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Summary
Recent legal decisions are significantly impacting the entertainment industry. A California jury found Meta and YouTube liable for $6 million for intentionally designing addictive platforms, potentially opening the door for private lawsuits against streamers and gaming companies using similar engagement tactics autoplay. Separately, New Mexico secured a nearly $1 billion verdict against Meta for creating a public nuisance and exposing minors to harm, prompting Meta to settle with 47 other states for up to $18 billion, though private claims persist. In copyright, the Supreme Court clarified that internet providers are only contributorily liable for infringement if they actively encourage it, a ruling AI companies initially celebrated but studios may leverage against AI models that upload infringing content. A Tenth Circuit decision also affirmed fair use for documentary filmmakers using brief footage without market impact. Finally, a California appellate court ruled non-residents working outside the state are not subject to California tax solely for being paid by a California company, a key win for remote talent.
Zuckerberg on trial. AFP via Getty Images
There have already been several cases this year that directly or tangentially impact the entertainment industry, and this article provides a brief summary of them.
1. The California Addiction Case. In a landmark decision, a jury found Meta and YouTube liable for intentionally designing their systems to be addictive by using features such as infinite scroll, autoplay, and push notifications. Critically, the case was brought by one private party and not as a class action, and the judgment was for $6 million, so the floodgates have opened for similar suits by anyone, and the flood has started.
To some extent, the point of all entertainment is to “addict” the public, since the more eyeballs or time spent, the better, particularly when there is adjacent advertising. The streamers could be accused of “addiction” with features such as “Auto-Play,” “Skip Intro,” and the increasingly prevalent TikTok-style “short-clip” discovery feeds. In addition, the entire market for “mini-dramas” is based on providing a few free episodes to “hook” the viewer into subscribing, and the entire video gaming industry is built on encouraging repeated use. It may not be long before plaintiffs’ attorneys attempt to push the boundaries of the case by suing these companies.
2. The New Mexico Addiction Case. In another landmark decision in a case brought by the state of New Mexico, a New Mexico jury found that Meta knowingly created a public nuisance, violated consumer protection laws, and exposed minors to mental health risks, addictive algorithms, and sexual exploitation. Critically, the damages assessed were almost $1 billion. The size of this verdict scared Meta into recently settling a similar case brought by 47 other states for a total that could reach $18 billion. However, this settlement only applies to claims brought by the 47 states and does not stop private parties from suing.
3. The Copyright Cases
a. Liability for Infringement. The Supreme Court held that an internet provider could only have contributory liability for copyright infringement by its customers if the internet provider “actively encourages infringement through specific acts” or if the service is “not capable of substantial or commercially significant non-infringing uses.”
The immediate relevance of this decision will be to all the AI companies, most of which are popping champagne based on the decision. However, some of those companies do “actively encourage infringement through specific acts,” and my bet is that the studios successfully rely on this decision in their pending cases against Midjourney and MiniMax to find them liable for infringement by their customers based on their active encouragement of infringement. It is one thing to be a passive internet provider and quite another to upload for customer access the very content being infringed, particularly when the business model is, “Come and get it!” Indeed, in May the lower court hearing the MiniMax case declined to accept MiniMax’s defense on this basis. The court also held that MiniMax may be held directly liable for infringing uses created by its customers.
One interesting aspect of the MiniMax case regarding uploading is the MiniMax defense that the uploading occurred outside the U.S., so U.S. courts may not have jurisdiction over it. Another interesting aspect is whether services that merely host customer content (YouTube) will continue to bother with ing the takedown procedures that provide a safe harbor for copyright infringement claims, since they should not have any liability to start with under this Supreme Court decision, at least for contributory infringement. The answer is that they probably will continue the takedown procedures, because (a) it lets them get out of cases at the summary judgment stage, (b) they may be sued for vicarious infringement or direct infringement, which are slightly different theories than the contributory infringement theory that the Supreme Court ruled on, and (c) the EU requires these services to use “best efforts” to avoid infringement, and the takedown procedures meet this test.
b. Fair Use. In a decision that will bring joy to all documentary filmmakers, the Tenth Circuit held that use of one minute of footage without permission in a documentary about “Tiger King” was protected from a copyright infringement claim by the “fair use” defense. Critically, the owner of the footage failed to show any impact on the market for the footage and in fact had never licensed the footage for compensation.
4. The California Tax Case. A California appellate court held that a nonresident of California who is working outside of California is not subject to California tax merely due to being paid by a California company. This case is critical to talent working outside of California for one of the California studios, since California has been extremely aggressive in seeking to tax them. The taxpayer was an individual, but the logic of the case applies equally to corporations (such as loan-out corporations) that render services wholly outside of California, even if paid by a California company.
5. The Trademark Cases. There were a number of trademark cases, but the issues are important enough to warrant a separate article, so stay tuned for the next one.
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