A PUBLIC PRESS?

A Public Press? Evaluating the Viability of Government Subsidies for the Newspaper Industry

Brad A. Greenberg^[1]

Despite the availability of information from online news organizations and new media outlets, newspapers remain the primary contributor of new content to the marketplace of information and ideas—integral in setting the agenda for public discourse, connecting readers with their communities, reducing the costs of citizen oversight on elected officials, and producing investigative and local news reports.  But newspaper economics have sparked massive reductions in editorial operations and threaten the press’s role in American dem-ocratic society.  The strong public interest in preserving the newspaper industry should compel Congress to stabilize the press.

Journalists, politicians, and legal scholars have discussed many possible solutions.  This Comment evaluates the practical and con-stitutional questions raised by two potential public subsidy programs—direct government funding and indirect support by facilitating newspaper conversion to nonprofit status—and whether such programs could be administered without jeopardizing the Fourth Estate’s independence.  This Comment argues that direct subsidies, though they could be tailored to survive constitutional challenge and to protect editorial independence, cannot deliver a feasible long-term solution.  Indirect subsidies likely would only be available to newspapers following an amendment to the U.S. tax code and even then would provide limited benefit to qualifying newspapers until they have devel-oped a fundraising base.  Yet, this Comment concludes that subsidies could stabilize the press practically if Congress combined direct funding and tax-based incentives into a hybrid similar to that utilized by public radio.

I.         Introduction        

II.         Stopping the Press        

A.        Consuming News, But Not Buying a Newspaper        

B.         Subsidies for a Public Press?        

III.         The Press and American Democratic Society        

A.        The Changing Media Landscape        

1.        Fewer Professional Newsgatherers        

2.        Consolidating and Closing Newspapers        

B.        Congress’s History of Helping the Press        

1.        Post Office Act of 1792        

2.        Public Broadcasting Act of 1967        

3.        Newspaper Preservation Act of 1970        

C.        Congress Should Act to Help Now        

IV.         Direct and Indirect Government Subsidies        

A.        Direct Government Funding        

1.        Ability to Target Local and Investigative Reporting        

2.        Constitutional Concerns        

3.        Editorial Independence        

4.        Political Plausibility        

B.        Tax-Based Incentives        

1.        Ability to Target Local and Investigative Reporting        

2.        Constitutional Concerns        

3.        Editorial Independence        

4.        Political Plausibility        

V.          The Hybrid: A National Public Newspaper Partnering with Local Nonprofit Newspapers        

VI.         Conclusion        

I.         Introduction

The newspaper business is broken.^[2]  Circulation started slipping after hitting its peak in 1987 and began its plummet with the turn of the millennium and the rise of the digital age.^[3]  Yet, newspapers remain the primary contributor of new content to the marketplace of information and ideas.^[4]  Without the contributions of newspapers, the marketplace will suffer and, in turn, so will democratic self-governance.  Long recognized as the Fourth Estate, newspapers remain integral in setting the agenda for public discourse, connecting readers with their communities, reducing the costs of citizen oversight on elected officials, and producing investigative and local news reports.^[5]  Despite the success of many online news organizations—often start-ups with leaner staffs and lower budgets—newspapers remain critical to American democratic society.^[6]

Because of this public interest, Congress should act to stabilize the press.  Journalists, media watchers, academics, and politicians have discussed many possible solutions.  This Comment assesses the appropriateness and viability of direct and indirect government subsidies for the press.  Part II discusses the newspaper industry’s financial situation, focusing on how economic changes have dramatically reduced the nation’s corps of professional newsgatherers and, in turn, contributions to the marketplace of information and ideas.  Part III details the government’s previous attempts to stabilize the press and the public policy rationale for doing so.  In Part IV, this Comment evaluates the legal questions raised by two potential public subsidy programs—direct government funding and indirect support by facilitating newspaper conversion to nonprofit status—and whether the government could administer such programs without jeopardizing the Fourth Estate’s independence.  Finally, Part V concludes that neither direct nor indirect subsidies alone could sufficiently support the press and protect it from political interference.  The best subsidy model would combine patronage and tax-exempt benefits to do for newspapers what NPR has done for public radio.  This model would include some annual federal funding but would primarily be supported by readers motivated by tax incentives to donate—all the strengths of each form of subsidy and fewer weaknesses.

II.        Stopping the Press^[7]

Monitoring the press has become a macabre endeavor.^[8]  For decades, newspapers were cash cows, “a kind of license to print money.”^[9]  No longer.  Most newspapers have struggled during the past decade to eke out any profit—and often have done so only by reducing newsroom expenses, unloading assets, and getting creative with their accounting.^[10]  Print ad revenue plummeted almost 50 percent between 2006 and 2010, from $47 billion to $24 billion.^[11]  Despite gains, online ad revenue still accounts for only 10 percent of what papers make from print ad sales.^[12]  Accounting for inflation, the last time newspaper ad revenue was that low was nearly half a century ago.^[13]

Publishers primarily have lowered expenses by shrinking page sizes, reducing newsgathering budgets, and repeatedly cutting staff, leaving fewer reporters to cover the communities they serve and to uncover issues of public interest.^[14]  As the newspaper columnist Molly Ivins articulated in lamenting newspaper publishers’ and top editors’ decisions: “For some reason, they assume people will want to buy more newspapers if they have less news in them and are less useful to people.”^[15]

The Los Angeles Times, for example, still publishes and delivers daily—more than some newspapers can say^[16]—but has stopped actively covering many parts of the community.  It currently employs fewer than 600 journalists, which represents barely half the L.A. Times’s editorial staff in the 1990s.^[17]  Where the newspaper used to have a 115-person newsroom^[18] in the San Fernando Valley, going toe-to-toe with the Valley’s Daily News, it now has one reporter.^[19]  Coverage of Los Angeles City Hall is down to two reporters.^[20]  And for years no one has been assigned to cover the largest U.S. port.^[21]  Empirically, it is difficult to measure the correlation between loss of editorial staff at the L.A. Times and reduction in the newspaper’s editorial output, but a regular reader is all too familiar with the consequences of the newspaper’s fiscal woes.^[22]

The trend continues across the industry.  Gannett Company, the largest U.S. newspaper publisher, which between 2005 and 2010 shed about 60 percent of its 53,000 employees, began 2012 by offering early retirement packages to 665 employees in its U.S. Community Publishing division of 82 newspapers, including the Arizona Republic, Detroit Free Press, and Indianapolis Star.^[23]  Some newspapers have taken more drastic business measures by consolidating with comp-etitors or simply closing.^[24]  Fewer than half of newspaper executives surveyed in 2010 were confident that their operations would survive another decade without substantial changes to their business models; nearly a third thought their newspapers would cease publication within five years.^[25]  Analysts have predicted the death of print newspapers to occur as early as 2016.^[26]

A.        Consuming News, But Not Buying a Newspaper

The problem for the press is not that Americans no longer demand news.  In fact, Americans now spend on average about seventy minutes consuming news each day.^[27]  But only a small minority of Americans actually buys a newspaper.^[28]  When print readership drops, newspapers become less attractive to advertisers, resulting in a downward spiral of both subscription and ad revenues accelerating each other’s plummet.^[29]  Readers and advertisers have abandoned print for the Internet,^[30] and newspaper revenue has fallen accordingly each year since peaking in 2005, with the decline in print ad revenue far outpacing the gains in online ad revenue.^[31]

Current laws provide no solution to the press’s problems.  Copy-right law protects how news is expressed^[32]—the literal sequence of words that form the author’s creative expression—but not a story’s facts or its quotes.^[33]  Once digitized for distribution online, the expres-sion of a news story becomes easy to infringe by republishing and distributing online; in addition, it is costly for newspapers to monitor for verbatim copying of their stories and to enforce against such infringements.^[34]  More significantly, even word-for-word copying can-not be blamed the newspaper industry’s anemia.  Such copying is primarily committed by bloggers, whose readership may be nominal and who may defend their infringement as fair use;^[35] news aggregators like Google typically copy just the headlines, which generally are considered ineligible for copyright protection,^[36] and, when copying text, copy just a line or two.  Finally, although facts are costly for newspapers to gather, those facts are not copyrightable and there is no federal “hot news” doctrine^[37] that would enable newspapers to hold liable online news sites that scrape^[38] the facts that the former invested resources in reporting.

B.         Subsidies for a Public Press?

Recognizing the press’s role in American society and its inability to utilize current laws to cure its ails, the Federal Trade Commission in June 2010 discussed several actions that would aid the newspaper industry and “support the reinvention of journalism.”^[39]  One of the possibilities discussed was government subsidies for newspapers—both direct funding and indirect support via tax benefits.^[40]

The government could provide direct funding as a one-time gift or as ongoing support.  Such funding could apply uniformly across the newspaper industry or be tailored to provide greater support based on the degree to which a newspaper serves the public interest with local and investigative reporting.  Indirect support could be provided with a tax break for the press or by enabling general-interest newspapers to receive tax-exempt status.  Either indirect benefit would be ongoing and would be enhanced by individuals being able to contribute tax-deductible donations to the nonprofit newspaper of their choice.  Both types of subsidies—and the multiple permutations of each—would infuse the newspaper industry with much-needed good news and improve its fiscal outlook, enabling newspapers to reinvest in news-gathering efforts that benefit the public.

Though federal subsidies for private industries generally are unpopular,^[41] there is a strong public policy interest in the federal government stepping in to prop up the Fourth Estate.  Parts IV and V of this Comment explore the different subsidy options available to Congress.  Before discussing those subsidies and the associated legal implications, Part III articulates why it is appropriate for Congress to aid the press and why Congress has seen fit to do so in the past.  The chief public policy interest at the heart of this Comment is the preservation of newsgatherers, whose contributions to the marketplace of information and ideas are integral to democratic self-governance and the free exchange of ideas.  Accordingly, Congress should not support just those newspapers that still deliver a printed paper every morning.  Some metropolitan newspapers have already transitioned to online only, and, as discussed in the next Part, digital is the future—even for the New York Times.

III.        The Press and American Democratic Society

The press has long played an integral role in American democratic society; saving the newspaper industry is about more than a romantic notion of smudgy news ink and reading the paper at the breakfast table.  Even before the nation’s founding, the press was pivotal in setting the agenda for public discourse, informing Americans about their comm-unities, and acting as a watchdog over government officials.^[42]  As Justice Black wrote for the Supreme Court in 1966:

The Constitution specifically selected the press, which includes not only newspapers, books, and magazines, but also humble leaflets and circulars . . . to play an important role in the discussion of public affairs.  Thus the press serves and was designed to serve as a powerful antidote to any abuses of power by governmental officials and as a constitutionally chosen means for keeping officials elected by the people responsible to all the people whom they were selected to serve.^[43]

Though the Press Clause is an unsettled area of the law,^[44] newspapers today remain the primary publishers of new information—information now being consumed more than ever before^[45]—and provide substantially more investigative and local beat reporting than other media.^[46]  They also remain critical to monitoring elected officials and educating citizens about their communities.^[47]  In particular, news-papers continue to be best at performing the type of newsgathering that generates the greatest positive externalities: investigative and local reporting.^[48]  Those are also the types of newsgathering that are suffer-ing the most.^[49]

While the Internet has proven adept at providing a publishing platform for a diversity of voices and serves as a valuable complement to the institutional press, the Internet cannot fulfill the institutional press’s Fourth Estate role^[50] as the primary provider of new con-tributions to the marketplace of information and ideas.^[51]  Further, even with the addition of online journalists, the national newsgathering corps has continued to wither.  In 2007, the first year that the American Society of Newspaper Editors counted online journalists, there were 57,000 “newsroom” employees.  In 2009 that number fell to 46,700.^[52]  Fewer news reporters leads both to fewer newsgatherers to actively cover important beats and to overworked reporters having less time to research the news that they are on deadline to report or to investigate tips about misbehaving public officials.

A.        The Changing Media Landscape

Much of what newspapers produce can be thought of as a public good.  Investigative and beat reporting generate nonrivalrous^[53] and nonexcludable^[54] information crucial to community involvement.  This information, which primarily comes from newspapers,^[55] benefits the public.  Conversely, much of the content produced by online news sites relies heavily on content from old media.^[56]  Though new media is changing the news-consumption landscape, online news providers gen-erally do not supply significant new contributions to the marketplace of information and ideas.^[57]  Thus, reductions in newspaper editorial oper-ations carry a corresponding loss in the creation of the independent information that the Framers sought to protect.^[58]  Of particular concern are two related phenomena: the shrinking corps of professional news-gatherers and the consolidation and contraction of the newspapers that once employed them.

1.        Fewer Professional Newsgatherers

The Huffington Post and Daily Beast are at the top of the online-only news industry.^[59]  They are general-interest news magazines that operate on the twenty-four-hour news cycle.  Like many successful online-only news sites, they specialize in reporting on entertainment and national politics and in providing commentary.  They perform little investigative reporting.  A few nonprofit para-news organizations^[60] have stepped in to supplement newspapers’ investigative reporting, which has dropped considerably as budgets have plummeted.^[61]  But one of those organizations, the Center for Public Integrity, reduced its staff by about 20 percent in December 2011 to help close a $2 million budget shortfall.^[62]  A success story is Pro Publica, which continues to add to an esteemed staff that has received two Pulitzer Prizes^[63] since first publishing in June 2008.^[64]  But investigative newsrooms like Pro Publica require substantial philanthropy to get started,^[65] as do online-only local newspapers like Voice of San Diego, a nonprofit with about a dozen reporters and a significant benefactor.^[66]

Further, even with the success of investigative para-news organizations like Pro Publica and online-only local newspapers like Voice of San Diego, it is not clear that online news outlets can offset newsgathering losses in the newspaper industry.  In the nation’s capi-tal, successful news outlets like Daily Beast and Politico^[67] fall far short of replacing the massive losses to the Washington press corps caused by Washington bureau closures and consolidation.^[68]  These reductions are of even greater concern when it comes to local news reporting because newspapers remain the greatest source of local information.^[69]

While organizations like Pro Publica should be lauded for the work they do, and newspapers should continue to partner with the investigative news nonprofit when practical, Pro Publica is an anomaly.  It cannot fill the gaps in coverage that will widen as the newspaper industry continues its downward spiral.  In particular, Pro Publica cannot be expected to offset the loss in local news coverage, and few philanthropists have stepped forward to back online-only local news organizations like Voice of San Diego.^[70]

2.        Consolidating and Closing Newspapers

Another concern is that media consolidation and newspaper contraction^[71] will lead to a loss in editorial diversity and a rise in market dominance by a few newspaper chains.^[72]  In arguing that media ownership should be subjected to additional regulations to curb this decline, C. Edwin Baker wrote, “The general democratic goal is increased pluralism of sources and viewpoint as well as of content or subject categories.”^[73]  Judge Learned Hand once voiced a similar sen-timent about the newspaper industry:

[T]hat industry serves one of the most vital of all general interests: the dissemination of news from as many different sources, and with as many different facets and colors as is possible.  That interest is closely akin to, if indeed it is not the same as, the interest protected by the First Amendment; it presupposes that right conclusions are more likely to be gathered out of a multitude of tongues, than through any kind of authoritative selection.  To many this is, and always will be, folly; but we have staked upon it our all.^[74]

Judge Hand went on to note the substantial role of the newsgatherer in shaping the news and opined that “two accounts of the same event will never be the same.”^[75]

It is unlikely that the multitude of new voices finding an audience online will offset losses in editorial diversity.  In fact, while they increase opportunities for democratic participation,^[76] they simultan-eously reduce viewpoint exposure.  While the Internet has given every pundit a platform and a printing press, it has also made it much easier for individuals to avoid exposure to viewpoints that they do not share.^[77]  This compartmentalization does not support democratic interests.^[78]  While niche news sites and many blogs often preach to the choir, newspapers at least strive to be unbiased in their newsgathering and reporting.^[79]  Furthermore, by presenting a range of voices on their opinion pages and in reported stories, they expose readers to a diverse range of viewpoints.^[80]  Such diversity is lost as newspapers reduce reporting staff or permanently stop the presses.  The case for government intervention is not about traditional media subjugating new media—it is about saving traditional media, preserving thereby an essential contributor to American democratic society.

For these reasons, any government assistance should focus on members of the traditional press.  Beneficiaries, however, need not publish a newspaper that lands on a subscriber’s doorstep each morning.^[81]  Digital publication—with its lower expenses, broader reach, and greener footprint—is the future.  Even Bill Keller, executive editor of the New York Times from 2003 to 2011, has believed for at least several years that “eventually” the New York Times’s primary business will be online: “[T]he Web audience is growing at a great clip, while print circulation is not. And online revenues are growing faster, too, albeit from a smaller base.  If the trend continues, there is little doubt that—‘eventually’—online becomes the main business.”^[82]  But newspapers cannot survive on online ad revenue alone—at least not yet.^[83]  And American democratic society cannot afford to allow its Fourth Estate to be fundamentally weakened before news executives stabilize their future.

B.        Congress’s History of Helping the Press

In looking to prop up the Fourth Estate, the government need not strain to find precedent for such congressional action.  From the Post Office Act of 1792 to the Newspaper Preservation Act of 1970, Congress has passed several laws that favor the press—and disfavor other forms of media—in an effort to increase news publication and dissemination.  These efforts were motivated by a belief that an informed citizenry is essential to American democratic society.

