In 1991, Desmond Howard backed up to his own 7 yard line, caught a punt, split two defenders and raced 93 yards down the sideline past Ohio State’s defenders into the end zone, effectively putting the game out of reach. Then, he struck one of the most famous poses in all of college football: the Heisman (which foreshadowed his receipt of the trophy mere weeks later). In this iconic moment, could Howard have known that Brian Maske, a freelance photographer for the Muskegon Chronicle, would snap a picture of Howard in the Heisman pose? Furthermore, could Howard have known he could never use the photo for his own purposes without Maske’s permission?
Two decades later, Howard is facing a lawsuit for copyright infringement by Maske due to Howard’s use of the photo on his own website, www.desmondhoward.com. He certainly could not have foreseen this at the time the picture was snapped. What amounts to a money-grab attempt by Maske (let’s be honest, would he really be suing Howard for using the picture if it weren’t for Howard’s many lucrative years in the NFL or public status on ESPN’s College GameDay?) acts as an small scale depiction of the exploitation of student athletes everywhere by the NCAA, EA Sports, and colleges and universities across the country.
From a legal standpoint, the O’Bannon vs. NCAA case is almost the more simple of the two. The NCAA licensed student-athlete likenesses to EA Sports to use in video games, which EA Sports and the NCAA both have significantly profited from. The student-athletes receive no payment (other than typical athletic scholarships and associated room/board compensation). The simple two part question in the NCAA case is: (a) did the student-athletes consent to the use of their likeness for commercial purposes?; and (b) is the “compensation” paid to student-athletes for their likenesses “fair” relative to the vast amounts made by EA Sports and the NCAA from the video games? The first question is based in law; the second, based in public policy. The more complex issue with the NCAA case appears in the event that the courts rule in favor of O’Bannon and the other plaintiffs. The order allowing players to make money will violate a number of NCAA rules (which will need to be changed), and will pose greater issues when it comes to how much to pay each player (given that only football and basketball tend to be money makers at universities, and even then only fifteen to twenty large universities even make an overall profit through their athletic teams).
The more interesting question (at least, to me) is in the Howard vs. Maske case. Clearly, Howard has a right to his likeness (or publicity). When Maske captured and produced the photo, he did so for journalistic non-commercial purposes (which is covered under the First Amendment to the US Constitution). Such a use of another person’s likeness is considered an “exception” or “defense” to a right of publicity claim. Maske also holds a valid copyright to the photograph. Assuming Howard did not give some passive consent to Maske (by virtue of the fact that Howard was voluntarily playing in a football game where he had to have known his picture would be taken), which property right is controlling? This is a much more interesting question, from a legal standpoint.
The right of publicity (or the right to one’s likeness) is a state law-based property right of a person to control the commercial use of his or her identity. The right is recognized in nearly every state, either in statutory or common law form. Copyright law is a federal law that protects “original works of authorship fixed in any tangible medium of expression.” (17 USCS Sec. 102(a)). The two intersect when the copyrighted work depicts another person’s personal attributes.
In Howard’s case, the copyright holder, Maske, is suing Howard for copyright infringement. Howard is claiming that he can’t possibly be committing copyright infringement when the copyrighted work in question is an image of his likeness and involves his right of publicity. If Maske were exploiting the photo for commercial purposes (other than by suing Howard for Howard’s use of the photo), Howard would have a claim for misappropriation of his right of publicity. Typically, in case law to date on the subject, the plaintiff is the person depicted, and the defendant the person holding a copyright to the photo (or the person licensed by such person to use the photo). Normally, “commercial purposes” would go beyond merely selling or licensing the photo (which would be a valid use). Exploiting a copyrighted photo for commercial purposes really means, according to the courts, using the photo for endorsements or advertisements; in effect, making it appear as though the person pictured in the photo is endorsing a particular product.
In sum, Maske’s copyright claim against Howard (for using the photograph without permission or a license on Howard’s website, which is a use in commerce of the copyright, will likely succeed. Maske has a right to sell and license the photograph which he has a copyright for. Howard’s right of publicity does not hold over Maske’s copyright (except and until Maske uses the copyright to endorse or promote another product). Howard likely won’t like this conclusion, especially since he is the subject of the photo, but it is the likely outcome according to the law.
Business•
on August 12th, 2013•
Part 1 focused on forming and managing corporations in North Carolina. In Part 2, we turn to limited liability companies in North Carolina.
Limited Liability Companies
LLCs are formed by, and can have, one or more members. An LLC can be managed by either the members or one or more managers appointed by the members. An LLC offers broader flexibility in this regard, since an LLC could even have officers (like in a corporation), if the members so decided. As with a corporation, an LLC is a separate legal entity and can own real and personal property, incur debt, enter into contracts, etc.
Taxation: LLCs also offer broad flexibility in terms of taxation. An LLC with two or more members will generally be taxed as a partnership, while an LLC with one member will be taxed as a sole proprietorship. However, an LLC can also elect to be taxed as a corporation.
