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Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.

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Speaker 2: The weed of crime bears bitter fruit, So like this,

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Speaker 2: it sticks. Did you think you'd get away with it?

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Speaker 1: Did you think I would know? But the shadow knows.

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Speaker 1: Perhaps that's why a novel theory of the SEC is

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Speaker 1: being called shadow trading. A corporate insider may think he

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Speaker 1: got away with it, after all, the trade was in

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Speaker 1: the stock of a rival company. But it seems like

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Speaker 1: the SEC is trying to show that, like the shadow,

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Speaker 1: it sees all. Just ask former Metivation executive Matthew Panawatt.

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Speaker 1: A jury convicted him the regulator's first enforcement action targeting

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Speaker 1: so called shadow trading on Friday in California. Joining me

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Speaker 1: is securities law expert James Park, a professor at UCLA

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Speaker 1: Law School. Jim, this case has been called groundbreaking. Do

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Speaker 1: you think it's groundbreaking and if so, why it is?

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Speaker 3: In some ways, but in other ways, I think it's

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Speaker 3: the standard case. The reason why it's unusual is I

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Speaker 3: believe it's the first time the SDC has brought and

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Speaker 3: won a case involving something called shadow trading, which is

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Speaker 3: a type of insider trading where you're using information that

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Speaker 3: you obtained from your own company to trade in the

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Speaker 3: stock of another company. This is the first time the

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Speaker 3: SDC has brought such a case and pursued serious sanctions.

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Speaker 3: It's not all that unusual, though, in that most of

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Speaker 3: the sort of outcome hinged upon factual issues. Did you

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Speaker 3: believe that this individual got and read the email from

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Speaker 3: the CEO which said that the company was going to

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Speaker 3: be acquired? Factual issues which are fairly routine in insider

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Speaker 3: trading cases. And I think you could argue that this

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Speaker 3: is a straightforward extension of existing law that has been

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Speaker 3: in place since the US Supreme Court's decision in the

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Speaker 3: United States versus o'hagen. But I do think that it

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Speaker 3: is significant because it shows the SEC is willing to

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Speaker 3: bring these types of cases and could do so in

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Speaker 3: the future.

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Speaker 1: What was the evidence against the defendant here?

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Speaker 3: Some of the evidence was circumstantial, so they knew the

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Speaker 3: CEO sent an email that included him and other individuals

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Speaker 3: in the company. They didn't necessarily know though, whether or

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Speaker 3: not he read the email, and he claimed the trial

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Speaker 3: that he did not read the email. But what they

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Speaker 3: do know is that seven minutes after the email was

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Speaker 3: sent and would have been received. He spent one hundred

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Speaker 3: thousand dollars in options in this company that was likely

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Speaker 3: to go up in price upon the announcement that his

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Speaker 3: company would be acquired, and so that is circumstantial evidence.

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Speaker 3: We don't know for a fact, you know, one hundred

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Speaker 3: percent certainty that he actually knew of this inside information

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Speaker 3: and that he read the email. But you know, that's

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Speaker 3: what a jury's for. Does a jury believe his explanation

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Speaker 3: for buying all of these options, which is that he

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Speaker 3: read a research analyst report by Goldman Sachs and that

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Speaker 3: he had been following this company for a long time.

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Speaker 3: You know, that's up to the jury. And recall that

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Speaker 3: this is a civil case. It's not a criminal case

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Speaker 3: where the sec has to prove beyond a reasonable doubt

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Speaker 3: that he violated Rule TEND five, which is the major

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Speaker 3: Securities fraught provision that prohibits insider trading. They only have

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Speaker 3: to prove by a preponderance of the evidence.

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Speaker 1: I thought the defense phraised several good points or defenses.

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Speaker 1: One that you mentioned that the trades weren't based on

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Speaker 1: confidential information because the merger had been covered publicly by

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Speaker 1: the press. So the jury just didn't believe that.

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Speaker 3: It's a great point, and that was an argument that

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Speaker 3: he made, is that you know, the market anticipated the merger.

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Speaker 3: They anticipated the merger, and so this was not non

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Speaker 3: public information. Now, I think the SEC's response is that

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Speaker 3: sometimes there are rumors about whether mergers are going to happen,

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Speaker 3: and the market sort of knows this and the price

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Speaker 3: adjusts accordingly. But there's a difference between a rumor of

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Speaker 3: a merger that could happen at some point in time

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Speaker 3: and an email from your company CEO that says Pfizer

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Speaker 3: wants to buy the company and they want to complete

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Speaker 3: the deal over the weekend, which means there's a higher

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Speaker 3: probability if you know that information that there's going to

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Speaker 3: be a merger that will be closed over the weekend

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Speaker 3: and announced on Monday before the market opens, and that

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Speaker 3: is non public, and I think there's a good argument

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Speaker 3: it is material important to investors. There's a difference between

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Speaker 3: speculating about whether a merger might happen at some point

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Speaker 3: in time and having an indication that there's a probability

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Speaker 3: that it's going to happen over the weekend, and it's

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Speaker 3: from your CEO, who presumably has good information and who

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Speaker 3: typically would not say something this specific unless the possibility

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Speaker 3: of an acquisition was fairly high.

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Speaker 1: The defense also argued that the SEC hadn't proven that

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Speaker 1: pan Watt had an intent to defraud because he didn't

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Speaker 1: know it was illegal to trade in a company that

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Speaker 1: wasn't his employer and didn't conduct business with his employer.

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Speaker 1: So his attorney told the jury, the evidence will show

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Speaker 1: that the entire SEC case is an attempt to put

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Speaker 1: thoughts in mister Panawat's head that we're not there when

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Speaker 1: he made the trades.

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Speaker 3: It's a substantial argument. And you know, these cases depend

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Speaker 3: on intent, and because we don't know for sure what

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Speaker 3: someone's intent is, that's up for the jury to decide.

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Speaker 3: And the jury looked at the evidence and they believe

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Speaker 3: circumstantially that he acted with bad intent. And you know,

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Speaker 3: one fact in favor of the SEC is that he

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Speaker 3: buys one hundred thousand dollars in option. His purchase is

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Speaker 3: represented around eighty percent of the options trading in that

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Speaker 3: stock on that particular day. That is very unusual. And

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Speaker 3: you know, the other point I would make is that

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Speaker 3: ignorance of the law is not a defense, even if

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Speaker 3: you don't know all the ins and outs of insider

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Speaker 3: trading law, which is complicated. That is not a defense

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Speaker 3: to liability. Now he does have an argument that I

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Speaker 3: just was I'm not conscious of doing anything wrong because

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Speaker 3: you know, I didn't understand I couldn't trade in the

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Speaker 3: stock of other companies. And you know, the fact of

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Speaker 3: the matter is he signs the policy saying that you

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Speaker 3: cannot use company information to trade in the securities of

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Speaker 3: another publicly traded company. Now, you know, I think, mister Pano,

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Speaker 3: what would say. You know, we sign all sorts of

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Speaker 3: things when you join a new company. We may not

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Speaker 3: read these things carefully. And I just didn't understand this.

