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Speaker 1: This is Bloombird Law with June Brusso from Bloombird Radio. Indeed,

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Speaker 1: nice to me in Washington, where the buck stops here,

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Speaker 1: way to go, and then it's handed out to A I. G.

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Speaker 1: And many other people. Now, Robin Williams is a comedy legend,

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Speaker 1: as is George Carlin. There are words that you can say,

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Speaker 1: no problem topography. No one has ever gone to jail

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Speaker 1: for screaming topography, but there are some words that you

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Speaker 1: can go to jail for. You can listen to their

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Speaker 1: comedy albums on streaming services, but the estates of Williams

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Speaker 1: and Carlin say that Pandora Media is streaming their comedy

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Speaker 1: albums without getting a license from them. Their estates, along

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Speaker 1: with comedians Andrew Dice, clay Ron White, Bill Angvilla, Nick Depolo,

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Speaker 1: are suing Pandora for not paying them as the authors

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Speaker 1: of the jokes in the way that songwriters are paid

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Speaker 1: realties for writing lyrics. It will be the first time

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Speaker 1: a court will hear a case over licensing spoken word comedy.

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Speaker 1: To help us understand the novel questions here, my guest

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Speaker 1: is intellectual property litigator Terence Ross, a partner caton Uten

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Speaker 1: rosenmant Terry, the licensing structure gets very complicated. Can you

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Speaker 1: give us an overview? So copyright law with respect to

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Speaker 1: recorded sound is currently very complex because of a complicated history.

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Speaker 1: There was literally no provision for copyright in recorded sound.

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Speaker 1: Over the course twenty century in Congress finally got around

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Speaker 1: to fixing the Copyright Act by providing copyrights or recorded

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Speaker 1: sound going forward in time. But because recorded sound came

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Speaker 1: to the copyright game so late in the day, it

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Speaker 1: has now a complicated licensing mechanism. And this in part

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Speaker 1: has to do with history, but also in part with

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Speaker 1: the nature of music. You start from the beginning, somebody

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Speaker 1: writes notes the melody to a song, someone perhaps the

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Speaker 1: same person, perhaps somebody else writes lyrics to go with that.

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Speaker 1: That combination of musical notes and lyrics is often published

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Speaker 1: as sheet music. That sheet music then can be played

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Speaker 1: live to audiences, for example in a ballroom by an orchestra,

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Speaker 1: or it can be recorded onto an LP C, D

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Speaker 1: any other digital medium and listen to add a person's convenience.

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Speaker 1: So you have these multiplicity of ways that music can

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Speaker 1: be you and that requires several different types of licenses

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Speaker 1: because there's several different copyright components. The first one is

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Speaker 1: known as a mechanical license. Mechanical license has to do

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Speaker 1: with the copyright in the underlying composition, the musical notes,

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Speaker 1: and the lyrics. So if I am a band and

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Speaker 1: I want to call a song of say led Zeppelin,

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Speaker 1: which is copyrighted, I would have to obtain a mechanic

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Speaker 1: a license in order to use their composition. If, however,

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Speaker 1: as part of perhaps a hip hop piece, I want

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Speaker 1: to sample a few sections from a led Zeppelin song

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Speaker 1: and then add to those samples my own composition, what

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Speaker 1: I need is known as a master license, which is

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Speaker 1: a right to use the actual recording of the music

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Speaker 1: that led Zeppelin did. To make things even more complicated,

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Speaker 1: if you're a radio station, you need to obtain a

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Speaker 1: public performance license, which is a third type of license

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Speaker 1: for musical recordings. And after the Music Modernization Act, we

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Speaker 1: now have digital streaming services and they have to get

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Speaker 1: completely separate license provided under the m m A, which

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Speaker 1: is referred to as a blanket license. Where does the

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Speaker 1: spoken words fit into this? The copyright regime I just

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Speaker 1: described grew up in a musical context, not in the

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Speaker 1: context of spoken words, And yet what is the comedy recording.

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Speaker 1: It is spoken words, and we now have a culture

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Speaker 1: in which, thanks to streaming services and podcasts, the marketplace

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Speaker 1: for the spoken word is surging. And people who have

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Speaker 1: copyrights in the spoken word, who previously never even gave

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Speaker 1: much of a thought to enforcing the copyrights, now see

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Speaker 1: that we have this new marketplace in which spoke ward

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Speaker 1: is very valuable and see an opportunity to make money

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Speaker 1: off of that by now for the first time enforcing

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Speaker 1: their copyrights. And at the cutting edge of this are

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Speaker 1: the comedians and these lawsuits that have been filed by

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Speaker 1: them in California. Let me ask if this, just on

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Speaker 1: a pure copyright kind of analysis, is a joke a

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Speaker 1: comedian tells the same as a song that someone writes,

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Speaker 1: because you often hear people say, oh, he's stole my joke.

