Ask Greg: Indemnification Clauses and You

Q: I am an industrial designer and I'm being asked to sign a contract with an indemnification clause. A lot of my peers suggest that it's inappropriate. What should I do?

A: I'm not familiar with any ban on indemnification clauses specific to the industrial design community, but I can say that they're fairly common in contracts across a wide variety of design and non-design industries. In fact, they're so common, so rote, that I'm hard pressed to remember a contract in recent years where I haven't seen one.

An indemnification or indemnity clause, for those who don't know, is a provision in a contract where one party (you) promises another party (your client) to cover them for losses if they're sued by a third-party for an issue arising out of your work. In other words, you act as an insurance company for the party being sued.  In most indemnification clauses, you're asked merely to pay or reimburse the client for the cost of defending that lawsuit (i.e. attorney and court fees). But in some cases, you may be asked to reimburse a party for actual losses they suffered. You may even be asked to mount the actual defense - i.e. hire a lawyer and defend the client yourself. The language of the clause should lay out clearly what your obligations are when it comes to indemnifying your client (vague indemnity clauses can be a real scourge). Typical indemnification clauses make their presence known through buzzwords like "indemnify," "hold harmless," and "defend."

Here's a real world example: Let's say you design a newfangled lamp with all kinds of amazing new design features and functions. A client sees your lamp on your Behance page and orders 100 to stock in her store with the option for more orders if the lamp is a success. You sign a contract with an indemnification clause and start stocking her store with your lamp. A customer buys your lamp in your client's store and soon after sustains second-degree burns. The customer sues your client for selling a defective product. Because you signed an indemnification clause, you now have to pay your client's attorney/legal fees and quite possibly defend her in court.

Whether or not you should agree to a specific indemnification clause is highly dependent on your situation and the language of the clause, and without seeing the whole contract I can't tell you whether to sign it. That said, you shouldn't sign any agreement where you feel the benefit to the client far exceeds the benefit to you. You also shouldn't sign any contract where you have to accept liability for someone else's negligence... that's why mutual indemnification is such a popular option (mutual indemnification is where both parties to the contract promise to defend each other from lawsuits arising only from their own actions or negligence).

This topic is a bit of a sticky wicket, so if you have any questions about it, don't hesitate to contact me or your own attorney. The last thing you want to do is sign an indemnification clause that puts you on the hook for something you shouldn't be responsible for.

The Supreme Court Kills Aereo Because It Found a Loophole

In the aftermath of Wednesday's 6-3 Supreme Court decision stating that Aereo was in violation of the U.S. Copyright Act, there arose in the tech world an amount of hand-wringing that would make Helen Lovejoy green with envy.

When the decision came down, most media outlets proclaimed the demise of the innovative tech start-up. Others lamented the decision and lashed out at the bipartisan group of justices that wrote for the majority. Still others rushed to argue that no, the decision didn't mean the end of Aereo. A friend of mine, a subscriber to Aereo's service, is in the midst of the traditional five stages of grief. In a single day, he's cycled through denial, anger, depression, and now he's onto the bargaining stage, devising solutions to save the company so convoluted you'd need to divert physicists from the Large Hadron Collider to fully comprehend them.

The dust still hasn't settled and it will be a while before we know if Aereo can survive, but here's what we do know: Aereo used a series of antennaes to pull live broadcast signals out of the air and stream them to its subscribers. It did this without paying licensing fees to the networks who own the shows, unlike other broadcasters. Aereo argued that it was merely an equipment provider and not a broadcaster and therefore didn't need to pay licensing fees (hence why their rates are $8 a month as opposed to Comcast's $99). Six of the SCOTUS justices didn't buy it. Roberts, Ginsberg, Kennedy, Breyer, Kagan, and Sotomayor found that despite the technological back-end that made Aereo so unique, Aereo still functioned largely as a broadcaster of copyrighted material as defined by the 1976 amendment to the Copyright Act. They also said that Aereo was a "public performer" of the copyrighted materials. Taken together, these issues meant that Aereo has been violating copyright law since its inception two years ago.