1.        Post Office Act of 1792

Shortly after the nation’s founding, Congress saw a need to subsidize the press to encourage the dissemination of news across newly united states.  With the Post Office Act of 1792, Congress, seeking to provide citizens access to the information that would aid their political decision-making,^[84] set a nominal fee for the circulation of newspapers via mail.^[85]  All newspapers qualified for the subsidy and, regardless of weight, were to be delivered for one cent if traveling fewer than one hundred miles and for one and a half cents if traveling farther.  Thus, in 1794 newspapers constituted 70 percent of mail weight but produced only 3 percent of postal revenue.^[86]  Four decades later, newspapers accounted for 95 percent of postal weight but still contributed only 15 percent of revenue.^[87]  Moreover, because Congress wanted the Postal Service to be independently funded, the Postal Service had to raise letter rates to compensate for the reduced newspaper rate.  The newspaper postal rate has increased over the years but still favors the press.^[88]

2.        Public Broadcasting Act of 1967

In the mid-twentieth century, Congress passed two acts to assist traditional media in an effort to ensure access to information that would aid citizens in community engagement and political decision-making.^[89]  The first was the Public Broadcasting Act of 1967 (PBA),^[90] which authorized the creation of the Corporation for Public Broadcasting (CPB).  The PBA promoted a multitude of diverse voices and high-caliber content by establishing a support system for publicly owned radio and television stations (later known as the affiliates of NPR^[91] and Public Broadcasting Service (PBS)) to improve the quality and quantity of educational and cultural news programs available to the public.^[92]  In 2010, the CPB received $420 million in federal funding.^[93]

3.        Newspaper Preservation Act of 1970

Three years later, Congress passed the Newspaper Preservation Act of 1970 (NPA).^[94]  The NPA valued editorial diversity—more voices contributing to the marketplace of ideas—over economic efficiency.  The result was a broad antitrust exemption that remains in place today.  In seeking to preserve two-newspaper towns, the NPA permitted qualifying newspaper competitors to enter into a joint operating agreement and combine business operations, thereby reducing costs and boosting profits.^[95]  Competing newspapers were allowed to share printing, delivery, and advertising employees and expenses.^[96]  They just needed to maintain separate editorial staffs.^[97]

Congress was motivated by a concern that newspapers were losing economic viability and without government aid would continue to permanently stop their presses, resulting in a loss of editorial diversity and information availability.^[98]  The NPA’s opening language makes a similar appeal to “the public interest of maintaining a newspaper press editorially and reportorially independent and competitive in all parts of the United States.”^[99]  The public interest that the Act refers to is one that American leaders have recognized since the founding of the United States.^[100]

C.        Congress Should Act to Help Now

Despite the arrival of online media, newspapers remain the gold standard and it is unlikely that something new online will measure up.^[101]  Without government assistance, the newspaper industry likely will continue to dwindle.  Four decades ago, when the NPA was passed, Congress feared that the loss of two-newspaper towns would deprive “the public of diverse and independent editorial viewpoints and news policies.”^[102]  The threat of diminished contributions to the mark-etplace of information and ideas is even greater now.

Regardless of whether the Press Clause granted newspapers special rights and privileges or is limited to protecting the press from restraint, there is a First Amendment interest in slowing or even reversing the newspaper industry’s decline.  The First Amendment is premised upon the belief that among the fruits of freedom of speech and of the press is an engaged and dynamic civic conversation that flows from the outpouring of information; these freedoms do not merely protect or promote opinions.  Traditional media, particularly newspapers, “still supply an invaluable and unequaled layer of accreditation, fact checking, agenda setting, and wide-ranging and systematic inves-tigative reporting, while reaching a mass audience and representing public opinion before powerful decision-makers.”^[103]  But traditional media is amid an unprecedented period of decline, and as newspapers continue to shrink in size or disappear through consolidation or con-traction, the measurable losses to the marketplace of information and ideas will expand.  To prevent these losses and ensure that Americans have the information necessary for informed political decision-making, Congress can and should act to aid the newspaper industry.

IV.        Direct and Indirect Government Subsidies

Any practical subsidy program could not subsidize all worthy newsgatherers and likely would benefit some newsgatherers who are less deserving than those not benefited.^[104]  But for the reasons dis-cussed in Parts II and III, the proposals discussed below are aimed at benefiting only traditional members of the newspaper industry.  Defining this category could be challenging.  There are general-interest daily newspapers that generate few of the positive externalities that Congress should be interested in subsidizing, and there are weekly niche papers that produce substantial amounts.  However, to avoid creating a new bureaucracy, it seems that the federal government would do well to use bright-line criteria for admittance to such a program—possibly mirroring the Newspaper Association of America standards of membership^[105]—and to only apply benefits to all qualifying newspapers in existence at the time the program would take effect.  Moreover, to avoid a potential challenge that the law is vague and thus susceptible to viewpoint discrimination, the authorizing statute should expressly identify recipient newspapers.^[106]  Such a move would leave out worthy candidates—both those already in existence and those later to be formed—but creating an administrative agency to evaluate subsidy applications would only complicate the political plausibility of preserving the nation’s corps of newsgatherers.^[107]

Such favoring of newspapers over other media does not pose a policy problem.  For example, the Post Office Act^[108] has been on the books since almost the founding of the United States, and it is difficult to think of a more archaic medium than news delivered from a satchel.^[109]  Additionally, the federal government has repeatedly chosen to benefit one medium of communication at another’s expense.^[110]  While there are many ways that the government could subsidize newspapers, this Part focuses on direct funding and tax-based incentives.  This Comment addresses each type of subsidy’s basic structure and the degree to which it would: (1) achieve the desired goals of encouraging local news and investigative reporting; (2) survive First Amendment challenges; (3) preserve editorial independ-ence; and (4) win Congress’s favor.^[111]

A.        Direct Government Funding

The government is no stranger to funding private industry.  Two conspicuous and recent beneficiaries were Detroit automakers and Wall Street bankers.  In fall 2008, the federal government stepped in to stop an escalating credit crisis that reshaped Wall Street in the course of a few weeks and threatened to plunge the U.S. economy into a deep depression.^[112]  Congress passed the Troubled Asset Relief Program (TARP), which allocated $245 billion of the $700 billion TARP fund to troubled banks, about $205 billion of it going to purchase preferred stock in the banks.^[113]  TARP recipients were not required to use funds for a particular purpose but had to meet numerous other conditions.^[114]  Though heavily criticized for encouraging moral hazard^[115] by bailing out bankers who over-leveraged assets and failed in their dangerous gambles, “[t]he TARP program has been remarkably successful, in terms of cost to the government and in its goal to help stabilize the financial system.”^[116]

Congress was not done with TARP after saving the financial industry.  In late 2008 and early 2009, the federal government sent $49.5 billion and $10.8 billion of TARP funds to GM and Chrysler, respectively.^[117]  Automaker funds were marked by different conditions, including developing a plan to return to profitability and submitting to the oversight of a national car czar. The government also took a significant ownership interest in GM.^[118]  As with Wall Street, the Det-roit bailout was a success.^[119]

Likewise, some commentators have suggested a government bailout of the newspaper industry: Automakers and banks were considered too big to fail—why not the press?^[120]  But it is unclear whether these bailouts provide a model for aiding the newspaper industry.  Newspapers do not have nearly as tangible a connection to the U.S. financial system or workforce and, more significantly, it would raise constitutional questions if the government took in newspapers the kind of ownership interests that it took in banks and automakers.^[121]  Further, any simple bailout, regardless of structure, would be flawed on many levels.  Newspapers were rich with cash only five years ago.^[122]  The press’s problems are systemic, and any meaningful direct funding would need to be substantial and ongoing to serve worthy public policy goals.^[123]  How much and for how long are difficult questions to answer, but David Schizer has suggested an annual subsidy of $2.5 billion:

This would be enough to cover the cost of rehiring the 33,000 reporters who lost their jobs in 2008 and 2009, assuming the total annual cost of a reporter is approximately $75,000. Although this is a substantial amount of money, to be sure, it represents less than $10 per year per American, and would constitute only a tiny fraction of the federal budget. The amount is also in line with support provided to the press in other countries.^[124]

Assuming that the total annual cost includes more than just a reporter’s salary, that figure sounds accurate.^[125]  But, regardless of exact numbers, Congress should avoid relying solely on this type of assistance because doing so would not provide sustainable long-term relief and could threaten editorial independence.  Getting congressional support for such a program also would pose a problem.

1.        Ability to Target Local and Investigative Reporting^[126]

The purpose of any subsidy for newspapers should be to encourage and preserve local beat and investigative reporting.  Sports and enter-tainment reporting do not need the help.  They are big business and Americans do not depend on newspapers to provide this content; unlike local and investigative reporting, sports and entertainment news is amply and adequately available on television and online.^[127]  Even if sports and entertainment reporting needed help, public policy would not endorse such aid because such reporting does not play the integral democratic role of local and investigative reporting.

But restricting public subsidies to only specific newspaper expenses would be challenging and potentially cost-prohibitive.  Newspapers would face the practical challenges of either (1) segre-gating editorial expenses and demonstrating how subsidies were only used for qualifying costs (e.g., local and investigative reporting) or (2) applying for grants in a prize-based system.  Additionally, such a pro-gram likely would require Congress to create a new agency either to monitor the use of newspaper subsidies and audit expense reports or to review grant applications and make quality judgments.^[128]  The agency could target subsidies to produce more local and investigative reporting.  But the agency would cost money to create and operate—money that would come out of the newspaper-subsidy program.  Thus, while a prize-based system would better correlate newspaper subsidies with public policy interests by enabling the government to better target the newspaper operations to which it allocated funds, a prize-based system would be burdened by its own wasted resources.

Alternatively, Congress could provide a blanket, readership-based subsidy for newspapers.^[129]  If, for example, Congress set the subsidy at $1 million annually per 100,000 daily print-equivalent readers, a paper that averaged 380,000 daily readers would receive a $3.8 million annual subsidy.  This would be simpler to administer than a prize-based system, though it would inevitably allocate subsidies that news-papers could use on their sports desk or for increasing executive pay.^[130]

There are tradeoffs to both approaches, and any criteria are bound to be under- and over-inclusive of worthy recipients.  In the interest of administrative ease and avoiding the costs of creating another bureaucracy, a blanket subsidy tied to newspaper readership would make more sense.^[131]  But a prize-based system would better achieve the public policy goals of a newspaper subsidy program.  The more narrowly tailored the program could be to rewarding local news reporting and watchdog journalism, the better.

2.        Constitutional Concerns

Though creating a new agency to oversee newspaper subsidies is not ideal for the reasons just discussed, Congress could still choose to go this route.  If so, how would basing funding on content implicate the First Amendment?  Free speech is among the most recognized con-stitutional rights, and the United States Supreme Court has “held that the government may not deny a benefit to a person because he exercises a constitutional right.”^[132]  But punishing disfavored speech is treated quite differently than rewarding speech that the government favors.  Unlike content-based regulations, which must survive strict scrutiny, content-based subsidies are subjected to significantly less scrutiny.^[133]  The primary rationale for different standards is that sub-sidies, unlike regulations, do not wield the coercive power of the state.

Though subsidies provide a vehicle by which the government may influence the content produced by media outlets without running afoul of the First Amendment, there are two primary constitutional constraints on the use of government subsidies to encourage certain speech.  First, a condition cannot be “aimed at the suppression of dan-gerous ideas.”^[134]  But Congress can structure a subsidy to encourage speech that it favors:

To hold that the Government unconstitutionally discriminates on the basis of viewpoint when it chooses to fund a program dedicated to advance certain permissible goals, because the program in advancing those goals necessarily discourages alternative goals, would render numerous Government programs constitutionally suspect.  When Congress established a National Endowment for Democracy to encourage other countries to adopt democratic principles, 22 U.S.C. § 4411(b), it was not constitutionally required to fund a program to encourage competing lines of political philosophy such as communism and fascism.^[135]

So long as Congress does not engage in viewpoint discrimination, it may send the message that it wants to send when allocating taxpayer dollars to promote public policy.^[136]  Or as the Court said in Rosen-berger v. Rector and Visitors of University of Virginia: “When the government disburses public funds to private entities to convey a governmental message, it may take legitimate and appropriate steps to ensure that its message is neither garbled nor distorted by the grantee.”^[137]  For instance, the National Endowment for the Arts may “tak[e] into consideration general standards of decency and respect for the diverse beliefs and values of the American public,”^[138] and Congress may prohibit family-planning counselors from giving abortion-related advice while administering a federally funded program.^[139]

Second, the government cannot coerce private speakers into saying what it wants them to say.  The Court clearly articulated this in Miami Herald Publishing Co. v. Tornillo,^[140] a non-subsidy case in which the Court deemed unconstitutional a requirement that a newspaper publish content the government deemed necessary, even if for public policy reasons.^[141]  The Court later extended this restriction to media receiving content-based subsidies in FCC v. League of Women Voters of California.^[142]  In League of Women Voters, the Court stated that the government could not prohibit a broadcast station that received federal funding from “editorializing.”^[143]  Such a restriction would uncon-stitutionally restrain “important journalistic freedoms which the First Amendment jealously protects.”^[144]

Because the Constitution empowers Congress to reward speech content that it permissibly favors, Congress could structure a newspaper subsidy to favor local and investigative reporting and provide incentives for newspapers to publish more of these types of speech.  At the same time, Congress could not withdraw subsidies from a newspaper that published an investigative story into a congressional scandal or anything else that a member of the federal government would object to.  Doing so would be perceived as penalizing a news-paper for publishing speech that the government—or government officials—did not like.^[145]  Together, these constitutional rules simultaneously provide authority for Congress to favor certain newspaper speech and protect newspapers from improper government interference.

However, the program’s structure might raise a different constitutional question.  It is clear that under a prize-based model, à la National Endowment for the Arts v. Finley,^[146] the government may make value judgments.  In fact, the Finley Court held that the “decen-cy and respect” criteria for National Endowment for the Arts funding was not void for vagueness despite being “undeniably opaque.”^[147]  The Court reasoned: “In the context of selective subsidies, it is not always feasible for Congress to legislate with clarity.  Indeed, if this statute is unconstitutionally vague, then so too are all Government programs awarding scholarships and grants on the basis of subjective criteria such as ‘excellence.’”^[148]  Thus, if a government agency reviewed news-paper grant applications and chose to subsidize only those newspapers that it deemed to be of highest quality, there likely would be little doubt about the program’s constitutionality.  But, as mentioned earlier, while a prize-based system would enable the government to better target funding to support editorial operations that produced local and investigative news reports, it also would displace significant resources in reviewing applications and would lead to frequent fights over what qualified as worthy.

While Congress could avoid such disputes over quality judgments with a blanket-subsidy program, it is less clear how courts would react to such a program that is ostensibly open to all newspapers within a certain category—for example, those publishing local news stories—without quality judgments.  Such a program might turn a recipient newspaper into a designated public forum.^[149]  If so, courts might be concerned about the vagueness of funding criteria—in particular, the blurred edges of what qualifies as news^[150] or as local or investigative reporting.^[151]  Though the void-for-vagueness doctrine generally is less strict when the government is acting as subsidizer, the Court might not be as relaxed when the subsidized outlet is a designated public forum and not a judgment-based grant recipient like in Finley.  The doctrine demonstrates particular judicial concern that a vague law “may trap the innocent by not providing fair warning” and “impermissibly delegates basic policy matters to policemen, judges, and juries for resolution on an ad hoc and subjective basis.”^[152]  The latter makes speakers with unpopular viewpoints vulnerable to being discriminated against by government officials and penalized by judges and juries.^[153]  But the Supreme Court has not addressed vagueness standards for limited or designated public fora,^[154] and the lower federal courts appear to have not addressed it in the context of government as subsidizer of a limited or designated public forum.^[155]

While the void-for-vagueness question appears open, there is a simple way to avoid it: Narrow the availability of funds to well-defined editorial operations.  Instead of generally subsidizing “local” and “investigative” reporting, the program could limit subsidies to specific reporting jobs—for example, covering city council meetings or reviewing government documents.  This cautious approach would re-duce the reach of government subsidies, but it would preserve the program by skirting an apparently open constitutional question.^[156]

3.        Editorial Independence

Even if the First Amendment alone ensured the editorial independence of a newspaper receiving public funds, many journalists would still oppose government funding out of a principled concern that accepting such funds would jeopardize editorial independence.  One study found that 75 percent of newspaper executives have “serious reservations” about receiving direct government subsidies.^[157]  As Lee Bollinger, a member of the Pulitzer Prize Board and an eminent First Amendment scholar, notes: There is, “at least among print journalists, a sense that government funding is antithetical to the spirit of an independent press.  This view needs to change, and the whole subject of public funding must be more thoughtfully considered.”^[158]  Bollinger suspects that, due to the severe declines in revenue and profitability and the continued defections of readers to Internet news sources, public subsidies “will prove to be the only way to sustain a free press over time.”^[159]

Indeed, fears over threats to editorial independence are likely overblown.^[160]  First, the Constitution would prohibit Congress from removing subsidies from newspapers that publish articles that the government dislikes.^[161]  Though the First Amendment is not a complete bar on government influence, it is a significant limitation that protects newspapers, and by extension the public, from the chilling effect of government officials otherwise being able to punish newspapers that reveal important information about government malfeasance, mis-appropriation and misadventures.

Second, the federal government has shown that it can fund the arts, humanities, and sciences without impermissibly chilling the recipi-ents’ independence.  Though news media are more likely to draw neg-ative government attention than artists and scientists, news media also have accepted subsidies without losing editorial independence, in particular the freedom to criticize the government.  The creation of CPB has particularly shown that while federal government officials may occasionally politick over the content produced by the media they subsidize, they are not likely to substantially influence that content.^[162]  One of CPB’s subsidiaries, NPR, is prime example.  NPR and its member stations receive about 10 percent of their budgets from the federal government.^[163]  Member stations, in turn, pay healthy sub-scriber fees to NPR^[164] and are supported by “listeners like you.”^[165]  While receiving government support has made NPR more vulnerable to unfair attacks of alleged bias than unsubsidized news outlets,^[166] efforts to reorganize NPR’s editorial leadership or otherwise influence its content repeatedly have failed.^[167]  NPR, even more than the CPB’s other subsidiary, PBS, remains a robust news organization that vibrantly contributes to the national dialogue.

While the audience for public radio of about 28 million listeners each week is just over one-third of the 75 million weekly viewers of public television, it has been growing substantially for several decades, driven largely by its national news programs.  NPR’s Morning Edition and All Things Considered are the most popular programs on public radio or television.  And Morning Edition’s audience of nearly 12 million listeners alone has been about a third larger than that for NBC’s Today.  Although NPR also has lost revenue during the recession and laid off staff for the first time in a quarter century, it recently launched an ambitious Web site with national news updates and stories.  It also hired its first editor for investigative reporting, Brian Duffy, who is working on accountability journalism projects with reporters at NPR and local public radio stations.  NPR has seventeen foreign bureaus, more than all but a few American newspapers, and six U.S. regional bureaus.^[168]

NPR remains one of the most respected news organizations in the country, and the continued independence of the forty-three-year-old CPB shows that the concerns of a newspaper bailout threatening editorial independence or providing a financial entrée toward state-controlled media should not overwhelm the public interest in a newspaper subsidy program.^[169]

Third, concerns about threats to editorial independence would be even less of a concern if Congress chose a blanket-subsidy program.^[170]  Such subsidies would ensure that the government’s role remain passive, thereby severely limiting the government’s ability to condition benefits on editorial content or viewpoint.^[171]  Further, while a passive subsidy program might have an indirect distorting effect—for example, causing a newspaper to worry about publishing an exposé on a politician who could influence the cancellation of the entire subsidy program—the economic marketplace arguably has had an even greater and more direct distorting effect on newspaper editorial decisions.^[172] After Dan Neil, the Pulitzer-Prize winning automotive critic, wrote a column for the Los Angeles Times that was brutally critical of General Motors, the automaker pulled all of its ad buys from the L.A. Times—valued at about $21 million annually.^[173]  While Neil and the news-paper’s editors stuck to their guns, the paper’s business executives needed to smooth out the situation with General Motors.^[174]  At a news-paper with a more porous firewall between the editorial and business departments or more significant budgetary concerns than the L.A. Times had in 2005, it is foreseeable that the newspaper might opt against publishing an article that would alienate its biggest advertiser.  Thus, this tension between news value and business interests already exists, and it is likely that newspapers could continue to publish independently and with readers’ interests as the primary concern, even when those interests would disrupt the newspaper’s relationship with a funder—in this case the federal government.