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Speaker 3: You know, I didn't read the agreement very carefully. And

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Speaker 3: you know, I think they're different, you know, views as

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Speaker 3: to whether you're still accountable for following that particular policy

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Speaker 3: or not. And you know, I think that the jury

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Speaker 3: could have decided you are accountable, and you are accountable

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Speaker 3: because you signed the policy, and because you signed it,

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Speaker 3: you have to follow it. And if you're not following it,

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Speaker 3: you know, you're deceiving your employee. And that sort of

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Speaker 3: deception is a type of misappropriation of the company's confidential information.

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Speaker 3: You know, another argument he could make might be, as

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Speaker 3: you know, I found a loophole and I'm gaving the system.

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Speaker 3: I don't know how sympathetic the jury would be to

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Speaker 3: that argument, but you know, that is the sort of

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Speaker 3: argument that one could give some weights to. But the

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Speaker 3: jury rejected those arguments.

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Speaker 1: Was this based on you know, you mentioned the policy,

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Speaker 1: the confidentiality agreement that he signed at his company. I mean,

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Speaker 1: did the SEC bring this based on that? Or could

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Speaker 1: they have brought this even if there wasn't a confidentiality agreement.

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Speaker 2: This is the.

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Speaker 3: Foundation of the case. Without this policy, the SEC would

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Speaker 3: not have an insider trading case. You can only misappropriate

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Speaker 3: confidential information and violate Rule ten B five based on

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Speaker 3: inside information if you have a fiduciary duty to the

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Speaker 3: corporation who stock your trading in, or you have agreed

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Speaker 3: to keep information confidential. Those are the two mechanisms by

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Speaker 3: which you can violate insider trading prohibitions. The first avenue

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Speaker 3: is called the classical theory of insider trading, and that

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Speaker 3: actually does not apply to this case because Panawat does

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Speaker 3: not have any fiduciary duties to insight, which is the

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Speaker 3: company that he traded in he might have some juduciary

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Speaker 3: like duties to his company metivation. But that's why you

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Speaker 3: know this is seen or was seen as a type

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Speaker 3: of loophole. It gets you around the classical theory. But

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Speaker 3: there's a second theory which has just as much status,

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Speaker 3: has been approved by the Supreme Court called the misappropriation theory.

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Speaker 3: And under that theory, the deception is when you sign

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Speaker 3: a policy of confidentiality with your company that commits you

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Speaker 3: to complying with that policy, and if you deceptively trade

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Speaker 3: and violation of that policy, you have violated Rule ten

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Speaker 3: D five. So it is absolutely essential that they had

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Speaker 3: a policy that specified you cannot trade them the securities

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Speaker 3: of another publicly traded company. If they did not have

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Speaker 3: that policy in a general policy of confidentiality, the sec

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Speaker 3: would not have had a cake. Most public companies, or

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Speaker 3: many public companies, are adopting these policies. There's a study

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Speaker 3: by g Men of Michigan State that documents increasing adoption

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Speaker 3: of these types of broad insider trading policies that cover

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Speaker 3: securities of other publicly traded companies.

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Speaker 1: So the SEC Enforcement Chief Gerbert Greenwall said, as we've

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Speaker 1: said all along there was nothing novel about this matter,

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Speaker 1: and the jury agreed this was insider trading, pure and simple.

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Speaker 1: Why is he downplaying that?

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Speaker 3: I think the SEC was receiving some pushback and you know,

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Speaker 3: to say it's not entirely novel. It's partly true. But

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Speaker 3: I think this is the first time that the SEC

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Speaker 3: has pursued this shadow trading theory. I do think that

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Speaker 3: it's an extent of prior laws, but to a different

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Speaker 3: set of facts. And there's you know, room for disagreement

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Speaker 3: about whether you think that's novel or not right. The

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Speaker 3: misappropriation theory is very well established, but I think it

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Speaker 3: was typically understood to apply to these confidentiality policies that

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Speaker 3: might have specified you can't trade in your own company stock.

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Speaker 3: But what begins to happen is companies are adopting broader

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Speaker 3: policies that include other stocks. And so you know that

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Speaker 3: I think is a reasonable extension of the misappropriation theory

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Speaker 3: that you have deceived your employee in trading securities, and so,

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Speaker 3: you know, technically, I think he's right that it's not

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Speaker 3: completely novel. It's just an extension of existing doctrine to

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Speaker 3: new set of facts. Now, you know, I think what

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Speaker 3: the defense are and other concerned individuals might respond and say,

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Speaker 3: is that, well, you've never aggressively applied the theory to

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Speaker 3: this type of facts, and so the industry didn't really

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Speaker 3: understands that this is a violation of insider trading law.

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Speaker 3: But you know, the SEC would say that it's really

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Speaker 3: your job to figure out the law and inform people

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Speaker 3: that you know, this is a logical extension of this

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Speaker 3: series coming up.

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Speaker 1: Critics say the SEC is going beyond its jurisdiction. This

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Speaker 1: is Bloomberg. The SEC won a jury verdict in its

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Speaker 1: groundbreaking insider trading case that seeks to bar employees from

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Speaker 1: using non public information about their own company to place

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Speaker 1: bets on rival stocks. The closely watched two week San

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Speaker 1: Francisco civil trial was the SEC's first enforcement action targeting

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Speaker 1: so called shadow trading. In the case, the regulator argued

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Speaker 1: that former Metivation executive Matthew Panawatt broke the law when

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Speaker 1: he learned that his company would soon be acquired, and,

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Speaker 1: believing the news would benefit other companies in the industry,

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Speaker 1: traded another biotech company call options. His attorneys countered that

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Speaker 1: the trades weren't based on confidential information because the merger

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Speaker 1: had been covered publicly by the press, and they argued

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Speaker 1: that the SEC couldn't prove that Panawat hadn't intend to defraud.

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Speaker 1: I've been talking to Professor James Park of UCLA Law School.

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Speaker 1: The SEC and its enforcement chief have brought cases that

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Speaker 1: have pushed it into new territory, for example, a case

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Speaker 1: over McDonald's CEO's relationship with an employee and the workplace

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Speaker 1: culture at a video game developer. And it's also bringing

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Speaker 1: several cutting edge cases to gain greater control over cryptocurrency.

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Speaker 1: And the criticism is that it's going too far, that

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Speaker 1: it's stretching its enforcement power, is beyond its jurisdiction.

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Speaker 3: That is the criticism. And you know, I think one

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Speaker 3: response the SEC might have is that these are novel problems.

