with the police would not have access to such information.[172] For this reason, upon entering the police car, members of the media should step out of their role as reporters and into the class of the police.

B. The Exception Satisfies the Three-Pronged Test

The party seeking the “privileged” information must prove that (1) the information is highly material and relevant, (2) the information is necessary or critical to the maintenance of the party’s claim, and (3) all alternative sources of the information have been exhausted.[173] As demonstrated below, there is no question that any time a criminal defendant requests the notes or coverage of an eyewitness reporter present during a media ride-along, all three prongs are satisfied.

First, the information reporters gather during media ride-alongs is highly material and relevant; otherwise, the criminal defendant would not be requesting the material.[174] The criminal defendant has a right under the Sixth Amendment to call witnesses in his favor and to question those against him.[175] A criminal defendant would not request that the jury hear the testimony of a reporter unless it was in the defendant’s favor.[176] Even if that were not the case, requesting information by an objective party about the events leading up to the defendant’s arrest, by its own terms, renders the information highly material.[177] A reporter’s notes taken during ride-alongs can help determine what exactly happened, what the circumstances were, and how the events of the accident, arrest, or search took place, which is highly material information during a criminal trial.[178]

For similar reasons, the second prong is also satisfied.[179] The exposure of this material is highly critical and necessary if a criminal defendant is requesting it.[180] This is true if only for the mere fact that it allows the defendant to exercise his constitutional right to subpoena evidence he believes will be in his favor.[181] In a criminal case, all admissible and relevant evidence is needed to ensure a verdict is returned in the fairest manner to the defendant —whether it helps prove or disprove guilt beyond a reasonable doubt.[182] The standard for this prong may be even lower if the holding in Delaney v. Superior Court is adopted.[183] There, the court held that “a criminal defendant must show a reasonable possibility the information will materially assist his defense.”[184] Since the higher standard is satisfied, the lower standard will be fulfilled as well.[185]

Finally, the information reporters observe during media ride-alongs is unique, and no alternative source is available for that same information.[186] If the standard to be applied is like the one discussed in Delaney,[187] it is clear that this prong is satisfied. In Delaney, the court found that the “universal and inflexible alternative-source requirement is inappropriate in a criminal proceeding.”[188] With a more lax standard, it will be easier to conclude that the few people permitted to be present during an arrest or police encounter, the privileged reporter being one of them, greatly limits the number of potential sources of information.[189]

However, the prong is still satisfied even if a higher standard is applied.[190] There are only a few people who will have observed an accident, arrest, and/or search—the parties to the case, the police officers, and the media.[191] The police officers will write their incident reports and the reporters will take down their notes.[192] While it may be argued that the incident reports are an alternative means to gather information observed by the reporter, the bias present in the incident reports will presumably be absent in the reporter’s notes.[193] Reporters have a duty to inform the public of the truth and their notes are often what reflect that truth.[194] Unlike the police, they do not have a stake in the arrest or incident.[195] Therefore, it is clear that a reporter’s eyewitness account is highly material, necessary, and unique.

C. Other Privileges Have Also Been Subject to Similar Exceptions

The federal government has not codified any privileges.[196] However, states have acted independently and created numerous privileges among which are the attorney-client privilege,[197] the physician-patient privilege,[198] the psychotherapist-patient privilege,[199] and the reporter’s privilege.[200] In California, most privileges include a codified exception where harm to another will follow if the privileged information is not divulged.[201]

California Evidence Code section 956.5 permits an attorney to reveal confidential information violating the attorney-client confidentially privilege, “to prevent a criminal act that the lawyer reasonably believes is likely to result in the death of, or substantial bodily harm to, an individual.”[202] Further, in California, the psychotherapist-patient privilege, which ordinarily protects communications between a therapist and patient during treatment,[203] must be violated if the therapist “has reasonable cause to believe that the patient is in such mental or emotional condition as to be dangerous to himself or to the person or property of another and that disclosure of the communication is necessary to prevent the threatened danger.”[204]

The physician-patient privilege is also subject to exceptions.[205] Despite the fact California has not codified a specific exception to the privilege, California Evidence Code section 998 nonetheless applies and generally states “there is no privilege in this article in a criminal proceeding.”[206] This means that if a physician were subpoenaed for a criminal case involving a patient, he or she would not be able to assert the physician-patient privilege and refuse to testify.[207]

An exception to the reporter’s privilege requiring media who participate in ride-alongs to testify in criminal cases would constitute a similar exception to those established in the attorney-client privilege, the physician-patient privilege, and the psychotherapist-patient privilege.[208] The exception is needed to protect a defendant’s right to a fair trial.[209] In doing so, the reporter would ultimately be preventing substantial harm to another—a false or unfair conviction of the defendant in question.[210] For this reason, exceptions have been made to other privileges, and now the reporter’s privilege demands a similar exception.

D. A Criminal Defendant’s Sixth Amendment Right to a Fair Trial Trumps a Reporter’s First Amendment Right to Freedom of Press when that Reporter Participates in a Media Ride-Along

The reporter’s privilege stems from the First Amendment of the United States Constitution.[211] The right to a fair trial is inscribed in the Sixth Amendment of the United States Constitution.[212] The exception proposed in this Article benefits the criminal defendant and impinges upon the First Amendment right of the reporter. Thus, this Comment urges that in this narrow area, the Sixth Amendment right to a fair trial should trump the First Amendment right to freedom of press.

A reporter’s right to freedom of press, embedded in the First Amendment, does not overcome the Sixth Amendment right to a fair trial.[213] A criminal defendant’s due process depends on receiving a fair trial; without a fair trial, a criminal defendant is deprived of the right to due process.[214] A fair trial is the defendant’s only chance at freedom from conviction and the subsequent “social stigma of being labeled as [a] criminal[]” for the rest of his or her life.[215] As a result, “a newsperson’s protection under the shield law must yield to a criminal defendant’s constitutional right to a fair trial when the newsperson’s refusal to disclose information would unduly infringe on that right.”[216] This “constitutional right to compulsory process was intended to permit [the defendant] to request governmental assistance in obtaining likely helpful evidence, not just evidence that [the defendant] can show beforehand will go to the heart of his case.”[217] Compulsory process requires that the defendant be entitled to expose all relevant information to ensure the defendant’s right to a fair trial.[218]

In United States v. Nixon, the United States Supreme Court established and clearly expressed

[t]he need to develop all relevant facts in the adversary system is both fundamental and comprehensive. The ends of criminal justice would be defeated if judgments were to be founded on a partial or speculative presentation of the facts. The very integrity of the judicial system and public confidence in the system depend on full disclosure of all the facts, within the framework of the rules of evidence.[219]

Professor Laurie Levenson of Loyola Law School stated

[t]he media plays an important role as a watchdog. When they are at the scene, then the information that they have might be important enough to outweigh their general privilege not to testify. In the end, no matter how important we think the First Amendment is, it is not more important than the right to a fair trial.[220]

In furthering this opinion, M. Gerald Schwartzbach, counsel for Robert Blake during his murder trial in 2005, commented,

[t]hough freedom of the press is essential to any democracy, a reporter who voluntarily elects to become a witness to a criminal investigation should not be permitted to remain silent when he or she possesses relevant information. To conclude otherwise would be to allow him or her to remain silent in the face of police error or misconduct and thus deny an accused the right to a fair trial.[221]

Although there is arguably a need for balance between the First and Sixth Amendments, a First Amendment claim is not substantial enough to justify superiority over the Sixth Amendment.[222] For this reason, the Sixth Amendment’s guarantee of a fair trial, with access to all evidence pursuant to compulsory process, trumps the First Amendment right to freedom of press.[223]

E. Public Policy Favors the Exception

This Article prescribes an absolute and codified exception to the reporter’s privilege. Imposing the exception can be made feasible by requiring police departments to include a waiver clause in their ride-along agreements for media members.[224] However, because the reporter’s privilege exists to promote the freedom of press and an informed public,[225] there is a concern that the proposed exception might have a chilling effect on reporters.[226]

Nonetheless, this exception to the reporter’s privilege would not have a chilling effect because it would not violate any privileges of the reporters. Forcing the reporter to testify “involves no restraint on what newspapers may publish or on the type or quality of information reporters may seek to acquire, nor does it threaten the vast bulk of confidential relationships between reporters and their sources.”[227] In fact, “[t]he reporters are not being asked to breach a confidence or to disclose sensitive information that would in any way even remotely restrict their news-gathering ability. All that is being required of them is that they accept the civic responsibility imposed on all persons who witness alleged criminal conduct.”[228] Thus, the proposed exception to the reporter’s privilege, effectuated through a waiver, will serve as the consideration for the right to participate in a media ride-along.

This exception is not proposed to hinder the free flow of information or to halt reporters’ investigations.[229] On the contrary, requiring the reporters on these ride-alongs to testify only promotes the free flow of information; specifically, this exception will lead to the reporting of truthful and accurate accounts of investigations and arrests by an objective and neutral party.[230]

V. CONCLUSION

The influx of cases challenging the reporter’s privilege illustrates the need to clarify its scope.[231] Undoubtedly, the new phenomenon of media ride-alongs has left reporters with a benefit—an opportunity to be an eyewitness.[232] Additionally, reporters are given a privilege that exempts them from having to testify at criminal trials.[233] Recent cases have shown that this reporter’s privilege occasionally conflicts with a criminal defendant’s right to a fair trial.[234] Judges grant motions made by criminal defendants and order reporters to testify to eyewitness accounts despite the reporter’s assertion of this privilege.[235] In light of the privilege received by reporters, the Latin saying of quid pro quo should be remembered.[236]

By allowing reporters and journalists to act as constructive police officers, thereby entitling them to some of the privileges that officers maintain, such as being present during an arrest when initial actions are taken and decisions made, it is only fair that reporters give up a privilege of their own, namely, the reporter’s privilege.[237] This Article does not suggest terminating the reporter’s privilege in its entirety, nor does it propose a violation of the First Amendment of the United States Constitution.[238] For the sole purpose of providing a fair trial for criminal defendants, this Article recommends a narrow exception to the well established privilege for those reporters who participate in media ride-alongs—an exception that does not intrude upon the underlying purpose of the reporter’s privilege.[239] Not only would such an exception satisfy the three-pronged test adopted by most jurisdictions for violating the privilege, but such an exception to the reporter’s privilege would also be consistent with the trend of courts to compel reporters who participated in a ride-along to testify.[240]

* J.D. Candidate, Loyola Law School, 2013; B.A. University of California, Los Angeles, 2009. The author would like to dedicate this Comment to her eldest brother, Patrick, for defining true strength and determination. She would also like to thank her family (her father Razmik, mother Hilda, and brother Nicholas) for their continued support and guidance through her endeavors. She would not be the person she is today without their love, humor, and inspiration. A special thank you to Laurie Levenson for her academic assistance and responsiveness to the endless e-mails and to Mark Geragos for his valuable insight. The author thanks Teo for his endless encouragement and motivating words, and Tina and Linette for lending their ears throughout the drafting and editing process. And not to be forgotten, her greatest gratitude to the talented and hardworking staff of the Loyola of Los Angeles Entertainment Law Review for their dedication and meticulous work in the production of this Comment.

1. E-mail from Mark J. Geragos, Esq., Geragos & Geragos, P.C., to author (Mar. 30, 2012, 14:29 PST) (on file with author).

2. Hypothetical created by author. See, e.g., Delaney v. Superior Court, 789 P.2d 934 (Cal. 1990); United States v. Sanusi, 813 F. Supp. 149 (E.D.N.Y. 1992) (illustrating examples of media ride-alongs with the police).

3. Hypothetical created by author. See, e.g., Miami Herald Publ’g Co. v. Morejon, 561 So. 2d 577 (Fla. 1990); Delaney, 789 P.2d 934 (illustrating examples of reporters who went on ride-alongs and subsequently refused to testify by asserting the reporter’s privilege).

4. U.S. CONST. amend. VI.

5. See generally United States v. Nixon, 418 U.S. 683, 709 (1974) (stating that the judicial system “depend[s] on full disclosure of all the facts, within the framework of the rules of evidence. To ensure that justice is done, it is imperative to the function of courts that compulsory process be available for the production of evidence needed either by the prosecution or by the defense.”). If reporters are allowed to refuse to testify, they may be withholding critical facts. Id. Therefore, the privilege stands in the way of the defendant’s right to a fair trial. Id.; see also Delaney, 789 P.2d at 937 (“[A] newsperson’s protection under the shield law must yield to a criminal defendant’s constitutional right to a fair trial when the newsperson’s refusal to disclose information would unduly infringe on that right.”).

6. See United States v. Shibley, 112 F. Supp. 734, 741 (S.D. Cal. 1953) (“The object of the [attorney-client] privilege is to protect the client against disclosure of confidential matters.”); 3 BARBARA E. BERGMAN & NANCY HOLLANDER, WHART. CRIMINAL EVID. § 11:47 (15th ed. 1999) (“Moreover, the purpose of the [physician-patient] privilege is to protect the patient . . . .”); 2 LEE LEVINE ET AL., NEWSGATHERING AND THE LAW 16-1 (4th ed. 2011) (“[J]ournalists and news organizations in the United States today enjoy, in many circumstances, a privilege from compelled disclosure of information . . . .”).

7. See generally Nixon, 418 U.S. at 709 (stating that the judicial system “depend[s] on full disclosure of all the facts . . . .”). If reporters are allowed to refuse to testify, they may be withholding critical facts. See generally id. Therefore, the privilege stands in the way of the defendant’s right to a fair trial. See generally id.

8. Delaney, 789 P.2d at 937 (stating that a reporter on a media ride-along was present during the search of defendant, and subsequently was subpoenaed to testify to whether defendant consented to the search or not).

9. See, e.g., Sanusi, 813 F. Supp. 149; Delaney, 789 P.2d 934; Miami Herald Publ’g Co., 561 So. 2d 577; Jean Guccione, Writer Must Testify in Blake Case, L.A. TIMES, Oct. 15, 2004, at B3.

10. See Karen M. Markin, An “Unholy Alliance”: The Law of Media Ride-Alongs, 12 COMMLAW CONSPECTUS 33, 33 n.4 (2004).

11. See People v. Hendrix, 820 N.Y.S.2d 411, 414 (App. Div. 2006) (discussing that ABC Network filmed footage associated with a homicide while on a ride-along).

12. See Sanusi, 813 F. Supp. at 151 (explaining that a CBS cameraman filmed for twenty minutes during the execution of a search warrant).

13. Notice of Motion and Motion to Suppress Evidence at 8, People v. Blake, No. LA040377 (Cal. Sup. Ct. Oct. 4, 2004) (stating that reporter Miles Corwin participated in witness interviews).

14. Miami Herald Publ’g Co., 561 So. 2d at 578 (stating that the reporter was present and took notes while the police arrested the defendant for trafficking in cocaine).

15. See, e.g., Delaney, 789 P.2d at 937, 953 (explaining that the reporter was with the police when the police allegedly touched the defendant without his consent, making the reporter one of the few people who knew exactly what happened. Although the reporter wrote an article regarding the arrest, that article did not address the issue of consent.).

16. The reporter’s privilege seeks to maintain the flow of information by ensuring that confidences will not be revealed, but the defendant being subject to a search warrant has no reasonable expectation of confidentiality pertaining to the reporter at that time. Wright v. F.B.I., 381 F. Supp. 2d 1114, 1116 (C.D. Cal. 2005) (stating the reporter’s privilege exists to promote the “free flow of information”); see also In re Slack, 768 F. Supp. 2d 189, 193 (D.D.C. 2011) (“Courts have minimized impositions upon the press, particularly when burdens may have a chilling effect on a reporter’s ability to investigate and gather news.”). However, reporters who participate in media ride-alongs are not present for the purpose of a scheduled meeting or photo shoot. See, e.g., Delaney, 789 P.2d at 937 (emphasizing that the reporters were accompanying the police with the police’s permission). The reporter is present as a mere observer, not a confidant. See, e.g., Notice of Motion and Motion to Suppress Evidence, supra note 13, at 8 (stating that reporter Miles Corwin was present to observe the investigation).

17. See U.S. CONST. amend. VI.

18. LEVINE ET AL., supra note 6, at 16-1 (“[J]ournalists and news organizations in the United States today enjoy, in many circumstances, a privilege from compelled disclosure of information . . . .”).

19. See U.S. CONST. amend. I; see also N.Y. CIV. RIGHTS LAW § 79-h (McKinney 1990); CAL. CONST. art. I, § 2(b); 735 ILL. COMP. STAT. 5/8-901-09 (1991); Wilson v. Layne, 526 U.S. 603 (1999); Branzburg v. Hayes, 408 U.S. 665 (1972); Garland v. Torre, 259 F.2d 545 (2d Cir. 1958); Delaney v. Superior Court, 789 P.2d 934 (Cal. 1990).

20. RICHARD L. FOX ET AL., TABLOID JUSTICE: CRIM. JUSTICE IN AN AGE OF MEDIA FRENZY 1 (2d ed. 2007), available at https://www.rienner.com/uploads/47d9507ee3854.pdf (“Starting around 1990, Americans began to repeatedly focus on lengthy, high-profile, often celebrity-centered criminal and civil trials and investigations. Many of these cases at times resembled something like national obsessions and were associated with extraordinary levels of mass media coverage.”).