Finally, even if Congress chose a prize-based system, the government has long demonstrated that it can fund the arts and media without undue influence on editorial independence.  Beyond current examples of the National Endowment for the Arts and NPR, the government has been engaged in such market intervention since at least the Post Office Act of 1792 and the early patronage of papers that printed laws and governmental announcements:

All classes of patronage . . . were in effect government subsidies of newspapers, approved by those receiving them and without which many papers could not have survived.  These subsidies were in line with the attitude eventually adopted toward railroad construction, in which government support was partly justified on grounds of public welfare.  Newspapers came to be regarded not strictly as a private business, but as a public service.  Newspapers, like the railroads, supplied some urgent needs; they provided the best solution to the problem of comm-unication between the government and the citizen. . . .  Furthermore, lawmakers found newspapers useful for their political purposes.^[175]

The law of supply and demand would suggest that if editors and publishers nationwide fought over relatively few government contracts,^[176] then the government could limit contracts to government-friendly newspapers, which would not bode well for press indep-endence.  Yet, despite the corrupt nature of government patronage and the quid pro quo that often came with it, even then “the press as a whole remained free to criticize public officials and government policies.”^[177]

4.        Political Plausibility

Journalists are not alone in their aversion to the idea of direct government subsidies.  Bailouts, whether one-time or long-term, are generally unpopular, especially in the wake of the too-big-to-fail bailouts of Detroit’s automakers and Wall Street’s market manip-ulators.^[178]  Moreover, reporters do not fare well in public-opinion polls, regularly listed among the ten least-trusted professions.^[179]  Consumer Reports found that 42 percent of survey respondents trust newspapers and television news just “some of the time” or “never.”^[180]  More sur-prisingly considering the role newspapers play in engaging readers with their communities and educating them about their leaders’ decisions, a 2009 study by the Pew Research Center found that only 43 percent of Americans said losing their local newspaper would hurt civic life in their community “a lot.”^[181]  Only 33 percent of those surv-eyed said they would personally miss their local paper.^[182]  Finally, newspapers represent a much smaller fraction of the workforce and GDP than Detroit or Wall Street.  With that in mind, a direct-funding program likely would be difficult to sell to the public.  Further, pol-iticians do not appear interested in direct subsidies,^[183] with the U.S. economy still down and the federal deficit remaining a serious problem.^[184]  While direct subsidies would advance the policy goals be-hind propping up the Fourth Estate, it is not the best type of subsidy that Congress could provide.

B.        Tax-Based Incentives

Alternatively, the U.S. tax code provides a vehicle for subsidizing newsgathering.  Such a subsidy could manifest itself either as a lower tax rate for newspapers or in treating newspapers like hospitals, churches, and charitable organizations.^[185]  The former—a tax break—would provide broad and uniform relief.^[186]  Washington State made such a move in 2009 with the passage of House Bill 2122.^[187]  Approved by a 46–2 margin, the law reduced newspapers’ tax liability by 40 percent through 2015.^[188]  But Washington State was unique because it started with a gross-receipts tax, which encumbered newspapers with a disproportionately high tax liability compared to businesses making comparable profits in other industries.^[189]  Thus, a federal tax reduction for newspapers may not result in the kind of cost savings that it did in Washington State.  It is also a politically inopportune time to push for a new tax cut.^[190]  When it comes to tax-based incentives, legal comm-entators and journalism academics and advocates have focused instead on abolishing taxes for qualifying newspapers by making them nonprofits.^[191]  This Part focuses on the latter.

Granting newspapers 501(c)(3) status^[192] would exempt qualifying papers from paying taxes on profits and would also permit them to accept tax-deductible contributions.^[193]  Tax exemption and deductible contributions have similar effects to government cash grants.  With a tax exemption, the government gifts to the nonprofit the amount of taxes it would have had to pay.  Deductible contributions work similarly, but the government’s gift to the nonprofit is indirect^[194] and carries an added benefit: The government’s subsidy “piggybacks on the judgments of private philanthropists.”^[195]  Such a subsidy could benefit newsgatherers in all media, and two models—Pro Publica’s independent newsroom and the online-only local newspaper of the likes of the Voice of San Diego—stand out as 501(c)(3) successes.  However, achieving tax-exempt status would be challenging for traditional print newspapers because without modifications to tax law or typical organizational structure, newspapers do not fit nicely into a tax-exempt category.^[196]

Under current law, there are three primary ways for a news organization to attain nonprofit status: (1) start an independent news-room;^[197] (2) create a joint venture between an existing for-profit newspaper and a nonprofit affiliate that accepts tax-deductible contributions and spends those contributions solely on, for example, investigative or local reporting; or (3) transform a for-profit newspaper into a nonprofit.  No more than a few current newspapers could utilize the independent-newsroom model because the independent newsroom relies on the existence of other newspapers that will publish the stories that the independent newsroom investigates.^[198]  Joint ventures are of limited value because the law requires that the for-profit not derive a “private benefit” from the nonprofit, which means the nonprofit must share its stories with media other than just its partner in the joint venture.^[199]  However, converting an existing newspaper to a 501(c)(3) is appealing because it would enable newspapers to save money and accept tax-deductible donations as a nonprofit while costing taxpayers relatively little.

Converting newspapers to 501(c)(3) status would necessitate shoehorning newspapers into an exempted category and ensuring that they abide by restrictions on tax-exempt organizations.  There are four primary restrictions for nonprofits under this subsection of the tax code: They (1) must be “organized and operated exclusively for” an exempt purpose; (2) must not “inure” any benefit to a private individual or shareholder; (3) must not devote substantial efforts to lobbying; and (4) must not electioneer.^[200]  Most newspapers would struggle with the first, second, and fourth prongs.

Though probably the easiest hurdle to overcome, the requirement that newspapers stop making political endorsements on candidates, legislative measures, or anything having to do with a campaign would undercut a historic newspaper function.  As Joseph Klapach has written: “Before a charity can save the world, enlighten the masses, or promote spiritual harmony, it first must make a deal with the devil and file for tax exemption under § 501(c)(3) of the tax code.”^[201]  This is the Faustian deal that nonprofits strike with the Internal Revenue Service (IRS).  It is an absolute prohibition, and, unlike the lobbying restrict-ion, no amount of electioneering is permitted—”no matter how insignificant.”^[202]

[I]n order to violate § 501(c)(3)’s prohibition, an exempt organization either must support or oppose a candidate.  In many instances, the nature of the activity itself establishes the organization’s support or opposition of a particular candidate.  Sometimes, however, the IRS must proceed by implication, basing its finding of favoritism or bias on the manner of presentation, the manner of distribution, or the timing of the distribution.  As a result, this factor has the practical effect of div-iding political campaign activities into two categories—those campaign activities in which a charity may never take part and those activities in which it may take part so long as it does so in a neutral fashion.^[203]

Reporting on political campaigns would be appropriate; endorse-ments would not.  Evaluations strike a middle ground between report-ing and opinion, but are prohibited—even when they employ neutral criteria.^[204]  The prohibition would leave a newspaper vulnerable to attacks from candidates who did not like their treatment.  While the IRS notoriously under-enforces this prohibition,^[205] it is more than conceivable that newspapers—with their public prominence and the evidentiary ease that would accompany any electioneering—would have their tax-exempt status stripped if they issued outright endorsements.^[206]  Moreover, they likely would find themselves con-stantly defending their status against unsubstantiated charges of politicking in their news coverage.

If Congress prohibited newspapers from making political endorse-ments, would the public care?  Unlike newsgathering, there are not substantial sunk costs to forming an opinion.  It requires no special-ized skill, other than the ability to read critically and think independently (and, preferably, communicate persuasively).  New media has filled this niche well for statewide and national elections.^[207]  Furthermore, the danger of intellectual isolationism that Cass Sunstein fears in Republic.com 2.0 is not as present in limiting exposure to political endorsements and opinions as it is in the general sharing of information and agenda-setting.^[208]  Thus, it is unlikely that the public would miss newspaper endorsements for statewide and national candidates, at least not in the long term.

But there is still a need for endorsements in local races.  The im-portance of endorsements in these races has grown as coverage of local institutions and races has decreased.  With less local coverage—the result of fewer reporters spread thinly over more beats and their subsequent inability to provide in-depth coverage of local issues—citizens who vote in local elections (admittedly a small population in and of itself) rely more heavily on newspaper endorsements.  Unlike with statewide and national elections, new media does not consistently provide much commentary on local elections—in part because there is much less foundational information about who is running for school board or public works commissioner or superior court judge to base opinions on.

The purpose of subsidies would be to increase local and investi-gative reporting.  Improving local news reporting likely would lead to readers being more informed about local issues, including elections.  Thus it is possible that subsidies, and their consequence of increasing knowledge of local issues, would reduce the need for endorsements in local elections too.  However, assuming that a valuable public good would be lost, Congress could amend the tax code to exempt nonprofit newspapers from the electioneering ban.^[209]  This type of an amend-ment would treat these newspapers more favorably than other nonprofits, such as advocacy groups and religious organizations, that publish a paper.  But the Supreme Court has previously permitted such unequal treatment.

In Regan v. Taxation With Representation of Washington,^[210] the IRS had denied tax-exempt status for an organization that promoted specific federal tax policy because the IRS thought that a substantial portion of the organization’s efforts would be dedicated to attempting to influence legislation.  The organization sued, claiming that IRS pol-icy violated the First Amendment by placing an undue burden on receipt of tax-deductible contributions and the Fifth Amendment by denying equal protection.^[211]  The Supreme Court disagreed.  The Court said that Congress had not violated the Equal Protection Clause by subsidizing the substantial lobbying activities of veterans’ organi-zations but not the substantial lobbying activities of other non-profits.^[212]  Further, the Court articulated that statutes are not subjected to strict scrutiny whenever they “affect First Amendment rights on a discriminatory basis” but only when they discriminate against classes of speakers based on race or national origin.^[213]  Because 501(c)(3) did not discriminate against suspect classes, it only needed to be rationally related to Congress’s purpose, which the Court said it was.^[214]

A second, bigger challenge for newspapers trying to obtain 501(c)(3) status would be crafting their operations to an exempted purpose.  Under this provision, a newspaper must be “organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition . . . or for the prevention of cruelty to children or animals . . . .”^[215]  In a vacuum, the “educational” category would best apply to a general-interest newspaper.  To qualify as an educational organization, a newspaper would need to limit operations to those supporting the newspaper’s educational mission and not to those generating “private benefits.”^[216]  But most general-interest newspapers would have trouble satisfying the IRS’s four-prong test for publications seeking 501(c)(3) status as an educational entity that: (1) the published content is educational; (2) the preparation of the materials occurs in a manner generally accepted as educational in character; (3) publication and distribution of materials is necessary or beneficial to achieving the organization’s educational purposes; and (4) “the manner in which the distribution is accomplished is distinguishable from ordinary commercial publishing practices.”^[217]

To start, it is unclear what constitutes educational news or whether newspapers could continue to publish non-educational material—for example, the latest Lindsay Lohan scandal or a recap of The Bachelor^[218]—without losing nonprofit status.  Moreover, most general-interest newspapers would find it difficult to operate in a way that the IRS could distinguish from “ordinary commercial publishing practices.”  If a newspaper’s operations were not distinguishable, then the newspaper would not qualify for 501(c)(3) status.^[219]  The IRS considers a newspaper to be employing ordinary commercial publishing practices when it is:

(1) conducting as its sole activity publishing activities using standard commercial techniques which generate ongoing profits; (2) pricing its materials “competitively” with other commercial publications or to return a profit; (3) conducting an enterprise in a manner in which all participants expect to receive a monetary return; (4) publishing its materials almost exclusively for sale, with only a de minimis amount of material donated to charity; (5) existing or accumulating large profits; and accumulating profits from sales activities which are greatly in excess of the amounts expended for educational programs.^[220]

The operation of a “trade or business as a substantial part of its activities” is not fatal to an organization’s tax-exempt application, but if the commercial purpose is substantial it will threaten tax-exempt status.^[221]  Distribution of published content “without regard to the realization of a net profit [i]s important evidence that the publishing process is being used as a vehicle for accomplishing exempt purposes.”^[222]

Thus, a newspaper could strengthen its case for 501(c)(3) status by distributing the newspaper or its articles online below publication costs, focusing on news of public interest, and reinvesting in its journalistic mission instead of accumulating profits.  Still, the totality of circumstances necessary to attain 501(c)(3) status remains unclear, and it is possible that a full-service news organization could never qualify.  Congress could remove the uncertainty and provide a path for newspapers to qualify for tax-exempt status by amending tax law with an explicit category for newspapers that meet the other three requirements outlined in the beginning of Part IV.B.1.  By amending the tax code, newspapers no longer would need to try to shoehorn their practices into current exempted categories.

The final primary challenge is that even if a newspaper could fit into a 501(c)(3) category (current or newly adopted), it would lose tax-exempt eligibility “if even a small part of its income inures to a private individual.”^[223]  Nonprofits may pay reasonable salaries to officers, but if salaries are excessive and unreasonable, then private inurement exists and the organization might lose its tax-exempt status.^[224]  The nonprofit may earn a profit, but that profit needs to be “destined to be used for exempt purposes.”^[225]  For newspapers, that would mean re-investing in the newspaper’s educational mission, not paying out bonuses to executives.^[226]

Additionally, advertising revenue and some other revenue would still be taxable as unrelated business taxable income (UBTI).^[227]  Revenue is UBTI if it does not “contribute importantly to accom-plishment”^[228] of an organization’s tax-exempt mission.  Charitable contributions and subscription revenue are understood to be tax exempt, but “advertising revenue generally is taxable as UBTI be-cause it is too removed from the nonprofit’s educational mission.  Although ads furnish information, typically their primary purpose is to sell products rather than to inform.  Yet this revenue can be sheltered, to an extent, with deductions associated with generating this reve-nue.”^[229]  While it is unlikely in all but the rarest cases that a newspaper could show that the advertisements it carries are educational, newspapers might be able to skirt the UBTI distinction by framing advertisers as “corporate underwriters.”  In other words, newspapers could argue that some advertisements are not advertisements but space reserved for thanking donors—similar to the airtime that public radio takes to acknowledge its underwriters.  This argument, however, is shaky at best, and there is no legal precedent to support it.

The Newspaper Revitalization Act,^[230] introduced in 2009 by Sen-ator Benjamin Cardin, attempted to create a new 501(c)(3) category specifically for newspapers.  The law would define all contributions, subscription revenue, and advertising revenue (to a point) as tax-exempt^[231] and would remove the need for finessing newspapers into the “educational” category by creating a 501(c)(3) category for a “qualified newspaper corporation.”^[232]  When Cardin introduced the bill, he noted that in-depth reporting primarily comes from newspapers and that other forms of media generally follow news that was gathered and reported by newspaper reporters:^[233] “It is in the interest of our nation and good governance that we ensure they survive.”^[234]

Cardin’s legislation, however, could cause more problems than it would solve.^[235]  Media economics expert Robert Picard identified three particularly problematic provisions.  First, the requirement that newspapers contain “local, national, and international news stories”^[236] could exclude many newspapers, particularly non-daily neighborhood and community papers that do not typically publish national or international news, and some national newspapers like USA Today that typically do not carry local news.  This provision also fails to require the creation of local content and could be satisfied by publishing local news from wire services like the Associated Press, “thus allowing publishers to fill a paper only with syndicated material or other content produced elsewhere.”^[237]  Second, capping at 50 percent of a news-paper’s content the amount of advertising that would not be deemed UBTI would severely restrict the bill’s applicability.  The content of most dailies and non-dailies is two-thirds to three-quarters advertising.^[238]  Thus, as much as one-third of ads would still be taxed as UBTI.  Finally, as Picard noted, the bill would not limit payments to a nonprofit newspaper’s employees, including executives, opening the door for abuse.  “A small commercial publisher could use the mechanism to become ‘non profit’ to avoid company taxes by not taking compensation from profits but taking a higher salary instead—effectively letting tax payers subsidize his/her income.”^[239]

Cardin recognized some of his bill’s shortcomings as well.  He freely admitted that his bill would appeal only to “local newspapers serving communities, not large newspaper conglomerates.”^[240]  But if not them, then whom?  The overwhelming majority of newspapers today are owned by large newspaper conglomerates, many of which are publicly owned,^[241] and converting any of those properties to non-profits would require raising substantial funds to buy out share-holders.^[242]  Further, the remaining small number of family-owned newspapers that could take advantage of nonprofit status might find it “financially and emotionally difficult” to trade family ownership for money.^[243]  Thus, it is not surprising that nearly three years after being introduced and attracting significant interest, Cardin’s bill has not moved in Congress.