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Speaker 1: You know, you tell the same joke in a different way.

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Speaker 1: Is it like lyrics or is it unlike lyrics? So

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Speaker 1: in theory it is like lyric. There's the story of

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Speaker 1: Bob Hope, one of the most prolific joke riders of

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Speaker 1: all types, who kept all his jokes on three by

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Speaker 1: five index cards and had this massive catalog and collection

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Speaker 1: of jokes, and why did he do that? Because copyright

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Speaker 1: only attaches when and rigid work is fixed in a

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Speaker 1: tangible medium. The words from the copyright act fixed in

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Speaker 1: a tangible medium. If I simply get up at a

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Speaker 1: comedy club and do an improvised routine, I am not

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Speaker 1: fixing those jokes in a tangible medium by, for example,

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Speaker 1: the classic way of doing that writing them down. Now,

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Speaker 1: the interesting thing about these recordings of comedians performing is

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Speaker 1: that that act of recording their performance fixes the jokes

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Speaker 1: in a tangible medium. Are they're gonna be heard for

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Speaker 1: all time, and therefore there is at least a copyright

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Speaker 1: in those recordings. Whether or not there's a separate copyright

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Speaker 1: in the jokes the way there would be a separate

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Speaker 1: copyright for the sheet music is a question that is

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Speaker 1: purely factual and depends on how did the comedian take

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Speaker 1: care of their joke creation where they, like Bob Hope,

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Speaker 1: were they writing down their jokes and saving them and

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Speaker 1: cataloging them over time, or were they more like you know,

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Speaker 1: the comedy improv clubs, where people get up and just

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Speaker 1: do bits and nobody's recording it, nobody's writing down even afterwards.

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Speaker 1: So then Theoretically speaking, the streaming services would have to

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Speaker 1: get two licenses. See in theory, what they should have

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Speaker 1: to do is a pain both a master license from

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Speaker 1: whoever owns the master recording, and they should also in

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Speaker 1: theory of paying a mechanical license from whoever owns the

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Speaker 1: copyright on the joke. Which is why your last question

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Speaker 1: about do they have copyrights and the jokes there is

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Speaker 1: a good question. Pen Dora says in filings that it

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Speaker 1: streams comedy without a license for the underlying work because

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Speaker 1: that's an industry wide custom. What would Pandora's defense be,

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Speaker 1: This defense that it's an industry wide custom, that doesn't

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Speaker 1: sound very strong to me. Bandora have to the extent

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Speaker 1: of said anything about this and SEC filings is that

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Speaker 1: there's no requirement to take a license in streaming the

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Speaker 1: comedic recordings because that's the industry wide custom. That, however,

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Speaker 1: is not a cognizable defense to copyright infringement. If there

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Speaker 1: is a copyright and that work that is copyrighted is

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Speaker 1: used without authorization of the copyright owner, that is at

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Speaker 1: least a prime of fashion case of copyright infringement. The

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Speaker 1: other defense you have heard mentioned on behalf of the

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Speaker 1: streaming services is that it would be too hard to

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Speaker 1: determine who owns the copyright and to track them down

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Speaker 1: and to pay them a few cents every time they

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Speaker 1: stream the copyrighted work. Again, that's not a cognizable defense

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Speaker 1: to copyright infringement. So it's frankly very hard to know

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Speaker 1: how the streaming services such as Pandora intend to defend

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Speaker 1: against this, and left it's their intent to simply claim

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Speaker 1: that there's no copyright in the underlying joke in the

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Speaker 1: first place, As you said, with music, which is evolved,

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Speaker 1: there are organization asians that you go to to get

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Speaker 1: the license, right, so it's it's easy what Pandora saying

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Speaker 1: is there's no organization we can go to that is

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Speaker 1: absolutely right, And again it's a it's a problem that

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Speaker 1: is a legacy of the law in this area being

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Speaker 1: developed in the context of music. So UH an FM

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Speaker 1: radio station that that wants to play recorded music UM

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Speaker 1: can go to either b m I or ASCAP and

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Speaker 1: obtain a public performance license with a set fee schedule,

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Speaker 1: and they pay to those organizations. And it's in those

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Speaker 1: organizations who have the burden of figuring out well who

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Speaker 1: actually own the copyright that song, and and and figuring

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Speaker 1: out how to get money to them. If if you

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Speaker 1: want a mechanical license, you go to the publishing companies,

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Speaker 1: and that that area is dominated by three companies, The

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Speaker 1: Harry Fox Agency, Music Reports, Inc. And the Mechanical Licensing Collective.

