This is Bloombird Law with June Brusso from Bloombird Radio. Indeed, nice to me in Washington, where the buck stops here, way to go, and then it's handed out to A I. G. And many other people. Now, Robin Williams is a comedy legend, as is George Carlin. There are words that you can say, no problem topography. No one has ever gone to jail for screaming topography, but there are some words that you
can go to jail for. You can listen to their comedy albums on streaming services, but the estates of Williams and Carlin say that Pandora Media is streaming their comedy albums without getting a license from them. Their estates, along with comedians Andrew Dice, clay Ron White, Bill Angvilla, Nick Depolo, are suing Pandora for not paying them as the authors of the jokes in the way that songwriters are paid
realties for writing lyrics. It will be the first time a court will hear a case over licensing spoken word comedy. To help us understand the novel questions here, my guest is intellectual property litigator Terence Ross, a partner caton Uten rosenmant Terry, the licensing structure gets very complicated. Can you give us an overview? So copyright law with respect to recorded sound is currently very complex because of a complicated history.
There was literally no provision for copyright in recorded sound. Over the course twenty century in Congress finally got around to fixing the Copyright Act by providing copyrights or recorded sound going forward in time. But because recorded sound came to the copyright game so late in the day, it has now a complicated licensing mechanism. And this in part has to do with history, but also in part with
the nature of music. You start from the beginning, somebody writes notes the melody to a song, someone perhaps the same person, perhaps somebody else writes lyrics to go with that. That combination of musical notes and lyrics is often published as sheet music. That sheet music then can be played live to audiences, for example in a ballroom by an orchestra, or it can be recorded onto an LP C, D any other digital medium and listen to add a person's convenience.
So you have these multiplicity of ways that music can be you and that requires several different types of licenses because there's several different copyright components. The first one is known as a mechanical license. Mechanical license has to do with the copyright in the underlying composition, the musical notes, and the lyrics. So if I am a band and I want to call a song of say led Zeppelin, which is copyrighted, I would have to obtain a mechanic
a license in order to use their composition. If, however, as part of perhaps a hip hop piece, I want to sample a few sections from a led Zeppelin song and then add to those samples my own composition, what I need is known as a master license, which is a right to use the actual recording of the music that led Zeppelin did. To make things even more complicated, if you're a radio station, you need to obtain a public performance license, which is a third type of license
for musical recordings. And after the Music Modernization Act, we now have digital streaming services and they have to get completely separate license provided under the m m A, which is referred to as a blanket license. Where does the spoken words fit into this? The copyright regime I just described grew up in a musical context, not in the context of spoken words, And yet what is the comedy recording.
It is spoken words, and we now have a culture in which, thanks to streaming services and podcasts, the marketplace for the spoken word is surging. And people who have copyrights in the spoken word, who previously never even gave much of a thought to enforcing the copyrights, now see that we have this new marketplace in which spoke ward is very valuable and see an opportunity to make money off of that by now for the first time enforcing
their copyrights. And at the cutting edge of this are the comedians and these lawsuits that have been filed by them in California. Let me ask if this, just on a pure copyright kind of analysis, is a joke a comedian tells the same as a song that someone writes, because you often hear people say, oh, he's stole my joke. You know, you tell the same joke in a different way. Is it like lyrics or is it unlike lyrics? So
in theory it is like lyric. There's the story of Bob Hope, one of the most prolific joke riders of all types, who kept all his jokes on three by five index cards and had this massive catalog and collection of jokes, and why did he do that? Because copyright only attaches when and rigid work is fixed in a tangible medium. The words from the copyright act fixed in
a tangible medium. If I simply get up at a comedy club and do an improvised routine, I am not fixing those jokes in a tangible medium by, for example, the classic way of doing that writing them down. Now, the interesting thing about these recordings of comedians performing is that that act of recording their performance fixes the jokes in a tangible medium. Are they're gonna be heard for all time, and therefore there is at least a copyright