21. See id. at 2–5.

22. Markin, supra note 10, at 33 n.4.

23. See, e.g., United States v. Sanusi, 813 F. Supp. 149, 151 (E.D.N.Y. 1992) (explaining that the CBS news crew was invited to attend the execution of a search warrant); Miami Herald Publ’g Co. v. Morejon, 561 So. 2d 577, 578 (Fla. 1990) (stating that the journalist was allowed to accompany the police to the airport).

24. See, e.g., Sanusi, 813 F. Supp. at 151 (explaining that the CBS news crew was invited to attend the execution of a search warrant); Miami Herald Publ’g Co., 561 So. 2d at 578 (stating that the journalist was allowed to accompany the police to the airport).

25. See, e.g., Miami Herald Publ’g Co., 561 So. 2d at 578 (discussing that the journalist produced an article after witnessing an arrest at the airport while on a ride-along); Delaney, 789 P.2d at 937 (stating that the reporter published an article on an incident observed while on a ride-along at the Long Beach Mall).

26. See U.S. Commodity Futures Trading Comm’n v. McGraw-Hill Cos., Inc., 390 F. Supp. 2d 27, 31 (D.D.C. 2005); see also LEVINE ET AL., supra note 6, at 16-1 (“[J]ournalists and news organizations in the United States today enjoy, in many circumstances, a privilege from compelled disclosure of information . . . .”).

27. Delaney, 789 P.2d at 937 (“[A] newsperson’s protection under the shield law must yield to a criminal defendant’s constitutional right to a fair trial when the newsperson’s refusal to disclose information would unduly infringe on that right.”).

28. See id.

29. See Ride-Along, MANASSAS PARK POLICE, http://manassasparkpolice.com/ride-along.htm (last modified Sept. 4, 2011).

30. See Los Angeles City Police Department, Ride-Along Agreement Assuming Risk of Injury or Damage Waiver, Indemnity and Release of Claims (on file with author).

31. Id.

32. Id.

33. Id.

34. See, e.g., Community Affairs | Community Participation Programs, NYPD, http://www.

nyc.gov/html/nypd/html/community_affairs/community_participation_programs.shtml (last visited Dec. 7, 2012) (referencing Ride Along Program portion of website).

35. Id.

36. Id. (emphasis added).

37. Id.

38. Id.

39. See, e.g., Wilson, 526 U.S. 603; Branzburg, 408 U.S. 665; Sanusi, 813 F. Supp. 149; Delaney, 789 P.2d 934; Miami Herald Publ’g Co., 561 So. 2d 577.

40. Wilson, 526 U.S. at 607.

41. Id. at 607–08 (confirming that photographs were taken while on the ride-along, but never published).

42. Id. at 614.

43. Id. at 617–18.

44. Id. at 611–14.

45. See, e.g., Miami Herald Publ’g Co., 561 So. 2d at 577–78 (discussing a criminal defendant bringing civil suit against a reporter to compel testimony regarding notes taken while on a ride-along).

46. See, e.g., id.; Sanusi, 813 F. Supp. 149.

47. Miami Herald Publ’g Co., 561 So. 2d at 578. The journalist was given permission to accompany the Metro-Dade police officers while on duty at the Miami International Airport. Id. The officers arrested Morejon for trafficking in four kilos of cocaine. Id. The journalist took notes while the arrest occurred and later published an article in the Miami Herald Sunday Tropic Magazine containing some information that was inconsistent with what the police officers had reported. Id. During his trial, Morejon learned of the journalist’s eyewitness account and subpoenaed him to appear for a deposition. Id. Although the journalist filed a motion to quash the subpoena, the judge denied the motion and demanded he testify. Id. The journalist petitioned the district court for a writ of certiorari, but the district court denied the motion, holding that the “reporter’s qualified privilege simply ‘has utterly no application to information learned by a journalist as a result of being an eyewitness to a relevant event in a subsequent court proceeding’ such as the police search and arrest of Morejon.” Miami Herald Publ’g Co., 561 So. 2d at 578.

48. Id. at 579, 582.

49. Id. at 579 (emphasis omitted) (quoting Branzburg, 408 U.S. at 709–10 (Powell, J., concurring)); see also Sanusi, 813 F. Supp. at 149. The United States Secret Service allowed a CBS crew to accompany it during the execution of a search warrant. Id. at 151. Although the defendant Ayeni was not home at the time of invasion, CBS captured footage of his wife and son despite their request otherwise. Id. at 151–52. Ayeni requested the CBS footage, believing the evidence would help in his motion to dismiss the indictment, but CBS refused, claiming a reporter’s privilege under New York Civil Rights Law Section 79-h. Id. at 151. Recognizing that the privilege is not absolute and can be overcome if the three-pronged test discussed later in this article is satisfied, the court held that the requested videotapes were not obtainable elsewhere and were necessary and thus must be produced, but allowed CBS to obscure the identity of any confidential sources it had agreed to protect. Id. at 154, 160–61.

50. Guccione, supra note 9; see also Notice of Motion and Motion to Suppress Evidence, supra note 13, at 8 (discussing that reporter Miles Corwin, participating in a ride-along, was present during the investigation of Robert Blake’s home for evidence relating to the murder of his wife. Corwin asserted his reporter’s privilege when asked to testify regarding the events of the investigation.).

51. Guccione, supra note 9.

52. Notice of Motion and Motion to Suppress Evidence, supra note 13, at 8.

53. See Guccione, supra note 9.

54. Id.

55. See id. (explaining that according to the agreement Corwin signed with the police department, “[he] understood ‘that his work product may be subject to subpoena and production in either criminal and/or civil litigation’ and acknowledged that, ‘by his involvement in homicide investigations, [he] becomes an “agent” of the Police Department.’” In accordance with this finding, a reporter should understand that he or she waives his or her reporter’s privilege when participating in a media ride-along.).

56. See Wright v. F.B.I., 381 F. Supp. 2d 1114, 1116 (C.D. Cal. 2005).

57. See Guccione, supra note 9.

58. Id.

59. See Branzburg, 408 U.S. at 680 (“[A] reporter should not be forced either to appear or testify before a grand jury or at trial until and unless sufficient grounds are shown . . . .”).

60. See id. (“[A] reporter should not be forced either to appear or testify before a grand jury or at trial until and unless sufficient grounds are shown . . . .”).

61. See generally Branzburg, 408 U.S. 665.

62. See Wilson, 526 U.S. at 611–13.

63. Markin, supra note 10.

64. See Wilson, 526 U.S. at 611–14; Markin, supra note 10, at 37.

65. See Wilson, 526 U.S. at 611–13.

66. Id. at 612.

67. Id.

68. Id.

69. Id. at 613 (“Fourth Amendment also protects a very important right, and in the present case it is in terms of that right that the media ride-alongs must be judged.”).

70. Id.

71. Wilson, 526 U.S. at 611.

72. Id. at 610.

73. Id. at 611.

74. Id. at 614.

75. Id. at 613.

76. The use of suspect protection and monitoring of police actions as a justification for media ride-alongs is not only applicable to search warrants; the media’s presence during any arrest or investigation may lead to suspect protection. See generally id.

77. Wilson, 526 U.S. at 613.

78. Id.

79. Markin, supra note 10, at 34.

80. Id.

81. Id. (quoting Steven Helle, The News-Gathering/Publication Dichotomy and Government Expression, 1982 DUKE L.J. 1, 10 (1982)).

82. Id. at 35 (quoting Helle, supra note 81).

83. Id. at 36.

84. Id.

85. Markin, supra note 10, at 36.

86. Id.

87. Id. at 36–37.

88. Id.

89. See generally Wilson, 526 U.S. 603; see also Markin, supra note 10, at 60.

90. Markin, supra note 10, at 60 (concluding that the ride-along is not justified under the libertarian theory or the social responsibility theory. Instead, it serves the media’s interests.).

91. See U.S. CONST. amend. I (“Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.”) (emphasis added); Branzburg v. Hayes, 408 U.S. 665, 667 (1972); Wright v. FBI, 381 F. Supp. 2d 1114, 1116 (C.D. Cal. 2005); see also U.S. Commodity Futures Trading Comm’n v. McGraw-Hill Cos., 390 F. Supp. 2d 27, 31 (D.D.C. 2005).

92. See Garland v. Torre, 259 F.2d 545, 547–48 (2d Cir. 1958) (referring to defendant Torre’s claim that requiring her to testify would “impose an important practical restraint on the flow of news from news sources to news media and would thus diminish pro tanto the flow of news to the public”); see also In re Slack, 768 F. Supp. 2d 189, 193 (D.D.C. 2011) (“Courts have minimized impositions upon the press, particularly when burdens may have a chilling effect on a reporter’s ability to investigate and gather news.”).

93. See In re Slack, 768 F. Supp. 2d at 193 (“Courts have minimized impositions upon the press, particularly when burdens may have a chilling effect on a reporter’s ability to investigate and gather news.”).

94. McGraw-Hill Cos., 390 F. Supp. 2d at 31.

95. LEVINE ET AL., supra note 6, at 16–1.

96. Number of States with Shield Law Climbs to 40, REPS. COMMITTEE FOR FREEDOM PRESS, http://www.rcfp.org/browse-media-law-resources/news-media-law/news-media-law-summer-2011/number-states-shield-law-climbs (last visited Dec. 8, 2012).

97. See, e.g., Branzburg, 408 U.S. 665; Garland, 259 F.2d 545; Hatfill v. Gonzales, 505 F. Supp. 2d 33 (D.D.C. 2007); In re Slack, 768 F. Supp. 2d 189; United States v. Sanusi, 813 F. Supp. 149 (E.D.N.Y 1992); Delaney v. Superior Court, 789 P.2d 934 (Cal. 1990); Miami Herald Publ’g Co. v. Morejon, 561 So. 2d 577 (Fla. 1990); Guccione, supra note 9.

98. Wright, 381 F. Supp. 2d at 1116 (quotation marks omitted).

99. In re Slack, 768 F. Supp. 2d at 193.

100. Garland, 259 F.2d 545.

101. Id. at 547.

102. Id.

103. Id.; LEVINE ET AL., supra note 6, at 16-5, 16-6. Garland was the first case to raise a constitutional reporter’s privilege. Id. Torre raised the defense because states were hesitant in acknowledging a credible privilege, even though such privilege had been generally codified. Id. at 16-5.

104. LEVINE ET AL., supra note 6, at 16-5.

105. Garland, 259 F.2d at 547–48.

106. Id. at 550.

107. Branzburg, 408 U.S. at 667.

108. Branzburg, 408 U.S. 665.

109. Id. at 667–72 (the four consolidated cases were United States v. Caldwell, 434 F.2d 1081 (9th Cir. 1970), In re Papas, 266 N.E.2d 297 (Mass. 1971), Branzburg v. Pound, 461 S.W.2d 345 (Ky. Ct. App. 1970), and Branzburg v. Meigs, 503 S.W.2d 748 (Ky. Ct. App. 1971)).

110. LEVINE ET AL., supra note 6, at 16-9.

111. Id.

112. Id. at 16-9, 16-10.

113. Branzburg, 408 U.S. at 681 (“We do not question the significance of free speech, press, or assembly to the country’s welfare. Nor is it suggested that news gathering does not qualify for First Amendment protection; without some protection for seeking out the news, freedom of the press could be eviscerated.”).

114. See id. at 681–82.

115. Id. at 685 (“It is thus not surprising that the great weight of authority is that newsmen are not exempt from the normal duty of appearing before a grand jury and answering questions relevant to a criminal investigation.”).

116. Id. at 680.

117. Id. at 706 (“There is also merit in leaving state legislatures free, within First Amendment limits, to fashion their own standards . . . .”).

118. See, e.g., Sanusi, 813 F. Supp. 149; Delaney, 789 P.2d 934; Miami Herald Publ’g Co., 561 So. 2d 577; Guccione, supra note 9.

119. Branzburg, 408 U.S. at 704.

120. See, e.g., Branzburg, 408 U.S. 665; Garland, 259 F.2d 545; Sanusi, 813 F. Supp. 149; In re Slack, 768 F. Supp. 2d 189; Hatfill, 505 F. Supp. 2d 33. The plaintiff in Hatfill sought the identities of sources from the Federal Bureau of Investigation and the Department of Justice who had spoken with the media regarding his alleged involvement with the anthrax letters. Id. at 36. Several media companies, including The New York Times and the Associated Press, were asked to reveal their source for information regarding the plaintiff’s affiliation with anthrax. Id. at 48. Their motion to quash the subpoena was granted since although their knowledge was at the heart of the case, the plaintiff had alternative means to acquire that information. Id. at 49; Delaney, 789 P.2d 934; Miami Herald Publ’g Co., 561 So. 2d 577.

121. See, e.g., Garland, 259 F.2d 545.

122. See, e.g., In re Slack, 768 F. Supp. 2d 189. A street performer requested the deposition of a newspaper reporter, Donovan Slack, who had written an article regarding Boston’s restrictions on street performers for The Boston Globe. Id. at 190–91. The plaintiff requested the testimony to help prove that the city had violated his Constitutional right to free speech by restricting the areas. Id. at 196. Slack was subpoenaed but refused to comply, asserting his reporter’s privilege. Id. at 192. The court held that in applying a balancing test, which will later be discussed in this article, Slack had correctly asserted his privilege and therefore was not forced to comply. Id. at 198. Although the information Slack had and could testify to was critical in the case, there were alternative means to obtain the same information such as asking local business owners or residents. Id. at 197–98. Therefore, the reporter’s privilege was upheld. Id. at 198.

123. See, e.g., Miller v. Superior Court, 986 P.2d 170 (Cal. 1999); Delaney, 789 P.2d 934; People v. Vasco, 131 Cal. App. 4th 137 (2005).

124. JOEL M. GORA, THE RIGHTS OF REPORTERS: THE BASIC ACLU GUIDE TO A REPOR-TER’S RIGHTS 50 (Norman Dorsen & Aryeh Neier eds., 1974) (“Where a reporter is an eyewitness to criminal activity or is told about it directly, courts have been unwilling to interpret the shield laws to allow protection.”).

125. Delaney, 789 P.2d at 937. Police approached Sean Patrick Delaney after seeing a type of plastic bag in his possession commonly used to store drugs. Id. After questioning Delaney, the officers requested that he provide them with his identification. Id. As Delaney reached for his belongings, the officers searched his jacket and found a set of brass knuckles. Id. A few days later, the Los Angeles Times published an article addressing the arrest. Id. Although the published article did not touch on the issue of consent, it did discuss the interaction between Delaney and the officers. Id. The court also held that despite the fact that Article I of the California Constitution states that a “newsperson shall not be adjudged in contempt for ‘refusing to disclose any unpublished information[,]’” a balancing test may provide cause for a court to compel a reporter to testify. Delaney, 789 P.2d at 941, 947–52. Factors in the balancing test include whether the unpublished information is confidential or sensitive, the interests of the reporter, the importance of the information to the criminal defendant, and whether alternative sources are available (but the court explained that “[i]n light of a defendant’s constitutional right to a fair trial, however, Mitchell [v. Superior Court, 37 Cal.3d 268 (1984)], a civil case, does not mandate a rigid alternative-source requirement in criminal proceedings.”). Id. at 949–51. A threshold showing of whether the issue is at the heart of the case is not required. Id. at 948 (emphasis added).

126. Id. at 937.

127. Id.

128. Id. at 953 (explaining that the information sought was not confidential, revealing the information would not impinge on the reporter’s newsgathering ability, the information was important for Delaney, and that despite not needing to show an absolute lack of alternative sources, there were no alternative sources for the information available to Delaney).

129. See Delaney, 789 P.2d at 953 (ordering the reporter who had participated in a ride-along to testify, but only based on the reporter’s own observation—it is not a hard and fast rule that reporters who attended ride-alongs must testify during subsequent criminal proceedings if asked to do so).

130. Branzburg, 408 U.S. at 706 (“There is also merit in leaving state legislatures free, within First Amendment limits, to fashion their own standards . . . .”).

131. See, e.g., Wilson v. Layne, 526 U.S. 603 (1999); In re Slack, 768 F. Supp. 2d 189; Miller, 986 P.2d 170; Delaney, 789 P.2d 934; Knight-Ridder Broad., Inc. v. Greenberg, 511 N.E.2d 1116, 1117–21 (N.Y. 1987) (confirming, when a television station moved to quash a subpoena to produce videotapes of an interview with a homicide suspect, that there is “a strong desire to safeguard the free channels of news communication . . . .” With this understanding, the court held that since “the taped interview presumably contain[ed] relevant information necessary to the Grand Jury investigation and [the information was] unavailable from other sources,” the reporter’s privilege would not protect the television station.).

132. Compare Delaney, 789 P.2d 934 (holding that journalists must testify despite assertion of reporter’s privilege), with People v. Slover, 753 N.E.2d 554 (Ill. App. Ct. 2001) (holding that the photographer did not have to produce photos because privilege was properly asserted).

133. James C. Goodale et al., Reporter’s Privilege, 987 PLI/PAT 135, 160 (2009); see also 735 ILL. COMP. STAT. 5/8-906 (1991); N.Y. CIV. RIGHTS LAW § 79-h(c) (McKinney 1990); Branzburg, 408 U.S. at 743; Delaney, 789 P.2d at 947.

134. Goodale et al., supra note 133, at 160; see also Branzburg, 408 U.S. at 743.

135. Goodale et al., supra note 133, at 160; see also 735 ILL. COMP. STAT. 5/8-906; N.Y. CIV. RIGHTS LAW § 79-h(c); Branzburg, 408 U.S. at 743; Delaney, 789 P.2d at 947.