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Speaker 1: And again you simply pay the money to them, and

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Speaker 1: it's up to them to figure out who owns the copyright,

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Speaker 1: how much they get paid, when do they get paid um. Similarly,

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Speaker 1: with digital streaming of music under the Music Monetization Act,

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Speaker 1: this Mechanical Licensing Collective, which the m m A established

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Speaker 1: by law, worries about collecting the fees from anybody wanting

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Speaker 1: a license to stream music and distributing it. But the

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Speaker 1: m m A did not provide for the handling of

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Speaker 1: spoken word recordings. And so that's where we have this

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Speaker 1: conundrum now, is that the various agencies that have been

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Speaker 1: set up over the years to enforce copyrights to collect

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Speaker 1: licensing fees, none of them were directed at taking care

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Speaker 1: of the spoken word as recorded. And that's why Pandora,

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Speaker 1: with a certain sense of justification, says, how do we

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Speaker 1: do this? We want to comply with a copyright law,

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Speaker 1: but how do we go about doing this, are we

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Speaker 1: have to search out every comedian and figure out how

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Speaker 1: much that joke was word firsts this joke, and then

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Speaker 1: how to get it to them? And if they passed away,

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Speaker 1: where is their state, who's the trustee of the state,

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Speaker 1: how do we get the money to them. It is

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Speaker 1: a very serious problem that at the end of the day,

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Speaker 1: has to be addressed through legislation, just as the streaming

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Speaker 1: of music was addressed through legislation the Music Modernization Act.

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Speaker 1: Now last December, Spotify just pulled the content of hundreds

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Speaker 1: of comedians when he couldn't reach a licensing deal with

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Speaker 1: Spoken Giants, one of the first rights organizations for comedians.

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Speaker 1: So it seems like they didn't think it was worthwhile.

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Speaker 1: That is another argument here, hearing from the streaming services

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Speaker 1: that there are a handful of comedians who get regular play,

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Speaker 1: and then there are lots of comedian recordings that are

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Speaker 1: in their catalog that are available to play but never

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Speaker 1: get played. And as I understand it is that the

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Speaker 1: problem was Spotify I refused to pay based on the

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Speaker 1: volume of works in their collection available to be streamed,

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Speaker 1: things that just wanted to pay for the ones that

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Speaker 1: actually got streamed, which is a much smaller number, and

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Speaker 1: that's where the negotiations broke down. And this same thing

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Speaker 1: happened repeatedly over the years with respect to public performance

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Speaker 1: licenses for music and mechanical licenses for music and master

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Speaker 1: licenses for recordings, and the solution has always been compromised,

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Speaker 1: often forced upon the various interests here by Congress or

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Speaker 1: by the Department of Justice or the Federal Trade Commission.

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Speaker 1: Looking in from antitrust perspective, just looking at the lawsuit

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Speaker 1: by itself, does it seem that the comedians have a

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Speaker 1: good case against Pandora. They certainly have a good prime

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Speaker 1: of fashion copyright in Fringeman case they've alleged, and I

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Speaker 1: as soon can prove up that they own copyrights in

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Speaker 1: the works that have been streamed online. I assume that

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Speaker 1: they can prove that the works were streamed online. That

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Speaker 1: ought to be relatively easy to do. And then it's

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Speaker 1: up to the defendant, Pandora, to come up with some

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Speaker 1: defense on which I don't know what it would be.