Formation: LLCs are formed in North Carolina by the filing of Articles of Organization with the Secretary of State, along with a $125 filing fee. The Articles of Organization contain incorporator information, registered agent information, and perhaps most importantly, the election as to whether the LLC will be member- or manager-managed.
Management: Depending on the election in the Articles of Organization, an LLC will be managed by either its members or one or more managers appointed by the members. The members will create and execute an Operating Agreement, which lays out the duties of the members, the duties of the managers (if the LLC has managers), buy/sell provisions, etc. The Operating Agreement also designates the capital contributions (i.e., the money or property put into the LLC by each member).
Member Liability: Typically, members of an LLC will not be personally liable for the debts of the LLC (with the exception of the portion of the LLC they own). However, a member could be liable if he/she personally guaranteed a debt of the LLC. Also, if the LLC was formed solely to defraud others, or created solely as an alter ego of the member(s), a court will invoke the “alter ego” doctrine, and hold members of the LLC personally liable.
Upkeep: An LLC is not required to have annual meetings or appoint (or re-appoint) managers on an annual basis. Maintaining the records of the LLC is therefore typically easier. Furthermore, the Operating Agreement will generally allow managers to handle most business (including incurring debt) on behalf of the LLC, so additional consents are not generally needed when the LLC is taking out a loan.
The LLC is still required, like the corporation, to file an Annual Report with the North Carolina Secretary of State (and failure to do so may result in administrative dissolution), along with a $200 fee.
When determining whether to form an LLC or corporation (or, in some cases, other forms of entities not discussed in detail in this two part blog post), consult with your attorney and your accountant, in order to determine which form of entity will make the most sense for your business. If you are purchasing land for your business to operate on, it may even be best to form both an LLC (to hold the land) and a corporation (to run the business and lease the land from the LLC). Every situation is unique and should be analyzed appropriately.
Business•
on August 7th, 2013•
There are many different types of entities entrepreneurs and start ups can form to manage their business. Each entity has its own pros and cons. There are limited liability companies (“LLCs”), a relatively new invention (LLCs, as an option, did not exist until the late 1970s). There are limited liability partnerships (“LLPs”) or in some states, limited partnerships (“LPs”). Then there are your good old-fashioned corporations (“Inc.”). Other states still have other formats or variations on the above, but these are some of the main entity types in existence today (which are common in most states). This blog post will focus on a few of the basic differences between two of the more common entities selected, LLCs and corporations, in North Carolina. Because of length, Part 1 will focus on corporations, while Part 2 will focus on LLCs.
Corporations
Corporations can have one or more shareholders. A corporation owned by shareholders and managed by directors and officers. The shareholders elect the directors and the directors elect the officers. A corporation must have at least one director and may have a number of officers. Typically, a corporation will have, at the very least, a President and a Secretary. A corporation could also have a Vice President, Treasurer and any number of assistant officers. A corporation is a separate legal entity and can own real and personal property, incur debt, enter into contracts, etc.
Taxation: A corporation can either be taxed as a separate entity (a “C-Corp”) or as a partnership/sole proprietorship (an “S-Corp”). All corporations begin as a C-Corp, and the corporation can make an S election at specific times by filing the appropriate form with the IRS.
Formation: In order to form a corporation in North Carolina, Articles of Incorporation must be filed with the Secretary of State, along with a fee of $125. This is the bare minimum needed in order to form a corporation.
Management: While a corporation can be formed with just a simple fee and the Articles of Incorporation, a corporation should also have bylaws which direct the management of the corporation. Bylaws provide direction as to the number of directors and officers, the duties of directors and officers, dates and times for annual meetings of shareholders and directors, limitations on director/officer liability, etc. If a corporation has more than one shareholder, the shareholders of the corporation should consider a shareholder agreement. Shareholder agreements lay out provisions which provide direction as to what occurs when a shareholder dies, wants to sell his/her shares, whether shareholders are entitled to financial statements, etc. Having these documents in place and agreed upon, early in the corporation’s existence, is paramount to curbing issues down the road.
Shareholder Liability: Typically, shareholders are not personally liable for any of the debts of the corporation (except for the value of their shares and therefore, interest in the corporation). However, in situations where corporate formalities were not observed (shares were not issued, meetings not held and documented, etc.), courts or the IRS may “pierce the corporate veil” and hold shareholders personally liable for the corporation’s debts. Obviously, a very good reason to maintain corporate records.
Upkeep: On an annual basis, a corporation’s directors and shareholders (each separately) must have an annual meeting, where new directors and officers are elected, and other business is conducted. These meetings are documented and all documentation is maintained in corporate books. Additionally, the corporation must file an Annual Report with the Secretary of State (failure to do so can cause administrative dissolution of the corporation), along with a $25 fee.
Additionally, if the corporation’s director(s) wish to make a large transaction, perhaps take out a large loan in the name of the corporation, and such an action is not contemplated or explicitly allowed in the bylaws, the shareholders will have to explicitly authorize such an action by written consent (or in person vote).
Look for Part 2 on LLCs next week.