136. In re Petroleum Prods. Antitrust Litig., 680 F.2d 5, 7 (2d Cir. 1982).

137. Id.; see also Zerilli v. Smith, 656 F.2d 705, 713 (D.C. Cir. 1981); Delaney, 789 P.2d at 947; Goodale et al., supra note 133, at 160.

138. United States ex rel. Vuitton Et Fils S.A. v. Karen Bags, Inc., 600 F. Supp. 667, 670 (S.D.N.Y. 1985).

139. In re Application of Behar, 779 F. Supp. 273, 275 (S.D.N.Y. 1991).

140. See In re Petroleum Prods. Antitrust Litig., 680 F.2d at 7; see also Zerilli, 656 F.2d at 713; Delaney, 789 P.2d at 947; Goodale et al., supra note 133, at 160.

141. See Miller v. Mecklenburg Cnty., 602 F. Supp. 675, 676–81 (W.D.N.C. 1985) (explaining that parties to the case requested a reporter to disclose the source of information relating to a death. Since this information was at the core of the plaintiff’s theory, the court found that “names of the confidential source and witness not only go to the heart of plaintiff’s case, they very well may be the heart of the case.”); see also Zerilli, 656 F.2d at 713; Goodale et al., supra note 133, at 160.

142. Delaney, 789 P.2d at 948.

143. Id.

144. See In re Petroleum Prods. Antitrust Litig., 680 F.2d at 7; see also Zerilli, 656 F.2d at 713; Goodale et al., supra note 133, at 160; In re Slack, 768 F. Supp. 2d at 197 (holding that the plaintiff had not exhausted all alternative sources for information regarding street performance conditions because he had not sought the information from residents, local business owners, or other street vendors); In re Ramaekers, 33 F. Supp. 2d 312, 316 (S.D.N.Y. 1999) (indicating the movants requested Reuters News Services to produce all tapes and documents relating to an interview made for a securities litigation inquiry. Since there was no other available source for this information, the court found that the movant had exhausted all possible alternatives in an attempt to obtain the necessary information.); Miller, 602 F. Supp. at 680 (holding that the requirement of exhausting all alternative sources had been satisfied when plaintiff had deposed all possible witnesses before trial and had reviewed results from other investigations).

145. Delaney, 789 P.2d at 951.

146. LEVINE ET AL., supra note 6, at 16-4, 16-5.

147. See CAL. CONST. art. I, § 2(b); 735 ILL. COMP. STAT. 5/8-901; N.Y. CIV. RIGHTS LAW § 79-h.

148. N.Y. CIV. RIGHTS LAW § 79-h(b) (“Exemption of professional journalists and newscasters from contempt: Absolute protection for confidential news. Notwithstanding the provisions of any general or specific law to the contrary, no professional journalist . . . shall be adjudged in contempt by any court in connection with any civil or criminal proceeding, or by the legislature or other body having contempt powers, nor shall a grand jury seek to have a journalist or newscaster held in contempt by any court, legislature or other body having contempt powers for refusing or failing to disclose any news obtained or received in confidence or the identity of the source of any such news coming into such person’s possession in the course of gathering or obtaining news for publication or to be published . . . .”).

149. N.Y. CIV. RIGHTS LAW § 79-h(c) (“Exemption of professional journalists and newscasters from contempt: Qualified protection for nonconfidential news. Notwithstanding the provisions of any general or specific law to the contrary, no professional journalist or newscaster . . . shall be adjudged in contempt by any court in connection with any civil or criminal proceeding, or by the legislature or other body having contempt powers, nor shall a grand jury seek to have a journalist or newscaster held in contempt by any court, legislature, or other body having contempt powers for refusing or failing to disclose any unpublished news obtained or prepared by a journalist or newscaster in the course of gathering or obtaining news as provided in subdivision (b) of this section, or the source of any such news, where such news was not obtained or received in confidence . . . .”).

150. CAL. CONST. art. I, § 2(b) (“A publisher, editor, reporter . . . shall not be adjudged in contempt by a judicial, legislative, or administrative body, or any other body having the power to issue subpoenas, for refusing to disclose the source of any information . . . or for refusing to disclose any unpublished information obtained or prepared in gathering, receiving or processing of information for communication to the public.”).

151. See 735 ILL. COMP. STAT. 5/8-901 (“Source of Information”); 735 ILL. COMP. STAT. 5/8-902 (“Definitions”); 735 ILL. COMP. STAT. 5/8-903 (“Application to Court”); 735 ILL. COMP. STAT. 5/8-904 (“Contents of Applications”); 735 ILL. COMP. STAT. 5/8-905 (“Civil Proceeding”); 735 ILL. COMP. STAT. 5/8-906 (“Consideration by Court”); 735 ILL. COMP. STAT. 5/8-907 (“Court’s Findings”); 735 ILL. COMP. STAT. 5/8-908 (“Privilege Continues During Pendency of Appeal”); 735 ILL. COMP. STAT. 5/8-909 (“Contempt”).

152. See, e.g., Vasco, 31 Cal. Rptr. at 658 (holding that because the defendant did not reasonably show that the information would materially assist her defense, the reporter’s privilege was upheld); Slover, 753 N.E.2d 554 (noting that a newspaper was asked to submit unpublished photographs associated with a murder but refused to do so, claiming a reporter’s privilege. The lower court held that the reporter’s privilege did not apply in such matters. On appeal, the Appellate Court of Illinois concluded that photographers were analogous to reporters in that photographs were a source of information, and thus the lower court erred in its ruling. The information was in fact protected by the reporter’s privilege.); People v. Henderson, 847 P.2d 239 (Colo. App. 1993) (mentioning that the police requested helicopter media coverage of marijuana bust).

153. Delaney, 789 P.2d at 947; see, e.g., 735 ILL. COMP. STAT. 5/8-906; N.Y. CIV. RIGHTS LAW § 79-h(c).

154. See Delaney, 789 P.2d at 953.

155. Guccione, supra note 9; see, e.g., United States v. Sanusi, 813 F. Supp. 149 (E.D.N.Y. 1992); Delaney v. Superior Court, 789 P.2d 934 (Cal. 1990); Miami Herald Publ’g Co. v. Morejon, 561 So. 2d 577 (Fla. 1990); People v. Vasco, 31 Cal. Rptr. 3d 643 (Ct. App. 2005); People v. Slover, 753 N.E.2d 554 (Ill. App. Ct. 2001); People v. Henderson, 847 P.2d 239 (Colo. App. 1993).

156. Darren Waters, Social Networks “Are New E-mail”, BBC (Mar. 15, 2009), http://news.

bbc.co.uk/2/hi/technology/7942304.stm.

157. The reporter’s privilege seeks to maintain the flow of information by ensuring that confidences will not be revealed, but a defendant being subjected to a search warrant has no reasonable expectation of confidentially pertaining to the reporter at that time. See Wright v. F.B.I., 381 F. Supp. 2d 1114, 1116 (C.D. Cal. 2005) (stating the reporter’s privilege exists to promote the “free flow of information”); see also In re Slack, 768 F. Supp. 2d 189, 193 (D.D.C. 2011) (“Courts have minimized impositions upon the press, particularly when burdens may have a chilling effect on a reporter’s ability to investigate and gather news.”). However, reporters who participate in media ride-alongs are not present for the purpose of a scheduled meeting or photo shoot. See, e.g., Delaney, 789 P.2d at 937 (emphasizing that the reporters were accompanying the police with the police’s permission). The reporter is present as a mere observer, not a confidant. See, e.g., Notice of Motion and Motion to Suppress Evidence, supra note 13, at 8 (stating that reporter Miles Corwin was present to observe the investigation).

158. See U.S. CONST. amend. VI; U.S. CONST. amend. I.

159. Sworn Police Officer Class Titles and Job Descriptions: Police Officer, LAPD, http://www.lapdonline.org/join_the_team/content_basic_view/9127#Police%20Officer (last visited Dec. 10, 2012).

160. See Sworn Police Officer Class Titles and Job Descriptions: Police Officer, supra note 159; FAQ, NYPD, http://www.nypdrecruit.com/faq (last visited Dec. 10, 2012).

161. If the judicial system “depend[s] on full disclosure of all the facts,” then police testimony of facts helps ensure that all facts are disclosed. See generally United States v. Nixon, 418 U.S. 683, 709 (1974).

162. Compare Sworn Police Officer Class Titles and Job Descriptions: Police Officer, supra note 159 (stating that the duties of police officers include conducting investigations, preparing investigative reports, and writing crime reports), with Notice of Motion and Motion to Suppress Evidence, supra note 13, at 24 (citing to Miles Corwin’s commentary regarding the interior of Robert Blake’s house).

163. See, e.g., Sanusi, 813 F. Supp. at 151 (CBS cameraman filmed for twenty minutes during a search warrant).

164. See, e.g., Delaney, 789 P.2d at 937 (stating that a reporter on a media ride-along that was present during the search of defendant was later subpoenaed to testify to whether defendant consented to the search).

165. Guccione, supra note 9.

166. Id.

167. Id.

168. See, e.g., Wilson v. Layne, 526 U.S. 603, 607 (1999); Sanusi, 813 F. Supp. at 151–52 (illustrating that the camera crew entered the house along with the police pursuant to a search warrant).

169. See, e.g., Wilson, 526 U.S. at 607; Sanusi, 813 F. Supp. at 151–52.

170. See generally Miami Herald Publ’g Co., 561 So. 2d at 579.

171. See, e.g., Henderson, 847 P.2d at 240 (explaining that the police requested helicopter media coverage of marijuana bust).

172. See, e.g., Miami Herald Publ’g Co., 561 So. 2d at 578 (explaining that the journalist, participating on a media ride-along, took notes while the police arrested the defendant for trafficking in cocaine and later published an article in the Miami Herald Sunday Tropic Magazine).

173. See N.Y. CIV. RIGHTS LAW § 79-h(c) (McKinney 1990); see also 735 ILL. COMP. STAT. 5/8-906 (1991).

174. See, e.g., Delaney, 789 P.2d at 953 (noting that the reporter was with the police when the police allegedly touched the defendant without his consent, making the reporter one of the few people who knew exactly what happened).

175. Rock v. Arkansas, 483 U.S. 44, 52 (1987).

176. See, e.g., Delaney, 789 P.2d at 953 (noting that the reporter was with the police when the police allegedly touched the defendant without his consent, making the reporter one of the few people who knew exactly what happened). See generally Rock, 483 U.S. at 52.

177. Rock, 483 U.S. at 51 (“A person’s right to reasonable notice of a charge against him, and an opportunity to be heard in his defense—a right to his day in court—are basic in our system of jurisprudence; and these rights include, at a minimum, a right to examine the witnesses against him, to offer testimony, and to be represented by counsel.”) (quoting In re Oliver, 333 U.S. 257, 273 (1948)) (emphasis omitted).

178. See, e.g., Miami Herald Publ’g Co., 561 So. 2d at 578 (noting that the reporter was present when police first encountered the defendant at the airport and arrested him for trafficking in cocaine); Delaney, 789 P.2d at 953 (discussing that the reporter was with the police when the police allegedly touched the defendant without his consent, making the reporter one of the few other people who knew exactly what happened).

179. The information requested must be necessary or critical to the maintenance of the party’s claim. See Delaney, 789 P.2d at 947; 735 ILL. COMP. STAT. 5/8-906; N.Y. CIV. RIGHTS LAW § 79-h(c).

180. See generally Rock, 483 U.S. at 52 (discussing the defendant’s compulsory right to subpoena information in his or her favor).

181. See id. at 52.

182. See generally Delaney, 789 P.2d at 948 (“A criminal defendant’s constitutional right to compulsory process was intended to permit him to request governmental assistance in obtaining likely helpful evidence, not just evidence that he can show beforehand will go to the heart of his case. The need to develop all relevant facts in the adversary system is both fundamental and comprehensive.”) (quotation marks omitted).

183. Id. (“[T]o overcome a prima facie showing by a newsperson that he is entitled to withhold information under the shield law, a criminal defendant must show a reasonable possibility the information will materially assist his defense. A criminal defendant is not required to show that the information goes to the heart of his case.”); see also Notice of Motion and Motion to Suppress Evidence, supra note 13, at 24 (“Mr. Blake need not show a reasonable possibility the information will lead to his exoneration: he need only show, rather, a reasonable possibility the information will materially assist his defense,” and that “balancing the various factors in this case weighs no less ‘overwhelmingly’ in favor of requiring Mr. Corwin to testify than in Delaney.”).

184. Delaney, 789 P.2d at 948.

185.The higher standard requires that the information be highly critical and necessary while the lower standard simply mandates that there is a reasonable possibility that the information will help the defendant’s case. See id. at 948–49. If evidence is so necessary as to be needed by the defendant, it is without question that the material is necessary because it will help the defendant’s case. See generally id. For this reason, if the higher standard is satisfied, the information will automatically satisfy the lower standard as well. See generally id.

186. See 735 ILL. COMP. STAT. 5/8-906; N.Y. CIV. RIGHTS LAW § 79-h(c).

187. Delaney, 789 P.2d at 951.

188. Id.

189. See, e.g., Miami Herald Publ’g Co., 561 So. 2d at 578 (explaining that the journalist took notes while the police arrested the defendant for trafficking in cocaine and later published an article in the Miami Herald Sunday Tropic Magazine containing some information that was inconsistent with what the police officers had reported. The journalist was compelled to testify despite assertion of the reporter’s privilege. The journalist, police, and defendant were the only people involved, which limited the sources of evidence.).

190. See Delaney, 789 P.2d at 947; 735 ILL. COMP. STAT. 5/8-906; N.Y. CIV. RIGHTS LAW § 79-h(c) (no alternative source is available for the information sought).

191. See Sworn Police Officer Class Titles and Job Descriptions: Police Officer, supra note 159.

192. Id.; see also Miami Herald Publ’g Co., 561 So. 2d at 578 (mentioning that the reporter was present and took notes while the police arrested the defendant for trafficking in cocaine).

193. See State v. Riley, 381 So. 2d 1359, 1360 (Fla. 1980) (questioning whether a police officer knowingly falsified police reports); see also Miami Herald Publ’g Co., 561 So. 2d at 578 (explaining that the journalist was present and took notes while the police arrested the defendant for trafficking in cocaine and later published an article in the Miami Herald Sunday Tropic Magazine containing some information that was inconsistent with what police officers had reported. The journalist was compelled to testify despite assertion of the reporter’s privilege.).

194. See Wright, 381 F. Supp. 2d at 1116.

195. See id. (discussing that reporters have a duty to inform the public). Police officers, on the other hand, have the duty to keep communities safe, and deciding whether to arrest a suspect is in furtherance of that duty. See generally Sworn Police Officer Class Titles and Job Descriptions: Police Officer, supra note 159.

196. See generally FED. R. EVID. 501.

197. See, e.g., CAL. EVID. CODE §§ 950–62 (West 2011).

198. See, e.g., id. §§ 990–1007 (West 2011).

199. See, e.g., id. §§ 1010–28 (West 2011).

200. See, e.g., CAL. CONST. art. I, § 2(b).

201. See, e.g., CAL. EVID. CODE § 956.5 (discussing the attorney-client privilege); id. § 1024 (discussing the psychotherapist-patient privilege); id. § 998 (discussing the physician-patient privilege).

202. Id. § 956.5.

203. Id. §§ 1010, 1012.

204. Id. § 1024.

205. CAL. EVID. CODE § 998 (falling under the physician-patient privilege section of the Code.).

206. Id.

207. People v. Ditson, 369 P.2d 714, 733 (Cal. 1962) (“There is, of course, no doctor-patient privilege in criminal cases.”).

208. See, e.g., CAL. EVID. CODE § 956.5 (discussing the attorney-client privilege); id. § 1024 (discussing the psychotherapist-patient privilege); id. § 998 (discussing the physician-patient privilege).

209. See U.S. CONST. amend. VI.

210. See Sarah A. Mourer, Gateway to Justice: Constitutional Claims to Actual Innocence, 64 U. MIAMI L. REV. 1279, 1304 (2010) (“The Sixth Amendment right to counsel protects the innocent from wrongful conviction, incarceration, and execution. The Sixth Amendment right to confrontation encourages truth finding to protect the innocent from wrongful conviction, incarceration, and execution.”).

211. U.S. CONST. amend. I. See generally Branzburg v. Hayes, 408 U.S. 665 (1972).

212. U.S. CONST. amend. VI.

213. Id. at amends. I, VI. See generally Branzburg, 408 U.S. 665.

214. See Rock, 483 U.S. 51–52

215. Ingraham v. Wright, 430 U.S. 651, 689 (1977) (White, J., dissenting).

216. Delaney, 789 P.2d at 937.

217. Id. at 948 (emphasis added).

218. People v. Hendrix, 820 N.Y.S.2d 411, 417 (App. Div. 2006); see also Nixon, 418 U.S. at 709 (“To ensure that justice is done, it is imperative to the function of courts that compulsory process be available for the production of evidence needed either by the prosecution or by the defense.”).

219. Nixon, 418 U.S. at 709.

220. Interview with Laurie Levenson, Professor at Law, Loyola Law School, in Los Angeles, California (Nov. 21, 2011).

221. E-mail from M. Gerald Schwartzbach, Attorney for Robert Blake, Law Offices of M. Gerald Schwartzbach, P.C., to author (Nov. 21, 2011, 5:46 PM) (on file with author).