1.        Ability to Target Local and Investigative Reporting

Focusing tax-based incentives to maximize encouragement of local and investigative reporting would likely be easier with independent newsrooms and start-ups than with traditional newspapers converting to nonprofits.  That is because full-service newspapers are not nearly as nimble and are likely to dedicate more than a nominal amount of editorial resources to sports, entertainment, and other matters that do not produce the positive externalities of local and investigative reporting.  Generally though, the government could limit the tax deductibility of donations to funds dedicated at preferred types of reporting (such as local and investigative news).  For tax-exempt status, Congress could amend the tax code to require that nonprofit newspapers dedicate a certain percentage of their reporting time or news space to stories that are not primarily about sports or entertainment.^[244]  This would be similar to the current 501(c)(3) re-strictions on electioneering and substantial lobbying.^[245]

2.        Constitutional Concerns

For reasons discussed in Part IV.A.2, a government requirement that a qualifying newspaper dedicate a certain percentage of reporting or news space to non-sports and non-entertainment reporting likely would not raise a constitutional question.  The constitutional analysis would be largely the same for tax-based incentives as it was for content-based subsidies, in which the government may condition subsidies on newspapers publishing permissibly favored speech.^[246]  Further, the Supreme Court has been unambiguous about Congress’s ability to prohibit organizations benefitting from tax-exemption, particularly those accepting tax-deductible contributions, from certain behaviors that the First Amendment otherwise protects.  In Taxation With Representation, the Court held that the IRS does not violate the First Amendment by denying 501(c)(3) status and privileges to nonprofits that participate in substantial lobbying efforts.^[247]  Likewise, a similar prohibition against electioneering by a nonprofit newspaper would survive a constitutional challenge because Congress would not be denying that newspaper the right to endorse candidates—simply refusing to use public money to pay for those endorsements.^[248]

Because the allocation of public benefits is a policy question, the Court has long deferred to the wisdom of Congress.^[249]  In short, how the federal government disburses its money is for Congress to decide.  This is true regardless of whether allocations are direct or tax-based.^[250]  So long as the denial of tax-exempt status is based on clear criteria and is unrelated to viewpoint, the federal government can exclude publishing organizations from receiving tax-exempt status without raising a constitutional concern.^[251]

The rationale for this rule is simple: “[A]lthough government may not place obstacles in the path of a [person’s] exercise of . . . freedom of [speech], it need not remove those not of its own creation.”^[252]  A newspaper might want more money to amplify its speech, but the Court has repeatedly stated that the government is under no obligation to fund an organization’s efforts to increase its freedom of speech.  “Where governmental provision of subsidies is not ‘aimed at the suppression of dangerous ideas,’ its ‘power to encourage actions deemed to be in the public interest is necessarily far broader.’”^[253]

3.        Editorial Independence

As with direct funding, a tax-based subsidy would raise questions about editorial independence.^[254]  The primary difference would be the source of the potential influence.^[255]  Newspapers would be independent from the need to satisfy shareholders and constantly improve the bottom line.  Also, they largely would be free from governmental meddling because the government would not be choosing whom to fund.  Because of the piggybacking nature of tax-based subsidies, the government indirectly would be obliged to financially support the newspapers that individuals choose to support.  However, government could chill reporting by threatening, directly or indirectly, to hold up the approval process or by harassing the status of a newspaper that angers an official.^[256]

Additionally, the concern with a business model that by definition loses money is that the motivations are quite different than those of for-profit newspapers, and benefactors might try to influence the content published by the newspapers that they support.^[257]  As media critic Jack Shafer explains:

Commercial outlets may reflect their owners’ views, but this tendency is always tempered by the need to attract readers and viewers.  Nonprofit outlets almost always measure their success in terms of influence, not audience, because their customers are the donors who’ve donated cash to influence politics, promote justice, or otherwise build a better world.^[258]

Nonprofit newspapers would risk becoming bullhorns for major donors.  That could be a good thing—but only if you agree with the type of world that the nonprofit wants to build.  And, regardless, news-papers would not be serving the public interest if such advocacy occurred at the expense of the local and investigative reporting for which American democratic society relies on newspapers.  Thus, the tension between donor interests and newsworthiness could threaten both the independence of newspapers and their societal value.  To pro-tect against editorial interference, a donor-supported newspaper would need to add two ethical policies dealing with how to respond to a donor’s editorial wish list^[259] and how to handle reporting on donors.^[260]

Another concern is the possibility that a nonprofit newspaper largely or entirely supported by a foundation would be less responsive to its readers’ interests.  As the president of the Rockefeller Foundation noted in its 1997 report: “Foundations lack the three chastising disciplines of American life: the market test, which punishes or rewards financial performance; the ballot box, through which the numbskulls can be voted out of office; and the ministrations of an irreverent press biting at your heads every day.”^[261]

Between 2005 and the start of 2009, foundations alone contributed about $128 million to at least 115 “news and information initiatives” in seventeen states and the District of Columbia.^[262] As one commentator wrote in a report on new media makers: “For the most part these foundations are not so much seeking to shore up commercial news enterprises as they are looking to shore up community knowledge sharing.  They are looking to build community, not simply to cover it.”^[263]  That good news is tempered by other reports that “foundations are not yet providing enough money to sustain those startups or to underwrite all of their journalism rather than only their reporting on subjects of special interest to each foundation or donor.”^[264]  Uncertain fiscal security would make newspapers vulnerable during down eco-nomic times and, in turn, likely more susceptible to donor influence.

4.        Political Plausibility

Politicians likely would be hesitant to place on their limited agenda a subsidy for the press that could prove inefficient.  Still, the nonprofit model is significantly more politically plausible than a direct-funding program.  Both likely would require new legislation, though, as discussed in this Part, it is possible that newspapers could be shoehorned into an existing 501(c)(3) category.  Further, unlike direct funding, encouraging newspapers to become nonprofits would come at little cost to the federal government.  Today’s newspapers are faring terribly and taxable income is down—for some, way down.^[265]  The strength of a tax-based subsidy comes from the tax deductions available to individual donors.  Those likely would not cost the gov-ernment because charity is, to an extent, a zero-sum game for all but the absolute wealthiest Americans.^[266]  If Jim, who would contribute to his local newspaper should it become eligible, currently donates $1000 annually across charities, Jim would, all other factors being equal, likely donate $1000 across charities after his local newspaper turned nonprofit.  The money going to his newspaper would come out of the pieces of the pie that went to other charities like the local homeless shelter, animal rescue, and the YMCA.  Indeed, those reductions carry their own societal costs, and many individuals would likely choose charities other than the local newspaper.  But these forces have been at play in public radio for decades and have not spelled the end for other charities.

V.         The Hybrid: A National Public Newspaper Partnering with Local Nonprofit Newspapers

This Comment has thus far chronicled the crisis in American newspapering, argued that it is in the public interest for Congress to preserve the nation’s corps of professional newsgatherers, and evaluated two forms of subsidies—direct funding and tax-based incentives.  Though both could be structured to skirt credible constitu-tional challenges and to avoid significant threats to editorial independence, neither program, on its own, is likely to save the newspaper industry from further decline.^[267]  Direct subsidies would be a temporary, and potentially expensive, stopgap; indirect subsidies would be less costly and have more long-term value but would only slow the newspaper industry’s financial hemorrhaging—not stop it.  For these reasons, neither direct nor indirect subsidies would likely garner enough political support to move through Congress.^[268]  It is pos-sible, however, that a combination of the two could prop up the Fourth Estate enough to preserve the nation’s corps of newsgatherers.  Providing a stipend, like Congress does for CPB, while simultaneously facilitating the transition of general-interest newspapers to nonprofits eligible for tax-deductible contributions and free from paying taxes on much, if not most, revenue would stabilize the newspaper industry with governmental seed funding while newly minted nonprofit newspapers established a fundraising base.  It would also mitigate volatility for newspaper publishers during down economic times.  This model would do for local newspapers what NPR did for local, subscriber-supported public radio stations.

A national public newspaper organization would revolve around a parent newsroom providing national, international, and general-interest news stories to partnering local newspapers across the country.  News would be available to the partnering local newspapers via annual agreements that would dictate the number of stories available to each partnering local newspaper and at what annual package price.  This below-market cost would be contingent upon the local newspaper publishing a minimum ratio of self-reported local stories and sharing those with other partnering newspapers outside their immediate readership area.  This requirement would be crucial to serving the pol-icy goals discussed in Part III.  This program would be more expensive than a solely tax-based subsidy for newspapers because it would require some direct funding, but that government funding would be amplified by tax-deductible contributions from individuals, found-ations, and corporate sponsors, which would account for the vast majority of newspaper funding.^[269]  Further, Congress already has some of the infrastructure in place with CPB, and could utilize CPB’s advance-funding structure to further protect subsidized newspapers from political pressure.  The Public Broadcasting Act could be supple-mented to call for the creation of a national public newspaper to operate, independently, alongside NPR and PBS, or at least used as a model for a new statute establishing a national public newspaper.

Constitutionality would not be a concern for the reasons outlined in Parts IV.A and IV.B.  Further, though the means of publication would likely be a combination of print and Internet, that should not have legal implications for the permissibility of government subsidies.  The nature of the medium has long been crucial to determining what constitutes permissible government treatment of a news organization utilizing that medium.  Generally, government has taken a hands-off approach with print while the scarcity of broadcast spectrum and the “uniquely pervasive” nature of broadcast radio and television justified heightened governmental activism.^[270]  The Internet Era has threatened this paradigm, accelerating a collapse that began with the advent of cable television and has expanded with satellite radio.^[271]  But, regardless, the national public newspaper would call for a hands-off government approach, similar to the constitutional barriers that have long existed to keep the government out of newspaper editorial content as opposed to the more permissible intervention in broadcast radio and television.

There would, of course, be practical challenges.^[272]  Like NPR, a national public newspaper would at times face claims of bias from politicians,^[273] which could threaten support to the network of public newspapers.^[274]  Newspapers that opted in also would need to figure out a mechanism for raising donations.^[275]  But there is no reason to believe this model could not work for newspapers, regardless of whether the paper continued to be printed or transitioned to online-only.^[276]  If so, this could help preserve the nation’s corps of professional news-gatherers and would do so without threatening editorial independence or raising a constitutional concern.

VI.        Conclusion

The newspaper industry is in peril.  Years of unprecedented reduc-tions to editorial operations and revenue, followed by consolidations and closures for some, threaten the press’s ability to continue setting the agenda for public discourse, connecting readers with their com-munities, reducing the costs of citizen oversight on elected officials, and producing investigative and local news reports.  But these func-tions are crucial to American democratic society, and newspapers are integral to their fulfillment.  Thus, Congress should act to stabilize the Fourth Estate.  If Congress chooses to aid the press by providing subsi-dies to newspapers, the best manner would be a hybrid of direct fund-ing and tax-based incentives, centered around a national public news-paper and local partnering newspapers that would be newly converted to tax-exempts.  Doing so would be more beneficial than solely pro-viding direct or indirect subsidies, leveraging the strengths of both approaches but with fewer weaknesses.

Correcting Digital Speech

Jamie Lund^[1]

The market for information has changed dramatically in the past decade with the popularization of the Internet, the exponential growth in number and variety of speakers, and the increased democratization of speech.  These shifts have made digital media particularly vulnerable to harm from information pollution; the information market is not as capable as it once was of ensuring that the truth prevails.  Anecdotal evidence suggests that information consumers are not looking for the truth, but rather, for information that confirms their own pre-existing biases.  Moreover, there is significant evidence that people are resistant to changing their minds from what they had previously believed, even if it is later proven to be false.  Combined, market failures in disseminating information and personal heuristics in interpreting information suggest that the remedy of more speech to combat false or defamatory speech is not as effective as once thought.  Instead, First Amendment jurisprudence should be rebalanced to allow for a general right of correction for digital speech.

I.         Marketplace of Ideas and the Illusory Remedy of More Speech        

A.        The Evolution of Courts’ Marketplace of Ideas Doctrine in Favor of a Self-Help Remedy of More Speech        

B.        The Possibility of Failure in the Marketplace of Ideas        

C.        Niche Audiences and Modern Channels of Communication        

D.        Confirmation Bias and the Staying Power of False Information Despite Correction        

E.        Reweighing the Increasing Public Harm from Information Pollution Against the Public Benefits of Information Dissemination        

F.        A Lemons Problem?        

G.        A Modern Rule for Digital Media        

II. Conclusion        

I.        Marketplace of Ideas and the Illusory Remedy of More Speech

The marketplace of ideas,^[2] a theory popularized in the early twentieth century, has been used since its inception to justify an overall weakening in information-based torts such as common law defamation.  Although courts acknowledged the real societal harm created by bad information, their belief in an efficient marketplace of ideas led them to conclude that high-quality information would eventually beat out low-quality information.  On the basis of that belief, courts began closing the door to defamation plaintiffs, holding that their first resort should be self-help—to rebut low-quality speech with high-quality speech.  Unfortunately, the marketplace of ideas theory is based on assumptions that have been proven untenable with recent research suggesting that information consumers are not looking for the truth, but rather for information that confirms their own pre-existing biases.  Furthermore, when confronted with the truth, even unbiased information consumers will still tend to believe the lie.  The problem is compounded by (1) the ready availability of dissemination, which has dramatically increased the quantity of low quality information, and (2) the relative per-manence of amateur digital media, which exponentially increases the lifespan of low-quality information.  Both are contributing greatly to the problem of information pollution, the high proportion of low-quality to high-quality information increasingly forcing information consumers to expend extra resources to sift through the rubbish, a growing harm that the Supreme Court has yet to recognize in its First Amendment jurisprudence.

Rebuttal is no longer a viable option.  On the other hand, the dynamic nature of digital media has made retracting, correcting, or eliminating digital speech that has proven to be false relatively simple and easy, at least as compared to traditional media.  In light of the weakened power of rebuttal speech, the relative ease of correcting digital media, and the increased harm from information pollution, this Essay advocates for a rebalancing of First Amendment jurisprudence to allow for a general remedy of correction for false digital speech.

A.        The Evolution of Courts’ Marketplace of Ideas Doctrine in Favor of a Self-Help Remedy of More Speech

The latter half of the twentieth century saw many First Amendment incursions into defamation law (the common law doctrine most responsible for helping victims prevent or correct false information).  The landmark case of New York Times Co. v. Sullivan^[3] required public official plaintiffs to prove “actual malice”^[4] in defamation claims.^[5]  To establish actual malice, a plaintiff needs to prove that the defendant had knowledge of falsity or reckless disregard as to truth or falsity,^[6] a very difficult standard to satisfy.^[7]  The Court rationalized the defendant-friendly actual malice standard by arguing that the costs to free speech from a robust defamation law threatened dialogue on important public issues.^[8]  This standard was tweaked over the years^[9] until it reached its current state in Gertz v. Robert Welch, Inc.^[10]

In Gertz, the Court extended the application of the actual malice standard to “public figures” who “by reason of the notoriety of their achievements or the vigor and success with which they seek the public’s attention” could tolerate defamatory comments about their person.^[11]  In distinguishing between public and private individuals, the Gertz Court reasoned that private persons lack “access to the channels of effective communication . . . to counteract false statements” and have “relinquished no part of [their] good name[s]” by “thrusting themselves to the forefront of particular public controversies.”^[12]  Rationalizing that public figures have greater access to the media and therefore are better able to rebut false statements made about them, the Court held that their first resort for defamation relief was self-help, not an action for defamation.^[13]  In other words, a public figure plaintiff would either need to meet the exacting actual malice standard or (more likely) rely on the marketplace of ideas to correct harmful falsehoods about their character.

B.        The Possibility of Failure in the Marketplace of Ideas

Legally speaking, the First Amendment concept of the marketplace of ideas is widely attributed to Oliver Wendell Holmes, Jr.,^[14] though the general idea predates him.^[15]  Holmes famously argued in a vigorous dissent:

[T]he ultimate good desired is better reached by free trade in ideas . . . that the best test of truth is the power of the thought to get itself accepted in the competition of the market, and that truth is the only ground upon which their wishes safely can be carried out. That at any rate is the theory of our Constitution.^[16]

Cases invoking the concept of a marketplace of ideas have ranged from defamation^[17] to the constitutionality of electoral contributions.^[18]  Indeed, the concept plays a particularly significant role in cases that address press freedoms.^[19]

Many legal rules rely on an unwavering trust in the marketplace of ideas.  In the context of defamation law, the majority in Gertz stated, “[T]here is no such thing as a false idea.  However pernicious an opinion may seem we depend for its correction not on the conscience of judges and juries but on the competition of other ideas.”^[20]  Likewise, a plurality argued in Columbia Broadcasting System, Inc. v. Democratic National Committee:^[21] “The power of a privately owned newspaper to advance its own political, social, and economic views is bounded by only two factors: first, the acceptance of a sufficient number of readers—and hence advertisers—to assure financial success, and second, the journalistic integrity of its editors and publishers.”^[22]  Subsequent cases have reiterated the market approach to First Amendment jurisprudence.^[23]

The Court is not completely laissez-faire in regulating the marketplace of ideas.  Constitutional protections favor certain types of speech, and even certain speakers, over others.^[24]  It is still permissible to regulate even the most constitutionally “valuable” speech to a certain extent, for instance by requiring political advertisements to communicate the source of financial sponsorship.^[25]  Furthermore, as legal scholar Cass Sunstein notes, the Court’s preference for government inaction in certain contexts is itself a form of action because the status quo for information dissemination is based on a complex system of legal entitlements, e.g., radio or television broadcast licensing.^[26]  Despite a sprinkling of strongly worded dis-sents,^[27] however, more often than not courts invoke market forces as a near cure-all for harms that the speech at issue might cause.

The Court’s conceptualization of the marketplace of ideas is unrealistic.  Scholars have argued that while the classicist’s view of economic “free markets” has been repeatedly debunked over the past century, its abstract counterpoint, i.e., the marketplace of ideas, has remained largely unexamined.^[28]  Furthermore, to the extent there is a functioning marketplace for information, its functioning does not necessarily produce unfettered truth.^[29]  This is due in part to the diffi-culties of a rebuttal reaching every information consumer affected by the misinformation and the persistence of false beliefs even after they have been corrected.^[30]

C.        Niche Audiences and Modern Channels of Communication

The Court has always acknowledged the questionable efficacy of rebuttal as a remedy: “Indeed, the law of defamation is rooted in our experience that the truth rarely catches up with a lie.”^[31]  The problem has grown worse, however, with research suggesting that information consumers are not looking for the truth, but rather, for information that confirms their own pre-existing biases.^[32]  Indications of such behavior can be seen in web consumers’ increasing tendency to patronize smaller, more category-specific sources of information, for example TMZ^[33] for the latest celebrity gossip or Deadspin^[34] for insider sports reports.^[35]  As the potential audience for media becomes increasingly splintered into smaller niche audiences, the Court’s reliance on access to “channels of communication” as a guarantor for the efficacy of rebuttal should be reassessed for its continuing validity.

The Court’s primary prescription for countering defamation—the plaintiff rebutting false information via channels of communication—is fundamentally grounded in a belief that truth will ultimately prevail in the marketplace of ideas as long as all parties have access to “channels of effective communication” to rebut:

The first remedy of any victim of defamation is self-help—using available opportunities to contradict the lie or correct the error and thereby to minimize its adverse impact on reputation.  Public off-icials and public figures usually enjoy significantly greater access to the channels of effective communication and hence have a more realistic opportunity to counteract false statements then private individuals normally enjoy.^[36]

At the time of New York Times Co. v. Sullivan, news stories came from the same few syndicates: three national broadcast television stations, a few national newspapers, and local newspapers that got their inform-ation from global wire services like the Associated Press.^[37]  Either a party had the clout to command the attention of one or more of these behemoths, or they did not.