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Speaker 1: I may be missing something, but they don't see I

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Speaker 1: need the normal viable defenses. I don't see diminimous use

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Speaker 1: defense because they're playing the entire jokes. I don't see

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Speaker 1: a fair use defense. And keep in mind, June, this

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Speaker 1: is not like some of the music cases we've talked

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Speaker 1: about in the past, where somebody says that you've got

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Speaker 1: an idea from my song, you took bits and pieces

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Speaker 1: of my song, you built upon that. This is what

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Speaker 1: is known as literal copyright infringement. It's like taking a

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Speaker 1: book and xeroxing the pages. It's not an attempt to

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Speaker 1: create a transformative new work. You're simply giving away somebody

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Speaker 1: else's actual work verbatim. And that's a much easier case

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Speaker 1: to make than the music cases we've seen the past

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Speaker 1: against that sure n fled Zeppelin, the Blurredlines case, where

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Speaker 1: that we're based on substantial similarity as opposed to literal copying,

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Speaker 1: which is what's going on here. So it's a much

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Speaker 1: easier case for a plaintiff to make out copyright owner

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Speaker 1: to make out. And I think you've done a good

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Speaker 1: job here. And the really important thing to focus on

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Speaker 1: is that they are claiming statutory damages. A Statutory damages

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Speaker 1: are sort of a unique fixture of the Copyright Act

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Speaker 1: of It says that if a copyright owner has trouble

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Speaker 1: proving up their actual losses, they can always get a

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Speaker 1: statutory royalty, and the statute sets that so that for

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Speaker 1: the sort of willful infringement that's alleged here, you can

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Speaker 1: get up to a hundred and fifty thousand dollars per

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Speaker 1: work infringed. So that's not how many times it was

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Speaker 1: stream it's for each work a hundred and fifty thou dollars,

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Speaker 1: but their ten or twelve works, you're quickly into millions

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Speaker 1: of dollars. And indeed, Robin Williams estate alone is suing

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Speaker 1: for about four point one million dollars of statutory damages.

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Speaker 1: And you can imagine if each of these various Comedians

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Speaker 1: lawsuits is in that neighborhood, how quickly that number can

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Speaker 1: get up there in the series money. So there's a

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Speaker 1: lot at stake here and it should justify. Really cause

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Speaker 1: Pandora some concern. Does this seem like it's a suit

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Speaker 1: that will be settled or it's too big to be settled.

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Speaker 1: So we've seen this type of lawsuit never before. This

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Speaker 1: is the first of a kind, and that makes it

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Speaker 1: difficult to predict the course of the litigation based on

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Speaker 1: similar past lawsuits. The closest thing I can analogize to

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Speaker 1: was the lawsuits brought by the Turtles sixty pop music

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Speaker 1: group seeking to obtain licensed fees for the playing on

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Speaker 1: radio stations and digital streaming of their songs that predated

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Speaker 1: the seventy two amendments that the Copyright Act. So this

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Speaker 1: is for songs that did not have copyright protection, but

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Speaker 1: they alleged had various types of common law protections that

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Speaker 1: were infringed. Again, those were novel, first of kind lawsuits, um,

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Speaker 1: and they had to be litigated always all the way

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Speaker 1: to appeal in order to get a sense of how

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Speaker 1: the courts were coming out, And they went up in

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Speaker 1: several state courts and several several federal courts, and it

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Speaker 1: wasn't until all the parties involved had a sense of

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Speaker 1: where the cold courts would all make come out that

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Speaker 1: they had enough information to settle the case and come

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Speaker 1: up with what the risk and rewards were and to

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Speaker 1: agree that compromise. I think you'd likely to see something

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Speaker 1: similar here. I think that the industry needs more guidance

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Speaker 1: on what the risk is to them, and so I

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Speaker 1: think they're liable not to try to quickly settle this,

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Speaker 1: but don't try and push it and see where the

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Speaker 1: liability is. The Pandora in particularly has been predicting something

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Speaker 1: like this for years in their sec filings, saying that

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Speaker 1: this is a risk that's out there, and so I

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Speaker 1: think they're going to need some guidance from the courts,

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Speaker 1: perhaps even going up to the appellate courts to see

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Speaker 1: what the thinking there is on on the law in

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Speaker 1: this area. And I think on the other side, a ledger,

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Speaker 1: I think the comedians and their lawyers are going to

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Speaker 1: want to get a lot more information as to the

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Speaker 1: legal rights and liabilities before they can make an informed

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Speaker 1: decision as to where to settle. And so my gut

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Speaker 1: is that you're going to see this litigation move along

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Speaker 1: for several years before you get that point where the

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Speaker 1: parties feel comfortable that they are fully informed and can

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Speaker 1: make an intelligent and reasonable settlement. Thanks for your insights, Terry,

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Speaker 1: As always, that's Terence Ross of Captain muchen Rosenman. It

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Speaker 1: was a whirlwind seventeen days for Twitter, starting with Elon

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Speaker 1: Musk announcing he'd become Twitter as a larger shareholder, to

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Speaker 1: his offers to buy the whole company, to the board

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Speaker 1: launching a poison pill, to Musk's cryptic love me tender tweets,

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Speaker 1: and finally, at least so far, to Musk making us

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Speaker 1: show me the money move. But even with funding secured,

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Speaker 1: taking over Twitter will not be so easy, as Musk

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Speaker 1: Kim's self acknowledge during a Ted interview last week, do

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Speaker 1: you think this will be somewhat painful and I'm not

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Speaker 1: sure that I will actually be able to acquire it.