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Speaker 3: These are novel problems, the novel issues, and the reason

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Speaker 3: we were not addressing them before is the SEC was

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Speaker 3: too passive. We need to get out there. We need

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Speaker 3: to enforce the laws to novel situations and educate people

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Speaker 3: about what the law is. You can't simply ignore these

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Speaker 3: broader standards and principles. You know, they're there for people

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Speaker 3: to read and interpret and apply in good faith. And

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Speaker 3: I think the SEC would say is, if you're applying,

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Speaker 3: you know, the definition of insider trading in this appropriation,

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Speaker 3: if you're applying the definition of security and good faith,

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Speaker 3: you would know that in some cases that there are

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Speaker 3: violations of securities laws. Now, the argument on the other side,

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Speaker 3: I think is that you know, certainly, I think the

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Speaker 3: SEC has become more aggressive, and I would say more

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Speaker 3: entrepreneurial in certain ways. I have an article coming out

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Speaker 3: in the Northwestern Law Review later this fall that says

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Speaker 3: the SEC is acting more as an entrepreneurial enforcer, and

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Speaker 3: part of that is that you have a more expansive,

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Speaker 3: aggressive regulatory policy, and enforcement is a way to develop

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Speaker 3: that policy. And you know, they're positives and negatives I

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Speaker 3: think to the SEC being more aggressive and entrepreneurial, but

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Speaker 3: recall that there are times when the SEC is criticized

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Speaker 3: as too passive, too much of a bureaucracy captured by

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Speaker 3: the industry because the lawyers want to get good jobs

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Speaker 3: with law firms, and so, you know, I think, either way,

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Speaker 3: if you're too passive, if you're too aggressive, the SEC

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Speaker 3: is going to face some criticism for its enforcement policies.

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Speaker 3: But I would say that I do think that this administration,

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Speaker 3: for better or worse, has implemented a more entrepreneurial or

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Speaker 3: aggressive approach to enforcement.

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Speaker 1: Do you think that this case will survive and appeal

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Speaker 1: this theory.

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Speaker 3: It's always hard to say. I think, on the facts,

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Speaker 3: on the factual determinations, I think that there's not much

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Speaker 3: of a basis for overturning the case. The vulnerable point

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Speaker 3: to me, I think is on the enter. I think

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Speaker 3: that is the one argument that a judge on the

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Speaker 3: Ninth Circuit or perhaps the Supreme Court could look at

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Speaker 3: very closely on these facts. And you know, that's the

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Speaker 3: place where I think a appellate court could be a

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Speaker 3: little bit skeptical of the SEC theory of the case.

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Speaker 3: On the other hand, I think that you know, these

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Speaker 3: are typically factual matters. The enter is fraudulent intent is

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Speaker 3: a matter for the jury, and many appellate courts will

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Speaker 3: defer to that, And the Supreme Court may not think

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Speaker 3: of this as a good vessel for clarifying the boundaries

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Speaker 3: of insider trading law.

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Speaker 1: Do you know how widespread shadowed trading is? I mean,

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Speaker 1: I'm not sure how the SEC even discovered this trade.

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Speaker 3: Well, I think in this case they do monitor trading activity,

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Speaker 3: and so if you see a big spike in trading,

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Speaker 3: you know, eighty percent of the options activity can be

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Speaker 3: traced to one person who made one hundred thousand dollars

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Speaker 3: in a few weeks from the SEC. Self regulatory organizations

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Speaker 3: like FINRA, they monitor these trading patterns. My guess is

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Speaker 3: that's how they discovered this case. As to how extensive

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Speaker 3: shadow trading is, that is difficult to measure. I've you know,

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Speaker 3: seen some studies here and there that have tried to

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Speaker 3: measure it, and you know whether or not it's extensive,

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Speaker 3: but it's always hard to conclusively determine whether or not

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Speaker 3: it is extensive. My guess is it will become less

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Speaker 3: extensive after this case, and given how it has been publicized.

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Speaker 3: You know, these sorts of decisions matter. My colleague for

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Speaker 3: Nonstreppo has a nice paper on the impact of O'Hagan

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Speaker 3: in the late nineteen nineties and how that might have

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Speaker 3: affected insider trading on merger agreements that he finds it

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Speaker 3: did have an impact.

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Speaker 1: So then you know, considering all that, how big a

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Speaker 1: victory is this for the SEC? A ten on a

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Speaker 1: ten scale or.

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Speaker 3: Five, it's a big victory, every trial win is a

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Speaker 3: big thing and a good thing for the SEC because

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Speaker 3: you're not just settling cases. That's the criticism of the

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Speaker 3: SEC is that too often they just settle cases. The

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Speaker 3: defendant doesn't admit to wrongdoing or deny it, and the

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Speaker 3: SEC has been afraid or doesn't have the resources to

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Speaker 3: actually go in front of judges and juries and test

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Speaker 3: their theory. So I think this is very significant, and

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Speaker 3: you know, along with their win in the Coinbase motion

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Speaker 3: to dismiss, it's been a good few weeks for the

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Speaker 3: SEC and these are needed wins because when you're getting criticized

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Speaker 3: for stretching the law regulating by enforcement, the shortst response

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Speaker 3: is winning cases in courts. And you know they have

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Speaker 3: won these cases. They need to keep litigating cases and

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Speaker 3: winning them fairly consistently in order to enhance the legitimacy

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Speaker 3: of their enforcement efforts.

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Speaker 1: And just hours before this jury verdict came in a

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Speaker 1: jury in New York found Terraform Labs co founder Libel

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Speaker 1: for fraud over the firm's twenty twenty two collapse. Was

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Speaker 1: that a big win as well?

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Speaker 3: Also a big win in my you a much more

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Speaker 3: straightforward case of fraud there with aspect to the crypto assets,

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Speaker 3: where you know, you're claiming that these crypto assets are

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Speaker 3: this project is you know, being used in the real world,

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Speaker 3: that merchants are actually using this digital coin to effectuate transactions.

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Speaker 2: They are not.

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Speaker 3: You are literally making up fake transactions that to create

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Speaker 3: the impression that something's happening in the real world. That

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Speaker 3: strikes me as a fairly straightforward fraud. And Judge Raycoff,

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Speaker 3: I think, you know, my view got it right that

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Speaker 3: these particular digital assets were securities, and so that's a

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Speaker 3: securities fraud, but another big win for the sec And.

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Speaker 1: Just to clarify whether cryptos a security hasn't been decided

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Speaker 1: by an appellate court yet and the district court judges

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Speaker 1: like Raycoff are split on that.

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Speaker 3: They are split, although it seems like the trend seems

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Speaker 3: to be in favor of at least some and in

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Speaker 3: fact actually all of the judge is it said, some

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Speaker 3: digital assets can be securities under the Howie test. The

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Speaker 3: difference is whether you think that, you know, are the

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Speaker 3: tokens when they're trading in secondary markets can they be security?

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Speaker 3: So there is a bit of a split there, and

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Speaker 3: you know, with pre form, you know, producing a jury

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Speaker 3: verdict once Judge Raycoff determines the damages, I would expect

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Speaker 3: there's a chance that that could be appealed to this

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Speaker 3: US Court of Appeals for the Second Circuit, So that

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Speaker 3: could be the first case where we get some guidance

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Speaker 3: from the Court of Appeals.