Clearly, a lot of people don't agree with the decision, and this TechDirt article explains why. In essence, they claim that the SCOTUS used a "looks like something that infringes test" to get to their desired result. They looked at the surface and, without really understanding how the technology works, decided that it must be a broadcaster. Critics of this approach cite this as another example of the anti-technology, intellectual laziness that's hung over this particular line-up of justices for some time.

The critics are right in one regard: in determining a case, the justices should always try their best to understand how a particular technology works. Simply relying on a "looks like" approach is not the way the highest court in the land should operate.

But I'm not convinced that's what happened here. I've read this decision cover to cover (unlike other SCOTUS decisions which can be punishingly long, this one clocks in at a reasonable 35 pages). I wanted to hate the outcome. But to my eyes the justices did in fact understand Aereo's technology. They simply weren't convinced that the technology stood far enough apart from those of more traditional broadcasters to exempt Aereo from having to comply with the Copyright Act. This decision doesn't read like a "if it looks like a broadcaster then it must be" approach. It seems much more logical and considered than that.

However well considered the intentions though, bad law can still come out of it. Whether the Court intended it or not, the decision effectively gives cable companies and broadcasters - powerhouses that already lord over us - even more authority to run the board however they want. As I write this, Fox is using the three-day old Aereo decision as leverage in its legal battle against Dish Network.

It also raises a question of legitimacy, as do most of the recent decisions from this heavily partisan Court. In the decision, the justices state that the decision is narrowly tailored towards rectifying Aereo's specific actions rather than attacking technological advances by other start-ups in general. In other words, it looks like the Court is singling out Aereo for punishment, rather than deciding the law. And it does raise the question as to whether this case was really about technology, or whether it was a facade for something more sinister: loopholes (Scalia says as much in his dissent). Aereo thought it found a technological loophole so that it wouldn't have to pay licensing fees to the networks like Comcast, Time Warner, and AT&T have to. Was this a case of revenge? Were the broadcasters expecting the Supreme Court to act as a bludgeon for their interests? If so, that's the bigger concern.

Star Wars, George Lucas, and How Copyright Term Limits Can Affect The Death of The Author

May is an important month for Star Wars fans. Episode IV, A New Hope premiered on May 25, 1977, ushering in the age of the summer blockbuster. This past Sunday was May 4th, affectionately known by fans as Star Wars Day basically so they can all walk around saying "May the Fourth be with you" with impunity. This year, May has taken on extra significance; just last week, Disney released a picture of the cast for the new Star Wars film, Episode VII to be directed by J.J. Abrams and starring a bunch of exciting young actors like Oscar Isaac, John Boyega, and Lupita Nyong'o. It will also feature the original trilogy cast members, including notorious grump, Harrison Ford.

It's all very exciting and even though I've never been a big Star Wars fan, I've been thinking a lot lately about poor old George Lucas. His reputation never recovered from the terrible prequel trilogy and the much hated "Special Editions" of the original films. I have to believe it was the fierce and unrelenting backlash that finally convinced him to sell Lucasfilm to Disney. While he is publicly staying involved with the new films as an elder statesman, it's pretty clear he's washed his hands of the whole thing. And why not? The fan community all but called for his head on a pike after Lucas made those changes to the original films, often with terrible CGI, and some of which altered the thematic tenor of the story (i.e. making Greedo shoot first).

Of course, Lucas had the right to do anything he wanted to those films, including turning Boba Fett into a New Zealander for some reason. The copyrights, and all rights of revision, were his. As far as the law is concerned, that's all that matters. The fans, on the other hand, saw Star Wars as theirs, and many of them used ugly phrases like "George Lucas raped my childhood" to illustrate their feelings on the matter. But I think beneath all that unhinged terror, there's a legitimate argument to be made that after a work is published to the world, the work is no longer the sole property of the artist. And while that concept is not codified in our laws, maybe it should be.

I recently wrote a blog post stating that indefinite copyrights may not be such a bad thing. My argument echoed that of George R.R. Martin, who believes that the creator and his or her heirs are the best people to maintain the integrity of the work over time. I think he has a point... a point that is unfortunately undercut by creators like Lucas who monkey around with their works after they've been released. So how do you codify it? Well, shortening copyright terms would be one way to go. [Yes, that old chestnut. You didn't think I was done harping on it, did you?]