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Speaker 1: I mean I could technically afford it. Um joining me

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Speaker 1: to make some sense of these Musk moves is a

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Speaker 1: long cabin, a partner at Ferrell Fritz. Even though Musk

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Speaker 1: is the richest man in the world, the question was

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Speaker 1: still whether he had enough to buy Twitter without selling

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Speaker 1: part of his steak and one of his prized companies

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Speaker 1: to get it. It appears that he does now with

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Speaker 1: the commitments that he's received. He's received commitments from a

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Speaker 1: bunch of banks, thirteen billion dollars from Morgan Stanley and

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Speaker 1: a group of banks, an additional twelve point five billion

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Speaker 1: dollars in margin loans that are secured by his Tesla stock,

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Speaker 1: and he himself has provided an equity commitment letter for

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Speaker 1: billion dollars. So if you add it all up, you

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Speaker 1: get forty six point five billion dollars. It appears that

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Speaker 1: he does have enough to fund the offer he has

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Speaker 1: made for Twitter. Now that's not to say that the

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Speaker 1: board will accept his offer. If the board does not

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Speaker 1: accept his offer, he is at least threatening right now

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Speaker 1: to go hostile, to go straight to the stockholders and

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Speaker 1: offer to purchase their shares directly. The Twitter board made

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Speaker 1: a defensive move by launching a poison pill. Explain what

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Speaker 1: that does. Twitter adopted an anti takeover defense in the

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Speaker 1: form of a sharehold rights plan, which is commonly referred

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Speaker 1: to as a poison pill. What Twitter did was it

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Speaker 1: distributed rights to all of its shareholders that allows them

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Speaker 1: to buy shares, and if someone crosses a threshold trigger

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Speaker 1: in this case, fifteen percent ownership without board approval, all

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Speaker 1: the shareholders other than the person who crossed the fifteen

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Speaker 1: percent threshold get to buy shares at a steep discount.

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Speaker 1: It results in massive dilution to the acquiring person, and

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Speaker 1: so in Twitter's poison pill, the rights allow shareholders to

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Speaker 1: purchase shares at an exercise price of two ten dollars.

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Speaker 1: On the payment of that exercise price, a shareholder would

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Speaker 1: receive a number of shares equal to twice that exercise price,

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Speaker 1: and that would result in massive dilution to the acquiring

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Speaker 1: person because he doesn't get to buy shares at that discount.

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Speaker 1: So the effect of all this is that it prevents

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Speaker 1: Elon Musk from exceeding that fiftcent threshold or even announcing

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Speaker 1: a tender offer to acquire shares that would result in

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Speaker 1: him exceeding that threshold without board approval. And that's the

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Speaker 1: key thing. So the practical impact of all this is

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Speaker 1: that oil roads now lead through the Twitter board are

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Speaker 1: poison pill is very effective in the history of poison pills,

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Speaker 1: and this stretches back about forty years. I'm only aware

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Speaker 1: of one documented case in which someone deliberately crossed the

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Speaker 1: threshold without board approval, so it does serve as a deterrence.

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Speaker 1: The poison pill has no impact on a friendly negotiated takeover,

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Speaker 1: including by Musk, because the board retains the ability to

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Speaker 1: amend the plan and exempt Musk or another require er.

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Speaker 1: It just gives the board more leverage, gives it more

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Speaker 1: time to consider an offer. What does it tell you

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Speaker 1: that Musk is considering launching a tender offer, So it's

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Speaker 1: unclear why he continues to threaten a tender offer. Presumably

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Speaker 1: in order for him to proceed with that tender offer,

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Speaker 1: he would have to convince the board to redeem the

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Speaker 1: poison pill. If he can't convince them, he may try

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Speaker 1: to unseat them. And he himself cannot nominate any directors

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Speaker 1: for the upcoming election because he's missed the notice steadline.