In part to circumvent this bottleneck to communicating with the masses, some states went so far as to ensure that defamation victims would have access to channels of communication by requiring defamers to publish rebuttals in the same publication.  In fact, a plur-ality of the Supreme Court in Rosenbloom v. Metromedia, Inc.,^[38] argued that if states “fear that private citizens will not be able to respond adequately to publicity involving them, the solution lies in the direction of ensuring their ability to respond, rather than in stifling public discussion of public concern,”^[39] noting that “some states have adopted retractions statutes or right-of-reply statutes.”^[40]

This changed in 1974 with Miami Herald Publishing Co. v. Tornillo,^[41] when the Court invalidated as unconstitutional a Florida state statute that required that newspapers that “assail[ed] the personal character of any candidate” for election provide that candidate equal space with which to reply to the attack.^[42]  The Court argued that the statute might compel publishers to “permit publication of [something] which their ‘reason’ tells them should not be published.”^[43]  Conse-quently, since 1974 states have been constitutionally prohibited from ensuring access to channels of communication to rebut defamation.

Apart from aforementioned legal changes, there have also been technological and market changes that have affected the ability of parties to rebut false claims via certain channels of communication.  Media has changed significantly with the introduction of the Internet and its subsequent proliferation,^[44] a development that has largely served in part to displace traditional news outlets as the go-to source for information consumers.^[45]  There has been an unprecedented expan-sion in the types of sources for information including websites, blogs, social networking sites, video-sharing sites, and micro-blogging.  As websites compete for readers, an emerging trend has been to specialize in a particular type of information, or as one journalist puts it “TMZ for gossip, Politico for politics and Deadspin for sports, and so on.”^[46]  Moreover, net tools like Twitter, RSS readers, and even Facebook work to streamline a consumer’s exposure to information, directing their attention only to those sources that they have pre-approved.

The exponential increase in media outlets means that previously neglected niche audiences are now being served efficiently,^[47] however some commentators have warned that people are decreasingly using general news sources.^[48]  Stereotypes abound of individuals who only receive their news from conservative Fox News, liberal MSNBC, or lighthearted Comedy Central, a result that was not even possible at the time New York Times Co. v. Sullivan was decided.^[49]  The diver-sification of contemporary news media facilitates a special version of the truth to exist for every audience, a significant hurdle for defamation plaintiffs seeking to make an effective rebuttal.

The effects of this “information balkanization”^[50] reveal themselves in the largely unchecked spread of some false beliefs.  For example, a 2010 poll showed that nearly 20 percent of the American population wrongly believed that President Obama was Muslim,^[51] a significant increase from a poll taken in 2008.^[52]  Even more troubling, out of the people who believed that President Obama was Muslim, 60 percent attributed their belief to information they had gotten from the media.  Joshua Dubois, the President’s Director of the Office of Faith-Based and Neighborhood Partnerships, blamed intentional attempts to misinform: “While the president has been diligent and personally committed to his own Christian faith, there’s [sic] certainly folks who are intent on spreading falsehoods about the president and his values and beliefs.”^[53]  The poll indicated that a significantly higher percentage of Republicans believed that President Obama was a Muslim than did the general population: 31 percent in one poll and 46 percent in another.^[54]  The fact that Republicans are more likely to believe false-hoods about a Democratic president and attributed their beliefs to media sources suggests that consumers seek out media that supports their own pre-existing biases, not necessarily those espousing unbiased truth.  Thus, although there may be an efficient marketplace of ideas, it does not necessarily promote unpopular accurate information over fashionable falsehoods, particularly when consumers can isolate themselves in a personalized media niche that merely echoes their own preconceived biases.

D.        Confirmation Bias and the Staying Power of False Information Despite Correction

Even when individuals are not self-selecting out of particular types of information, for example, even where the original recipient has no particular personal bias toward the information, research suggests that he will still tend to believe the original misinformation in spite of the correction. As researchers noted:

[B]eliefs can survive potent logical or empirical challenges.  They can survive and even be bolstered by evidence that most uncommitted observers would agree logically demands some weakening of such beliefs.  They can even survive the total destruction of their original evidential bases.^[55]

The name for this phenomenon is “confirmation bias”: a predisposition to believe information that supports a preconception, even when that information is later shown to be inaccurate.^[56]

Most descriptions of confirmation bias focus on an individual’s inclination to believe information that supports preconceived beliefs, but false beliefs can persist even when the user has no previous prejudice regarding the matter at hand.^[57]  In a study measuring the confirmation bias effect, participants were asked to assess information supporting a hypothesis with which they had no prior experience.  They were later told that the initial information they were given was false.^[58]  Even though they had no previous knowledge or opinion about the hypothesis and were told that the information forming the basis of the hypothesis was false, the original misinformation still informed their attitudes and inclined them in favor of the hypothesis.^[59]

In another experiment, subjects attempted to distinguish between real and fake suicide notes.^[60]  They were then provided selective feed-back: some were told they had done well while others were told they had performed poorly.  Even after being fully informed that the feed-back they had received was random and unrelated to their actual performances, the subjects were still influenced by that feedback, believing that they were better or worse than average based on what they had initially been told.^[61]

The Supreme Court’s view of the marketplace of ideas relies on the assumption that it is possible to correct misinformation through rebuttal.  Unfortunately, these studies indicate that even if a correction reaches its intended audience, it may have limited efficacy, suggesting that the Court’s prescribed remedy of more speech to fight harmful speech is illusory.

E.        Reweighing the Increasing Public Harm from Information Pollution Against the Public Benefits of Information Dissemination

To this day courts have repeatedly weighed the press’s right to report against the harm that protecting that right might cause and has consistently favored press freedoms despite the harm the press’s activities might cause.^[62]  In this balancing, courts have viewed the harm caused by defamation—damage to an individual’s reputation—as minimal, especially when compared to the benefits of free speech—the press’s ability to publish and the public’s ability to know.^[63]  Under this balancing approach, defamation suits have diminished to a slow trickle.^[64]  However, the Court has neglected to account for the public harm caused by defamatory misinformation, such as (the now increasing) harm from information pollution.^[65]

Defamatory statements contribute to information pollution, which harms the public by increasing search costs.  Information pollution dilutes the availability of high-quality information with the prevalence of low-quality information.  As users spend time and energy to cull through irrelevant or incorrect information, they will repeatedly be led down erroneous paths and possibly prevented from ever discovering the truth.^[66]  False information is particularly harmful because it may be more difficult for information consumers to identify, and users may unknowingly rely on it to their detriment.  Not only are increased search costs from information pollution a waste of resources, without intervention, the quality of the information pool could continue to degrade until users avoid certain means of dissemination entirely.

Modern media is particularly susceptible to harm from information pollution because it suffers from a tragedy of the commons^[67] caused by users disseminating information without bearing the cost of spreading misinformation.^[68]  The sheer number of amateur news sources, includ-ing websites, blogs, social networking sites, video-sharing sites, and micro-blogging, have in large part democratized media.  Arguably, however, those sources also contribute a good deal of information pollution—more than their fair share.^[69]  “Because modern media suf-fers from a tragedy of the commons, users are incentivized to over-produce low- or no-value speech.”^[70]

The harm from information is further compounded by the relative permanence of digital information.  Due to cheap electronic storage, misinformation will only accumulate and never diminish.  There is real harm in bad information preserved in this way, not just to the subjects but to everyone.  Once bad information gets published it “will live on and on in libraries carefully archived, scrupulously indexed . . . silicon-chipped, deceiving researcher after researcher down through the ages, all of whom will make new errors on the strength of the original errors, and so on and on into an exponential explosion of errata.”^[71]

In weighing the benefits and harm from particular types of speech, courts should consider not only the societal benefits from information dissemination but the concomitant costs imposed by information pollution.  In light of this increasing harm from information pollution and ability for even niche audiences to have a voice, perhaps it is time for the Court to adapt its New York Times Co. v. Sullivan line of cases to be less concerned about promoting quantity of speech and more concerned about enabling quality.

F.        A Lemons Problem?

The case for increased regulation of modern digital media may be illuminated by analogizing traditional media and modern digital media to the varying markets of new and used cars, as economist George Akerlof discussed in his 1970 paper The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism.^[72]

Due to information asymmetry and lacking costly and explicit guarantees, independent used-car salesmen generally are not able to assert the quality of a vehicle with credibility.  Consumers looking for new cars can look at Consumer Reports and other similarly styled reviews to determine whether a particular year, make, or model of a vehicle is problematic.  Consumers looking for a used car can also use such sources of information, but must also ascertain whether the particular used car they are looking at has hidden flaws—perhaps it has been in an accident, has a faulty electrical system, or suffers from some other problem that is not immediately apparent.  Because these problems can drastically affect a used car’s value and are sometimes costly and difficult to ascertain, purchasers of used cars will naturally discount a used car’s value for not only obvious flaws but for the possibility of hidden flaws.

Due to the information asymmetry between seller and purchaser, purchasers will discount the true value of cars in good condition without hidden flaws.  Consequently, sellers of low-quality vehicles will be overpaid and sellers of high-quality vehicles will be underpaid.  Because sellers will never receive the true value of their cars, owners of quality used cars will either elect not to sell or will “eat the cost” of a markdown, leaving primarily those whose cars are already valued at the bottom of the market.  In this way, the combination of difficult-to-identify lemons and wary consumers practically ensures that a vast majority of used cars sold are likely to be somehow defective.  Possible solutions to the lemons problem include sellers offering a guarantee to purchasers certifying the quality of the used car, or increasing regulation that would allow purchasers of lemons to recoup their losses.  Increased regulation can be desirable in these situations be-cause sellers can sell high-quality vehicles for their actual value, and decreased risk to buyers may invite more buyers to participate in the market.

Amateur digital media suffers from similar vulnerabilities as the independent used-car market.  Amateur digital media, analogous to the used-car market, is susceptible to a heterogeneous degree of information quality.  In the marketplace of ideas, it is often difficult for the average consumer to verify the quality of a particular piece of information apart from the source’s reputation.  Like the used-car market, if left unregulated, the presence of bad amateur media may drive out the presence of good.

It is possible that as information consumers have multiple bad experiences with amateur digital media, they may opt exclusively in favor of reliable, established sources such as the New York Times for news, just as some consumers of cars choose to buy a new car.  But of course, not everyone wants to buy a new car, for reasons related to pricing and costs, as well as variety and selection.  Instead of letting information pollution drown out the valuable amateur digital media, the law could set certain standards for all media that would guarantee to information consumers a certain level of quality, thereby preventing a lemons problem for amateur digital media.

G.        A Modern Rule for Digital Media

Solutions to the problems relating to information pollution in digital media are readily available and do not require abandoning the traditional rule—requiring public figure defamation plaintiffs to either prove actual malice in a lawsuit or resort to the self-help remedy of rebuttal through the channels of communication—at least to the extent that the traditional rule still operates efficiently for traditional media.  Moreover, the unique format and architecture of digital media present opportunities for unique solutions.

One such solution stems from the ability to correct data in a manner that audiences will likely see such corrections.  Previously, once information was released into the world it was next to impossible to correct.  Newspapers might follow up with a correction buried in the back pages of the next day’s edition, but any owner of the original media would still have the flawed version.  In contrast, modern digital media is typically as easy to correct as it is to generate and disseminate in the first place, a feature that traditional media outlets have already started to utilize.  While a correction to the print version of the New York Times is relegated to page A2 in the next day’s edition with little context, the same correction will appear immediately in the digital version of the original article on nytimes.com.^[73]  Original readers are likely to be misled, either because of effects of confirmation bias or because they never see the correction, but new readers will only see the corrected version.

This Essay proposes a general remedy of correction for false digital speech.  Respectable publishers already have correction systems in place and although a legal rule enforcing the norm of “correction” would disproportionately harm amateur journalists who do not already have a process for corrections,^[74] amateur journalists would also benefit disproportionately from such a rule because their reputations are most vulnerable.  In other words, regulation would alleviate the lemons problem to which amateur digital media is susceptible, the same way increased regulation in the used car market allows for greater diversity and exchange.

The New York Times actual malice standard need not be completely abandoned, but rather modified to better accommodate the characteristics of digital media.  Specifically, the standard is to be assessed not at the time of “publication” but at the moment of choosing to “continue publishing” in light of new information pointing to the falsity of the statement.  For instance, a blogger who initially posts an article that later turns out to be untrue is not at fault unless he or she published the article with a knowing or reckless disregard for the statements’ falsity.  After the blogger is informed of the article’s false-hood, however, if the blogger chooses to “continue publishing” the article by keeping it on the website without correction, this well may constitute a reckless or knowing disregard for the truth.  Publishers who stand by their word can defend their positions in court and if the content were proven incorrect, the First Amendment would not necessarily shield them for their continued publication.^[75]

The most salient benefit of imposing a remedy of “correction” on all digital media is an overall improvement in the quality and reliability of information to consumers.  All digital media would share in the increased reputational value of being considered more reliable.  Because the policy of correcting misinformation is a net gain to all parties, legally requiring this practice of recalcitrant publishers who refuse to correct falsehoods despite substantial evidence to the contrary does not seem like an onerous toll on free speech.

II.        Conclusion

Problems from information pollution are exacerbated by certain characteristics of digital media; anyone can disseminate information without bearing the cost of spreading misinformation and bad digital information persists forever.  Consequently, modern media suffers from more bad information than ever, and information that will last forever, competing for people’s limited attention and resources ad infinitum.  It is inefficient and inappropriate for courts to consider the societal benefits of information dissemination without weighing the potentially enormous costs that information pollution poses.

The marketplace of ideas theory is based on flawed assumptions, including the effectiveness of rebutting misinformation through “channels of communication.”^[76]  Determining the efficacy of the mar-ketplace of ideas is crucial because there is great potential for harm to the modern information commons—if there is no adequate market solution for information pollution, a legal solution is warranted.

AESTHETICS OF COPYRIGHT

The Aesthetics of Copyright Adjudication

Glen Cheng^[1]

The American legal system is unable to continue avoiding the question of art versus non-art.  In particular, questions of copyright-ability often hinge on art-status.  Yet art is a constantly evolving, reflexive field in which artists and philosophers continually challenge the status quo.  Judges would benefit from analyzing claims to art-status under the objectivity provided by well-developed aesthetic theories, aided by expert testimony when needed.  After reviewing several major philosophies of art, this Article proposes a framework for adjudicating art-status based on an aesthetic theory known as the Historical Definition of Art.  Furthermore, to balance copyright law’s purpose of protecting innovation with its need to promote public availability of copyrighted works, this Article proposes the creation of a new statutory exception to provide a defense for “utilitarian adaptations” of copyrighted three-dimensional works.  This statutory defense would serve to encourage innovation and stimulate production of novel goods.

I.         Introduction        

II.         The Current Standard of Copyrightability        

A.        Constitutional Basis        

B.        Statutory Scheme        

C.        Judicial Precedent        

1.        Originality Versus Novelty        

2.        Higher Standard of Originality for Derivative Works        

3.        Copyright Restrictions on Useful Articles        

III.         The Need for a Reformulated Standard of Originality.        

A.        The Current Statutory Scheme Fails to Provide Parity for Postmodern Artists        

B.        The Need for Greater Protection of Postmodern Artists’ Rights        

C.         The Need for Art Theory to Guide Adjudication        

IV.         Towards an Art-Theoretical Basis for Copyright Law        

A.        Theories of Art        

1.        Representationalism        

2.        Expressionism        

3.        Formalism        

4.        The Aesthetic Definition of Art        

5.        Neo-Wittgensteinianism        

6.        The Institutional Theory of Art        

7.        The Historical Definition of Art        

B.        The Historical Definition of Art as an Adjudicative Guide        

1.        Using the Historical Definition of Art to Adjudicate Infringement Claims        

2.        Limiting Certain Artworks to “Thin Copyright” Protection        

3.        The Work of Art in the Post-Industrial Era        

4.        Artists Have Feelings, Too        

V.         The New Statutory Exception for Useful Articles        

A.        Objections to Extending Copyright Protection to Recent Artworks        

1.        Concerns about Limiting Free Speech        

2.        Concerns about Chilling Innovation        

B.        The Need for a New Statutory Exemption for Useful Articles        

VI.         Conclusion        

To see something as art requires something the eye cannot descry—an atmosphere of artistic theory, a knowledge of the history of art: an artworld.

—Arthur Danto^[2]

I.        Introduction

All original artworks should be copyrightable.  Yet in the Art-world,^[3] as in the “real” world, newcomers and minorities face disparate treatment.  By failing to protect important advances in recent art, current copyright law discourages innovation and frustrates copyright law’s goal of “promot[ing] the creation and publication of free expression.”^[4]  Copyright law should therefore seek to extend equal protection to all categories of art.^[5]

Much recent art, especially recent forms of painting and sculpture, presents unique difficulties for copyright law where the artworks blur the classical distinctions between “artworks” and “mere objects.”  For example, Yves Klein’s Blue Monochrome,^[6] an abstract painting, con-sists of a 195.1 x 140 cm canvas whose surface is entirely covered in one shade of blue.^[7]  “Readymade” or “Found Art” includes works such as Marcel Duchamp’s In Advance of the Broken Arm,^[8] a three-dimensional work consisting of an ordinary, unmodified snow shovel that Duchamp purchased from a utility store and hung from a wire in his studio.^[9]  It bears the following description in the Museum of Mod-ern Art: “Wood and galvanized-iron snow shovel, 52” (132 cm) high.”^[10]  Current copyright doctrine, with its requirements of originality and nonfunctionality, has considerable difficulty affording copyright protection to these works.

Though some might refuse to call certain recent works “art,” this is an increasingly untenable position given such works’ widely accepted art-status.  In 2004, Duchamp’s readymade work, Fountain,^[11] was voted “Most Influential Piece of Modern Art” by five hundred British artists, art critics, curators, and dealers.^[12]  Duchamp, Klein, and other important artists in the mid-twentieth century have brought about a “Copernican revolution in aesthetics”^[13] that copyright law has thus far failed to comprehend.^[14]

The American legal system is unable to continue avoiding the question of art versus non-art.  Scholars have lamented “missed op-portunities to . . . encourage a healthy debate about art”^[15] by courts that avoid explaining decisions that hinge on an object’s art-status.^[16]   “[M]any areas of American law require the law to make visual aesthetic determinations, such as the doctrine of useful articles, moral rights in copyright, customs, arts funding, and urban planning, as well as First Amendment jurisprudence,”^[17] obscenity law,^[18] and tax law.^[19]   Moreover, because the standards governing the copyrightability of various art forms differ significantly,^[20] there is a rising need for courts to be guided by a coherent theory of art.  U.S. common law, which emphasizes law’s changing and even aesthetic nature through the evolution of judicial precedent,^[21] is categorically amenable to judicial engagement in art theory.