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Speaker 1: Now, a lot of people might not realize that Congress

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Speaker 1: has never defined insider trading. It's all judge created law.

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Speaker 3: You know, it is insider trading law. You know, has

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Speaker 3: been developed by judges, and you know, there's an argument

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Speaker 3: that for non lawyers it can be difficult to understand

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Speaker 3: these cases and the boundaries of the law. So you know,

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Speaker 3: it's really up to in House Council to do a

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Speaker 3: better job of explaining the boundaries of insider trading and

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Speaker 3: doing it in a way so people are not tuning

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Speaker 3: it out, and you know, this is important stuff. You know,

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Speaker 3: if you have a compliance meeting, you know, maybe mister

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Speaker 3: panowatt attended one and maybe you know, maybe they explained

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Speaker 3: the policy to him, but he was not paying attention something.

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Speaker 3: You know, that's possible, or it's possible that the compliance

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Speaker 3: meeting was not thorough enough. These are things that compliance.

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Speaker 3: These are decisions. Compliance divisions need to be looking at

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Speaker 3: very seriously. They have to also think about how do

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Speaker 3: we understand or how do we explain these rules in

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Speaker 3: a clear, comprehensible way so that our employees understand what

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Speaker 3: the law is.

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Speaker 1: And let's see how long it takes for the sec

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Speaker 1: to bring the next shadow trading case. Thanks so much

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Speaker 1: for your insights, Jim. As always, that's Professor James Park

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Speaker 1: of UCLA Law School. In other legal news today, Donald

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Speaker 1: Trump is now all in three in his last attempts

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Speaker 1: to get his hush money criminal trial, scheduled to start

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Speaker 1: on Monday delayed. An appeals court judge rejected the latest

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Speaker 1: salvo from the former president, who argued he should be

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Speaker 1: on the campaign trail rather than in a courtroom defending himself.

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Speaker 1: Trump's lawyers had asked the state's mid level appeals court

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Speaker 1: to halt the case indefinitely while they fight to remove

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Speaker 1: the trial judge and challenge several of his pre trial rulings.

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Speaker 1: After three straight days of emergency hearings on Trump's delay requests,

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Speaker 1: it appears the way is cleared for jury selection to

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Speaker 1: begin on Monday. Trump's hush money case is the first

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Speaker 1: of his four criminal indictments slated to go to trial

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Speaker 1: and would be the first criminal trial ever of a

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Speaker 1: former president. Coming up next, on the Bloomberg Lan Show,

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Speaker 1: Top Gun the Sequel, a judge throws out the case

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Speaker 1: against Paramount for copyright infringement. I'm June Grasso, and you're

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Speaker 1: listening to Bloomberg.

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Speaker 2: What attention? Taking me?

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Speaker 1: An attention?

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Speaker 2: Good?

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Speaker 1: Paramount has come out on top of a copyright lawsuit

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Speaker 1: over Top Gun, Maverick. There's a lot at stake. The

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Speaker 1: sequel grows nearly one point five billion dollars at the

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Speaker 1: box office worldwide, and a federal judge in California has

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Speaker 1: found that the sequel, set decades after the article that

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Speaker 1: inspired the original Top Gun movie, does not infringe the

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Speaker 1: copyright of the article. Very good news for Paramount, since

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Speaker 1: another sequel is in the wings, so to speak. Joining

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Speaker 1: me is intellectual property litigator Terrence Ross, a partner at

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Speaker 1: Katain Yutchen Rosenmuan over So, the writer of this nonfiction

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Speaker 1: magazine article about real life F fourteen fighter pilots how

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Speaker 1: to sign the movie rights to Paramount for the first movie.

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Speaker 1: So then what happened?

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Speaker 2: So, if you remember way back in nineteen eighty three,

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Speaker 2: wod June wrote this article in California Magazine on the

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Speaker 2: top gun program down at the QS Navy Fighter Weapons School,

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Speaker 2: but wrote it in a sort of an interesting way

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Speaker 2: where he wrote it from the perspective of a pilot

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Speaker 2: in his backseat going through the program, and it caught

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Speaker 2: somebody's eye in Hollywood, and Baramount went out and got

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Speaker 2: an assignment of rights per movie from him. When I

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Speaker 2: look at such agreements, I was focused on what's the

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Speaker 2: credit being called for, you know, at the end of

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Speaker 2: the movie. And he got the lowest possible credit you

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Speaker 2: could get, which is suggested by story written by June.

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Speaker 2: I mean suggested by is like the lowest language you

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Speaker 2: can get and still get some sort of credit for.

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Speaker 2: But they had rights and complete rights in the article

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Speaker 2: for purposes of the movie, and they went out made them

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Speaker 2: movie unclear whether they really needed those rights, but they

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Speaker 2: did it so the you know, I says, Copyright Act

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Speaker 2: has a provision in it that allows heirs to a

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Speaker 2: copyright to terminate a license in the copyright years after

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Speaker 2: the license was given. On sort of the theory that

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Speaker 2: young up and coming writers artists often get cheated in

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Speaker 2: these licenses, and so we have to leave a window

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Speaker 2: of opportunity later on if the work has been worth

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Speaker 2: something for them to recover some value. So they're allowed

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Speaker 2: to terminate the license. And after yone's death in twenty eighteen,

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Speaker 2: his son and widow did exactly that. They sent a

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Speaker 2: letter to Paramount saying they've terminated the rights in the

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Speaker 2: nineteen eighty three California Magazine article because they had seen

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Speaker 2: somewhere that there was a sequel being worked on, and

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Speaker 2: that sort of got us up to the top Gun

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Speaker 2: Maverick the sequel, the.

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Speaker 1: Judge seemed to address every possible angle here. One thing

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Speaker 1: he said was similarities between the two works based on

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Speaker 1: facts can't be protected. So doesn't that pretty much cover everything?

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Speaker 1: Because the initial magazine article was nonfiction, right, it was

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Speaker 1: about real people.

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Speaker 2: So I agree with you, June, as the judge found

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Speaker 2: at one point the magazine article was really just a

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Speaker 2: factual recitation of what went on at US Navy's Fighter

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Speaker 2: Weapons skull DAN a mirror mark, and therefore there really

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Speaker 2: wasn't much that could be protected by copyright. And I

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Speaker 2: have to say, I mean, he said, the judge went

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Speaker 2: through this carefully. I agree with you completely. Judge Anderson

438
00:26:39,680 --> 00:26:44,600
Speaker 2: did a very careful job here with this decision. He

439
00:26:44,680 --> 00:26:49,560
Speaker 2: went through every possible argument raised by the plaintiffs and

440
00:26:49,920 --> 00:26:53,399
Speaker 2: fucinctly described what was wrong with those arguments as a

441
00:26:53,440 --> 00:26:55,800
Speaker 2: matter of law, which is going to make it very

442
00:26:55,800 --> 00:26:58,320
Speaker 2: hard to appeal this case to the Ninth Circuit.