Right now, individual copyrights last for life of the author plus 70 years, resulting in upwards of 170 years of protection. What message does that much protection send? That the copyright owner has complete control over his work for several generations, regardless of the effects of the work on the culture at large. By shortening copyright terms to something like a flat 75 years, Congress would send a very public message to artists and creators that after a certain period of time, the art no longer belongs solely to them; it belongs to the people. And lest you call me a socialist, remember that progress for the betterment of society was one of the original purposes behind copyright protection. While Lucas had the legal right to change his films, he made those changes without much regard for the cultural impact those movies had. The way our copyright law is written today, he shouldn't have to. But the law can't exist in a vaccuum, separated neatly from the realities of life. Star Wars had an immense impact on countless people; you can't just ignore that. Remember that Lucas is hardly the first franchise creator whose ownership interest was outstripped by the fanbase. J.R.R. Tolkien rewrote huge portions of The Hobbit long after it had been published so it would better fit in with the darker tone of Lord of the Rings. His publisher had to step in and prevent him from rewriting it entirely, afraid that The Hobbit's fanbase would be turned off by changes to the upbeat tale.

I'm a strong believer in the death of the author, and I think that altering the length of copyright ownership is a logical extension of that. But if I'm being honest, I'm not as sure as I once was on the merits of shortening copyrights. For every George R.R. Martin who convinces me that creators should have indefinite control of their work, there's a George Lucas who clearly demonstrates that taking the work away from the author may actually protect the art. Luckily, I have this space where I can exercise those uncertainties. What do you guys think?

The FCC's New Rule Protecting Net Neutrality Will Kill Net Neutrality

It seems like everyday there's something in the news to get enraged about: rancher Cliven Bundy encouraging armed militiamen to fire upon federal agents, Russia's shameless near-invasion of Ukraine, the Supreme Court's gutting of affirmative action. The list goes on. But I said early on that this blog would focus solely on the nexus between art and law and so hew to that vision I must, no matter how much I'd like to rant. Luckily (or unluckily, as the case may be), there is a news story which straddles that line close enough and deserves some attention... FCC chairman Tom Wheeler has just proposed a new net neutrality rule which would effectively kill net neutrality. [Insert finger in mouth, pull imaginary trigger]

A few months ago I wrote about the FCC's loss at the D.C. Circuit Court of Appeals on the validity of its Open Internet Rule. You can read about that here. While the court struck down the Order, I wrote that it looked like the door was left wide open for the FCC to reevaluate how it approached regulating internet service providers (ISPs) and essentially restore net neutrality. I was also feeling confident that net neutrality had a fair shot of surviving because even though there's a lot of corporate money in the fight to abolish it, there were a lot of BIG and RICH companies like Facebook, Google, Netflix, and Amazon which supported neutrality and would lobby in its favor.

Well, Wheeler took the bait and decided to have the FCC draft all new rules, which net neutrality proponents hailed. Unfortunately, they hailed too soon. The rule, which goes in front of the other FCC commissioners for a vote in May, will permit ISPs like Comcast or Time Warner to favor websites that pay more, giving them access to greater bandwidth. That means that for an extra fee, websites will be moved into a "fast lane" - their service will be sped up, pushed to users faster and with fewer hitches in service. Websites that do not pay an extra fee will be ushered to the back of the line. The new rule won't, as it currently stands, allow ISPs to slow down or throttle websites that don't pay up, nor will it allow ISPs to outright ban or block websites they don't like. But that's cold comfort for net neutrality supporters. Once you install a tiered system, that is, once you permit one website to have better access than another website for any reason whatsoever, net neutrality is over. According to neutrality supporters, that will stifle innovation while also raising prices on the websites and their customers. Everyone will have to pay more for no added benefit. And that's just what the FCC appears to be doing, despite Wheeler's promise to keep the net neutral.

For it's part, the FCC claims that, yes while it will allow speed ramping, the net will still remain neutral because ISPs would be required to reveal how they handle traffic, how much they charge companies for access to fast lanes, and whether they’ve given preferential treatment to their own content. But how will this be monitored and enforced? What powers will the FCC give itself to punish ISPs that don't play fair? Having spent some time in government myself, I can tell you that enforcement can be a bureaucratic nightmare. And with an ever-shrinking workforce, it may in fact be impossible. All the FCC is doing is giving itself more work, and leaving a half-assed regulation lying out in the open for future bureaucrats to swoop in and water down even further.