The current copyright scheme must be modified to provide equal protection to postmodern artists.  In exploring the limits of copyright-able subject matter, this Article argues that the statutory framework of copyright is broad enough to warrant inclusion of recent categories of art.  However, current judicial precedent needs modification to en-compass this shift.  Furthermore, Congress should pass a statutory defense for functional uses of copyrighted artworks to preserve innovation and equitably limit the scope of protection afforded by copyright.

Part II of this Article examines the legal basis for copyrightability of artistic works.  Part III argues that a new standard is needed to pro-vide equal protection under the law to all artworks.  Part IV explores several major philosophies of art, and proposes that to provide parity in copyright protection judges should analyze originality of artworks under the Historical Definition of Art.  Part IV further explains that the copyright protection afforded to works in certain categories of recent art is necessarily a weaker form of protection known as “Thin Copyright.”  After addressing concerns that according copyright pro-tection to certain categories of recent art might stifle innovation or free speech, Part V proposes the creation of a new statutory defense for “utilitarian adaptation” of copyrighted three-dimensional works of art, in order to encourage innovation and production of novel goods for the benefit of society.

II.        The Current Standard of Copyrightability

A.        Constitutional Basis

Congress has the power under the Constitution “[t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”^[22]  Copyright protection hinges on the terms “Writ-ings” and “Authors,” which are interpreted broadly under “consti-tutional principles.”^[23]  An “Author” is understood to mean an “origi-nator,” “he to whom anything owes its origin.”^[24]  Similarly, “Writings” is interpreted as “any physical rendering of the fruits of creative intellectual or aesthetic labor.”^[25]  The Supreme Court has noted that “the primary objective of copyright” is “to promote the Progress of Science.”^[26]

B.        Statutory Scheme

The Copyright Act of 1976^[27] (the 1976 Act) grants copyright protection to “original works of authorship fixed in any tangible medium of expression . . . from which they can be perceived, re-produced, or otherwise communicated . . . .”^[28]  By purposely leaving the phrase “original works of authorship” undefined, Congress intended to allow the courts to establish the standard for copyrightable subject matter.^[29]

Both the original Copyright Act of 1909 (the 1909 Act)^[30] and its 1976 updated version designated broad categories of copyrightable subject matter.  The 1909 Act granted copyright protection to “works of art,”^[31] “musical compositions,”^[32] and after amendments in 1971, “sound recordings.”^[33]  The 1976 Act makes copyrightable “works of authorship” such as, but not limited to,^[34] “pictorial, graphic, and sculp-tural works,”^[35] “musical works,”^[36] “sound recordings,”^[37] and after amendments in 1990, “architectural works.”^[38]  “Pictorial graphic and sculptural works” include both “two-dimensional and three-dimensional works of fine, graphic, and applied art.”^[39]

The 1976 Act importantly limits copyright protection to works expressed in a “tangible medium”^[40] and the non-“utilitarian” aspects of works.^[41]  Copyright may extend to a visual work’s “form,” but not to its “mechanical or utilitarian aspects.”^[42]

The “tangible medium” requirement differentiates between conception and expression of artwork.  Thus the 1976 Act excludes from protection “any idea, procedure, process, system, method of operation, concept, principle, or discovery.”^[43]  To be copyrightable, the work must be “sufficiently permanent or stable . . . to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration.”^[44]  Unfixed ideas may be protected under state law idea misappropriation theories;^[45] processes and methods can be covered by method patents.^[46]

C.        Judicial Precedent

Copyright owners have exclusive statutory rights over their works, including the rights “to reproduce the copyrighted work in copies,”^[47] “to distribute copies,”^[48] “to perform the copyrighted work publicly,”^[49] to “display the copyrighted work publicly,”^[50] and, importantly, “to prepare derivative works based upon the copyrighted work.”^[51]

1.        Originality Versus Novelty

“The sine qua non of copyright is originality.”^[52]  The term “origin-al” means “only that the work was independently created by the author . . . and that it possesses at least some minimal degree of creativity.”^[53]  The Supreme Court declared that “the requisite level of creativity is extremely low; even a slight amount will suffice.  The vast majority of works make the grade quite easily, as they possess some creative spark, ‘no matter how crude, humble or obvious’ it might be.”^[54]

The requirement of a “modicum of creativity,” however, is not powerless.^[55]  Originality requires something different from technical traits such as “‘physical skill’ or ‘special training.’”^[56]  Instead, to es-tablish originality, “[a] considerably higher degree of skill is required, true artistic skill.”^[57]  Thus, in Feist, the Supreme Court denied copy-right protection to a telephone directory because the publisher’s selection of listings—“names, towns, and telephone numbers”—was obvious, and coordination and arrangement of names alphabetically included “nothing remotely creative.”^[58]

Originality in copyright law is different from novelty, which is a term of art that seeks to measure the newness of inventions in patent law.^[59]  As Judge Learned Hand declared, copyright only requires origi-nality to the author,^[60] whereas novelty under patent law can be characterized as requiring originality to the public.^[61]  Originality to the author means, in Judge Hand’s example, that “if by some magic a man who had never known it were to compose anew Keats’s Ode on a Grecian Urn [sic], he would be an ‘author,’” with full rights to copyright his work.^[62]  Congress purposely selected the lower standard of originality for copyright in order to extend protection to “the broadest class of works possible.”^[63]  However, copyright’s wide breadth of protection is in proportion to its limited grant of exclusivity.   As with other forms of intellectual property, copyright does not afford protection to ideas or expressions already in the public domain.^[64]  And because copyright does not examine novelty, copyright grants no protection to inventions or methods of operation described in copyrighted works.^[65]  Of course, an author remains free to apply separately for patent protection on those inventions or methods.

2.        Higher Standard of Originality for Derivative Works

Copyright holders have the exclusive right to prepare and to authorize preparation of “derivative works based upon the copyrighted work.”^[66]  The 1976 Act defines “derivative works” as works “based upon one or more preexisting works such as [an] . . . art repro-duction . . . or any other form in which a work may be recast, transformed, or adapted.”^[67]  A derivative work based on a copyrighted artwork must meet “substantial originality,”^[68] a higher standard of originality than that applicable to non-derivative works.  Though copy-right law has no requirement of novelty,^[69] the original work serves as a form of prior art^[70] with respect to the derivative work.  Thus, the higher standard of originality for derivative works requires that the derivative work have at least a “substantial variation” from the original to be separately copyrightable.^[71]  Indeed, if derivative art were too easily copyrightable, copyright would be extended into perpetuity through endless minor variations on the original work.^[72]  Moreover, copyright protection does not extend to any part of derivative works that employ material from previously copyrighted works.^[73]

The two A.R.T. Co. cases, which deal with the copyrightability of simple adaptations of previously copyrighted artworks, illustrate the nuances of the originality standard for derivative works.  In Mirage Editions, Inc. v. Albuquerque A.R.T. Co.,^[74] Mirage sued A.R.T. for copyright infringement after A.R.T. bought Mirage’s book, “removed selected pages from the book, mounted them individually onto ceramic tiles and sold the tiles at retail.”^[75]  Mirage argued that A.R.T. was using this process to create unauthorized derivative works of Mirage’s books.^[76]  The Ninth Circuit held that A.R.T. had “recast or transformed the individual images” by pasting them onto the tiles, and was therefore liable for copyright infringement.^[77]

Nine years later, Lee v. A.R.T. Co.^[78] came before the Seventh Circuit.  A.R.T. similarly purchased Lee’s notecards, “mounted the works on ceramic tiles (covering the art with transparent epoxy resin in the process) and resold the tiles.”^[79]  The court found that “the framing process does not create a derivative work,” and that the tile simply served as a “flush frame” for the art.^[80]  The court disagreed with the Ninth Circuit’s conclusion that A.R.T.’s method of mounting art on ceramic tile was more transformational than traditional means of fram-ing art.^[81]  The court accordingly found no copyright infringe-ment.^[82]

In Lee, the court noted that A.R.T.’s card-on-a-tile could not have been copyrighted because it was not sufficiently original compared to the original card.^[83]  In fact, after the Mirage case, A.R.T. tried to obtain a copyright on one of its card-on-a-tile works, but was rejected by the Register of Copyrights because the card that it incorporated had already been copyrighted.^[84]  This was the correct result because the card-on-a-tile was held to the higher standard of copyrightability for derivative works.^[85]

Photographs pose a special problem for determinations of whether a work is derivative.  Photographs are copyrightable in the same man-ner as artworks produced by paint or pencil,^[86] but they are devoid of the typical individualized brush and pencil strokes found in classical paintings.  Thus, infringement determinations between two photo-graphs of the same subject or scene depend highly on factors such as “pose, light, and shade.”^[87]

The law on derivative works is also implicated where authors compose visual art in prose.  Søren Kierkegaard once imagined a paint-ing consisting of a square canvas covered entirely in red paint, with the explanation “The Israelites had already crossed over, and the Egyptians were drowned.”^[88]  Because the subsequent physical creation of this work would involve little aesthetic judgment or interpretation, it would likely be barred from separate copyrightability by the higher standard for derivative works.  However, other instructive works may well require sufficient exercise of personal judgment in the creation of the visual work to merit separate copyrightability.^[89]  Sol LeWitt fancied himself a “composer” of visual art, writing instructions to guide others in making his artworks.^[90]  In this analogy, the person painting the artwork would be the instrumentalist performing the piece.  While LeWitt’s instructions are copyrightable as writings, the creation of the visual artwork could be separately copyrightable for its interpretive creativity.^[91]  A further example is the book Transfiguration of the Commonplace, whose title Arthur Danto took from the title of a nonexistent book said to have been written by Sister Helena of the Transfiguration, a character in Muriel Spark’s 1961 novel, The Prime of Miss Jean Brodie.^[92]  In this case, Danto supplied the entire substance of the nonexistent work.  Notwithstanding the permission Ms. Spark gave to Danto to create his work, Danto would have faced no difficulty in an infringement suit.

3.        Copyright Restrictions on Useful Articles

As noted above, copyright only extends to the non-“utilitarian” functions of works.^[93]  Determining utility versus aesthetic value of industrial objects is perhaps the most difficult area of copyright law,^[94] and the standard in this area has been continually evolving.  In 1959, the Copyright Office promulgated the necessary condition that if “the sole intrinsic function of an article is its utility, the fact that the work is unique and attractively shaped will not qualify it as a work of art.”^[95]   However, this failed to provide much guidance, since even rudimentary useful articles are intended to be decorative as well as useful.^[96]   Because literal application of the regulation would render it useless, the word “sole” was omitted in The 1976 Act.^[97]

Courts have been forced to make fine distinctions between “copyrightable works of applied art and uncopyrightable works of industrial design.”^[98]  Mazer v. Stein^[99] is the foundational case regarding copyrightability of functional works.  In Mazer, the issue was whether statuettes used as bases for table lamps were copyrightable.^[100]  The Supreme Court held that the statuettes were copyrightable notwith-standing their intended functional use.^[101]  The availability of design patent protection did not diminish the statuettes’ claim to copyright.^[102]

In the 1976 Act, Congress adopted Mazer’s extension of copyright to works of “applied art,” which “encompass[es] all original pictorial, graphic, and sculptural works that are intended to be or have been embodied in useful articles.”^[103]  A “useful article” is one “having an intrinsic utilitarian function that is not merely to portray the appearance of the article or to convey information.”^[104]  Congress intended for “useful articles” to be copyrighted only if their “shape . . . contains some element that, physically or conceptually, can be identified as separable from the utilitarian aspects of that article.”^[105]  Moreover, copyright protection extends only to copyrightable elements, not the “over-all configuration,” of the article.^[106]  The extent to which an article is manufactured or used for commercial purposes can negatively impact its copyrightability.^[107]  However, The 1976 Act does not pre-clude an owner of copyright from seeking simultaneous design patent protection for copyrighted works.^[108]

The Second Circuit, the most active court in the field of copyright law, subsequently developed the “conceptual separability test” enun-ciated in The 1976 Act through a series of notable cases.  In Kieselstein-Cord v. Accessories by Pearl,^[109] the copyrightability of sculptured belt buckles, cast in precious metals and titled “Winchester” and “Vaquero,” was at stake.^[110]  Noting that the belt buckles were being “used for ornamentation for parts of the body other than the waist,” the court analogized the belt buckles to jewelry, which was previously held copyrightable.^[111]  After hearing expert testimony, the court further found that the buckles “[rose] to the level of creative art.”^[112]  Finding “conceptually separable sculptural elements” in the buckles, the court accorded copyright protection to those elements.^[113]

In Brandir International v. Cascade Pacific Lumber Co.,^[114] the issue was whether “a bicycle rack made of bent tubing that is said to have originated from a wire sculpture” was protectable by copyright or as trade dress despite the rack’s functionality in holding bicycles.^[115]   The Second Circuit adopted a test for conceptual separability that required an examination whether design elements reflect “a merger of aesthetic and functional considerations,” or whether they reveal “the designer’s artistic judgment exercised independently of functional influences.”^[116]  If the aesthetic and functional considerations are merged, or the aesthetic design “is dictated by the functions to be performed,” copyright is denied.^[117]  The court found several instances where the bike rack, purporting to be based on a copyrightable sculpture, changed the original sculpture’s design to allow higher functionality as a bike rack.^[118]  Finding that the style of bicycle rack was “influenced in significant measure by utilitarian concerns,”^[119] the court denied copyright protection.^[120]

In Hart v. Dan Chase Taxidermy Supply Co.,^[121] the Second Circuit held that a fish mannequin designed to display taxidermists’ fish skins was copyrightable.^[122]  Distinguishing precedent holding uncopyright-able a human torso mannequin designed to display clothes,^[123] the court focused on the intent of the viewers of the taxidermist mannequins to see “a complete ‘fish.’”^[124]  The mannequin dictated the active form in which the fish would be displayed, including the “shape, volume, and movement of the animal.”  The mannequin was held copyrightable be-cause its intended function was to “portray its own appearance,”^[125] rather than to portray an incidental item such as clothing.^[126]

III.        The Need for a Reformulated Standard of Originality

A.        The Current Statutory Scheme Fails to Provide Parity for Postmodern Artists

Every artwork, as an equal denizen of the Artworld,^[127] deserves equal treatment under the law.  Yet the current copyright scheme cannot accommodate important recent contributions to the Artworld.  The prohibition on copyrighting utilitarian aspects of useful articles is a significant bar to readymade artworks.  Taking Duchamp’s In Advance of the Broken Arm (hereinafter Duchamp’s shovel) as a test case, it is readily apparent that the current copyright scheme’s requirement of nonfunctionality bars the work.  The only conceptually separable elements in In Advance of the Broken Arm are those outside the physical bounds of the shovel: the way in which it is positioned in the gallery and its mode of attachment to the wall or a display fixture.   Considering the simple manner in which Duchamp’s shovel was laid against the wall in the Modern Museum of Art,^[128] this hardly suffices as an “original” positioning.  More fanciful arguments can be made for the originality of Duchamp’s shovel: that the gallery room is part of the work, such that the shovel is “a work of visual art . . . made part of a building”^[129] or that it is an “architectural work.”^[130]  An “architectural work” “includes the overall form as well as the arrangement and composition of spaces and elements in the design.”^[131]  However, Duchamp’s work would not be considered an “architectural work” since neither Duchamp nor the museum intended the museum to be part of his work.^[132]

The prohibition on copyrighting ideas poses a similar problem for works of abstract art such as Kazimir Malevich’s White on White.^[133]   Malevich’s work, in the Suprematist conceptualist tradition, consists of a white square subtly imposed within a white 31 ¼” x 31 ¼” square canvas.^[134]  One author argues that this imposed white square is so sim-ilar in shade and shape to the original white canvas upon which the artist began work that the “originality” of the work consists mainly of an uncopyrightable idea.^[135]

The Copyright Office has deemed names, titles, and slogans not copyrightable.^[136]  Thus, the titles to Duchamp’s readymades, Fountain and In Advance of the Broken Arm, though creative, would not help Duchamp obtain copyright protection for his works.  Yet, to add to the confusion, phrases or slogans included within the bounds of the visual work can be protected.^[137]  Certain categories of recent art challenge these classical distinctions.

One artist destroys the traditional notion that the title of a work must be separate from the work itself.  His artworks, termed “Mind Prints,” are “mental flash cards” consisting of short phrases designed to evoke mental images of the event described.^[138]  The entire visual consists of the phrase printed in standard typewriter font, on fine art paper, and framed.  Examples of his works include When Obama Knew and When Bill Told Hillary.^[139]  These works dissolve the classical dis-tinction between the idea behind the artwork and the visual aspects of the work itself, since the actual art in these cases consists of the suggested images in the minds of the viewers.^[140]

The absolute bars on utilitarian and conceptual artwork in the current copyright scheme are at odds with copyright’s “primary objective” to promote “the creation and publication of free expression.”^[141]  Moreover, “[p]ersonality always contains something unique. . . . [A] very modest grade of art has in it something irreduc-ible, which is one man’s alone.  That something he may copyright un-less there is a restriction in the words of the act.”^[142]

Professor Nimmer argues that “[i]f a work might arguably be regarded as a work of art by any meaningful segment of the population . . . then the work must be considered a work of art for copyright purposes.”^[143]  The Supreme Court has consistently warned against discrimination against works of art that do not comport with narrow-minded aesthetic tastes.  As Justice Holmes noted, “if [art-works] command the interest of any public, they have a commercial value—it would be bold to say that they have not an aesthetic and educational value—and the taste of any public is not to be treated with contempt.”^[144]  An artwork is none the less an artwork “and none the less a subject of copyright” if it is used for a commercial purpose.^[145]

B.        The Need for Greater Protection of Postmodern Artists’ Rights

As noted above, the twin prohibitions on utilitarian and conceptual artwork in the current copyright scheme bar copyrightability of Duchamp’s shovel.  And obviously, Duchamp could not avail himself of patent protection for his shovel, as his work would be unable to pass patent law’s basic test of novelty.^[146]  This section analyzes whether other forms of intellectual property protection, such as trademark or state law idea protection, would be able to afford protection to postmodern artists’ works.

Some consolation in the form of trademark^[147] or trade dress^[148] protection might be afforded to the rare uncopyrightable work that becomes sufficiently famous that it acquires secondary meaning as a “mark” of sorts signifying its maker.  However, readymade artworks are virtually by definition incapable of being inherently distinctive, and therefore would have to acquire secondary meaning to be protected under trademark law.  Because color can be trademarked if it “come[s] to indicate a product’s origin,”^[149] Malevich’s White on White^[150] could be trademarked if its two subtly different shades of white became famous enough to be his signature of sorts.  Yves Klein’s Blue Monochrome^[151] is perhaps the best example of this, having achieved fame as International Klein Blue.^[152]  Because multiple colors are more distinctive than single colors, a multicolored work such as Mark Rothko’s No. 5/No. 22,^[153] a painting consisting of rectangles of different shades of yellow and red, would be more likely to be trademarkable than a work utilizing only a single color.^[154]   Nonetheless, functionality is a bar to trademarkability.^[155]  Thus, Du-champ’s shovel, though famous, would unequivocally be denied trademark protection.