222. George Blum et al., Protection in Criminal Proceedings, 31A CAL. JUR. 3D 599 (2012); see Vasco, 31 Cal. Rptr. 3d at 654–55.

223. Interview with Levenson, supra note 220 (“The media plays an important role as a watchdog. When they are at the scene, then the information that they have might be important enough to outweigh their general privilege not to testify. In the end, no matter how important we think the First Amendment is, it is not more important than the right to a fair trial.”).

224. Guccione, supra note 9. The court believed that Corwin had waived his shield law privilege. Id. If police departments always include a waiver stating that the media member waives his or her reporter’s privilege, the reporter becomes an “agent” of the police department, and “that [his or her] work product may be subject to subpoena and production in either criminal and/or civil litigation,” the exception will be imposed with little effort. Id.

225. Wright, 381 F. Supp. 2d at 1116.

226. See In re Slack, 768 F. Supp. 2d at 193 (“Courts have minimized impositions upon the press, particularly when burdens may have a chilling effect on a reporter’s ability to investigate and gather news.”).

227. Branzburg, 408 U.S. at 691.

228. Delaney, 789 P.2d at 953.

229. Wright, 381 F. Supp. 2d at 1116 (stating that the purpose of the reporter’s privilege is to “ensur[e] the free flow of information”).

230. See generally Delaney, 789 P.2d at 953 (noting that the reporter was with the police when the police allegedly touched the defendant without his consent, making the reporter one of the few people who knew exactly what happened).

231. See, e.g., Wilson v. Layne, 526 U.S. 603 (1999).

232. See, e.g., Delaney v. Superior Court, 789 P.2d 934, 937 (Cal. 1990) (noting that the reporter was present during the arrest therefore had direct knowledge of whether or not the defendant consented to the police touching his jacket); Miami Herald Publ’g Co. v. Morejon, 561 So. 2d 577, 579 (Fla. 1990) (discussing the presence of the reporter when the police encountered the defendant at the airport and arrested him for trafficking in cocaine).

233. See, e.g., CAL. CONST. art. I, § 2(b); 735 ILL. COMP. STAT. 5/8-901 (1991); N.Y. CIV. RIGHTS LAW §79-h (McKinney 1990).

234. See, e.g., Miller v. Superior Court, 986 P.2d 170 (Cal. 1999); Delaney, 789 P.2d 934; People v. Vasco, 31 Cal. Rptr. 3d 643 (2005).

235. See, e.g., Guccione, supra note 9; Delaney, 789 P.2d 934; Miami Herald Publ’g Co., 561 So. 2d 577; United States v. Sanusi, 813 F. Supp. 149 (E.D.N.Y. 1992).

236. Quid pro quo, OXFORD DICTIONARIES, http://oxforddictionaries.com/definition/quid%

2Bpro%2Bquo?region=us&q=quid+pro+quo (last visited Dec. 10, 2012) (“a favor or advantage granted or expected in return for something”).

237. See Notice of Motion and Motion to Suppress Evidence, supra note 13, at 8 (stating that reporter Miles Corwin participated in witness interviews); see also Miami Herald Publ’g Co., 561 So. 2d at 578 (noting that the reporter was present and took notes while the police arrested the defendant for trafficking in cocaine); Delaney, 789 P.2d at 937 (discussing that the reporter on a media ride-along was present when police searched the defendant and found him in possession of brass knuckles).

238. U.S. CONST. amend. I.

239. The reporter’s privilege seeks to maintain the flow of information by ensuring that confidences will not be revealed, but the defendant being subject to a search warrant has no reasonable expectation of confidentially pertaining to the reporter at that time. Wright v. F.B.I., 381 F. Supp. 2d 1114, 1116 (C.D. Cal. 2005) (stating the reporter’s privilege exists to promote the “free flow of information”) (internal citation omitted); see also In re Slack, 768 F. Supp. 2d 189, 193 (D.D.C. 2011) (“Courts have minimized impositions upon the press, particularly when burdens may have a chilling effect on a reporter’s ability to investigate and gather news.”). However, reporters who participate in media ride-alongs are not present for the purpose of a scheduled meeting or photo shoot. See, e.g., Delaney, 789 P.2d at 937 (emphasizing that the reporters were accompanying the police with police permission). The reporter is present as a mere observer, not a confidant. See, e.g., Notice of Motion and Motion to Suppress Evidence, supra note 13, at 8 (stating that reporter Miles Corwin was present to observe the investigation).

240. See, e.g., Delaney, 789 P.2d 934; Guccione, supra note 9; Miami Herald Publ’g Co., 561 So. 2d 577; Sanusi, 813 F. Supp. 149.

EXTRA!! EXTRA!! THE VIABILITY OF THE HOT NEWS MISAPPROPRIATION CLAIM IS IN JEOPARDY

Sean Winston Montgomery[*]

Nearly a century ago, the International News Service appropriated news articles from its competitor, the Associated Press, without expending time, labor, or money. Naturally, the Associated Press took exception to this anticompetitive business practice. To resolve the conflict, the Supreme Court created the hot news misappropriation tort, which proscribed the copying of breaking news items collected by a commercial competitor. Over the years, the hot news misappropriation tort has survived in spite of the oft-used critique that it seeks to protect the same rights and privileges as copyright infringement, and therefore should be rendered null and void by the copyright preemption section of the Copyright Act.

In 2011, the tort took center stage once again in Barclays Capital Inc. v. Theflyonthewall.com, as powerful investment banks sought to prevent an online financial news aggregator from appropriating its investment recommendations. Ultimately, the Second Circuit Court of Appeals ruled in favor of the financial aggregators, and called the continued viability of hot news misappropriation into question. In light of the Second Circuit’s recent decision, this article criticizes the Second Circuit for failing to recognize the qualitative differences between hot news misappropriation and copyright preemption. Specifically, hot news misappropriation rewards the diligent effort undertaken to collect the news with a limited right to publish news, at least while it remains valuable, while federal copyright laws reward originality by granting authors exclusive rights exercisable against anyone. Furthermore, in an effort to clearly delineate when hot news appropriation should survive copyright preemption, this article advocates for the use of a five-part extra element test.

I. INTRODUCTION

While recent news articles concerning the securities industry have focused on the persistent problem of insider trading, a silent and oft-overlooked war has waged between powerful investment firms and Internet-based news subscription companies.[1] The Second Circuit’s recent decision in Barclays v. Theflyonthewall.com, Inc. (“Barclays”), a victory for the news subscription companies, highlighted the evolving conflict.[2]

Wall Street investment firms, such as Morgan Stanley, Barclays Capital,[3] and Merrill Lynch (collectively, “Investment Firms”)[4] spent hundreds of millions of dollars to research publicly traded companies and develop equity research reports.[5] Typically, these reports contained time-sensitive investment recommendations.[6] After compiling the equity research reports, the Investment Firms distributed them to their clients, who consisted of both institutional and individual investors.[7]

Armed with the equity research reports, clients traded on the information, usually through the Investment Firm that disseminated the report to them.[8] Since the Investment Firms derived a commission from the trades, each trade, at least in part, reimbursed the Investment Firm for the initial outlay of resources necessary to produce the equity research reports.[9] This practice, referred to as the “equity research business model,”[10] generated a substantial source of revenue for the Investment Firms, and therefore, continued to incentivize the production of equity research reports.[11]

Although the equity research reports were only supposed to be distributed to the Investment Firms’ clients, financial news aggregators often managed to “compile securities-firm recommendations . . . [along] with the associated reports or summaries thereof” without the Investment Firms’ permission.[12] For a monthly subscription fee, the financial news aggregators provided their online subscribers with access to the Investment Firms’ equity research reports shortly before the stock markets opened each day.[13] Additionally, some financial news aggregators facilitated trades by either providing links to discount brokerages or offering a trading service for an additional fee.[14] Since the services offered by financial news aggregators were often cheaper than those of the Investment Firms,[15] the demand for financial news aggregators rapidly increased over the years.[16] For example, at the time of the Barclays litigation, Theflyonthewall.com (“Fly”), a pioneer in the financial news aggregator industry, had over 5,300 institutional investors, day traders/brokers, and individual investors as subscribers.[17] To account for its increase in subscribers, Fly added twenty-six additional employees over a six-year period.[18]

From the Investment Firms’ perspective, the unauthorized distribution of their equity research reports hinders the economic incentive to produce those reports.[19] To deter the actions of the financial news aggregators, the Investment Firms instituted several internal policies, and, in 2006, filed a lawsuit against Fly, which they considered to be the most egregious culprit.[20] The lawsuit alleged copyright infringement and hot news misappropriation,[21] a judicially-created doctrine designed to protect companies that expended time, skill, and labor to collect and distribute time-sensitive news, from unfair competition.[22] In response, Fly conceded the copyright infringement claim, but asserted that the hot news misappropriation claim was preempted by section 301 of the Copyright Act.[23]

The Southern District Court of New York awarded Morgan Stanley and Barclays Capital statutory damages[24] because of Fly’s “almost verbatim [appropriation of the] most creative and original aspects of the reports”—the financial analyses and predictions.[25] Based on the same underlying facts, the District Court used a five-part test set forth in National Basketball Ass’n v. Motorola, Inc. (“NBA v. Motorola”)[26] to grant relief to all of the Investment Firms on their hot news misappropriation claim.[27] Consequently, the District Court issued a permanent injunction restraining Fly from “reporting headlines about the [Investment] Firms’ [r]ecommendations before one half-hour following the [New York Stock Exchange] opening or two hours after the [r]ecommendations were released.”[28]

On appeal, the Second Circuit in Barclays reversed the lower court’s opinion in part, and held that the Investment Firms’ hot news misappropriation claim did not survive copyright preemption.[29] The Second Circuit declined to employ the five-part test discussed in NBA v. Motorola and used by the lower court.[30] Instead, the Second Circuit used the abridged three-part extra element test set forth by the court in NBA v. Motorola to reach its conclusion.[31]

In light of the Second Circuit’s opinion, this Comment analyzes the continued viability of a hot news misappropriation claim. Part II discusses the history of the hot news misappropriation claim and its relationship with existing copyright laws. Part III gives a broad overview of the underlying conflict between investment firms and news aggregators. Next, Part IV criticizes the Second Circuit’s use of a three-part extra element test to determine whether a hot news misappropriation claim survives copyright preemption in Barclays.[32] Part IV alternatively advocates for the use of the five-part test set forth in NBA v. Motorola to determine whether a hot news misappropriation claim survives copyright preemption[33] and re-analyzes the Investment Firms’ hot news misappropriation claim under the five-part test. Finally, Part V asserts the reasons that hot news misappropriation should remain a viable option to protect against this unique form of piracy.

II. THE INTERRELATIONSHIP BETWEEN COPYRIGHT LAWS AND HOT NEWS MISAPPROPRIATION

The framers of the Constitution empowered Congress to create copyright laws to incentivize original works of authorship.[34] However, these laws did not allow authors to copyright mere facts.[35] As such, when a news service complained about the systematic usurpation of its news stories by a competitor in International News Service v. Associated Press (“INS”), the Supreme Court fashioned a tort—hot news misappropriation—to operate where copyright laws could not.[36]

Following the Supreme Court’s decision in INS, several states created their own hot news misappropriation claims that extended beyond the scope of the news industry, and at times conflicted with federal copyright laws.[37] Consequently, in 1976, Congress enacted a copyright preemption provision to combat the various state law claims that conflicted with federal copyright law.[38] The provision sets forth a two-prong test to determine whether federal copyright law preempts state law.[39] Currently, at least five states have formally acknowledged that a hot news misappropriation claim can escape copyright preemption, albeit in limited circumstances.[40]

A. History of Copyright Laws

1. Federal Copyright Protection

Initially enacted by Congress in 1790, federal copyright laws were designed to allow the authors of original work to “reap the fruits of his or her intellectual creativity.”[41] “Copyright protection [did] not extend to every idea, procedure, process, slogan, or discovery.”[42] Instead, originality was, and still remains, the touchstone of copyright protection.[43] Although the Copyright Act has yet to define “originality,”[44] federal courts inferred that the term merely required the work of authorship be independently created.[45] Additionally, the Copyright Act of 1976 requires works of authorship be fixed in a tangible medium of expression.[46] If an original work of authorship satisfied the requisite threshold of originality, and was fixed in a tangible medium of expression, the author was afforded copyright protection.[47]

Among other things, federal copyright law, enacted in 1909, granted the author of a copyrighted work the exclusive right to print or reprint the copyrighted work, translate the copyrighted work into other languages, and deliver or authorize delivery of the copyrighted work in public for profit, if it was a lecture or similar production.[48] These rights could be licensed, assigned, or transferred by will.[49] Furthermore, copyright owners could prevent infringersthose who violated the author’s exclusive rightsfrom profiting from the exclusive work.[50] For example, copyright owners could use the judicial system to obtain statutorily available remedies, which included fines and injunctions.[51] Despite the protection afforded to copyright owners under federal laws, the Copyright Act of 1909 expressly enabled copyright owners to seek remedies at common law or equity.[52]

2. State Law Copyright Claims

With the apparent blessing of Congress, states began to protect original works of authorship through common law copyright.[53] While common law copyright mirrored federal copyright law in many instances, it was arguably broader than the federal statute in several other aspects.[54] For example, the common law extended “absolute” copyright protection to unpublished works.[55] Furthermore, under common law, some states prohibited the fair use doctrine,[56] a key defense under the federal copyright regime.[57]

3. Copyright Preemption

In an effort to create uniformity between national copyright law and the various state tort claims purporting to prevent similar conduct, Congress created a preemption provision within the Copyright Act of 1976.[58] Section 301 mandates that federal copyright laws will preempt the common law or state statutes if the state law claim falls within the subject matter of copyright and protects rights that are equivalent to any exclusive rights guaranteed by federal copyright law.[59]

The first prong of a copyright preemption analysis, the subject matter requirement, requires the work of authorship to be fixed in a tangible medium of expression.[60] Furthermore, the work of authorship must fall within the subject matter of copyright, as defined by sections 102 and 103.[61] Section 102 provides an illustrative list of works eligible for copyright protection, including literary works, musical works, dramatic works, pantomimes and choreographic works, pictorial, graphic and sculptural works, motion pictures and audiovisual works, sound recordings, and architectural works.[62]

The second prong of a copyright preemption analysis, referred to as the equivalency test, concerns the general scope requirement of the Copyright Act.[63] Under the equivalency test, a state law claim falls within the general scope requirement of the Copyright Act when it seeks to vindicate the exclusive rights protected by federal copyright law, namely the right to reproduce the copyrighted work and create derivative works.[64] To avoid copyright preemption, courts require plaintiffs to prove an extra element, which qualitatively changes the nature of the action.[65] An acceptable example of an extra element has been breach of confidential relationships.[66]

B. History of the Hot News Misappropriation Claim

1. The Birth of the Hot News Concept

The hot news misappropriation concept, established in the 1918 Supreme Court case INS,[67] provides a remedy for conduct that falls outside the realm of copyright protection.[68]

In INS, the Associated Press, a cooperative news service comprised of over 950 daily newspapers, expended an exorbitant amount of money to gather the news and subsequently distribute it to its member newspapers across the country.[69] Each member newspaper was permitted to use the information collected by the Associated Press in their newspapers, but could not share the information with non-member newspapers.[70] Although cognizant of this restriction, a telegraph editor from the Cleveland News, an Associated Press member newspaper, routinely provided tips regarding “big news stories” gathered by the Associated Press to a rival news service, International News Service (“INS”), before the Cleveland News articles were published.[71] Once it received the tips, INS appropriated the published stories, often from the bulletin boards of Associated Press member newspapers in New York, and distributed the information to its own newspapers on the west coast.[72]

The Supreme Court granted certiorari to determine whether profit-seeking entrepreneurs should be afforded property rights in the time-sensitive information for which they expended time, labor, and money to gather.[73] At the outset, Justice Pitney, writing for the majority, dismissed the notion that the Associated Press had general property rights in news because the framers of the Constitution did not intend to confer copyright protection “to the first to report a historic event.”[74] However, the Associated Press did not need a general property right in news to obtain an injunction.[75] Instead, Justice Pitney reasoned that the expense and labor incurred by the Associated Press to collect the news afforded it an equitable right to profit from its dissemination.[76] This right was later referred to as the “sweat of the brow” doctrine.[77]

Turning to the question of unfair competition, Justice Pitney keenly recognized that in the news industry, information was only valuable while it was fresh.[78] As such, it was patently unfair that INS

[took] material that [had] been acquired by the complainant as the result of organization and the expenditure of labor, skill, and money, and which [was] salable by complainant for money, and that defendant in appropriating it and selling it as its own is endeavor[ed] to reap where it ha[d] not sown.[79]

Consequently, the Supreme Court affirmed the injunction imposed by the trial court—not to provide the Associated Press with a monopoly over the news—but simply to give it enough lead time to profit from its costly expenses incurred to gather the news.[80] Thus, the Supreme Court created a narrow claim that gave newspapers a quasi-property right in the news, which could only be asserted against competitors.[81] Newspapers could not assert this quasi-property right against the public.[82]