443
00:26:58,880 --> 00:27:02,560
Speaker 1: Why did Paramount even get a license for the first movie?

444
00:27:02,760 --> 00:27:04,520
Speaker 1: It seems like they wouldn't have needed a license.

445
00:27:05,160 --> 00:27:09,800
Speaker 2: So in the age of copyright lawsuits at the drop

446
00:27:09,840 --> 00:27:12,800
Speaker 2: of a hat that we live in, lawyers in house

447
00:27:13,200 --> 00:27:16,960
Speaker 2: at creative organizations such as Paramount Pictures had to be

448
00:27:17,080 --> 00:27:21,240
Speaker 2: very careful, and the cost of getting a license here

449
00:27:21,400 --> 00:27:24,840
Speaker 2: was relatively inexpensive. They didn't have to give away much

450
00:27:24,920 --> 00:27:28,080
Speaker 2: credit in the movie for getting a license. The device

451
00:27:28,240 --> 00:27:31,160
Speaker 2: was relatively low as these things go, So I mean

452
00:27:31,200 --> 00:27:34,359
Speaker 2: it made sense even if the in house lawyer thought

453
00:27:34,520 --> 00:27:38,200
Speaker 2: there was no need to get a copyright license, why

454
00:27:38,240 --> 00:27:40,480
Speaker 2: not get it as an insurance mechanism. I sort of

455
00:27:40,560 --> 00:27:43,920
Speaker 2: get it. Although it did lead to these problems down

456
00:27:43,960 --> 00:27:46,760
Speaker 2: the road at that point in time, back in nineteen

457
00:27:47,000 --> 00:27:51,200
Speaker 2: eighty four, I think it was a very reasonable decision

458
00:27:51,560 --> 00:27:53,080
Speaker 2: on the part of the Paramount lawyers.

459
00:27:53,320 --> 00:27:57,080
Speaker 1: So the court applied this extrinsic task. Will you tell

460
00:27:57,119 --> 00:27:59,680
Speaker 1: us about you know what the court decided and how?

461
00:28:00,760 --> 00:28:04,800
Speaker 2: Sure? So, the Ninth Circuit, which covers the West coast Alaska, why,

462
00:28:05,359 --> 00:28:09,439
Speaker 2: as far as federal appeals, probably sees the most copyright

463
00:28:09,600 --> 00:28:12,879
Speaker 2: cases of any court in the United States. Second Circuit,

464
00:28:12,880 --> 00:28:15,159
Speaker 2: which covers New York Connecticut, mate and see quite a

465
00:28:15,160 --> 00:28:18,159
Speaker 2: few as well. But it's really the Ninth Circuit is

466
00:28:18,160 --> 00:28:22,800
Speaker 2: the driver with respect to these copyright lawsuits involving infringement.

467
00:28:23,040 --> 00:28:26,119
Speaker 2: And for decades now they have laid out a test

468
00:28:26,840 --> 00:28:31,920
Speaker 2: by which the trial courts can filter out certain losses

469
00:28:32,359 --> 00:28:35,760
Speaker 2: at an earlier stage, what we call summary judgment, instead

470
00:28:35,800 --> 00:28:39,640
Speaker 2: of making every one of these copyright infringement lawsuits involving

471
00:28:39,720 --> 00:28:43,160
Speaker 2: music or movies or television show go to a jury troup.

472
00:28:43,520 --> 00:28:47,880
Speaker 2: And so what the Ninth Circuit created this judicially imposed

473
00:28:47,880 --> 00:28:50,760
Speaker 2: gloss on the Copyright Act. You can commit copyright infringement

474
00:28:50,800 --> 00:28:54,440
Speaker 2: on the Copyright Act by not merely xeroxing of work

475
00:28:54,520 --> 00:28:56,600
Speaker 2: or recording a work. You can also do it by

476
00:28:56,640 --> 00:28:59,680
Speaker 2: creating work that's substantially similar. And those are the tough cases.

477
00:28:59,720 --> 00:29:01,680
Speaker 2: The case is where the allegation is that work is

478
00:29:01,720 --> 00:29:04,280
Speaker 2: substantially similar to the copyright at work. So the Ninth

479
00:29:04,280 --> 00:29:06,520
Speaker 2: Circuit said, that's where we have all the problems. We're

480
00:29:06,560 --> 00:29:09,719
Speaker 2: going to set up this test that involves two parts,

481
00:29:10,320 --> 00:29:13,640
Speaker 2: and we're going to call that the extrinsic review and

482
00:29:13,680 --> 00:29:19,120
Speaker 2: the intrinsic review. The extrinsic review looks at sort of

483
00:29:19,320 --> 00:29:24,640
Speaker 2: objective comparison of certain elements of the allegedly infringing work

484
00:29:24,680 --> 00:29:26,720
Speaker 2: with the copyright at work. It is done by the

485
00:29:26,840 --> 00:29:30,720
Speaker 2: judge with the assistance of experts, does not require jury troump.

486
00:29:30,960 --> 00:29:34,680
Speaker 2: The intrinsic part of the test examines an ordinary person

487
00:29:34,800 --> 00:29:38,440
Speaker 2: adjures subjective impressions of the similarities between the two works.

488
00:29:38,680 --> 00:29:41,040
Speaker 2: In order to get to that point, the planet first

489
00:29:41,040 --> 00:29:44,120
Speaker 2: has to satisfy the extrinsic test and convince the court

490
00:29:44,720 --> 00:29:50,320
Speaker 2: that there are objective elements that are substantially similar. So

491
00:29:50,640 --> 00:29:53,720
Speaker 2: the court, as part of the extrinsic test, focuses on

492
00:29:54,200 --> 00:30:01,800
Speaker 2: similarities between the plot, themes, dialogue, mood, setting, pace, character,

493
00:30:02,560 --> 00:30:06,840
Speaker 2: sequence of events, and of course dialogue the actual wording

494
00:30:07,000 --> 00:30:10,880
Speaker 2: being used. So that's where we work in this decision

495
00:30:10,920 --> 00:30:15,280
Speaker 2: by Judge Anderson. He was conducting that review of the

496
00:30:15,480 --> 00:30:19,360
Speaker 2: extrinsic factors to determine whether the case should even get

497
00:30:19,400 --> 00:30:19,800
Speaker 2: to jury.

498
00:30:19,840 --> 00:30:23,040
Speaker 1: Trop So, Terry, will you go through some of what

499
00:30:23,440 --> 00:30:26,160
Speaker 1: the judge considered in making this decision.