A major motivation behind Duchamp’s work was his belief that “art [could] be a form of expression purely for the mind, rather than the eye.”^[156]  This raises the question of whether certain types of recent art are not better suited to protection under state law idea protection than copyright, since the latter only extends to fixed, tangible objects.^[157]   Yet state law idea protection to artists varies from state to state and is typically very limited.  First, idea protection only extends to “novel” ideas, which is similar to the standard of novelty in patent law.^[158]   Second, state law idea protection is typically conditioned on contract law and thus requires privity of contract between the artist and the alleged infringer.^[159]  To prevail on a theory of idea misappropriation, a plaintiff must satisfy a markedly higher burden of proof than that of copyright law.^[160]  The requirements of novelty and contract privity in state law idea protection reflect the rationale that such protection was designed primarily to protect new ideas that were in the process of being developed, not the ideas behind already-finished artworks.

Other forms of intellectual property are thus unlikely to afford much protection to important categories of recent art.  Ultimately, the principal mode of protection for “works of art” has historically been, and continues to be, copyright.^[161]  Accordingly, the standard of copy-rightability in the current copyright scheme must be updated to afford protection to prominent works of recent art that are presently denied equal protection to other artworks.^[162]

C.         The Need for Art Theory to Guide Adjudication

The need for a principled basis for extending copyright to recent artworks can be seen in the A.R.T. Co. cases.^[163]  Because both A.R.T. cases involved the appropriation and framing of previously copyrighted work, they implicated the higher standard of copyrightability app-licable to derivative works.  Now imagine that the A.R.T. cases had involved the appropriation of a “mere object” not subject to copyright, such as Duchamp’s shovel.  Duchamp’s shovel would be unlikely to be held to the higher standard for derivative works because shovels sold in hardware stores contain very few, if any, copyrightable elements.^[164]   Both circuits’ discussions of whether the work was “sufficiently transformative” focused solely on mere physical traits of the work at issue.  Neither court’s rationale would have been able to accord protection to Duchamp’s work because they failed to use a theory of art in their analysis of the work’s “transformational” qualities.^[165]

Fortunately, the Feist “sweat of the brow doctrine” is no longer good law.^[166]  This paves the way for a standard of originality based on “artistic skill,”^[167] independent of physical labor or manual precision.   Because the new standard of originality would incorporate an understanding of art theory, it would be able to comprehend the aesthetic talent that birthed readymade art and abstract art.^[168]

Brancusi v. United States,^[169] a rare case that required a court to explicitly decide whether or not an object was an artwork,^[170] demonstrates that courts are willing to engage aesthetic theories to distinguish art from non-art.^[171]  In Brancusi, the customs court was required to explicitly declare whether a claimed sculpture was mere industrial pipe, on which a customs tax was due, or whether it was a work of art, free from customs taxes.^[172]  Because the metal three-dimensional work, titled “Bird in Flight,” did not look like a bird, the court had considerable difficulty dealing with the question of whether it was art.^[173]  To assist its decision, the court considered expert testimony on the nature of postmodern art and the art-status of Brancusi’s work.^[174]  The court finally held the object to be an artwork and declared it free of customs duty.^[175]  In emphasizing Brancusi’s profession as a sculptor and the testimony of the art critics to reach its holding, the customs court implicitly adopted Institutional Theory to reach its holding that the object constituted an artwork.^[176]

Courts should reformulate a standard of originality that, consistent with copyright law’s goals of promoting creativity and innovation, does not discriminate against recent forms of art.^[177]  Congress express-ly reserved the standard of originality for judicial formulation,^[178] noting that “[a]uthors are continually finding new ways of expressing themselves” and that “it is impossible to foresee the forms that these new expressive methods will take.”^[179]  Congress specifically warned that the category of “pictorial, graphic, and sculptural works” not be limited by “artistic taste, aesthetic value, or intrinsic quality.”^[180]  If art-status were dependent on judicial whims, “works of genius would be sure to miss appreciation,” and works that by virtue of their modesty failed to catch a judge’s fancy would likewise be ignored.^[181]

Many forms of recent art, and the philosophies they have engendered, give us eyes to see the hidden splendor of “the lilies of the field,”^[182] simple objects that otherwise go unnoticed in our daily routines.  Readymade art possesses a singular ability to call our atten-tion to the sublimity of ordinary objects.^[183]  Accordingly, the philo-sopher Arthur Danto calls such art “transfigurations of the commonplace.”^[184]  By elevating to art-status neglected objects, these works satisfy the “noble instinct for giving the right touch of beauty to common and necessary things.”^[185]  Equity demands that Duchamp, who originated the class of readymade artworks, and other postmodern artists, should not be denied the benefit of copyright protection.

Every new style of artwork enriches the Artwork with its inclusion.^[186]  Copyright law has the opportunity to encourage the pro-liferation of artistic creativity by affording equal protection to postmodern artists.  The copyright paradigm must actively comprehend “the evolving standards of [aesthetics] that mark the progress of a maturing [Artworld].”^[187]  Ensuring that recent forms of art qualify for such protection is consistent with the history of copyright law, which has involved “gradual expansion in the types of work accorded protection,” and which has accommodated “forms of expression, which . . . have only gradually come to be recognized as creative and worthy of protection.”^[188]  The current state of the originality doctrine neither effectively excludes from copyright commonplace mass-produced objects,^[189] nor effectively includes within copyright many recent forms of art.

IV.        Towards an Art-Theoretical Basis for Copyright Law

Art often requires explanation to be perceived as art.  A title often provides some interpretive guidance:^[190] In Advance of a Broken Arm bestows upon an otherwise ordinary factory-made shovel the element of humor.^[191]  Unfamiliar works often require explanation by way of theory and history in order to be understood as art.  The major focus of the philosophy of art for the past two centuries has just been to provide such a theory of art.^[192]  A major difficulty of this philosophical project has been the continual exploration of changing social norms and conventions by artists themselves.^[193]  While this Article in no way claims to have arrived at a comprehensive definition of art, it does argue that law should be informed by aesthetic theory in making determinations of art-status.^[194]  Accordingly, this section explores the major theories of art with a view to attract the most congruent theory to the counsel of copyright law.  During the exploration, this section solicits help towards this goal from actual artworks of paint, pencil, sound, and sculpture.

A.        Theories of Art

This section explores the major philosophical theories of Representationalism (including Imitation Theory), Expressionism, Formalism, Aesthetic Experience Theory, Neo-Wittgensteinism, Institutional Theory, and the Historical Definition of Art.^[195]

1.        Representationalism

The earliest known theories of art focused on imitation, or mimesis.^[196]  Both Plato and Aristotle maintained that the essence of art was imitation.^[197]  Imitation Theory was able to explain much of art throughout history, and was accepted as the prevailing theory as late as the eighteenth century.^[198]  The theory has great explanatory power with regard to realistic sculptures like Michelangelo’s David^[199] and stylized paintings such as da Vinci’s The Last Supper.^[200]

Representationalism expanded imitation theory in embracing art that symbolized or stood for a subject, without requiring imitation per se.^[201]  Thus were the Celtic High Crosses of Muirdeach^[202] and Moone^[203] works of art, representing divinity crucified as a perfect circle superimposed on a cross.  Nonetheless, classical representationalism’s requirements of imitation or symbolism still excluded absolute music^[204] such as Beethoven’s Symphony No. 9^[205] and abstract art such as Rothko’s No. 5/No. 22^[206] and Klein’s Blue Monochrome,^[207] which consist of pure color.

Neorepresentationalism responded to these abstract examples by reformulating the “representativeness” requirement more loosely as the condition of interpretability.^[208]  Under neorepresentationalism, a work can be an artwork if and only if it contains “semantic content”: a subject about which it makes some comment or observation.^[209]   Artworks admit of interpretation just because they hold semantic content.^[210]  Danto argues that “a culture has a concept of art,” an Art-world, only insofar as it has made this philosophical distinction between interpretable and noninterpretable works.^[211]  This theory came to explain a great many works, because most art is about a subject and therefore requires interpretation.^[212]  Neorepresentationalism can ex-plain the art-status of the readymades: Duchamp’s shovel is about something, if nothing other than the nature of art itself.^[213]  One might argue that neorepresentationalism would make every object into a work of art, since ordinary shovels are about shoveling snow and elevators are about moving objects vertically.  However, this argument confuses an object’s created purpose or function with its capacity for semantic commentary.  An ordinary snow shovel is capable of being used to shovel snow; it does not comment on the difference between reality and the Artworld unless formally presented as an artistic commen-tary.^[214]

Yet neorepresentationalism was still underinclusive because it failed to account for many artworks that did not have semantic content (are not about anything), and were therefore beneath interpretation.   Certain non-representational architectural or decorative artworks, such as David Yurman earrings or non-symbolic Christmas tree ornaments, fall into this category.  Such objects “are not about beauty; they are beautiful.”^[215]  A work that possesses a property does not make the work about that property, in the same way that The Bluebook^[216] is not about its blue cover.

2.        Expressionism

Expressionism regards the expression and communication of emotion as the sine qua non of art.  Variations of expressionism were propounded from the beginning to middle of the mid-twentieth century.^[217]  The theory accorded art-status to a work if and only if the work was intended to transmit to an audience a refined expression of emotion or feeling.^[218]  This theory explained much of Romantic and Impressionist art, which emphasized individual experience and emotion.  For example, Van Gogh’s The Starry Night^[219] and Munch’s The Scream^[220] are not primarily representational but rather emotive: they serve to display the artist’s impression and perspective.   Expressionism was also able to comprehend the art-status of absolute music, whose abstract nature posed significant difficulties for representationalism.^[221]  Many musical pieces evoke their intended emo-tions of sadness or wistfulness in their listeners in very compelling manner.

However, expressionism came into question because not all artworks were intended to be expressions of emotion.  For example, it is difficult to argue that the White House’s architectural columns, or Andy Warhol’s Campbell’s Soup Cans,^[222] which consist of 32 identical paintings of Campbell’s soup cans in an eight-by-four grid, were intended to express emotion.^[223]  Likewise, fractals and musical arpeggios, such as those contained in Chopin’s Black Key Etude^[224] are denied art-status under expressionism since, though beautiful, they are ultimately dictated by a mathematical equation and not by expressions of individualized emotion.  Thus, while emotive expression helps to explain a large portion of art, it cannot be a necessary condition of a comprehensive definition of art.

3.        Formalism

The theory of formalism was largely articulated in response to the increasing advance of recent art forms, evolving from impressionism to cubism to abstract art.  Tracing its heritage to Kant’s views on form and aesthetic value, Formalism was most influentially advanced by Clive Bell in the early-to-mid twentieth century.^[225]  The theory claims that an object is a work of art if and only if it is designed primarily in order to display significant form.^[226]  For visual art, form consists of the structure of the work, including arrangements of “lines, colors, shapes, spaces, [and] vectors.”^[227]  With regard to musical works, form denotes the work’s musical structure and arrangement of notes and sounds.  This theory was able to contemplate abstract art that defied traditional representationalist and expressionist explanations, such as Frank Stella’s Memantra,^[228] a freestanding sculpture composed of a complex interposition of stainless steel tubing, carbon fiber and a carbon epoxy composite slab.  At the same time, formalism retained explanatory power with regard to classical representational works, most of which possess significant form.  Because the vast majority of musical works were composed to display their form, much of the music that was inscrutable under representationalism was amenable to explanation by formalism.

Significant counterexamples to formalism could be found in contemporary works such as Pollock’s “drip paintings,” and aleatoric musical pieces.  For example, Pollock’s One: Number 31,^[229] consists of free-flowing paint lines of different colors liberally interposed on a roughly nine-by-seventeen foot rectangular canvas.  The chaotic mix-ture of color and texture that resulted could not be captured under formalism because it lacked formal structure.^[230]  John Cage’s 4’ 33”^[231] instructs a pianist to sit at a piano but not to strike the keys, so as to merely allow any ambient sounds, such as pages flipping or vehicles passing by, to comprise the work for the next four minutes and thirty three seconds.^[232]  Because the piece consists entirely of “found sounds,” there is no structured order.  Formalism faced similar diffi-culty explaining “found art” such as Duchamp’s shovel, for if that particular shovel was deemed to have significant form, it would be difficult to explain why any other shovel would be excluded from the Artworld.  Classical formalism was especially criticized for its com-plete severance of form from content, as it instructed artists and philosophers alike to ignore content in their pursuit of pure form.^[233]

Seeking to address the shortcomings of traditional formalism, Arthur Danto advanced the theory of neoformalism.^[234]  Neoformalism, which traced its roots to Hegel, offered a more comprehensive definition of art with its insight that form must be related to content.^[235]   Form is the mode of expression of the artwork, and content is its substance or meaning.^[236]  In other words, neoformalism added to neo-representationalism’s necessary condition of “semantic content” a sufficient condition that a work is art if it weds such content with “significant form.”^[237]  Neoformalism was powerful in explaining the categories of abstract art inexplicable under classical formalism.  For example, neoformalism explained that readymade works, such as Duchamp’s shovel, are artworks by virtue of their economy.  They communicate visually what would otherwise take a philosophical tome to express.^[238]  And where Cage’s work was meant to draw attention to the everyday sounds that go unnoticed, his work provides an ideal form to express this meaning.^[239]

Nonetheless, neoformalism faced major difficulties in attempting to define “significant form.”^[240]  Form could not be too broadly defined, for as Leibniz noted in his Discourse on Metaphysics, even the most seemingly erratic design can be formally captured by a mathematical equation.^[241]  Form had to be analyzed according to properties of the artwork, components of the artwork smaller than the whole, to avoid attributing form to every physical object.  So neoformalism included the requirement of “significant form.”  However, any such definition of “significant form” includes calculations of degree, which is impossible for any theory of art to define in a nonarbitrary manner.  Art is a binary concept; something either is a work of art or it is not,^[242] so percentage calculations of form are inherently flawed.  By setting the requirement of significant form sufficiently high to prevent everyday objects such as white picket fences or cobblestone walkways from becoming artworks, neoformalism excluded from the Artworld minimalist art such as Kazimir Malevich’s Black Square^[243] or Ad Reinhardt’s Abstract Painting,^[244] which consist simply of black squares.

4.        The Aesthetic Definition of Art

The Aesthetic Definition (AD) of Art focuses on the distinctly contemplative experience that art provides to its viewers or listeners.   The theory asserts that what makes art unique is that artworks alone were created with the intent to transport their audiences into the state of sympathetic and meditative introspection known as the “aesthetic experience.”^[245]  AD is comprehensive in that it claims that all art, and only art, is unified by the intention to enable this singular experience.^[246]   Like any good theory, AD allows for the existence of bad art, which is what results when the artist’s intention to provide an aesthetic experience is not realized.  It is important to recognize that intent can be inferred through circumstantial evidence.  The aesthetic intent of an artist who exhibits precise calculations in her work’s color, sound, structural arrangement, ornate decorativeness, and internal unity, is often facially obvious.^[247]  If an artist claims to be motivated by a desire to present an aesthetic experience through his artwork, but actually produces a banality such as John Baldessari’s I Will Not Make Any More Boring Art,^[248] it will be difficult for a rational audience to believe the artist.  This is because Baldessari’s piece consists entirely of the words of its title, copied ad nauseam in horizontal lines down a 22” x 29” plain white sheet.  No artist who satisfied the legal standard of competence could seriously have intended this artwork to engender a sympathetic, contemplative state in its viewers.  A similar commentary could be made about Ligeti’s Poème Symphonique for 100 Metronomes,^[249] which consists solely of one hundred metronomes running down.^[250]

There are two primary versions of AD, one of which defines aesthetic experience in terms of qualities inherent in the object, and the other which references the audience’s response.  The first version, the content-oriented AD, examines a work for the aesthetic properties of unity, diversity, and intensity.^[251]  These aesthetic properties neces-sarily draw their existence and quality from the work’s nonaesthetic properties, such as shape, sound, structure, and symmetry.^[252]  The unity of a work is measured by its coherence, whether in terms of analogous properties such as complementary colors, repeated designs, or interrelated themes.^[253]  Diversity, which has an inversely proportional relationship with unity,^[254] measures the variety of expressions such as words, sounds, and visual forms in a piece.^[255]  Intensity looks at the degree to which a work exhibits aesthetic properties,^[256] such as the exuberance in Beethoven’s Symphony No. 9’s choral finale^[257] or the elegance of Tchaikovsky’s Swan Lake.^[258]  Because unity, diversity, and intensity are present in a great variety of artworks, even bad artworks, the content-oriented AD is a very encompassing theory.  For example, even Baldessari’s work that promises not to make boring art^[259] exhibits remarkable unity by virtue of its repeating motif.  However, because AD requires that the art be designed with the intention of producing aesthetic experience, the banality would still be denied art-status.^[260]   The content-oriented version of AD also fails because some artworks are intended to be neither diverse nor intense, but simply interesting, as in Duchamp’s Paris Air,^[261] which is a vial of air bottled in Paris.^[262]

The second version of the theory, the affect-oriented AD, focuses on the audience’s response to an artwork as the critical factor that defines art.  This version asserts that all art is created with the inten-tion to produce the “disinterested” yet “sympathetic” response which art alone can provide.^[263]  In the Artworld, art is often valued and lauded for its ability to produce in its audience a “disinterested” response, characterized by an audience’s contemplation of the work as art, unprejudiced by the viewer’s prior moral or political biases.^[264]  A “sympathetic” response to an artwork is one where an audience is guided by the work to interpret it according to the artist’s emphases, meanings, and purposes for the work.^[265]  Thus Enya’s May it Be^[266] soothes the listener and invites reflection; Yiruma’s Kiss the Rain^[267] provides an opportunity for philosophical contemplation.