2. State Courts Respond to INS

After INS, state courts took various approaches with regard to hot news misappropriation claims.[83] While the specific language of the claim varied from state to state, each state’s claim can be classified as a general INS-based misappropriation claim that protected profit-seeking entrepreneurs against the systematic theft of a competitor’s news.[84] Some states, including California and Pennsylvania, created common law hot news misappropriation claims that extended beyond the news industry.[85] Similarly, New York further broadened the scope of the doctrine to protect “any forms of commercial immorality.”[86] On the other hand, Massachusetts expressly rejected the viability of a hot news misappropriation claim,[87] and other states limited its applicability to situations where “one party attempt[ed] to pass off a competitor’s goods as its own.”[88]

C. Hot News Misappropriation Survives Copyright Preemption

1. Congressional Intent

At first glance, a hot news misappropriation claim appears to conflict with federal copyright law.[89] After all, from a macro perspective, both hot news misappropriation and copyright infringement claims share the common purpose of preventing the unauthorized reproduction of an author’s work.[90] However, upon further review, hot news misappropriation differs from copyright in one glaring aspect: the Supreme Court created the hot news misappropriation claim to protect the time, labor, and expense that the Associated Press undertook to collect the news.[91] Copyright law, by contrast, expressly rejects the notion that the expense of time and labor shall be afforded protection.[92]

This distinction is bolstered by Congress’ express intent to preserve the viability of hot news misappropriation claims.[93] In the legislative history of section 301 of the Copyright Act, Congress reasoned “[m]isappropriation is not necessarily synonymous with copyright infringement”; as long as a state law misappropriation claim is not based on a right within the subject matter of copyright or a right equivalent thereto, it should not be preempted.[94] Moreover, Congress believed that states, under traditional principles of equity, should have the flexibility to afford a remedy for the misappropriation of facts, “whether in the traditional mold of International News Service v. Associated Press, or in the newer form of data updates from scientific, business, and financial data bases [sic].”[95]

2. NBA v. Motorola

Taking its cue from the legislative history of the preemption provision of the Copyright Act, the Second Circuit, in National Basketball Ass’n. v. Motorola, Inc. (“NBA v. Motorola”), created a test to determine whether a hot news misappropriation claim survived copyright preemption.[96] Prior to the recent Barclays v. Theflyonthewall.com, Inc. (“Barclays”) decision, NBA v. Motorola served as the authoritative case on the issue.[97]

In NBA v. Motorola, Motorola, along with the Sports Team Analysis and Tracking System (“STATS”), launched a hand-held pager named SportsTrax that relayed real-time information[98] regarding National Basketball Association (“NBA”) games to fans.[99] More specifically, SportsTrax transmitted the score, ball possession, team fouls, and time remaining of each NBA game.[100]

The NBA, a joint venture of its twenty-nine member teams,[101] believed that the systematic transmission of the contents of its games constituted hot news misappropriation and filed suit in 1996.[102] At trial, Judge Preska, a district court judge in the Southern District of New York, distinguished the NBA games from the simultaneous broadcasts.[103] As audiovisual works, the broadcasts satisfied the subject matter requirement of section 102 of the 1976 Copyright Act;[104] on the other hand, the District Court held that NBA games lacked the requisite originality to warrant protection by the Copyright Act.[105] Using a partial preemption doctrine, Judge Preska concluded that section 301 of the Copyright Act preempted state law claims relating to the broadcast, but not the NBA’s interest in the underlying game.[106] The Judge then held that the defendants usurped the real-time information of NBA games, its most valuable asset, without expending the time, labor, or money to produce the games—in essence hot news misappropriation.[107]

On appeal, the Second Circuit quickly dismissed the partial preemption concept because the doctrine would render section 301 superfluous.[108] The Second Circuit pointed to the legislative history of section 301, which stated: “[a]s long as a work fits within one of the general subject matter categories of sections 102 or 103, [section 301] prevents the States from protecting it even if it fails to achieve Federal statutory copyright.”[109] Consequently, the Second Circuit analyzed the broadcasts and the underlying games together.[110]

Next, the Second Circuit delved into whether the NBA’s hot news misappropriation claim survived federal copyright preemption.[111] The Circuit Judges looked to INS, Congress’ intent, and case precedent, all of which advocated for the use of hot news misappropriation claims in limited circumstances.[112] The Second Circuit then held:

the elements central to an INS claim are:

(i) the plaintiff generates or collects information at some cost or expense;

(ii) the value of the information is highly time-sensitive;

(iii) the defendant’s use of the information constitutes free-riding on the plaintiff’s costly efforts to generate or collect it;

(iv) the defendant’s use of the information is in direct competition with a product or service offered by the plaintiff;

(v) the ability of other parties to free-ride on the efforts of the plaintiff would so reduce the incentive to produce the product or service that its existence or quality would be substantially threatened.[113]

Despite this definitive language,[114] the Second Circuit stated, just two paragraphs later, that in addition to the elements of copyright infringement, the extra elements that enabled a hot news misappropriation claim to survive were (1) the time sensitivity of the information, (2) the free-riding by the defendant, and (3) the threat to the existence of the plaintiff’s product or service.[115] Applying the newly created three-part copyright preemption test, the Second Circuit determined that Motorola did not free-ride on the NBA’s efforts to collect factual information regarding basketball games; rather Motorola and STATS used their own resources to collect and transmit statistical data.[116] Accordingly, the Second Circuit held that the NBA’s hot news misappropriation claim did not survive copyright preemption.[117] Equally important to the outcome of the case was the Second Circuit’s construction and application of a narrow, three-part copyright preemption test that focused on the defendant’s alleged conduct.[118] In employing this narrow test, the court expressly rejected the notion that hot news misappropriation was intended to protect all forms of commercial immorality.[119]

III. THE UNDERLYING CONFLICT

The recent Barclays v. Theflyonthewall.com, Inc. (“Barclays”)[120] decision detailed the underlying conflict between the Morgan Stanley & Co. (“Morgan Stanley”), Barclays Capital (“Barclays”), Merrill Lynch, Pierce, Fenner & Smith (“Merrill Lynch”) (collectively, “Investment Firms”) and a financial news aggregator, Theflyonthewall.com (“Fly”). More specifically, the conflict centered on whether Fly’s systematic appropriation of the Investment Firms’ equity research recommendations infringed on the Investment Firms’ limited right to derive value from news they expended time, money, and effort to collect.[121] The district court granted relief under the Investment Firms’ hot news misappropriation theory,[122] but the Second Circuit Court of Appeals reversed.[123]

A. Investment Firms’ Equity Research Model

The Investment Firms were three of the world’s premier financial institutions.[124] They provided a wide array of investment services, such as wealth and asset management, to their respective clients.[125] More specifically, each investment firm, in what is referred to as the “equity research business model,” gathered company-specific financial results, tracked industry and economic trends, and occasionally visited facilities of companies; analysts then used the information collected to produce an equity research report.[126] Hundreds of millions of dollars and several full-time employees were dedicated to the production of these reports each year.[127]

Each research report contained, among other things, an analysis of economic and political events that bore upon a company’s prospects, projections of future stock prices, judgments about how a company would perform relative to its peers, and recommendations about whether investors should buy, sell, or hold stock in a given company.[128] In addition, each report contained a unique rating system, which conveyed the analysts’ belief about the future value of the stock.[129]

While each Investment Firm produced hundreds of reports each day, only a few of these reports “upgrade[d] or downgrade[d] a security; beg[a]n research coverage of a company’s security[,] . . . or predict[ed] a change in the security’s target price,” and therefore few had the ability to spur immediate investor trading decisions.[130] To stimulate investor action, the Investment Firms typically distributed these “actionable reports” just before the New York Stock Exchange (“the Market”) opened.[131] Each Investment Firm distributed its reports to its clients via its own password-protected platforms,[132] licensed third-party distributors,[133] and private conference calls or webcasts where analysts summarized the recommendations.[134]

The Investment Firms’ clients capitalized on the actionable recommendations by trading within a few hours of the Market opening,[135] which clearly made a portion of the actionable reports time-sensitive.[136] In return, the Investment Firms collected a commission on each buy or sell trade that the client placed through them.[137]

B. Financial News Aggregators

Recognizing that there was a market for individuals who did not have authorized access to the Investment Firms’ reports but were still interested in paying for early access to the information, companies such as Fly began to aggregate the equity research reports of the Investment Firms.[138] Aptly referred to as a financial news aggregator, Fly subsequently distributed the recommendations and reports of the Investment Firms via a newsfeed for a monthly subscription fee.[139] Although Fly expressly stated that its aggregation of the news was for informational purposes only, it encouraged potential customers to use its newsfeed in order to become “informed investors.”[140]

Ironically, unbeknownst to the Investment Firms, Fly used employees of the Investment Firms to gain access to their coveted recommendations.[141] Although not always verbatim, the recommendations on Fly’s newsfeed bore a distinct similarity to the recommendations created by the Investment Firms.[142] For instance, on February 16, 2005, Morgan Stanley downgraded the stock of the General Maritime Company.[143] The recommendation read as follows: “We are downgrading GMR from Overweight-V to Equal-weight. Current valuation represents 142% of NAV, a 22% premium to TK, which suggests a re-rating of the shares to reflect the new dividend policy with a risk/reward profile largely in line with its peer group.”[144] By providing access to the Investment Firms’ recommendations, Fly’s success rapidly increased.[145] To illustrate, Fly expanded its staff from five full-time employees to twenty-eight full- and part-time employees in an eight-year period.[146] Furthermore, Fly increased the price of its services by thirty percent,[147] increased its subscribers to approximately 5,300 institutional and individual investors and day traders/brokers, and linked its news service to online discount brokerages.[148]

C. The Investment Firms Respond to the Conduct of Financial News Aggregators

By 2004, as more financial news aggregators entered the Market, the Investment Firms became aware that their recommendations were being appropriated.[149] In response, the Investment Firms conducted a widespread investigation to determine how financial news aggregators obtained their information before the stock market opened each day.[150] The Investment Firms also devised strategies to prevent the continued appropriation of their recommendations.[151]

Through internal investigations conducted in 2005, the Investment Firms determined that their own employees were responsible for the leaked recommendations.[152] To combat the continuous and systematic appropriation of their recommendations by financial news aggregators, the Investment Firms implemented four distinct strategies designed to prevent further leaks.[153] First, the Investment Firms limited full access to their research reports to clients who met a certain threshold of revenue generation, typically $50,000 to $100,000.[154] Second, the Investment Firms informed their employees that the unauthorized dissemination of their equity research was a breach of loyalty and could result in termination.[155] Third, the Investment Firms limited media access to their equity research by placing standard prohibitions on reports distributed to clients and using contractual covenants to prevent licensed distributors from disseminating the reports to unauthorized users.[156]

Finally, the Investment Firms exploited technological innovations to curb access to their equity research.[157] For example, the Investment Firms developed vendor-specific watermarks and private URLs[158] that allowed them to monitor any abuse.[159] As an additional precautionary measure, the Investment Firms “blacklisted” certain websites and social networking platforms, thus preventing URLs embedded in these websites from functioning.[160]

D. The Lawsuit

The Investment Firms also commenced legal action.[161] In spring 2005, the Investment Firms each sent cease-and-desist letters to Fly, the most systematic and egregious re-distributor of its equity research reports.[162] Among other things, the letters accused Fly of “free-riding on the [Investment Firms’] efforts to formulate and disseminate timely market information to their clients.”[163]

In light of the lawsuit, Fly changed its reporting practices to avoid any conflict with the Investment Firms’ copyrighted research materials.[164] In particular, Fly claimed that it checked the reports posted on the websites of its competitors, which included Bloomberg Market News, StreetAccount.com, Thomson Reuters, and Briefing.com.[165] Fly also entered anonymous chat rooms, where the contents of the Investment Firms’ equity research reports were discussed[166] in order to confirm the accuracy of the information contained on its competitors’ newsfeeds.[167] Finally, Fly’s president verified the contents of the equity research reports it obtained from competitors with money managers and individual hedge fund managers.[168] Since the Investment Firms’ recommendations were arguably the principal driver of Fly’s revenue,[169] Fly posted the recommendations only after it conducted this extensive fact-checking routine.[170]

As of 2006, Fly continued to post the Investment Firms’ recommendations, often an hour before the principal stock markets within the United States opened.[171] In a final effort to deter Fly and other financial news aggregators, the Investment Firms filed a lawsuit against Fly in the Southern District of New York, alleging both copyright infringement and hot news misappropriation.[172] At trial, Fly conceded to the Investment Firms’ copyright infringement claim, but contested the viability of a hot news misappropriation claim.[173] Turning to the hot news misappropriation claim, Judge Cote applied the five-part test, set forth in NBA v. Motorola, to determine whether the Investment Firms had proved its prima facie case and whether its claim survived copyright preemption.[174] Ultimately, Judge Cote concluded that Fly’s conduct constituted hot news misappropriation.[175] Fly subsequently appealed the ruling of the district court.[176]

1. An Attempt to Decipher the Holding of NBA v. Motorola

On appeal, the Second Circuit determined that the lower court erred when it relied on the NBA court’s use of the word “hold” to conclude that the five-part test was the appropriate copyright preemption test for a hot news misappropriation claim.[177] In an attempt to resolve this conflict, the Barclays majority asserted that the five-part test merely states the elements of the tort, while the three-part test focuses on the elements necessary to avoid copyright preemption.[178] Therefore, the Second Circuit concluded that the three-part test in NBA should be employed and that the discussion of the five-part test was dicta to the central premise of NBA—determining when a hot news misappropriation claim survives copyright preemption.[179]

2. Copyright Preemption

After concluding that the three-part test was appropriate to determine whether a hot news misappropriation claim survived preemption, the Second Circuit analyzed the facts of the case.[180] Focusing on the free-riding element, the Barclays majority concluded that Fly had not unfairly taken material that had been acquired by the Investment Firms as a result of their labor, skill, and money.[181] To reach this conclusion, the majority distinguished the businesses practices of the Investment Firms from the Associated Press’ conduct in INS.[182] According to the Second Circuit, the Associated Press acquired factual information through efforts akin to reporting, while in Barclays, the Investment Firms used their own expertise to create the recommendations.[183]

Next, the majority reasoned that Fly did not sell the recommendations as their own because it attributed each recommendation to the Investment Firm that made it.[184] Finally, the majority stated that Fly, like Motorola and STATS, expended its own resources to gather the factual information of the Investment Firms.[185] Taken together, the majority held that Fly’s practices amounted to reporting rather than free-riding.[186] Consequently, the Second Circuit reversed the lower court’s decision.[187]

In a concurring opinion that employed the five-part test used in NBA to determine copyright preemption, Judge Raggi of the Second Circuit focused on the direct competition between the Investment Firms and Fly.[188] More specifically, she stated that the Investment Firms only disseminated their own recommendations to select clients, while Fly disseminated all of the Investment Firms’ recommendations.[189] In doing so, Fly satisfied a separate demand for the original recommendations, a practice that placed its product in direct competition with other financial news outlets, not the Investment Firms.[190] Furthermore, because the products satisfied different demands, they were not sufficiently similar to satisfy the “direct competition” element of a hot news misappropriation claim.[191]

IV. RE-ANALYZING THE BARCLAYS DECISION

The Second Circuit’s recent decision in Barclays Capital Inc. v. Theflyonthewall.com, Inc. (“Barclays”) erroneously departs from the lower court’s opinion in several respects and leaves the viability of a hot news misappropriation claim in doubt. First, the majority advocated for the use of a three-part extra element test to determine copyright preemption,[192] which fails to encompass the spirit of International News Service v. Associated Press (“INS”). Second, the majority improperly ignored the partial preemption doctrine during its analysis of the free-riding element of a hot news misappropriation claim.[193] Finally, Judge Raggi’s concurrence failed to acknowledge the complex realities of the developing competition between investment firms and financial news aggregators.[194]

As a result, this part of the article advocates for the use of the five-part test expressed in Nat’l Basketball Ass’n v. Motorola, Inc. (“NBA v. Motorola”) to determine copyright preemption and reanalyzes the decision with the Second Circuit’s mistakes in mind. Theflyonthewall.com (“Fly”) conceded the first two elements of a hot news misappropriation claim: (1) Wall Street investment firms such as Morgan Stanley, Barclays Capital, and Merrill Lynch (“Investment Firms”) expend significant resources to collect the information contained within the equity research reports and (2) the equity research reports are time-sensitive;[195] thus, this part of the article will discuss the remaining three elements of the five-part test of NBA in greater detail.[196]

A. The Appropriate Test

Saying the NBA v. Motorola court’s articulation of the appropriate extra-element test for a hot news misappropriation claim is unclear would be an understatement.[197] In the opinion, the court set forth both a five-part test and a three-part extra-element test.[198] Confused about which test should be followed, several district courts have simultaneously applied the five-element test as the prima facie case for hot news misappropriation and copyright preemption.[199] By contrast, at least one court has applied the condensed three-part test to determine copyright preemption.[200] In Barclays, both the Investment Firms and Fly advocated for the use of the five-part test to determine copyright preemption.[201] To further complicate matters, even the Second Circuit judges in Barclays differed on which test should be used.[202]

Although the Second Circuit presents a plausible distinction between the three- and five-part tests, separated by only one paragraph in the NBA v. Motorola opinion, its adoption of the three-part test as the appropriate test for copyright preemption fails to properly encompass the narrow concept created in INS.[203] The five-part test incorporates the competitor limitation of the hot news misappropriation claim and clearly encompasses the “sweat of the brow” doctrine.[204] Therefore, it should be used to determine when a hot news misappropriation claim survives copyright preemption.