500
00:30:27,160 --> 00:30:30,920
Speaker 2: So you know, the plane off raised a number of

501
00:30:31,640 --> 00:30:37,200
Speaker 2: alleged similarities between the Top Gun Maverick and this California

502
00:30:37,240 --> 00:30:41,280
Speaker 2: magazine article. I think I saw somewhere in the opinion

503
00:30:41,640 --> 00:30:46,120
Speaker 2: as on the order magnitude of seventy seven zero different

504
00:30:46,320 --> 00:30:49,720
Speaker 2: alleged similarity. And the judge source said they all fit

505
00:30:49,760 --> 00:30:52,360
Speaker 2: into certain categories, and he went through the category by

506
00:30:52,400 --> 00:30:55,120
Speaker 2: category and pointed out there are certain things that just

507
00:30:55,200 --> 00:30:59,280
Speaker 2: not protected by copyright. We talked about facts, they're not protected.

508
00:30:59,440 --> 00:31:01,960
Speaker 2: So the fact there is this Top Gun program, the

509
00:31:02,000 --> 00:31:04,719
Speaker 2: fact that Navy pilots are that are selected to go

510
00:31:04,760 --> 00:31:07,440
Speaker 2: through it are the best in the Navy. Those are

511
00:31:07,480 --> 00:31:11,080
Speaker 2: all factual elements that get no protection whatsoever. But then

512
00:31:11,080 --> 00:31:15,680
Speaker 2: there are literary expression elements that also get no protection.

513
00:31:15,960 --> 00:31:19,320
Speaker 2: So general plot ideas a murder mystery, you can't protect that.

514
00:31:19,720 --> 00:31:25,880
Speaker 2: You know, stock characters, the detective solving the mystery, the

515
00:31:25,920 --> 00:31:29,080
Speaker 2: British secret agent, you don't get protection for that. And

516
00:31:29,120 --> 00:31:31,800
Speaker 2: then there certain SEMs are fair which are sort of

517
00:31:32,120 --> 00:31:36,200
Speaker 2: situations that arise naturally out of the plot. So if

518
00:31:36,240 --> 00:31:41,000
Speaker 2: you've got a World War II drama set in Europe,

519
00:31:41,280 --> 00:31:43,480
Speaker 2: the characters are going to be Nazis, The bad guys

520
00:31:43,520 --> 00:31:45,040
Speaker 2: are gonna be Nazis, right, and they're gonna be wearing

521
00:31:45,040 --> 00:31:48,040
Speaker 2: squats because you don't get to copyright that. All those

522
00:31:48,040 --> 00:31:52,560
Speaker 2: things are unprotected. And the bulk of what was in

523
00:31:52,640 --> 00:31:56,320
Speaker 2: the California magazine article, which is the allegedly infringed work,

524
00:31:56,560 --> 00:31:58,240
Speaker 2: fit into a category such as that.

525
00:31:58,960 --> 00:32:01,640
Speaker 1: The Plate of the Journey, who is well known in

526
00:32:01,640 --> 00:32:05,960
Speaker 1: this area, said, we respectfully disagree with the ruling, particularly

527
00:32:06,080 --> 00:32:11,760
Speaker 1: on some rejudgment, So explain. The Ninth Circuit has warned

528
00:32:11,920 --> 00:32:18,040
Speaker 1: against prematurely dismissing copyright lawsuits before allowing experts to testify.

529
00:32:18,120 --> 00:32:21,800
Speaker 1: In this case, I think they had submissions from experts

530
00:32:21,880 --> 00:32:25,840
Speaker 1: and the judge didn't consider the plaintiff's.

531
00:32:25,240 --> 00:32:29,760
Speaker 2: Expert So the Ninth Circuit has caution District court judges

532
00:32:29,800 --> 00:32:33,520
Speaker 2: about dismissing copyright lawsuits at too early a point in

533
00:32:33,560 --> 00:32:38,600
Speaker 2: the case, particularly prior to jury trial. The defendants had

534
00:32:38,640 --> 00:32:42,719
Speaker 2: brought a motion to dismiss right after the complaint was piled,

535
00:32:42,760 --> 00:32:45,880
Speaker 2: So this is the earliest possible time to get a dismissal.

536
00:32:45,920 --> 00:32:49,960
Speaker 2: It's basically an attack on the completing itself, saying the

537
00:32:50,000 --> 00:32:54,160
Speaker 2: way you've played this doesn't amount to cognizable legal claim.

538
00:32:54,440 --> 00:32:57,400
Speaker 2: And the court had heard that way back in November

539
00:32:57,440 --> 00:33:01,000
Speaker 2: of twenty twenty two. If I recall correctly and said, look,

540
00:33:01,000 --> 00:33:03,280
Speaker 2: this is way too early. I think within the four

541
00:33:03,360 --> 00:33:06,200
Speaker 2: corners of the complaints, the judge that within this, I

542
00:33:06,200 --> 00:33:09,680
Speaker 2: think there's enough to make out a cognizable legal claim,

543
00:33:09,720 --> 00:33:12,200
Speaker 2: but I'm not going to comment upon where this might

544
00:33:12,240 --> 00:33:14,920
Speaker 2: go in the future. So we go through discovery, we

545
00:33:14,960 --> 00:33:18,120
Speaker 2: get expert reports, and Paramount comes back at the end

546
00:33:18,360 --> 00:33:21,480
Speaker 2: of discovery, the last thing you do before the jury

547
00:33:21,520 --> 00:33:24,880
Speaker 2: trial and files most for summer judgment says you're on it.

548
00:33:24,960 --> 00:33:27,880
Speaker 2: We're back. You said we needed to allow the facts

549
00:33:27,880 --> 00:33:30,479
Speaker 2: to be developed and get expert testimal. We did, and

550
00:33:30,640 --> 00:33:34,280
Speaker 2: we say this is still not a legally cognizable claim

551
00:33:34,440 --> 00:33:37,440
Speaker 2: and therefore we should be entitled summary judgment. And at

552
00:33:37,440 --> 00:33:40,880
Speaker 2: that point I think the judge was perfectly within his

553
00:33:41,040 --> 00:33:46,680
Speaker 2: rights to consider such emotion, and given what we now

554
00:33:46,800 --> 00:33:51,960
Speaker 2: know about those various alleged points of infringement, I think

555
00:33:51,960 --> 00:33:53,720
Speaker 2: the judge got it right and was allowed to do

556
00:33:53,760 --> 00:33:57,080
Speaker 2: this on summary judgment. Now there's a second question that's

557
00:33:57,200 --> 00:34:00,600
Speaker 2: raised by the plane If, which is, well, well, yes,

558
00:34:00,680 --> 00:34:06,320
Speaker 2: you did allow expert to give testimony, and that would

559
00:34:06,360 --> 00:34:10,719
Speaker 2: have been considered, but you refuse to allow our expert

560
00:34:10,880 --> 00:34:14,160
Speaker 2: to testify or to accept it the testimony. They're experts,

561
00:34:14,200 --> 00:34:17,600
Speaker 2: And this is where it gets complicated. In my view,

562
00:34:17,600 --> 00:34:20,319
Speaker 2: it was not that the plaintiff wasn't allowed to put