It will come as no surprise that Wheeler himself used to be a lobbyist for many of the companies his new rule will now help. That's sad, if not unexpected. When you work for the government, you take on a public trust. That means whatever your past employment, your present actions must meet certain standards of fairness and neutrality so as to serve America as a whole... not just one specific pocket of wealthy citizens. I won't say if Wheeler breached that trust, but I'm not inclined to give him the benefit of the doubt right now.

The death of net neutrality is a big problem for everyone. It will allow a small few to determine what the rest of us get to read and say. Considering the intent behind the creation of the internet - the free and equal exchange of ideas - and considering how much good the internet has done, this cannot stand, especially considering the Obama Administration's past vocal support of net neutrality. I don't know how many of you out there read this blog, but I'm hoping that you take the time to tell the FCC, your Congressional representatives, and the Obama Administration that the only acceptable rule protecting net neutrality is one that actually understands what "neutral" means. I certainly will.

Supreme Court Deathmatch: Aereo vs. The Entire Broadcast Network Industry

For the last six months, a friend of mine has relentlessly tried to get me to ditch my Xfinity hookup and replace it with Aereo, an online TV subscription service. To hear him tell it, it’s the greatest thing ever invented - immediate and live access to broadcast news, sports, and TV shows from the big 10 networks such as NBC, CBS, ABC, FOX, PBS (no cable channels though), all for a measly $8 a month. I think I’ll wait though. I’m happy with my yesteryear technology and I derive a certain amount of comfort from mindlessly flipping through hundreds of channels I’ll never watch. More importantly, Aereo may not even exist in six months. That’s because tomorrow the Supreme Court will hear oral arguments in the case of American Broadcasting Companies, Inc. v. Aereo, Inc. And if Aereo loses, according to its own CEO, the company is kaput.

For those who don’t know, Aereo is a startup that takes television broadcasts from networks and retransmits them to you live via the internet. You can also store these broadcasts in a cloud-based DVR, all for the cost of two cups of coffee. As it turns out, even though you’re paying Aereo, Aereo is not paying the networks; it's just ripping these broadcast signals out of the air and streaming them to you. That didn’t make the networks too happy, so they banded together and sued Aereo for copyright infringement.

This isn’t an easy case and I don’t envy the justices the amount of work they'll have to even understand the technology at play (read this article if you want to know how behind-the-times the SCOTUS really is). Ultimately, this case turns on whether Aereo’s retransmission of broadcast television constitutes a “public or private performance” of copyrighted works. Private performance is perfectly legal, like when you buy a DVD and show it in your home. Even if you invite 100 friends over to watch, you’re safe. But let’s say you rent a theater and charge for admission - that would make the performance public, and that becomes copyright infringement.

In this case, the networks argue that Aereo’s actions constitute public performance because:

1. Aereo streams “live TV” to a wide variety of subscribers;
2. Aereo charges fees for its services;
3. Unlike other retransmitters, Aereo doesn’t pay licensing fees to the networks for permission to broadcast their content.

In opposition, Aereo argues that it does not transmit “to the public.” It transmits only to its paying user base. Furthermore, the choice about what gets retransmitted at any given time is made by the subscriber, not Aereo. Some lower courts have already sided with Aereo, but if I’m being totally honest, I empathize with the networks, even though siding with a corporate copyright holder gives me the willies. Creating and broadcasting content is back-breakingly hard and terrifically expensive. Even some of those low-budget reality shows for third-rate cable channels that look like they were shot on iPhones… oftentimes they have budgets in the tens of thousands of dollars per  episode. And there are lots of working-class content creators behind those shows. Remember, most people in the entertainment industry aren’t millionaires; they’re regular people working paycheck to paycheck, relying on a steady stream of work from networks and studios to pay their bills. It’s easy to think of the producers and directors and say “who cares?” But the people who get hurt first and hardest are the below-the-line talent: the grips, boom operators, location managers, scouts, production assistants, etc. What will happen to those jobs if the networks believe that pouring money into original content is no longer a profitable business model? And if you’re one of the networks, do you want to continue operating in an industry where it’s permissible for competitors to poach your signal and rebroadcast your content without owing you a fee for your trouble?