With respect to hot news misappropriation claims, strict adherence to the narrow concept of INS has always been suggested.[205] In order to avoid copyright preemption, a hot news misappropriation claim must be qualitatively different from copyright protection.[206] The hot news misappropriation concept was created to “protect[] property rights in time-sensitive information so that the information will be made available to the public by profit seeking entrepreneurs,”[207] thus recognizing that some form of protection should be afforded to those who expend time, labor, and skill to gather factual information.[208] Furthermore, because the remedy created in INS was designed to promote fair competition, it could only be enforced against competitors, not the public.[209] INS provided a remedy to those who collect information from the “sweat of their brow,”[210] a remedy that is only enforceable against competitors, which makes hot news misappropriation qualitatively different from copyright infringement.[211]

In contrast to the central elements of a hot news misappropriation action, a copyright infringement claim merely requires (1) ownership of a copyrightable work of authorship and (2) proof that the infringer has violated one of the exclusive rights afforded to copyright owners in section 106 of the Copyright Act.[212]

The three-part test adopted by the Second Circuit in Barclays failed to recognize the qualitative differences between hot news misappropriation and copyright infringement.[213] To start, the three-part test, which lists time sensitivity, free-riding, and substantial threat to the existence of the plaintiff’s product or service as the elements necessary for a hot news misappropriation claim to survive copyright preemption,[214] ignores the requirement of expending resources to collect factual information. In adopting this three-part test, the Second Circuit neglected to recognize this important pillar underpinning hot news misappropriation claims.[215]

In addition, the three-part test ignores the reality that a remedy for copyright infringement can be imposed even when the copyright owner has not exercised the exclusive rights afforded to him or her.[216] Thus, the requirement of direct competition, as expressed by the fourth element of the five-part test, arguably imposes an additional requirement that further differentiates hot news misappropriation from copyright infringement.

The five-part test expressed in NBA v. Motorola strictly adheres to the concept created in INS[217] and resolves the shortcomings of the three-part extra element test. First, by requiring a plaintiff to prove that it “generates or collects information at some cost or expense,” the five-part test acknowledges one of the central tenets of INS: the sweat of the brow doctrine.[218] Second, by requiring both the plaintiff and defendant to offer competing products or services, the five-part test acknowledges that hot news misappropriation claims are limited in scope.[219] Therefore, the five-part test expressed in NBA v. Motorola should be the appropriate test for determining whether a hot news misappropriation claim survives copyright preemption.

B. Applying the Five-Part Extra Element Test

1. The Investment Firms Expend Significant Resources to Collect and Generate Their Equity Research Reports

As mentioned at the outset of this Note, each Investment Firm depended on its equity research model to generate a substantial portion of its annual revenue.[220] In order to fuel its equity research model, each Investment Firm spent more than $100 million per year.[221] Much of this expense was allocated to research analysts who “gather[ed] company-specific and industry-wide financial results; visit[ed] a company’s facilities; . . . track[ed] industry and economic trends; assess[ed] relative stock valuations; create[d] and update[d] financial models; . . . [and] ma[d]e quantitative projections about future earnings . . . .”[222]

2. The Information is Highly Time-Sensitive

The actionable reports produced by the Investment Firms under their equity research model contain projections about future stock prices and recommendations about whether investors should buy or sell stocks.[223] The Investment Firms typically distribute these reports to their clients between midnight and 7 AM.[224] In order to profit from the information distributed by the Investment Firms, investors have to move quickly, usually soon after the stock market opens.[225] As such, the reports are highly time-sensitive and thus satisfy the second requirement of a hot news misappropriation claim.[226]

3. Free-riding by the Defendant

The third element of a hot news misappropriation claim requires that “the defendant’s use of the information constitute free-riding on the plaintiff’s costly efforts to generate or collect it.”[227] In its simplest terms, free-riding is defined by Merriam-Webster Dictionary as “a benefit obtained at another’s expense or without the usual cost or effort.”[228] The INS court, although not specifically mentioning the phrase “free-riding,” characterized the International News Service’s piracy of the Associated Press’ news stories as an attempt to “reap where it has not sown.”[229] Moreover, free-riding, at least in the eyes of the INS court, did not hinge upon the credit given to the complainant; rather, a failure to give credit only accentuated the defendant’s wrongful conduct.[230] In its analysis of the free-riding element of the copyright preemption test for hot news misappropriation, the Second Circuit not only strays from the definition of free-riding as defined by the INS court, but also (1) disregards the partial preemption doctrine and (2) incorrectly draws analogies between Fly’s conduct and that of the defendants in NBA v. Motorola.

a. Partial preemption

The Second Circuit rejected the partial preemption doctrine in NBA v. Motorola because it would permit a plaintiff to separate the copyrightable elements of a work of authorship from the uncopyrightable elements, such as facts or ideas.[231] Allowing such a distinction to occur would have rendered the preemption section of the Copyright Act void because plaintiffs could obtain relief under various state law claims, even though the work of authorship fell within the scope of copyright protection.[232] Other Circuits, namely the Seventh Circuit in ProCD v. Zeidenberg, have taken a similar approach with respect to the use of the partial preemption doctrine.[233]

In Barclays, the Second Circuit cited a portion of the NBA v. Motorola opinion that referenced ProCD v. Zeidenberg with approval.[234] However, in its analysis of the free-riding element of a hot news misappropriation claim, the Second Circuit incorrectly limited its analysis of the Investment Firms’ recommendations to the copyrightable material contained in the report, and thus ignored the underlying facts or uncopyrightable material.[235] Moreover, the Second Circuit’s analysis of the free-riding element in Barclays departed from the Supreme Court’s analysis of both the copyrightable and uncopyrightable elements of the Associated Press’ news stories in INS.[236]

Turning to the Investment Firms’ recommendations, it is clear that they contain factual elements that are uncopyrightable, and thus, are not preempted by Copyright law. An abstract of a recommendation appropriated by Fly illustrates this point:

Potential positive events moving forward on an agreement for a highway bill (expected to be approved by May ’05) which could come in near $284 billion (up from $218 billion on last bill) and possibly move to the president ahead of schedule. Additionally, ConExpo (construction industry conference) will take place from March 15th to the 19th and should provide a lot of comfort that commercial construction spending is poised to recover over the next few quarters.

. . . .

We continue to recommend purchase of IR, CAT, PH, ETN, ITW[,] and JOYG.[237]

In their lawsuit, the Investment Firms provided similar examples.[238]

b. Re-Analyzing the Free-Riding Element

Looking at the uncopyrightable and copyrightable elements of the Investment Firms’ recommendations, it is evident that Fly’s conduct constitutes free-riding as it does not use its employees to independently collect the underlying facts contained within the equity research reports.[239] Its employees do not make quantitative projections about future earnings, track industry or economic trends, or even maintain contact with company representatives.[240] In fact, it would be impossible for Fly to replicate the Investment Firms’ production of 40,000 equity research reports covering 3,200 publicly traded companies with only 28 staff members.[241]

Instead, similar to the defendant’s actions in INS, Fly coerced the Investment Firms’ analysts to release proprietary, nonpublic information to its own employees.[242] Fly then perused the reports and lifted, essentially verbatim, the recommendations it wished to publish.[243] Once armed with the recommendations it desired, Fly used a few simple keystrokes to slightly alter the headlines before it disseminated the recommendations to its clients, thus giving credence to its tagline—“[h]aving a membership with the Fly is like having a seat at Wall Street’s best [investment firms] and learning what they know when they know it.”[244]

Finally, the attribution Fly gave the Investment Firms when it disseminated the reports and recommendations to its own clients should not absolve it of wrongdoing because the mere presence of attribution does not alter the nature of Fly’s conduct.[245] In essence, Fly “reap[ed] where it had not sown.”[246]

4. Fly’s Use of the Recommendations Is in Direct Competition with the Investment Firms

The fourth element of a hot news misappropriation extra element test mandates that the “defendant’s use of the information is in direct competition with a product or service offered by the plaintiff . . . .”[247] Judge Raggi’s concurrence ignores the realities of competition between the Investment Firms and the financial news aggregators. Hot news misappropriation, a form of unfair competition,[248] parallels the goals of antitrust law;[249] therefore, antitrust principles should be used to analyze competition among allegedly competitive services. Competition, at least for antitrust purposes, requires the definition of a relevant product market.[250] “The outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it.”[251] Other factors used to define the relevant product market include industry or public recognition of a separate market, distinct customers, distinct prices, and specialized vendors.[252]

It is important to note that the Investment Firms provide two separate services: the distribution of financial recommendations and the facilitation of trades based on its recommendations.[253] Investment Firms and financial news aggregators likely compete in the former market. To elaborate, Investment Firms and financial news aggregators both distribute financial recommendations to the same subset of clients[254] using the same specialized vendors.[255] Furthermore, Fly’s rapid growth to approximately 5,300 subscribers,[256] including institutional and individual investors, in just seven years[257] indicates that some consumers of financial information considered the services to be substitutes.[258] Moreover, despite Fly’s assertion that it does not attempt to influence the sale or purchase of securities,[259] its internal documents indicate that its service was designed to “help[] investors to make better informed investment decisions.”[260] Lastly, each service linked its distribution of the Investment Firms’ recommendations to a trading service.[261]

5. Threat to the Very Existence of the Investment Firms’ Service

Finally, the fifth element of a hot news misappropriation claim requires the plaintiff to prove that the free-riding by the infringer would “so reduce the incentive to produce the product or service that its existence or quality would be substantially threatened.”[262] As it is constructed, this element requires the Investment Firms to demonstrate that Fly’s conduct, if permitted to continue, would significantly hinder the economic incentive to produce equity research reports for the benefit of their respective clients.”[263]

At trial, the Investment Firms proved that staff reductions in their respective equity research departments were caused, at least in part, by Fly’s reprehensible conduct.[264] Admittedly, a host of additional factors, including the downward spiraling economy, could have caused the Investment Firms to reduce their respective staffs.[265] However, the duplicative services offered by both the Investment Firms and Fly, Fly’s rise in popularity among individual and institutional investors,[266] and the proliferation of financial news aggregators in a market where the Investment Firms once stood alone,[267] suggest that Fly’s practices had some impact on the Investment Firms’ bottom line. If left unchecked, these practices would eventually diminish the incentive to produce the service.[268] Consequently, the fifth element of a hot news misappropriation tort would likely be satisfied.[269]

V. WHY DO WE NEED HOT NEWS MISAPPROPRIATION?

Part IV’s analysis of the facts in Barclays Capital Inc. v. Theflyonthewall.com (“Barclays”), under the appropriate five-part copyright preemption test, suggests the hot news misappropriation claim is still a viable remedy for the unauthorized and systematic appropriation of a complainant’s news stories.[270] Nonetheless, given that two of the Investment Firms obtained copyright protection for their recommendations, and were thus able to obtain an injunction without asserting a hot news misappropriation claim,[271] an appropriate question arises: is the claim’s continued viability even necessary? The answer to this question must be in the affirmative.

A. Hot News Misappropriation Is Typically One of a Few Remedies Available to Plaintiffs

Hot news misappropriation was designed to operate where copyright protection could not.[272] While Morgan Stanley and Barclays Capital managed to obtain copyright protection for some of their equity research reports, the remaining plaintiff, Merrill Lynch, did not.[273] Without a viable hot news misappropriation cause of action, Merrill Lynch would have been deprived of the economic incentive to produce equity research reports.[274] Similarly, many firms that assert hot news misappropriation claims do so because it is one of a few remedies available to them.[275]

As an example, in Agora Financial, LLC v. Samler, a Maryland district court addressed a plaintiff’s hot news misappropriation claim on facts similar to those in Barclays.[276] In Agora Financial, five financial firms that were in the business of publishing financial newsletters filed suit against Martin Samler, doing business as TipsTraders.com, for the unauthorized and continuous appropriation and dissemination of the investment recommendations contained within their newsletters.[277] To combat the piracy of its investment recommendations, the plaintiffs rested their hopes almost exclusively on a hot news misappropriation claim.[278] Ultimately, the district court ignored the persuasive authority of its sister jurisdictions, which acknowledged that a hot news misappropriation claim was qualitatively different from copyright protection, and denied the plaintiffs relief.[279]

B. Inadequacy of Other Remedies

The fact that hot news misappropriation is one of a few limited causes of action available to copyright plaintiffs belies the point that it is better equipped to combat this unique form of unfair competition than copyright protection.[280] Hot news misappropriation, as described by the Supreme Court in International News Service v. Associated Press (“INS”), provides companies that report the news a limited right to reap an economic benefit as a reward for the expense of significant resources required to compile it.[281] The right to reap an economic benefit only exists as long as the information remains valuable.[282] Copyright law, by contrast, typically grants the author of an original work of authorship the exclusive right to publish or distribute the copyrightable work for the duration of the author’s life, “plus an additional 70 years.”[283] In the fast-paced world of investing, where short-horizon investors need to make rapid decisions[284] and the reputations of publicly-traded companies change instantaneously,[285] the Investment Firms’ recommendations to buy or sell have fleeting monetary value.[286] Accordingly, lifetime duration of copyright protection seems like an ill-fitting remedy to protect the short-term utility of the Investment Firms’ equity research reports.

VI. CONCLUSION

In conclusion, the systematic and unauthorized appropriation of the Investment Firms’ recommendations and equity research reports presents a unique scenario that copyright law is ill-equipped to combat.[287] By contrast, the hot news misappropriation tort as expressed by the Nat’l Basketball Ass’n v. Motorola, Inc. (“NBA v. Motorola”) court embodies the spirit of the original tort created nearly 100 years ago.[288] Specifically, the five-part test, as opposed to the three-part test set forth in NBA v. Motorola, recognizes the primary qualitative distinctions between hot news misappropriation and copyright preemption—the sweat of the brow doctrine and the requirement that the defendant’s conduct must be in direct competition with the plaintiff’s.[289] These distinctions, coupled with Congress’ intent to exempt hot news misappropriation from copyright preemption,[290] serves as the primary reason to keep the tort of hot news misappropriation viable.

*  J.D./M.B.A. Candidate, Loyola Law School, 2013; B.S., California State University, Northridge, 2008. The author would like to thank his family (Beverley, Henry, and Henry Jr.) and girlfriend (Amanda Smith) for their loving support throughout this labor-intensive process. This article is dedicated to them. The author would also like to thank Professor Gary Craig, Jenna Spatz, Carly Strocker, and Jay Strozdas, for their guidance and invaluable constructive criticism. Finally, particular gratitude is owed to the editors and staff writers of the Loyola of Los Angeles Entertainment Law Review for their tireless efforts editing this article.

1. Compare Azam Ahmed & Ben Protess, Deal Lawyer Accused of Insider Trading Scheme, N.Y. TIMES DEALBOOK (Apr. 6, 2011, 8:55 PM), http://dealbook.nytimes.com/2011/04/06/two-charged-in-insider-trading-scheme-tied-to-law-firms/, NY Lawyer Gets 3 Years for Insider Trading, FOX NEWS (Aug. 19, 2011), http://www.foxnews.com/us/2011/08/19/ny-lawyer-gets-3-years-for-insider-trading, and Peter Lattman, Gupta Faces New Charges In Insider Trading Case, N.Y. TIMES DEALBOOK (Jan. 31, 2012, 6:26 PM), http://dealbook.nytimes.com/2012/01/31/

gupta-faces-new-charges-in-insider-trading-case/, with Jeffrey D. Neurberger, Can Financial Firms Use ‘Hot News Doctrine’ to Stifle Aggregators?, PBS (June 16, 2010), http://www.pbs.org/

mediashift/2010/06/can-financial-firms-use-hot-news-doctrine-to-stifle-aggregators167.html.

2. Barclays Capital Inc. v. Theflyonthewall.com, Inc., 650 F.3d 876 (2d Cir. 2011).

3. Barclays Capital joined the lawsuit after acquiring Lehman Brothers in 2008. Barclays Capital Inc. v. Theflyonthewall.com, 700 F. Supp. 2d 310, 313–14 n.1 (S.D.N.Y. 2010).

4. Id. at 315 (“The Investment Firms are major financial institutions that provide wealth and asset management, securities trading and sales, corporate finance, and various investment services. Collectively, their customers include large institutional clients, foundations, corporations, businesses of every size, families, and individuals.”).

5. Id. at 335.

6. Id. at 316.

7. Id. at 317.

8. Id. at 319.

9. Barclays, 700 F. Supp. 2d at 319 (“[E]quity research reports . . . are ultimately justified only by the role that research plays in driving commission revenue.”); see also Ari Weinberg, Banks Still Seeking Value from Equity Research, WALL ST. J. BLOG (Mar. 24, 2010, 3:30 PM), http://blogs.wsj.com/marketbeat/2010/03/24/banks-still-seeking-value-from-equity-research/.

10. Barclays, 700 F. Supp. 2d at 315.

11. Id. at 319; see Weinberg, supra note 9.

12. Barclays, 650 F.3d at 882.

13. Id. at 882–83.

14. Barclays, 700 F. Supp. 2d at 324–25.

15. Compare Free Trial to Briefing In Play® Plus, BRIEFING, https://www.briefing.com/

GeneralContent/Active/Signup/InPlayEQ/InPlayTrial.aspx?Product=BriefingInPlayPlus (last visited Nov. 13, 2012) (stating that Briefing.com’s third-tier service costs $720 per year), and Subscription Rates, THEFLYONTHEWALL.COM, http://www.theflyonthewall.com/splashPage.php?

action=subscriptionRates (last visited Nov. 13, 2012) (stating that all of Fly’s services can be offered for $624 per year), with Barclays, 700 F. Supp. 2d at 315–16, 318 (indicating that because the production of equity research reports is not a self-sustaining business, the Investment Firms need to rely on commissions generated from each trade to justify the hundreds of millions of dollars they expend to produce the reports).