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Speaker 1: But what he could do is and engage in the campaign,

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Speaker 1: really a proxy contest. He will compete for stockholders proxies

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Speaker 1: in order to invent it's enough of them, not necessarily

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Speaker 1: to vote for his select directors, because again he's missed

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Speaker 1: the deadline for nominating, but he might convince enough shareholders

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Speaker 1: to withhold their votes from the board's slate of directors.

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Speaker 1: And what's interesting about Twitter is that Twitter has what's

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Speaker 1: called majority voting. In other words, a director doesn't get

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Speaker 1: elected unless he gets a majority of votes. The general

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Speaker 1: rules that exists for most companies is a plurality voting rule,

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Speaker 1: which means that all you need is more votes than

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Speaker 1: any other. Guy. Tell me how a tender offer would

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Speaker 1: work if he decides to do it. So tender offer

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Speaker 1: is just an offer directly to the stockholders, and he

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Speaker 1: would have to disclose material information about his offer to

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Speaker 1: the shareholders. There are rules that he would have to

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Speaker 1: follow in order for the tender offer not to be

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Speaker 1: deemed courses, but the shareholders would be allowed to make

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Speaker 1: their own decisions about whether to sell their shares that

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Speaker 1: have been offered for tender. The downside of a tender offer,

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Speaker 1: as opposed to a negotiate an acquisition with the company

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Speaker 1: is that you're not guaranteed to get the entire company.

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Speaker 1: So you may get a whole bunch of shareholders who

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Speaker 1: tender their shares. You may end up with a majority

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Speaker 1: of the company, but you are likely not to end

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Speaker 1: up with the companies. But also takes longer than a

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Speaker 1: negotiated acquisition with the company. And now with the poison pill,

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Speaker 1: the announcement of a tender offer in and of itself

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Speaker 1: would trigger the pill. So that's an avenue that has

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Speaker 1: seemingly been cut off from Elon Musk does his latest

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Speaker 1: filing with the SEC and securing financing shell Musk is

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Speaker 1: really serious about acquiring Twitter's not just trolling. Well, I

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Speaker 1: have to say that before this I was not quite

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Speaker 1: convinced that he was serious about acquiring Twitter. I thought

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Speaker 1: that he, you know, sort of can go either way.

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Speaker 1: If it worked out, great, If not, he could exert

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Speaker 1: pressure from the sidelines to do what we know he

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Speaker 1: wants to do, which is to bring about certain changes

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Speaker 1: in the product and the operations of Twitter. This filing

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Speaker 1: shows that he's a little bit more serious than it

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Speaker 1: appeared before, because now he's got the funding. And he

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Speaker 1: also said in the SEC filing that another condition that

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Speaker 1: he had expressed before is no longer a condition to

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Speaker 1: his offer, which is business due diligence. So two major

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Speaker 1: conditions have now gone away. One is the financing condition

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Speaker 1: and the other one is the business due diligence condition.

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Speaker 1: So the offer looks a lot more credible, and he's

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Speaker 1: got some very serious banks smacking him up. That's not

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Speaker 1: to say that the Twitter board will roll over and

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Speaker 1: accept his offer. And what are the options for the

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Speaker 1: Twitter board? Three things can happen now from the Twitter

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Speaker 1: board side of things. One is that they could accept

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Speaker 1: the offer. Number two is that they can make a

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Speaker 1: decision to remain independent by asserting that stockholders in the

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Speaker 1: company are better off by remaining independent and pursuing the

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Speaker 1: corporate strategy. Or three they can find what's called a

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Speaker 1: white knight, another company that they feel is more friendly

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Speaker 1: to the board and is more in line with the

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Speaker 1: corporate strategy. Thanks Allan. That's a la on capin of

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Speaker 1: Ferrell Fritz and that's it for this edition of The

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Speaker 1: Bloomberg Law Show. Remember you can always get the latest

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Speaker 1: legal news honor Bloomberg Law Podcast. You can find them

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00:24:30,400 --> 00:24:35,440
Speaker 1: on Apple Podcasts, Spotify, and at www dot Bloomberg dot com,

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00:24:35,480 --> 00:24:38,840
Speaker 1: slash podcast, Slash Law, and remember to tune into The

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Speaker 1: Bloomberg Law Show every week night at ten pm Wall

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Speaker 1: Street Time. I'm June Grosso and you're listening to Bloomberg