563
00:34:20,360 --> 00:34:22,680
Speaker 2: up expert testimony. In my view, and I think in

564
00:34:22,680 --> 00:34:27,279
Speaker 2: the judges the plaintiff copyright owners put up expert testimony

565
00:34:27,800 --> 00:34:33,840
Speaker 2: that wasn't competent and relevant to the case. The expert

566
00:34:33,880 --> 00:34:37,640
Speaker 2: for the plaintiff had failed to take into account any

567
00:34:37,760 --> 00:34:41,040
Speaker 2: of these defenses to copyright and infringement. You know that

568
00:34:41,080 --> 00:34:44,040
Speaker 2: they're just facts, that their sins are fair, that they're

569
00:34:44,080 --> 00:34:46,560
Speaker 2: non protectable elements. The expert for the planoffs have just

570
00:34:46,560 --> 00:34:49,840
Speaker 2: assumed everything was copyrightable, and the just said, you know,

571
00:34:49,920 --> 00:34:51,400
Speaker 2: that's what this case is all about, whether or not

572
00:34:51,400 --> 00:34:53,839
Speaker 2: it's copyrightable, whether it's protectable in the first place. You

573
00:34:53,920 --> 00:34:56,960
Speaker 2: can't assume that away. Therefore, your expert opinion is of

574
00:34:56,960 --> 00:34:59,000
Speaker 2: no value here, and we're not going to allow it

575
00:34:59,200 --> 00:35:03,120
Speaker 2: and again think the judge got that right, and therefore

576
00:35:03,160 --> 00:35:05,920
Speaker 2: I really do not think that that's a legitimate complaint

577
00:35:05,960 --> 00:35:09,239
Speaker 2: on appeal. I'm sure the plaintiffs will appeal to the

578
00:35:09,320 --> 00:35:13,600
Speaker 2: Ninth Circuit and raise this point, but judges have enormous

579
00:35:13,640 --> 00:35:17,640
Speaker 2: discretion at the trial court level into what testimony they

580
00:35:17,640 --> 00:35:20,239
Speaker 2: will allow, into evidence what they will not, and I

581
00:35:20,320 --> 00:35:23,240
Speaker 2: just don't see the Ninth Circuit overturning his decision here.

582
00:35:23,719 --> 00:35:25,880
Speaker 1: And let me just say that you are on record

583
00:35:25,880 --> 00:35:28,879
Speaker 1: that when we discussed this the first time, when this

584
00:35:29,120 --> 00:35:31,560
Speaker 1: suit happened, that you said this wasn't going to fly,

585
00:35:32,000 --> 00:35:34,200
Speaker 1: so to speak. So I just want to credit you

586
00:35:34,239 --> 00:35:34,480
Speaker 1: for that.

587
00:35:34,760 --> 00:35:36,560
Speaker 2: Terry Well, I appreciate the question.

588
00:35:37,480 --> 00:35:40,200
Speaker 1: Nothing to get you anything, you know, when.

589
00:35:40,120 --> 00:35:42,680
Speaker 2: You've been doing this as long as I have sort

590
00:35:42,719 --> 00:35:45,640
Speaker 2: of get a flavor for the types of cases that

591
00:35:45,680 --> 00:35:48,920
Speaker 2: get brought. And you know, one of the really telling

592
00:35:48,960 --> 00:35:51,920
Speaker 2: things to me was the plantifs were only able to

593
00:35:52,120 --> 00:35:57,920
Speaker 2: identify a single sentence, and my sentence is being generous

594
00:35:57,920 --> 00:36:00,440
Speaker 2: because it's only a two word sentence, a single sentence

595
00:36:00,640 --> 00:36:04,919
Speaker 2: of dialogue that was similar between the article and top

596
00:36:04,960 --> 00:36:07,879
Speaker 2: Gun Mavericke the sequel, and that's one of the things

597
00:36:07,920 --> 00:36:10,520
Speaker 2: I always look for, are there a lot of similarities

598
00:36:10,600 --> 00:36:15,680
Speaker 2: in dialogue? Are there really unique settings that are similar?

599
00:36:16,000 --> 00:36:19,239
Speaker 2: And here the only dialogue that was similar was a

600
00:36:19,280 --> 00:36:24,480
Speaker 2: phrase fight on, which apparently is the code word at

601
00:36:24,520 --> 00:36:27,680
Speaker 2: the Top Gun school that these pilots use to say

602
00:36:28,080 --> 00:36:33,400
Speaker 2: that the mock engagement is starting. And again that's telling

603
00:36:33,480 --> 00:36:36,920
Speaker 2: that that's the only dialogue similarity they could come up with.

604
00:36:37,320 --> 00:36:40,880
Speaker 2: And quite frankly, idio itself is not copyrightable because the

605
00:36:40,920 --> 00:36:44,520
Speaker 2: Copyright Office does not allow copyrights in short phrases, and

606
00:36:44,560 --> 00:36:47,520
Speaker 2: that would come within that exception to the rules. So

607
00:36:47,760 --> 00:36:49,920
Speaker 2: when you look at and you see no no dialogue

608
00:36:49,920 --> 00:36:53,839
Speaker 2: similar no settings that are really unique, and just all

609
00:36:53,880 --> 00:36:57,880
Speaker 2: these generalities, it's impossible to not have those gut reactions.

610
00:36:58,000 --> 00:37:00,560
Speaker 2: This isn't go anywhere? Does go to get dismissed? I

611
00:37:00,600 --> 00:37:01,719
Speaker 2: guess I got it right this time.

612
00:37:02,200 --> 00:37:05,759
Speaker 1: You always get it right. But why appeal? Then I'd say, Okay,

613
00:37:05,760 --> 00:37:08,279
Speaker 1: they're looking for some kind of settlement, but you know

614
00:37:08,520 --> 00:37:11,920
Speaker 1: Top Gun three is in the wings, so Paramount's not

615
00:37:11,960 --> 00:37:12,880
Speaker 1: going to want to settle this.