16. Barclays, 700 F. Supp. 2d at 324.

17. Id. at 324–25.

18. Id. at 325.

19. See id. at 341 (explaining that this belief is made apparent by one of the required elements of a hot news misappropriation claim: the defendant’s free-riding reduces the plaintiff’s economic incentive to produce the product or service and substantially threatens the product’s or service’s quality and existence).

20. Id. at 327.

21. Id.

22. Barclays, 650 F.3d at 895.

23. See Barclays, 700 F. Supp. 2d at 328.

24. Id. at 348 (awarding Morgan Stanley $6,000 in statutory damages and Barclays Capital $6,750 in statutory damages).

25. Id. at 330.

26. Nat’l Basketball Ass’n v. Motorola, Inc., 105 F.3d 841, 845 (2d Cir. 1997); see also Barclays, 700 F. Supp. 2d at 334–35 (explaining that the five-part test requires the plaintiff to prove: “(1) [it] generates or gathers information at a cost; (ii) the information is time-sensitive; (iii) a defendant’s use of the information constitutes free-riding on the plaintiff’s efforts; (iv) the defendant is in direct competition with a product or service offered by the plaintiffs; and (v) the ability of other parties to free-ride on the efforts of the plaintiff or others would so reduce the incentive to produce the product or service that its existence or quality would be substantially threatened.”).

27. Barclays, 700 F. Supp. 2d at 348.

28. Id.

29. Barclays, 650 F.3d at 902.

30. Id. at 898–901.

31. Id. at 900 (explaining that under the three-part test, the only elements relevant to determine whether a hot news misappropriation claim survives preemption are: “(1) the time-sensitive value of factual information; (2) free-riding by a defendant; and (3) the threat to the very existence of the product or service provided by the plaintiff.”).

32. Id. at 901.

33. Nat’l Basketball Ass’n, 105 F.3d at 852–53.

34. A Brief Introduction and History, U.S. COPYRIGHT OFFICE, http://www.copyright.gov/

circs/circ1a.html (last visited Nov. 13, 2012).

35. What Does Copyright Protect?, U.S. COPYRIGHT OFFICE (Sept. 13, 2010), http://www.

copyright.gov/help/faq/faq-protect.html.

36. See Int’l News Serv. v. Associated Press, 248 U.S. 215 (1918).

37. Lauren M. Gregory, Note, Hot Off the Presses: How Traditional Newspaper Journalism Can Help Reinvent the “Hot News” Misappropriation Tort in the Internet Age, 13 VAND. J. ENT. & TECH. L. 577, 588–89 (2011).

38. 17 U.S.C. § 301 (2006); Gregory, supra note 37, at 592–93.

39. Gregory, supra note 37, at 593.

40. See, e.g., Nat’l Basketball Ass’n v. Motorola, 105 F.3d 841, 852 (2d Cir. 1997); X17, Inc. v. Lavandeira, 563 F. Supp. 2d 1102, 1107 (C.D. Cal. 2007); Agora Fin., LLC v. Samler, 725 F. Supp. 2d 491, 500–02 (D. Md. 2010); Scranton Times, L.P. v. Wilkes-Barre Publ’g Co., No. 3:08-cv-2135, 2009 WL 585502, at *4 (M.D. Pa. Mar. 6, 2009); Fred Wehrenberg Circuit of Theatres, Inc. v. Moviefone, Inc., 73 F. Supp. 2d 1044, 1050 (E.D. Mo. 1999).

41. A Brief Introduction and History, supra note 34; see U.S. CONST. art. 1, § 8, cl. 8. Federal copyright laws were later overhauled in 1831, 1870, 1909, and 1976. Id.

42. A Brief Introduction and History, supra note 34.

43. Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 347 (1991).

44. See generally 17 U.S.C. § 101 (2006) (indicating that originality is not one of the defined terms of the statute). Congress revised the Copyright Act in 1831, 1870, 1909 and 1976. A Brief Introduction and History, supra note 34.

45. See MELVILLE B. NIMMER & DAVID NIMMER, NIMMER ON COPYRIGHT § 2.01 (2011); see, e.g., Alfred Bell & Co. v. Catalda Fine Arts, Inc., 191 F.2d 99, 102–03 (2d Cir. 1951); Wihtol v. Wells, 231 F.2d 550, 553 (7th Cir. 1956).

46. 17 U.S.C § 102 (2006). A compilation is comprised of preexisting materials selected, organized, or arranged in such a way that the resulting work, as a whole, constitutes an original work of authorship. Id. § 101. By contrast, a derivative work consists of editorial revisions, annotations, elaborations, or other modifications of a preexisting work which, as a whole, represents an original work of authorship. Id.

47. See Mazer v. Stein, 347 U.S. 201, 214 (1954).

48. Copyright Act, ch. 320, § 1, 35 Stat. 1075, 1075 (1909) (repealed 1978), available at http://www.copyright.gov/history/1909act.pdf (last visited Nov. 13, 2012).

49. Id. § 41, 35 Stat. 1075, 1091.

50. Id. § 25, 35 Stat. 1075, 1085–87.

51. Id.

52. Id. § 2, 35 Stat. 1075, 1077.

53. See Gregory, supra note 37, at 588–89.

54. 2 NIMMER & NIMMER, supra note 45, § 8C.02, at 8C-6.

55. Id. at 8C-5.

56. Id. The fair use doctrine provides several permissible purposes for which someone other than the copyright owner can use, copy, or distribute the copyrighted work. See Pamela Samuelson, Unbundling Fair Uses, 77 FORDHAM L. REV. 2537, 2546–47 (2011); Copyright & Fair Use, STAN. U. LIBR. & ACAD. INFO. RESOURCES, http://fairuse.stanford.edu/Copyright_and_Fair_

Use_Overview/chapter9/ (last visited Nov. 13, 2012). These permissible purposes, which are exceptions to the copyright owner’s exclusive rights and therefore do not constitute copyright violations, include news reporting, teaching, and criticism. 17 U.S.C. § 107 (2006); see Sony Corp. of Am. v. Universal Studios, Inc., 464 U.S. 417, 475–79 (1984).

57. 2 NIMMER & NIMMER, supra note 45, § 8C.02, at 8C-5 (citing Stanley v. Columbia Broad. Sys., Inc., 221 P.2d 73 (Cal. 1950)).

58. H.R. REP. NO. 94-1476, pt. 1, at 129 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5748.

59. 17 U.S.C. § 301; see Daboub v. Gibbons, 42 F.3d 285, 288–89 (5th Cir. 1995).

60. 17 U.S.C. § 301(a).

61. Id.

62. Id.

63. Id.

64. 7 NIMMER & NIMMER, supra note 46, § 301. Section 106 of the Copyright Act enumerates six exclusive rights afforded to authors of copyrighted work, including the rights to reproduce the copyrighted work; create derivative works; distribute copies or phonorecords to the public; publicly perform literary, musical, dramatic and choreographic works; publicly display literary, musical, dramatic, and choreographic works; and, perform sound recordings via digital audio transmission. 17 U.S.C. § 106 (2006).

65. See Nat’l Basketball Ass’n, 105 F.3d at 850 (“[I]f an extra element is required instead of or in addition to the acts of reproduction, performance, distribution, or display, in order to constitute a state-created cause of action, then the right does not lie within the general scope of copyright.”); Trandes Corp. v. Guy F. Atkinson, Co., 996 F.2d 655, 659 (4th Cir. 1993) (stating that the elements, rather than the facts pled to prove them, is the appropriate inquiry for the second prong of copyright preemption); see also Blue Nile, Inc. v. Ice.com, Inc., 478 F. Supp. 2d 1240 (W.D. Wash. 2007) (holding that the Copyright Act preempted a Washington Consumer Protection Act claim—because the Consumer Protection Act incorporated copyright claims by reference, it was not qualitatively different from the Copyright Act).

66. Computer Assocs. Int’l, Inc., v. Altai, Inc., 982 F.2d 693, 717 (2d Cir. 1992); Stromback v. New Line Cinema, 384 F.3d 283, 302–03 (6th Cir. 2004); see also Rutledge v. High Point Health Sys., 558 F. Supp. 2d 611, 617 (M.D.N.C. 2008) (“Common examples of extra elements in unfair competition claims that typically avoid preemption include . . . breach of a confidential relationship.”). A breach of a confidential relationship is typically an element of a trade secret misappropriation claim. To prove this element, the plaintiff must establish that the defendant improperly disclosed secret, company information, and therefore breached a duty of trust owed to the plaintiff. M-I, LLC v. Stelly, 733 F. Supp. 2d 759, 786 (S.D. Tex. 2010).

67. See generally Int’l News Serv., 248 U.S. 215.

68. Brian Westley, Comment, How A Narrow Application Of “Hot News” Misappropriation Can Help Save Journalism, 60 AM. U. L. REV. 691, 701–02 (2011). The claim is still viable today, even though INS was decided under federal general common law, a body of law later overruled by the Erie doctrine. Gregory, supra note 37, at 588–89.

69. Int’l News Serv., 248 U.S. at 229.

70. Associated Press v. Int’l News Serv., 240 F. 983, 984–85 (S.D.N.Y. 1917).

71. Id. at 985–88.

72. Rod S. Berman, Some Like It Hot: Digital Technology Has Raised Questions About the Reach of the Tort of Misappropriation of Hot News, 33 L.A. LAW 20, 22 (2010).

73. Gregory, supra note 37, at 586–87.

74. Int’l News Serv., 248 U.S. at 234–35.

75. Id. at 236.

76. Id. (“[T]he right to acquire property by honest labor or the conduct of a lawful business [was] as much entitled to protection as the right to guard property already acquired.”).

77. See Gregory, supra note 37, at 597 (defining the sweat of the brow doctrine); Veach v. Wagner, 116 F. Supp. 904, 906 (D. Alaska 1954).

78. Int’l News Serv., 248 U.S. at 235; see also Shyamkrishna Balganesh, “Hot News”: The Enduring Myth of Property in News, 111 COLUM. L. REV. 419, 440 (2011).

79. Int’l News Serv., 248 U.S. at 239.

80.Gregory, supra note 37, at 588.

81. Int’l News Serv., 248 U.S. at 239.

82. Id. (holding that while newspapers could assert the claim against their competitors, the tort could not be used to prevent “the purchaser of a single newspaper [from] spread[ing] knowledge of its contents gratuitously, for any legitimate purpose not interfering with the complainant’s right to make merchandise of it”).

83. See Gregory, supra note 37, at 588–89.

84. See id.

85. See McCord Co. v. Plotnick, 239 P.2d 32 (Cal. Ct. App. 1951) (extending the hot news misappropriation claim to the publication of news within the textile industry); see also Pottstown Daily News Publ’g Co. v. Pottstown Broad. Co., 192 A.2d 657, 663–64 (1963) (holding that an INS-based hot news misappropriation claim could be used to prevent a radio station from appropriating the current events gathered by a newspaper).

86. Nat’l Basketball Ass’n, 105 F.3d at 851; see Metro. Opera Ass’n., Inc. v. Wagner-Nichols Recorder Corp., 101 N.Y.S. 2d 483, 492 (N.Y. Sup. Ct. 1950) (“The modern view as to the law of unfair competition does not rest solely on the ground of direct competitive injury, but on the broader principle that property rights of commercial value are to be and will be protected from any form of . . . commercial immorality, and a court of equity will penetrate and restrain every guise resorted to by the wrongdoer.”).

87. Triangle Publ’ns, Inc. v. New England Newspaper Publ’g Co., 46 F. Supp. 198, 204 (D. Mass. 1942).

88. Gregory, supra note 37, at 589.

89. See id. at 592–93.

90. Id. at 593.

91. Id. at 597; see Int’l News Serv., 248 U.S. at 241–42 (stating INS’ conduct presents a more “direct and obvious” fraud on the Associated Press’ rights than traditional cases of unfair competition); Feist Publ’ns, Inc., 499 U.S. at 354 (stating that protection for the fruits of such research under a “sweat of the brow” theory may be protected under unfair competition).

92. Feist Publ’ns, 499 U.S. at 359–60.

93. H.R. REP. NO. 94-1476, pt. 1, at 132 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5748; see Nat’l Basketball Ass’n, 105 F.3d at 850; Fred Wehrenberg Circuit of Theatres, Inc., 73 F. Supp. 2d at 1050.

94. H.R. REP. NO. 94-1476; see Nat’l Basketball Ass’n, 105 F.3d at 850; Barclays Capital Inc. v. Theflyonthewall.com, Inc., 650 F.3d 876, 894 (2d Cir. 2011) (stating that the inclusion of this passage within the legislative history of the 1976 Copyright Act amendments anticipated that “INS-like state-law torts would survive preemption”).

95. H.R. REP. NO. 94-1476.

96. Nat’l Basketball Ass’n, 105 F.3d at 850–51, 853.

97. Barclays, 650 F.3d at 898–99.

98. See Nat’l Basketball Ass’n v. Sports Team Analysis and Tracking Sys., Inc., 939 F. Supp. 1071, 1075 n.3 (S.D.N.Y. 1996) (defining “real-time information” as statistics that are disseminated while the game is in progress).

99. Brief of Appellees-Cross Appellants at 8, Nat’l Basketball Ass’n v. Motorola, Inc., 105 F.3d 841 (2d Cir. 1997) (Nos. 96-7975, 96-7983, 96-9123).

100. Id.

101. Id. at 5.

102. Nat’l Basketball Ass’n, 105 F.3d at 843.

103. Id. at 845–47.

104. Id. at 847.

105. Id. at 846.

106. Nat’l Basketball Ass’n v. Sports Team Analysis and Tracking Sys., Inc., 931 F. Supp. 1124, 1146–47 (S.D.N.Y. 1996), amended and superseded by 939 F. Supp. 1071.

107. Id. at 1159.

108. Nat’l Basketball Ass’n, 105 F.3d at 849.

109. Id. (quoting H.R. REP. NO. 94-1476, pt. 1, at 131 (1976)).

110. Id. at 850.

111. Id. at 853.

112. Id. at 849–50.

113. Id. at 852 (internal citation omitted).

114. See Barclays, 650 F.3d at 898–99 (stating that a court cannot distill precedent from dictum simply by inserting the word “hold”) (emphasis added).

115. Nat’l Basketball Ass’n, 105 F.3d at 853.

116. Id. at 854.

117. Id.

118. Id. at 853.

119. Id. at 851.

120. Barclays Capital Inc. v. Theflyonthewall.com, 700 F. Supp. 2d 310 (S.D.N.Y. 2010).

121. Id. at 313.

122. Id. at 310.

123. Barclays Capital Inc. v. Theflyonthewall.com, Inc., 650 F.3d 876 (2d Cir. 2011).

124. Barclays, 700 F. Supp. 2d at 315.

125. Id. (stating that each firm’s client base consists of large institutional clients, corporations, families, and individuals).

126. Id. at 315–16.

127. Id. at 316.

128. Id. at 315; see 15 U.S.C. § 78o-6(c) (2006) (defining the contents of research reports); Complaint at 3, Barclays Capital Inc. v. Theflyonthewall.com, Inc., 700 F. Supp. 2d 310 (S.D.N.Y. 2010) (No. 06 Civ 4908) [hereinafter Barclays Complaint].

129. Barclays, 700 F. Supp. 2d at 315–16.

130. Id. at 316.

131. Id.

132. Id. at 317 n.7.

133. Id. at 317–18.

134. Id. at 316.

135. Barclays, 700 F. Supp. 2d at 318–19.

136. Id. at 316 (“While the actionable reports, which the parties and this Opinion will refer to as [r]ecommendations, are issued around the clock, the vast majority of them are issued between midnight and 7:00 AM.  Recommendations may move the market price of a stock significantly, particularly when a well-respected analyst makes a strong [r]ecommendation. Such market movement usually happens quickly, often within hours of the market opening following the [r]ecommendation’s [sic] release to clients. Thus, timely access to [r]ecommendations is a valuable benefit to each [Investment] Firm’s clients, because the [r]ecommendations can provide them an early informational advantage.”).

137. Id. at 315 (“One principal source of revenue for the [Investment] Firms is the commissions earned when they facilitate trading on behalf of their clients.”).

138. See id. at 323 (“Theflyonthewall.com is designed to bridge the gap between Wall Street’s big players ‘in the know’ and those who want into their club.”).

139. Id. at 351 n.8 (“Fly has approximately 3,300 direct subscribers to its website and another 2,000 subscribers who access its content through licensed financial content partners. Fly offers its ten categories of content in three packages, and charges its monthly subscribers either $25 for access to one package or $50 for access to all three packages.”).

140. Compare Disclaimer and Terms of Use, THEFLYONTHEWALL.COM, http://www.

theflyonthewall.com/splashPage.php?action=disclaimer (last visited Nov. 13, 2012), with THEFLYONTHEWALL.COM, http://www.theflyonthewall.com (last visited Apr. 22, 2012).