in those recordings. Whether or not there's a separate copyright in the jokes the way there would be a separate copyright for the sheet music is a question that is purely factual and depends on how did the comedian take care of their joke creation where they, like Bob Hope, were they writing down their jokes and saving them and cataloging them over time, or were they more like you know, the comedy improv clubs, where people get up and just
do bits and nobody's recording it, nobody's writing down even afterwards. So then Theoretically speaking, the streaming services would have to get two licenses. See in theory, what they should have to do is a pain both a master license from whoever owns the master recording, and they should also in theory of paying a mechanical license from whoever owns the copyright on the joke. Which is why your last question about do they have copyrights and the jokes there is
a good question. Pen Dora says in filings that it streams comedy without a license for the underlying work because that's an industry wide custom. What would Pandora's defense be, This defense that it's an industry wide custom, that doesn't sound very strong to me. Bandora have to the extent of said anything about this and SEC filings is that there's no requirement to take a license in streaming the comedic recordings because that's the industry wide custom. That, however,
is not a cognizable defense to copyright infringement. If there is a copyright and that work that is copyrighted is used without authorization of the copyright owner, that is at least a prime of fashion case of copyright infringement. The other defense you have heard mentioned on behalf of the streaming services is that it would be too hard to determine who owns the copyright and to track them down and to pay them a few cents every time they
stream the copyrighted work. Again, that's not a cognizable defense
to copyright infringement. So it's frankly very hard to know how the streaming services such as Pandora intend to defend against this, and left it's their intent to simply claim that there's no copyright in the underlying joke in the first place, As you said, with music, which is evolved, there are organization asians that you go to to get the license, right, so it's it's easy what Pandora saying is there's no organization we can go to that is
absolutely right, And again it's a it's a problem that is a legacy of the law in this area being developed in the context of music. So UH an FM radio station that that wants to play recorded music UM can go to either b m I or ASCAP and obtain a public performance license with a set fee schedule, and they pay to those organizations. And it's in those organizations who have the burden of figuring out well who actually own the copyright that song, and and and figuring
out how to get money to them. If if you want a mechanical license, you go to the publishing companies, and that that area is dominated by three companies, The Harry Fox Agency, Music Reports, Inc. And the Mechanical Licensing Collective. And again you simply pay the money to them, and it's up to them to figure out who owns the copyright,
how much they get paid, when do they get paid um. Similarly, with digital streaming of music under the Music Monetization Act, this Mechanical Licensing Collective, which the m m A established by law, worries about collecting the fees from anybody wanting a license to stream music and distributing it. But the m m A did not provide for the handling of
spoken word recordings. And so that's where we have this conundrum now, is that the various agencies that have been set up over the years to enforce copyrights to collect licensing fees, none of them were directed at taking care of the spoken word as recorded. And that's why Pandora, with a certain sense of justification, says, how do we
do this? We want to comply with a copyright law, but how do we go about doing this, are we have to search out every comedian and figure out how much that joke was word firsts this joke, and then how to get it to them? And if they passed away, where is their state, who's the trustee of the state,
how do we get the money to them. It is a very serious problem that at the end of the day, has to be addressed through legislation, just as the streaming of music was addressed through legislation the Music Modernization Act. Now last December, Spotify just pulled the content of hundreds of comedians when he couldn't reach a licensing deal with Spoken Giants, one of the first rights organizations for comedians. So it seems like they didn't think it was worthwhile.
That is another argument here, hearing from the streaming services that there are a handful of comedians who get regular play, and then there are lots of comedian recordings that are in their catalog that are available to play but never
get played. And as I understand it is that the problem was Spotify I refused to pay based on the volume of works in their collection available to be streamed, things that just wanted to pay for the ones that actually got streamed, which is a much smaller number, and
that's where the negotiations broke down. And this same thing happened repeatedly over the years with respect to public performance licenses for music and mechanical licenses for music and master licenses for recordings, and the solution has always been compromised, often forced upon the various interests here by Congress or by the Department of Justice or the Federal Trade Commission.