I don't know what's going to happen, but in a corporate-friendly court like this one, I can see the Supreme Court buying an argument that Aereo’s continued existence will irreparably harm the bottom lines of not just the networks, but the big telecoms like Comcast and Time Warner (soon to be a single world-killing behemoth). I don’t want to see Aereo go down because the use of technology to better peoples' lives is an intrinsic part of the American ethos. But I also don’t want to see a wholesale dismantling of the entire entertainment industry (alarmist I know, but still possible).

I’ll update this post with some thoughts after Tuesday’s oral arguments. In the meantime, I’m going to stick with my cable hook up, and I’ll tell my friend to  start budgeting for cable again if Aereo goes down the poop chute.

Sweat The Business Stuff: How To Price Yourself

Maybe the most common question I get from artists is "how much should I charge my clients?" My response is usually:

[youtube http://www.youtube.com/watch?v=miSP9YwhktQ&w=420&h=315]

I understand why I get this question. Artists at the beginning of their careers are concerned with how they look in the marketplace, so they think that comparing fee structures is a good way to measure success. They hope that, as a lawyer, I'll be able to rattle off price points like trivia - "You're an illustrator? $1000 an hour! Graphic Designer? $700 an hour! Camera operator? $4 million a day!"* I can certainly do that, but I won't, no matter how much I like you. I'm not that short-winded! To get at the heart of this answer, you need to ask yourself what kind of business you want to run. And if there's one thing I've been consistent about in this blogspace, it's that as an artist, you are a business owner whether you like it or not. And sometimes you just gotta sweat the business stuff. That means knowing the value of your time, your work, and YOU.

So how do you do that?

Well, you'll want to do some very math-y things to figure out what you need to earn to survive (i.e. determining your overhead, profit margins, etc.), some of which may require an accountant. I won't go into that now because Lifehacker has already done a good job of that here and here.

That's the easy stuff anyway and it's not sufficient to understand your real value. You have to go deeper, and I don't think "my competition charges X for their services" is, alone, a compelling reason to decide what to charge a client. How do you want your clients to see you? How do you want to spend your time? There's no right answer, and what works well for one business owner may not work for another. For example, I charge flat fees for legal work, despite the industry standard being hourly billing. I chose that billing strategy for one very simple reason: I don't want to chronicle how I spend every minute of my day. That doesn't seem like a good use of my time or energy. I've had other lawyers tell me I'm making a huge mistake, but this works for me, and the time I don't spend tallying up my billable hours is time I can use to work for another client, write for this blog, or go on a bike ride.

Here are some questions that I asked myself when I started this law practice. You may want to consider them as well.

• What are the industry standards? Do those standards reflect the kind of business I want to run? Can I deviate from those standards and what would that deviation say about me to my peers, friends, and clients?

• What fees are my competitors charging? Are those fees fair in a geographical context (e.g. fees that are fair in New York may be exorbitant in Kansas)?

• What's more valuable to me: my time or the project? If I choose time, will I bill hourly, weekly, flat fees, or by some other metric?

• Who are my prospective clients? Who is my potential audience? What does my billing structure say to them about my business?

Ultimately, what you choose to bill a client is in your discretion and I think whatever you decide should have a very solid philosophical and economic foundation of reasoning. A lot of this is going to be trial and error at the beginning too. No business starts out fully formed. In my early producing career I was loaning myself out for $150 a day, which I thought was so astronomical that I felt guilty for robbing my clients blind. Only later on did I realize I was dramatically underselling myself and that producers routinely earned $250-500 a day. Whoops!

What I'm getting at here is that you should do things YOUR way, regardless of how everyone else does it. That will set you apart from the competition. You'll look more thoughtful, and I think clients respond to that. Over time, they'll flock to you, and then you won't care what others charge. You'll only care about how to find time for all the work you have.

*Note: these are not actual rates for these jobs. DO NOT quote these rates to potential clients.