141. Barclays, 700 F. Supp. 2d at 325.

142. See id.; Barclays Complaint, supra note 128, at 15.

143. Barclays Complaint, supra note 128, at 9.

144. Id.

145. Barclays, 700 F. Supp. 2d at 338.

146. Id. at 325.

147. Compare id., with Subscription Rates, THEFLYONTHEWALL.COM, http://www.

theflyonthewall.com/splashPage.php?action=subscriptionRates (last visited Nov. 13, 2012).

148. Barclays, 700 F. Supp. 2d at 324–25.

149. Id. at 321.

150. Id.

151. Id. at 326–27.

152. Id. at 325.

153. Id. at 319–20.

154. Barclays, 700 F. Supp. 2d at 319.

155. Id.

156. Id. at 320.

157. Id.

158. Definition: URL (Uniform Resource Locator), TECHTARGET, http://searchnetworking

.techtarget.com/definition/URL (last visited Nov.13, 2012) (explaining that “URL” is an abbreviation for “Uniform Resource Locator.” It functions as a unique address for a file that is accessible via the Internet); Barclays, 700 F. Supp. 2d at 320.

159. Barclays, 700 F. Supp. 2d at 320.

160. Id.

161. Id. at 327.

162. Id.

163. Id.

164. Id. (explaining that the Investment Firms were only notified of changes through Fly’s response letter and that Fly did not divulge its method of acquiring information until trial).

165. Barclays, 700 F. Supp. 2d at 326.

166. Fly contended that it entered the chat rooms only after it received an invite from the chat room moderator. Id.

167. Id.

168. Id.

169. See generally id. at 323–24 (indicating that Fly’s newsfeed, where it posted the Investment Firms’ recommendations, was the “cornerstone” of its business and the reason for its rapid initial growth). Over time, Fly used a really simple syndication (“RSS”) feed containing many of the financial headlines it compiled on a daily basis to attract additional subscribers. Notably absent from Fly’s free RSS feed were the Investment Firms’ recommendations. To access this information, customers had to subscribe to Fly’s online newsfeed. Id. at 325.

170. Barclays, 700 F. Supp. 2d at 326. Fly’s assertion that it obtained the Investment Firms’ recommendations via public outlets is called into question by the fact that it filed a lawsuit against its competitor, TTN, for the misappropriation of the same recommendations that it liberally borrowed from the Investment Firms. The lawsuit settled in 2008 and TTN was enjoined from accessing “non-public news information reported on Fly’s newsfeed.” Id. at 327–28 (internal quotations omitted).

171. Id. at 327.

172. Barclays Complaint, supra note 128, at 1; see also Barclays, 700 F. Supp. 2d at 327.

173. Barclays, 700 F. Supp. 2d at 328.

174. Id. at 334–35 (citing National Basketball Ass’n v. Motorola, Inc., 105 F.3d 841, 845 (2d Cir. 1997)).

175. Id. at 343. In accordance with her conclusion, Judge Cote imposed a permanent injunction on Fly, which prevented it from disseminating its news reports until one half hour after the Market opened or 10 AM, whichever was later. Id. at 347.

176. See generally Barclays, 650 F.3d 876.

177. Id. at 898–900.

178. Id. at 900–01.

179. Id. at 899.

180. Id. at 902.

181. Id. at 905.

182. Barclays, 650 F.3d at 905.

183. Id. at 903.

184. Id.

185. Id. at 905.

186. Id.

187. Id. at 907.

188. Barclays, 650 F.3d at 907–15 (Raggi, J., concurring).

189. Id. at 914 (Raggi, J., concurring).

190. Id. (Raggi, J., concurring).

191. Id. at 914–15 (Raggi, J., concurring).

192. Barclays Capital Inc. v. Theflyonthewall.com, Inc., 650 F.3d 876, 898–901 (2d Cir. 2011).

193. See id. at 902–907.

194. See id. at 914–15 (Raggi, J., concurring).

195. Shourin Sen, SDNY Grants Summary Judgment on Hot News Claim, SEN LAW (Mar. 25, 2010, 9:00 AM), http://senlawoffice.com/exclusiverights/category/misappropriation/.

196. Nat’l Basketball Ass’n v. Motorola, Inc., 105 F.3d 841, 852–53 (2d Cir. 1997).

197. See Barclays, 650 F.3d at 898–901, 906–07 (indicating that there have been multiple iterations of the appropriate extra element test for a hot news misappropriation claim).

198. Nat’l Basketball Ass’n, 105 F.3d at 852–53; see also Agora Fin., LLC v. Samler, 725 F. Supp. 2d 491, 499 n.8 (D. Md. 2010).

199. See Associated Press v. All Headlines News, Corp., 608 F. Supp. 2d 454, 461 (S.D.N.Y. 2009); BanxCorp v. Costco Wholesale Corp., 723 F. Supp. 2d 596, 612 (S.D.N.Y. 2010); Morris Commc’n Corp. v. PGA Tour, Inc., 235 F. Supp. 2d 1269, 1279 n.16 (M.D. Fla. 2002).

200. Agora Fin., 725 F. Supp. 2d at 499–500 (citing Lowry Reports, Inc. v. Legg Mason, Inc., 271 F. Supp. 2d 737, 754 (D. Md. 2003)).

201. Barclays, 650 F.3d at 898.

202. Compare id. at 898–901, with id. at 907 (Raggi, J., concurring).

203. See Int’l News Serv. v. Associated Press, 248 U.S. 215, 239 (1918).

204. See generally Gregory, supra note 37, at 600 (stating that the district court used the five-part test derived from NBA v. Motorola to reward the Investment Firms for the time, labor, and skill they each employed to gather the news).

205. See, e.g., Nat’l Basketball Ass’n, 105 F.3d at 845; 1 ALEXANDER LINDEY & MICHAEL LANDAU, LINDEY ON ENTERTAINMENT, PUBLISHING AND THE ARTS § 1:4 (3d ed. 2004).

206. Nat’l Basketball Ass’n, 105 F.3d at 850.

207. Id. at 853.

208. See generally Daniel S. Park, Note, The Associated Press v. All Headline News: How Hot News Misappropriation Will Shape the Unsettled Customary Practices of Online Journalism, 25 BERKELEY TECH. L.J. 369, 383 (2010); Barclays Capital Inc. v. Theflyonthewall.com, Inc., 700 F. Supp. 310, 332 (S.D.N.Y. 2010) (“A fair reading of this passage suggests that the [INS] Court’s decision was strongly influenced by several policy ideals: a ‘sweat-of-the-brow’ or ‘labor’ theory of property . . . .”).

209. Int’l News Serv., 248 U.S. at 239.

210. Barclays, 700 F. Supp. 2d at 332.

211. Gregory, supra note 37, at 596–98.

212. Norma Ribbon & Trimming, Inc. v. Little, 51 F.3d 45, 47 (5th Cir. 1995); Playboy Entm’t v. Webbworld, Inc., 968 F. Supp. 1171, 1174 (N.D. Tex. 1997).

213. See Barclays, 700 F. Supp. 2d at 332.

214. Barclays, 650 F.3d at 887.

215. See Barclays, 700 F. Supp. 2d at 332.

216. See Playboy Entm’t, 968 F. Supp. at 1174 (stating that the only elements necessary to prove copyright infringement are ownership of a copyright and violation of one of the author’s exclusive rights). See generally 17 U.S.C. § 501(a) (2006) (stating that anyone who violates the copyright owner’s exclusive rights is an infringer of the copyright).

217. See Nat’l Basketball Ass’n, 105 F.3d at 852 (finding support in INS for each element of a hot news misappropriation claim).

218. Id.

219. Id.

220. See supra Part I.

221. Barclays, 700 F. Supp. 2d at 316–17.

222. Id.

223. Id. at 315.

224. Id. at 316.

225. Id.

226. See id. at 336, rev’d, Barclays, 650 F.3d 876.

227. Barclays, 700 F. Supp. 2d at 336; Nat’l Basketball Ass’n, 105 F.3d at 852.

228.WEBSTER’S NEW COLLEGIATE DICTIONARY 491 (9th ed. 1988).

229. Int’l News Serv., 248 U.S. at 239–40.

230. See id. at 242 (recognizing that “[t]he habitual failure to give credit to complainant for that which is taken is significant. . . . But these elements, although accentuating the wrong, are not the essence of it. It is something more than the advantage of celebrity of which complainant is being deprived.”).

231. See Nat’l Basketball Ass’n, 105 F.3d at 848–49 (“Although game broadcasts are copyrightable while the underlying games are not, the Copyright Act should not be read to distinguish between the two when analyzing the preemption of a misappropriation claim based on copying or taking from the copyrightable work.”).

232. Id.

233. See ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1453 (7th Cir. 1996) (stating that for copyright preemption purposes, uncopyrightable material and copyrightable material must be analyzed together).

234. Barclays, 650 F.3d at 892–93.

235. Id. at 903 (“In pressing a ‘hot news’ claim against Fly, the [Investment] Firms seek only to protect their [r]ecommendations, something they create using their expertise and experience rather than acquire through efforts akin to reporting.”).

236. Int’l News Serv., 248 U.S. at 234–36.

237. Barclays, 700 F. Supp. 2d at 325–26 n.22.

238. Barclays Complaint, supra note 128, at 9–15.

239. See generally Barclays, 700 F. Supp. 2d at 316–17 (describing how the Investment Firms’ analysts determine the underlying facts and create the recommendations contained within the equity research reports).

240. See generally id. at 323–26.

241. See generally id. at 316–17 (referencing the number of publicly traded companies that the Investment Firms cover and how many research reports they individually produce every year).

242. Id. at 325.

243. Id.

244. Id. at 323.

245. See Int’l News Serv., 248 U.S. at 242 (“The habitual failure to give credit to complainant for that which is taken is significant . . . . But these elements, although accentuating the wrong, are not the essence of it. It is something more than the advantage of celebrity of which complainant is being deprived.”).

246. Barclays, 700 F. Supp. 2d at 332 (citing Int’l News Serv., 248 U.S. at 239–40).

247. Nat’l Basketball Ass’n, 105 F.3d at 852 (citing Int’l News Serv., 248 U.S. at 240).

248. Id. at 850 (“‘Misappropriation’ of ‘hot’ news . . . [is] a branch of the unfair competition doctrine . . . .”) (quoting Fin. Info., Inc. v. Moody’s Investors Serv., Inc., 808 F.2d 204, 209 (2d Cir. 1986)).

249. See generally 1 LOUIS ALTMAN & MALLA POLLACK, CALLMAN ON UNFAIR COMPETI-TION, TRADEMARKS AND MONOPOLIES § 4:3, at 4–16 (4th ed. 2011) (stating that “antitrust laws are designed to achieve and preserve freedom of competition, while the law of unfair competition strives to promote and maintain fairness in competition.”).

250. Brown Shoe Co. v. United States, 370 U.S. 294, 324 (1962).

251. Id. at 325.

252. Id.

253. See Listed Derivatives, MORGAN STANLEY, http://www.morganstanley.com/

institutional/sales/derivatives.html (last visited Nov. 19, 2012) (indicating that Morgan Stanley enables clients to “stay on top of the markets with . . . commentary from Morgan Stanley . . . experts” and can then choose to execute trades through its integrated sales team); see also Barclays, 650 F.3d at 914 (stating that the Investment Firms’ clients are not obligated to make trades with the Investment Firms after receiving access to the equity research reports because firms “disseminate only their [r]ecommendations to select clients most likely to follow the advice and place trades with the [Investment] Firms . . . .”).

254. Compare Barclays, 700 F. Supp. 2d at 317 (“Morgan Stanley has approximately 7,000 institutional investor clients and close to 100,000 individual investors . . . .”), with id. at 325 (“Fly’s subscribers include individual investors, institutional investors, retail investors, brokers, and day traders.”).

255. Compare id. at 339–40 (“Such licensed distributors, which vary from firm to firm, include Bloomberg, Thomson Reuters . . . .), and Distribution Channels, THEFLYONTHEWALL.COM, http://www.theflyonthewall.com/splashPage.php?action=partnersPage (last visited Nov. 19, 2012) (listing distribution channels as Bloomberg.com and Thomson Reuters).

256. Barclays, 700 F. Supp. 2d at 324.

257. Fly began its financial news aggregation business in 1998. Id. at 322.

258. See id. at 323 (quoting Fly’s advertisement, which convinces consumers that “a membership with Fly is like having a seat at Wall Street’s best [investment firms] and learning what they know when they know it”).

259. Disclaimer and Terms of Use, supra note 140.

260. Barclays, 700 F. Supp. 2d at 323.

261. Compare id. at 315, 318 (stating that the Investment Firms execute trades on behalf of their clients for a fee, thereby allowing them to recoup the costs of creating equity research reports), with id. at 324–25 (stating that Fly distributed the Investment Firms’ recommendations to eSignal, Track Data Corporation, and Cyber Trader, each of which were linked to discount brokerage platforms where investors could execute trades).

262. Id. at 341 (quoting Nat’l Basketball Ass’n, 105 F.3d at 852).

263. See id.; Nat’l Basketball Ass’n, 105 F.3d at 852.

264. Barclays, 700 F. Supp. 2d at 321.

265. Id. (“During this same period, of course, other factors have had an impact on the financial well-being of the investment firms in general and on their research budgets in particular. Since 2008, the world has experienced an economic cataclysm.”).

266. See id. at 324 (stating that Fly has increased its subscriber list to approximately 5,300 since its inception).

267. See id. at 326–27.

268. See id. at 322 (“[T]he investment in research is justified by its ability to drive commission income, and when that linkage is broken, the justification is greatly diminished.”).

269. See supra Part IV.B.5.

270. See supra Part IV; Barclays Capital Inc. v. Theflyonthewall.com, Inc., 650 F.3d 876 (2d Cir. 2011).

271. Barclays Capital Inc. v. Theflyonthewall.com, 700 F. Supp. 2d 310, 347 (S.D.N.Y. 2010) (imposing a permanent injunction on Fly which prevented it from disseminating its news reports until a half hour after the New York Stock Exchange opened or 10 AM, whichever was later).

272. Id. at 332 (“[T]he misappropriation doctrine was developed to protect costly efforts to gather commercially valuable, time-sensitive information that would otherwise be unprotected by law.”).

273. Id. at 331 (holding that the “copyright plaintiffs,” Morgan Stanley and Barclays Capital, were awarded a permanent injunction).

274. See id. at 322 (“[T]he investment in research is justified by its ability to drive commission income, and when that linkage is broken, the justification is greatly diminished.”).

275. See generally Fred Wehrenberg Circuit of Theatres, Inc. v. Moviefone, Inc., 73 F. Supp. 2d 1044, 1045 (E.D. Mo. 1999) (illustrating that the plaintiff alleged two causes of action: hot news misappropriation and false or misleading description of fact); Agora Fin., LLC v. Samler, 725 F. Supp. 2d 491, 493 (showing that the plaintiff alleged a hot news misappropriation cause of action and a violation of section 43(a) of the Lanham Act); X17, Inc. v. Lavandeira, 563 F. Supp. 2d 1102, 1103 (showing that the plaintiff brought a copyright cause of action as well as a hot news misappropriation claim).

276. See generally Agora Fin., LLC, 725 F. Supp. 2d at 491.

277. Complaint at 2, Agora Fin., LLC v. Samler, 725 F. Supp. 2d 491 (D. Md. 2010) (No. 09-01200).

278. Agora Fin., 725 F. Supp. 2d at 505 (“As an initial matter, plaintiffs’ [c]omplaint contains only minimal discussion of their [Lanham Act] claim, as it instead primarily focuses on plaintiffs’ misappropriation claim.”).

279. Id.

280. See Barclays, 700 F. Supp. 2d at 347 (imposing a permanent injunction based on copyright protections, not a hot news misappropriation claim.).

281. See Gregory, supra note 37, at 587–88.

282. See Int’l News Serv. v. Associated Press, 248 U.S. 215, 235 (1918).

283. How Long Does Copyright Protection Last? U.S. COPYRIGHT OFFICE, http://www.

copyright.gov/help/faq/faq-duration.html (last modified Mar. 10, 2010) (emphasis added).

284. See Barclays, 700 F. Supp. 2d at 319.

285. See, e.g., Timeline of the Tyco International Scandal, USA TODAY (Jun. 17, 2005), http://www.usatoday.com/money/industries/manufacturing/2005-06-17-tyco-timeline_x.htm (indicating that Tyco’s share price dropped sharply after the public discovered that its Chief Executive Officer was under investigation for fraud and tax evasion); see also Huck Gutman, Enron Scandal: The Long, Winding Trail, DAWN (Feb. 16, 2002), available at http://www.

commondreams.org/views02/0216-01.htm (stating that the lofty reputation of Enron plummeted almost instantaneously once investors learned of its deceptive accounting practices).

286. See Barclays, 700 F. Supp. 2d at 336 (citing Int’l News Serv., 248 U.S. at 235) (finding the fleeting value of the equity research reports is embodied in the recognition that hot news misappropriation only protects news that is time-sensitive).

287. See Barclays Capital Inc. v. Theflyonthewall.com, 700 F. Supp. 2d 310, 332 (S.D.N.Y. 2010) (“[T]he misappropriation doctrine was developed to protect . . . time-sensitive information that would otherwise be unprotected by [copyright] law.”).

288. See Nat’l Basketball Ass’n v. Motorola, 105 F.3d 841, 852–53 (2d Cir. 1997) (finding support in International News Service v. Associated Press for each element of a hot news misappropriation claim).

289. Gregory, supra note 37, at 597.

290. H.R. REP. NO. 94-1476, at 132 (1976).