Looking in from antitrust perspective, just looking at the lawsuit by itself, does it seem that the comedians have a good case against Pandora. They certainly have a good prime of fashion copyright in Fringeman case they've alleged, and I as soon can prove up that they own copyrights in the works that have been streamed online. I assume that they can prove that the works were streamed online. That
ought to be relatively easy to do. And then it's up to the defendant, Pandora, to come up with some defense on which I don't know what it would be. I may be missing something, but they don't see I need the normal viable defenses. I don't see diminimous use defense because they're playing the entire jokes. I don't see
a fair use defense. And keep in mind, June, this is not like some of the music cases we've talked about in the past, where somebody says that you've got an idea from my song, you took bits and pieces of my song, you built upon that. This is what is known as literal copyright infringement. It's like taking a book and xeroxing the pages. It's not an attempt to create a transformative new work. You're simply giving away somebody
else's actual work verbatim. And that's a much easier case to make than the music cases we've seen the past against that sure n fled Zeppelin, the Blurredlines case, where that we're based on substantial similarity as opposed to literal copying, which is what's going on here. So it's a much easier case for a plaintiff to make out copyright owner to make out. And I think you've done a good job here. And the really important thing to focus on
is that they are claiming statutory damages. A Statutory damages are sort of a unique fixture of the Copyright Act of It says that if a copyright owner has trouble proving up their actual losses, they can always get a statutory royalty, and the statute sets that so that for the sort of willful infringement that's alleged here, you can get up to a hundred and fifty thousand dollars per
work infringed. So that's not how many times it was stream it's for each work a hundred and fifty thou dollars, but their ten or twelve works, you're quickly into millions of dollars. And indeed, Robin Williams estate alone is suing for about four point one million dollars of statutory damages. And you can imagine if each of these various Comedians lawsuits is in that neighborhood, how quickly that number can get up there in the series money. So there's a
lot at stake here and it should justify. Really cause Pandora some concern. Does this seem like it's a suit that will be settled or it's too big to be settled. So we've seen this type of lawsuit never before. This is the first of a kind, and that makes it difficult to predict the course of the litigation based on
similar past lawsuits. The closest thing I can analogize to was the lawsuits brought by the Turtles sixty pop music group seeking to obtain licensed fees for the playing on radio stations and digital streaming of their songs that predated the seventy two amendments that the Copyright Act. So this is for songs that did not have copyright protection, but they alleged had various types of common law protections that
were infringed. Again, those were novel, first of kind lawsuits, um, and they had to be litigated always all the way to appeal in order to get a sense of how the courts were coming out, And they went up in several state courts and several several federal courts, and it wasn't until all the parties involved had a sense of where the cold courts would all make come out that they had enough information to settle the case and come up with what the risk and rewards were and to
agree that compromise. I think you'd likely to see something similar here. I think that the industry needs more guidance on what the risk is to them, and so I think they're liable not to try to quickly settle this, but don't try and push it and see where the
liability is. The Pandora in particularly has been predicting something like this for years in their sec filings, saying that this is a risk that's out there, and so I think they're going to need some guidance from the courts, perhaps even going up to the appellate courts to see what the thinking there is on on the law in
this area. And I think on the other side, a ledger, I think the comedians and their lawyers are going to want to get a lot more information as to the legal rights and liabilities before they can make an informed decision as to where to settle. And so my gut is that you're going to see this litigation move along for several years before you get that point where the parties feel comfortable that they are fully informed and can
make an intelligent and reasonable settlement. Thanks for your insights, Terry, As always, that's Terence Ross of Captain muchen Rosenman. It was a whirlwind seventeen days for Twitter, starting with Elon Musk announcing he'd become Twitter as a larger shareholder, to his offers to buy the whole company, to the board launching a poison pill, to Musk's cryptic love me tender tweets, and finally, at least so far, to Musk making us
show me the money move. But even with funding secured, taking over Twitter will not be so easy, as Musk Kim's self acknowledge during a Ted interview last week, do you think this will be somewhat painful and I'm not sure that I will actually be able to acquire it. I mean I could technically afford it. Um joining me to make some sense of these Musk moves is a
long cabin, a partner at Ferrell Fritz. Even though Musk is the richest man in the world, the question was still whether he had enough to buy Twitter without selling part of his steak and one of his prized companies to get it. It appears that he does now with
the commitments that he's received. He's received commitments from a bunch of banks, thirteen billion dollars from Morgan Stanley and a group of banks, an additional twelve point five billion dollars in margin loans that are secured by his Tesla stock, and he himself has provided an equity commitment letter for billion dollars. So if you add it all up, you get forty six point five billion dollars. It appears that he does have enough to fund the offer he has
made for Twitter. Now that's not to say that the board will accept his offer. If the board does not accept his offer, he is at least threatening right now to go hostile, to go straight to the stockholders and offer to purchase their shares directly. The Twitter board made a defensive move by launching a poison pill. Explain what that does. Twitter adopted an anti takeover defense in the form of a sharehold rights plan, which is commonly referred
to as a poison pill. What Twitter did was it distributed rights to all of its shareholders that allows them to buy shares, and if someone crosses a threshold trigger in this case, fifteen percent ownership without board approval, all the shareholders other than the person who crossed the fifteen percent threshold get to buy shares at a steep discount.