616
00:37:13,280 --> 00:37:17,600
Speaker 2: I don't know what this plane iff's specific motivation will

617
00:37:17,600 --> 00:37:21,080
Speaker 2: be to appeal, And apparently counsel for Plane has already

618
00:37:21,080 --> 00:37:23,799
Speaker 2: announced that they're planning on appealing it. I can only

619
00:37:23,800 --> 00:37:27,239
Speaker 2: tell you in general how attorneys think about this, and

620
00:37:27,560 --> 00:37:29,160
Speaker 2: you know, there's no doubt that this had to have

621
00:37:29,160 --> 00:37:30,960
Speaker 2: been I have no inside information, but this had to

622
00:37:31,000 --> 00:37:33,680
Speaker 2: be a contingent V litigation where the lawyer only gets

623
00:37:33,719 --> 00:37:37,800
Speaker 2: paid if they win. So that's a factor. Second, Topa

624
00:37:37,920 --> 00:37:41,640
Speaker 2: Maverick made enormous mile money. I believe the box office

625
00:37:41,680 --> 00:37:45,040
Speaker 2: gross was one point five billion. Yeah, and I think

626
00:37:45,040 --> 00:37:46,400
Speaker 2: it had to do something with the timing of being

627
00:37:46,480 --> 00:37:49,120
Speaker 2: one the first released after the pandemic, when people are

628
00:37:49,120 --> 00:37:51,960
Speaker 2: coming back in theaters and desperate for content. But if

629
00:37:52,000 --> 00:37:54,520
Speaker 2: you can believe this June, that is the largest gross

630
00:37:54,680 --> 00:37:58,000
Speaker 2: of any Tom Cruise movie of all time. It's bigger

631
00:37:58,000 --> 00:38:00,239
Speaker 2: than the Jackie Reacher movie, is bigger than any of

632
00:38:00,280 --> 00:38:02,440
Speaker 2: the I don't all we're up to six or seven missions.

633
00:38:03,880 --> 00:38:05,880
Speaker 2: I have no idea how that happened, but this is

634
00:38:05,960 --> 00:38:08,800
Speaker 2: the enormous amount of money. And you know, the argument

635
00:38:08,880 --> 00:38:11,879
Speaker 2: for damages if there was copyright infringement is that we're

636
00:38:12,040 --> 00:38:15,240
Speaker 2: entitled to the reasonable royalty based on that royalty amount,

637
00:38:15,320 --> 00:38:18,360
Speaker 2: and so the amount at Steak is enormous. And so

638
00:38:18,920 --> 00:38:21,960
Speaker 2: when you have large amounts at steak, even if you

639
00:38:22,080 --> 00:38:25,320
Speaker 2: have a minimal chance of success, you know, the math

640
00:38:25,360 --> 00:38:28,400
Speaker 2: works out that you ought to pursue the appeal on

641
00:38:28,440 --> 00:38:30,520
Speaker 2: the off chance that you get two out of three

642
00:38:30,600 --> 00:38:33,840
Speaker 2: judges on the appellate panels. That's some problem with what

643
00:38:33,920 --> 00:38:36,319
Speaker 2: the district court did. And of course the longer it

644
00:38:36,400 --> 00:38:38,960
Speaker 2: drags out, the hope on the play side is always

645
00:38:38,960 --> 00:38:43,240
Speaker 2: that the defendse get tired of paying their attorneys because

646
00:38:43,239 --> 00:38:45,879
Speaker 2: this is expensive sort of litigation, and then they might

647
00:38:45,960 --> 00:38:48,200
Speaker 2: just consent to the settlement and so they get some

648
00:38:48,320 --> 00:38:51,640
Speaker 2: money out of it, and you're right top gun free.

649
00:38:51,840 --> 00:38:54,040
Speaker 2: The script is already being written. What I read an

650
00:38:54,480 --> 00:38:58,120
Speaker 2: Wood reporter is that their negotiations with director and other

651
00:38:58,160 --> 00:39:01,520
Speaker 2: principal roles and so it looks it's like semi green

652
00:39:01,600 --> 00:39:04,719
Speaker 2: winter ready, and so there's that much more money to

653
00:39:04,760 --> 00:39:08,080
Speaker 2: be had. And that's my speculation in my opinion, based

654
00:39:08,080 --> 00:39:10,160
Speaker 2: on past experience, as to why they might appeal.

655
00:39:10,440 --> 00:39:11,879
Speaker 1: So finally, I just want to ask you this, which

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00:39:11,920 --> 00:39:16,120
Speaker 1: also the Hollywood Reporter brought up this idea that this

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00:39:16,239 --> 00:39:20,680
Speaker 1: kind of order could undermine the notion that studios have

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00:39:20,760 --> 00:39:24,759
Speaker 1: to reacquire the rights to stories for a sequel if

659
00:39:24,760 --> 00:39:28,040
Speaker 1: the original was based on source material. And they talk

660
00:39:28,120 --> 00:39:33,360
Speaker 1: about the copyright lawsuit that Columbia Pictures filed against George Gallo,

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00:39:33,520 --> 00:39:36,600
Speaker 1: who wrote the story that developed into The Bad Boys.

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00:39:37,239 --> 00:39:41,120
Speaker 2: So it's an interesting question of law that I think

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00:39:41,280 --> 00:39:45,160
Speaker 2: is discussed too broadly in that Hollywood Reporter article that

664
00:39:45,200 --> 00:39:47,799
Speaker 2: you're referencing. It really comes down to what was the

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00:39:47,840 --> 00:39:50,239
Speaker 2: agreement that was signed in the first place. So if

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00:39:50,280 --> 00:39:52,840
Speaker 2: you get a license to the copyright, you can do

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00:39:52,880 --> 00:39:55,799
Speaker 2: whatever you want with it, including creating derivative works, which

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00:39:55,840 --> 00:39:58,120
Speaker 2: is essentially what a sequel is, a derivative work. The

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00:39:58,160 --> 00:40:00,840
Speaker 2: way we teach copyright is copyright is like a bundle

670
00:40:00,880 --> 00:40:04,840
Speaker 2: of sticks. They're different individual rights, and you can give away,

671
00:40:05,120 --> 00:40:08,960
Speaker 2: license away, sell away individual sticks, or the entire bundle

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00:40:09,000 --> 00:40:11,800
Speaker 2: of sticks, and so it depends how the agreement is written.

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00:40:12,160 --> 00:40:12,399
Speaker 1: Here.

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00:40:12,600 --> 00:40:14,920
Speaker 2: I don't think that was a problem, and therefore I

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00:40:15,000 --> 00:40:20,920
Speaker 2: don't think this decision really has any impact upon future negotiations.

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00:40:21,120 --> 00:40:23,680
Speaker 2: It's always going to turn on what was the specific

677
00:40:24,120 --> 00:40:27,719
Speaker 2: first agreement by which the rights were acquired, that they

678
00:40:27,760 --> 00:40:31,280
Speaker 2: buy or license the entire bundle or just one stick

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00:40:31,320 --> 00:40:34,000
Speaker 2: for a limited period of time. And that's why I

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00:40:34,040 --> 00:40:37,080
Speaker 2: think those comments, I mean the Hollywood reporter overreach.

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Speaker 1: We appreciate all your commentary on the show. Thanks so much, Terry.

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Speaker 1: That's Terrence Ross of Katin Yuchen Rosenman. And that's it

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Speaker 1: for this edition of the Bloomberg Law Podcast. Remember you've

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00:40:48,800 --> 00:40:51,520
Speaker 1: can always get the latest legal news by subscribing and

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00:40:51,600 --> 00:40:55,120
Speaker 1: listening to the show on Apple Podcasts, Spotify, and at

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Speaker 1: Bloomberg dot com, slash podcast, slash Law. I'm June Grosso

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Speaker 1: and is Gloomberg