It results in massive dilution to the acquiring person, and so in Twitter's poison pill, the rights allow shareholders to purchase shares at an exercise price of two ten dollars. On the payment of that exercise price, a shareholder would receive a number of shares equal to twice that exercise price, and that would result in massive dilution to the acquiring person because he doesn't get to buy shares at that discount.
So the effect of all this is that it prevents Elon Musk from exceeding that fiftcent threshold or even announcing a tender offer to acquire shares that would result in him exceeding that threshold without board approval. And that's the key thing. So the practical impact of all this is that oil roads now lead through the Twitter board are poison pill is very effective in the history of poison pills,
and this stretches back about forty years. I'm only aware of one documented case in which someone deliberately crossed the threshold without board approval, so it does serve as a deterrence. The poison pill has no impact on a friendly negotiated takeover, including by Musk, because the board retains the ability to amend the plan and exempt Musk or another require er. It just gives the board more leverage, gives it more
time to consider an offer. What does it tell you that Musk is considering launching a tender offer, So it's unclear why he continues to threaten a tender offer. Presumably in order for him to proceed with that tender offer, he would have to convince the board to redeem the poison pill. If he can't convince them, he may try to unseat them. And he himself cannot nominate any directors for the upcoming election because he's missed the notice steadline.
But what he could do is and engage in the campaign, really a proxy contest. He will compete for stockholders proxies in order to invent it's enough of them, not necessarily to vote for his select directors, because again he's missed the deadline for nominating, but he might convince enough shareholders to withhold their votes from the board's slate of directors. And what's interesting about Twitter is that Twitter has what's called majority voting. In other words, a director doesn't get
elected unless he gets a majority of votes. The general rules that exists for most companies is a plurality voting rule, which means that all you need is more votes than any other. Guy. Tell me how a tender offer would work if he decides to do it. So tender offer is just an offer directly to the stockholders, and he would have to disclose material information about his offer to
the shareholders. There are rules that he would have to follow in order for the tender offer not to be deemed courses, but the shareholders would be allowed to make their own decisions about whether to sell their shares that have been offered for tender. The downside of a tender offer, as opposed to a negotiate an acquisition with the company is that you're not guaranteed to get the entire company. So you may get a whole bunch of shareholders who
tender their shares. You may end up with a majority of the company, but you are likely not to end up with the companies. But also takes longer than a negotiated acquisition with the company. And now with the poison pill, the announcement of a tender offer in and of itself would trigger the pill. So that's an avenue that has seemingly been cut off from Elon Musk does his latest filing with the SEC and securing financing shell Musk is
really serious about acquiring Twitter's not just trolling. Well, I have to say that before this I was not quite convinced that he was serious about acquiring Twitter. I thought that he, you know, sort of can go either way. If it worked out, great, If not, he could exert pressure from the sidelines to do what we know he wants to do, which is to bring about certain changes in the product and the operations of Twitter. This filing shows that he's a little bit more serious than it
appeared before, because now he's got the funding. And he also said in the SEC filing that another condition that he had expressed before is no longer a condition to his offer, which is business due diligence. So two major conditions have now gone away. One is the financing condition and the other one is the business due diligence condition. So the offer looks a lot more credible, and he's got some very serious banks smacking him up. That's not to say that the Twitter board will roll over and
accept his offer. And what are the options for the Twitter board? Three things can happen now from the Twitter board side of things. One is that they could accept the offer. Number two is that they can make a decision to remain independent by asserting that stockholders in the company are better off by remaining independent and pursuing the
corporate strategy. Or three they can find what's called a white knight, another company that they feel is more friendly to the board and is more in line with the corporate strategy. Thanks Allan. That's a la on capin of Ferrell Fritz and that's it for this edition of The Bloomberg Law Show. Remember you can always get the latest
legal news honor Bloomberg Law Podcast. You can find them on Apple Podcasts, Spotify, and at www dot Bloomberg dot com, slash podcast, Slash Law, and remember to tune into The Bloomberg Law Show every week night at ten pm Wall Street Time. I'm June Grosso and you're listening to Bloomberg