For all its explanatory power, the affect-oriented AD has been criticized for being contradictory in its terms.  It is not easy to see how one can be both disinterested and sympathetic towards the same work, for the two states of mind seem mutually exclusive.  This criticism especially rings true of works that seek to make a political or religious statement, such as Upton Sinclair’s The Jungle^[268] or the Picasso’s Guernica,^[269] which were intended to incite the viewer to action by presenting a moral injustice.  It would be a gross mischaracterization to assert that these works were intended to produce a disinterested, idyllically contemplative stance in a viewer.  A further criticism of the affect-oriented AD recognizes that a viewer’s response to an object is often dependent upon the art-status of the work.  For example, one could potentially regard Duchamp’s shovel in a disinterested and sympathetic manner once he is informed that it is an artwork.  But the fact that most people do not regard the shovels in their garages in a similar fashion demonstrates that definition conditions interpre-tation.^[270]

5.        Neo-Wittgensteinianism

Thus far all of the major theories of art, while having considerable explanatory power with regard to certain categories of art, have failed as comprehensive theories because they have excluded too many works from the Artworld.  This failure caused philosophers in the mid-twentieth century to suspect that the concept of art could not be defined in terms of necessary and sufficient conditions.^[271]  Neo-Wittgensteinianism (NW) asserts that “‘Art,’ itself, is an open concept” that must be capable of embracing radical change.^[272]  Drawing from the linguistic philosophy of Ludwig Wittgenstein, philosophers in the mid-twentieth century began to rely on “family resemblances” to define art.^[273]  The family resemblance method classifies art according to the manner in which we naturally describe categories: “If one asks what a game is, we pick out sample games, describe these, and add, ‘[t]his and similar things are called ‘games.’”^[274]  Similarly, changes in art forms are accounted for by comparing resemblances between newly claimed artworks and firmly established artworks.^[275]  In dismissing the project of defining art according to conditions, however, NW does not declare all previous theories useless.  Rather, it seeks to rehabilitate them as theories of art criticism.^[276]  Representationalism, for example, has great value as an art historical theory in that it aids critics in understanding the aims and judging the value of artworks from bygone eras.

Yet the family resemblance method, though perhaps initially convincing, results in too open a concept for art.^[277]  After declaring Duchamp’s shovel to be a work of art, NW has no means of excluding any other snow shovel.  By relying on “family” resemblances without meaningfully restricting the relevant resemblance criteria, NW finds itself declaring not only that any kind of thing could be an artwork, but that everything actually is an artwork.^[278]  Thus it was necessary for subsequent theories to return to a definitional, condition-based approach to art theory.^[279]

6.        The Institutional Theory of Art

In adopting a procedural approach to art definition, the Institutional Theory (IT) of Art makes a clean break from previous theories, which have focused on whether an object was intended to perform a specific function.^[280]  Instead, IT emphasizes the primacy of the role that “agents” of the Artworld—its artists, art audiences, critics, curators, and philosophers—play in defining art.  IT holds that a work is art if and only if an agent acting on behalf of the Artworld puts forth the work for appreciation as art.^[281]  The act of nominating a work for appreciation creates a rebuttable presumption that it is an artwork, until and unless it is later rejected by the Artworld.  Because agency action is so central to IT, the theory takes considerable care to define its limits.  An agent of the Artworld is someone who, by virtue of his knowledge, experience, and comprehension of the Artworld and its history, has authority to act on its behalf.^[282]  IT may thus seem elitist, but it expressly avoids discrimination against persons based on race, sex, or gender, instead focusing on aesthetic acculturation, an art-relevant attribute.  Operating as a meritocracy, the Artworld accepts as its agents any and all persons who accumulate sufficient knowledge, experience, and understanding of art theory and history.

IT recognizes that all definitions of art involve considerable calculations of degree or aesthetic taste regarding their critical terms, and therefore invite substantial disagreement as to the works they deem to be art.  This is perhaps most apparent in formalism’s requirement of “significant form,”^[283] but is inescapable in the other theories as well.   For example, the content-oriented aesthetic definition requires one to determine degrees of unity, diversity, and intensity in order to recognize an artwork.^[284]  Expressionism involves determining the degree to which an emotion is refined and transmitted through the medium of the artwork.^[285]  Thus the principle advantage that IT pro-vides is to make explicit the degree to which a work’s art-status involves the exercise of aesthetic judgment by art critics and audiences.   By allowing experts the freedom to welcome prophetic or avant-garde works into the Artworld, IT defeats the Neo-Wittgensteinian criticism that art-definitions necessarily preclude future innovation and exper-imentation.  IT eagerly accepts the challenges presented by readymades, abstract art, found sounds, and other revolutionary pieces that proved difficult for many prior art theories.

Nevertheless, IT is not without significant difficulties as a comprehensive theory.  To begin with, it has been questioned whether the description of the Artworld as a formal institution is a misuse of language.^[286]  This argument asserts that traditional institutions, such as the American Bar Association or the Anglican Church, have in place formal procedures and requirements that must be met before the institutions will bestow authority upon their agents.  One needs a license to practice medicine, and admission to the patent bar to practice before the US Patent and Trademark Office.  A formal training regim-en must be completed and an examination must be passed.  On the other hand, artists are largely independent and self-elected.  To date there are no universally required art examinations, nor are there formal restrictions on becoming an art historian, curator, or philosopher.   Hence, in what sense are these agency roles defined, and how can one legitimately call the Artworld a formal institution?  This argument can be answered in at least two ways.  The first is to note that the question is increasingly answering itself: there is an increasing requirement in recent times for artists to undertake formal training or obtain a degree before practicing professionally.  Art curators at the Metropolitan Museum of Art or the Museum of Modern Art uniformly have formal training in art history, and philosophers of art are universally required to have a graduate degree in philosophy before being granted a professorship.  A second response is that the Artworld as an institution is self-governing, if not by formal requirements then at least by social conventions.  A person who claims that he is acting on behalf of the Artworld institution in granting an avant-garde work art-status does so by defending his conclusion before the Artworld with reference to art history, theory, and analogy to similar artworks.  If during his exposition he reveals a lack of sufficient art knowledge or understanding, his claim to be an agent of the Artworld is revealed to be vacuous, and will be ignored or rejected.

However, more serious criticisms have been leveled against IT.   First, even well trained and knowledgeable experts (perhaps especially experts) disagree.  If there are no formal requirements on aesthetic judgment to inform expert decisions, the results will ultimately be arbitrary.  IT offers insufficient bounds to prevent art-judgments from becoming a popularity contest that confers art-status based solely on the number and social prestige of experts that vouch for it.  Second, IT has no way to account for artworks created outside a social setting, such as solitary works.  An example is offered wherein a Neolithic tribesman, who has never seen art before, arranges a series of stones in an artistic fashion.^[287]  IT cannot confer art-status on this work because neither the creator of the work nor his tribesmen had developed a sufficient concept of an Artworld to present the work as an object of appreciation.^[288]  This remote example demonstrates that art necessarily has historical context and origin.  A successful theory of art, if it aims to be comprehensive, is well advised to take this into account.

7.        The Historical Definition of Art

The Historical Definition (HD) of Art is an extension of IT that seeks to answer IT’s two major criticisms by placing formal, objective requirements on artworks and by connecting artworks to their historical lineage.^[289]  IT also borrows from NW’s rehabilitative view of art theory, which views previous theories of art as useful explanatory guides in understanding art movements, even if such theories were not comprehensive in scope.^[290]  Therefore, HD seeks to synthesize the major theories of art discussed above by understanding art with reference to historical context.^[291]  Much like judicial precedent, the well-established theories of Representationalism, Expressionism, Formalism, and Aesthetic Experience Theory described above, termed art regards, serve as precedents to establish the art-status of a work of art.^[292]  The Historical Definition is capable of adopting new works of art through comparison to established works via the definitional method of family resemblance expounded by neo-Wittgensteinianism.^[293]  After a prima facie case of family resemblance between the proposed work and well-established art regards has been established, the new work is then presented for consideration by the Artworld.  If the new work is subsequently accepted in a manner prescribed by Institutional Theory,^[294] the work will have formally qualified for art-status under the Historical Definition.^[295]  HD thus has a strong practice argument in its favor, namely that it explains art in the same manner that we naturally evaluate art: through comparison and not definition according to necessary and sufficient terms.  Moreover, HD seeks to bar entrance of non-artworks into the Art-world by requiring artists and curators, as in Institutional Theory, to explain how the new works closely resemble and incorporate elements in artworks of other art regards.  HD is thus capable of excluding works that bear no resemblance to previous art regards or historical art movements, and therefore have no precedent to support their claim to art-status.

The Historical Definition has been criticized on two primary grounds.  The first is that HD is inescapably overinclusive because it has no statute of limitations on art regards.^[296]  Art regards are capable of being added to the history of art, but, it seems, are never capable of being removed.  Thus, for example, HD allows amateur photographers to claim their vacation photographs or their family keepsakes as art because Imitation Theory would grant them art-status.  The critics’ assumption is that such photographs are not art because verisimilitude is no longer as dispositive to the establishment of an artwork as it was in past ages.^[297]  However, representationalist portraits are routinely accepted as art even today.  Thus, HD does not extend or withhold art-status to the photographs any more than does traditional Imitation Theory.  Moreover, the criticism confuses the question what is art with the judgment of what makes good art.  HD does not purport to be an evaluative theory of art, but rather a definitional theory.  HD merely recognizes the photographs as art, while making no recommendation as to whether the pictures should be displayed in the Phillips Art Gallery.   It is telling that current copyright law, in according copyright protection to such photographs,^[298] is here congruent with HD.

A second criticism of the Historical Definition focuses on the fact that certain well-precedented art regards, such as aesthetic experience theories, grant art-status to “mere objects,” even commercial objects, as long as the object was made with the explicit intention to create a visually pleasing object.  For example, this critique laments the fact that under aesthetic experience theory a manufacturer of speedboats who genuinely intends to make his boats visually pleasing in order to boost sales would be able to claim art-status on his boats.  However, this creates an artificial distinction between commercial use and aesthetic value that courts have specifically rejected.^[299]  Just so, the focus of the aesthetic experience theory is not on whether the work is used commercially, but rather on whether it was seriously intended to be visually pleasing.  Here again the criticism of HD actually serves to demonstrate its congruency with both copyright law and the Artworld.   In fact, Congress specifically recognized the copyrightability of orig-inal boat hull designs in 1998.^[300]

The most promising theory of art is that which synthesizes the explanatory power of other theories while insulating itself from their weaknesses.  The Historical Definition seems to accomplish this task very naturally, by borrowing from the successes of earlier theories and enabling a continuing dialogue with emerging art-movements.  HD is able to ground its determinations of art-status in historical precedent yet embrace innovative art via its open concept approach, all the while encouraging a dynamic discourse between artists, art critics and audiences.  While the philosophy of art continues to evolve, as art continually reflects upon itself, HD may well be replaced by a more compelling theory yet to be announced.  However, many in the Art-world would agree that at this time, the Historical Definition is perhaps the best approximation of a sufficiently inclusive and exclusive theory that we have.

B.        The Historical Definition of Art as an Adjudicative Guide

Judges should be explicit in engaging art theory and open in disclosing their aesthetic intuitions while making determinations of art-status.^[301]  The Supreme Court has repeatedly warned judges not to act as art critics,^[302] and to refrain from denying artworks copyright protection according to narrow definitions of art.^[303]  Therefore, to ground their holdings in an objective and consistent theoretical framework, judges should analyze claims to art-status under the Historical Definition of Art.  Certainly, a piece should not be granted art-status unless it is supported by substantial evidence establishing an art-theoretical basis for an artist’s claim.

In appropriate cases where the art-status of an object is in question, expert testimony from art curators, historians, or philosophers should be welcomed.^[304]  The vast majority of artworks do not provoke the question of whether they are artworks.^[305]  But for works on the cutting edge of art, expert testimony will likely be necessary.  The expert testi-mony would likely proceed in a historical manner: by first explaining the relevant well-precedented theories of defining art, and then noting the family resemblances of the new artwork to well-established artworks.^[306]  An example of such testimony regarding In Advance of the Broken Arm could begin as follows: Mr. Duchamp’s shovel looks just like any of the other snow shovels in Home Depot.  In order to understand its status as an artwork, it must be considered in its art-historical context.  Many postmodern artists, such as Braque and Picasso, devoted many of their artworks to exploring the question of the nature of art.  Duchamp’s shovel was a contribution to this philo-sophical and introspective discussion between artworks reflecting on other artworks and even themselves as real-objects-turned art.  Seen in this historical context, Duchamp’s shovel is a very original contrib-ution that enriches the Artworld with its piercing intuition that even everyday objects can be transformed into art if only we took the time to notice and interpret them.^[307]  An explanation in this vein asserting the Artworld status of a disputed work would accordingly shift the burden of proof to the party disclaiming the art-status of the work.

Some may be concerned that to base copyrightability on theories that involve artists’ subjective intent would be to open the floodgates to the copyrighting of any object that an individual claims to be an artwork.  In actuality, the regularity with which courts make criminal law determinations of mens rea reveals that courts are well equipped and experienced in finding intent.  Intent can be inferred or established through credible testimony and supporting evidence.^[308]  This focus on intent is also consistent with current case law that examines intended function in order to distinguish copyrightable applied art from non-copyrightable useful articles.^[309]

As Brancusi demonstrates, courts have already begun, albeit slowly, to analyze originality of recent forms of art under art-theoretical frameworks.^[310]  In fact, three circuit courts have applied a version of the Historical Definition of Art in determining the art-status of a disputed object.  The Second Circuit in Kieselstein-Cord^[311] implicitly relied on the Historical Definition for its holding.^[312]  The Ninth and D.C. Circuits more explicitly laid the framework for judicial recognition of the Historical Definition, holding that “[a] thing is a work of art if it appears to be within the historical and ordinary conception of the term art.”^[313]

The Third Circuit, elucidating on the idea/expression dichotomy in copyright law, offered the following distinction: “the purpose or function of a utilitarian work would be the work’s idea, and everything that is not necessary to that purpose or function would be part of the expression of that idea.”^[314]  Though the Whelan court was considering whether to afford copyright protection to a utilitarian computer program, this framework is useful in an art-context as well.  Applied to readymade artworks, the nonprotectable idea behind the works is that traditional representationalist or expressionist barriers between the Artworld and the real world have been dissolved; that anything can be art.^[315]  The protectable expression would then be the particular form that the artwork takes, whether of an industrial shovel, a Brillo box, or a vial of Parisian air.

The Historical Definition of Art can also provide an analytical framework for judges in future cases involving the art-status of works “self-created” by computer programs.  The United Kingdom’s Copy-right, Designs, and Patents Act of 1988^[316] extends copyright protection to works, including drawings and songs, that are generated by a programmed computer.^[317]  In such cases, “the person by whom the arrangements necessary for the creation of the work are undertaken” is the author and owner of copyright in the work.^[318]  While the U.S. has no statutory guidance directly on point, the Historical Definition can provide courts with a more objective theoretical framework to ground adjudication of art-claims for such works.

1.        Using the Historical Definition of Art to Adjudicate Infringement Claims

Use of the Historical Definition of Art does not modify the infringement doctrine currently available to protect the economic interests of copyright owners.  Statutory damages^[319] and awards of attorney fees^[320] remain available in cases of willful infringement.  In Rogers v. Koons,^[321] the sculptor Jeff Koons was held liable for copyright infringement after Koons commissioned artisans to create a sculpture to be “copied faithfully” from a photograph Koons knew was copyrighted.^[322]  Koons meticulously communicated to his artisans that all of the figures’ postures and features were to be identical to the photograph.^[323]  The court found that Koons’ “willful and egregious behavior” made him liable for statutory damages.”^[324]

This section analyzes the impact of adopting the Historical Definition of Art to assist adjudication of infringement suits involving derivative works.^[325]  Adoption of the Historical Definition to deter-mine the existence of a “work of art” for copyright purposes does not modify current copyright doctrine concerning derivative works.  Works of art derived from an original artwork are subject to the higher standard of originality applicable to derivative works.^[326]  Accordingly, derivative works that are substantially similar to original copyrighted works would be unlikely to be separately copyrightable and could face liability for infringement damages.^[327]  Meanwhile, works that are independently derived from existing non-artwork objects could well claim copyright protection under the default standard of originality applicable to independently-derived worked.^[328]  The test for copyright infringement rests on the existence of “substantial similarity” between the copyrighted work and the allegedly infringing work.^[329]  Because infringement is analyzed on a case-by-case basis, this section proposes several fictitious artworks and analyzes them to determine whether the third-party creators of these fictitious works would be liable for infringement.

Suppose an admirer of Yves Klein wants to commemorate the great artist by creating a square painting consisting entirely of a darker shade of blue than International Klein Blue (IKB),^[330] labeling his work “The World has Become Bluer after Klein’s Passing.”  Whether the creator of this work would be liable for damages would depend on the difference in shape (rectangle versus square) and the difference in shade between the second work’s darker hue of blue, and the original IKB.  Owing to their significant differences in color, technique, and style, other examples of minimalist art such as Kazimir Malevich’s Black Square^[331] or Ad Reinhardt’s Abstract Painting,^[332] which consist of black squares, would not be liable for infringing Klein’s Blue Monochrome.^[333]  Copyright protection affords significantly different protection than does the patent regime.^[334]  The owner of IKB could not prevent other artists from using Klein’s shade of blue in other works not substantially similar to IKB.  Thus, circles painted in solid blue, sculptures that incorporate small squares of Klein’s blue, and houses painted blue would not be considered to be infringing Klein’s work.

The next thought experiment involves an artist who brings the unmodified shovel in his garage to an art gallery, perhaps titling his work “Homage to Duchamp,” proclaiming that his work destroys the artistic distinction between an original artwork and a copy.  Would this work be copyrightable?  Because the artist based his work on the original Duchamp work, “Homage to Duchamp” is analyzed under derivative copyright doctrine.  Under current law, substantially similar works presented in the same manner as the original work are prima facie liable for infringement.  Therefore, the higher standard of origi-nality applicable to derivative works^[335] would prevent the copyist from obtaining copyright protection for his unmodified shovel, and could well make him liable for infringement damages.  As noted above, the fact that the derivative work has a different title than the original, “Homage to Duchamp” versus In Advance of the Broken Arm, would not help the copy to obtain copyright protection.^[336]  Perhaps the admirer of Duchamp would then argue that just as the artistic value of Duchamp’s shovel derived from its ability to question the difference between an “artwork” and a “mere object,” so “Homage to Duchamp” should be recognized as questioning the difference between an “original” and a “copy.”  Duchamp’s admirer must be reminded in this case that copyright does not protect pure ideas, only the expression of those ideas.^[337]  Because “Homage to Duchamp” is physically identical in substance and manner of presentation to the original Duchamp shovel, the expression of the idea behind “Homage to Duchamp” is therefore no different than the original work.  Therefore, Duchamp’s admirer in this case must still be liable for infringing on Duchamp’s mode of expressing his idea.  “Homage to Duchamp” would fare no better under an adjudicative analysis using the Historical Definition of Art.  Since the Artworld would be unlikely to acclaim the copy of Duchamp’s shovel as an artwork, the results in copyright law and the Artworld would here be congruous.

On the other hand, if another Duchamp admirer sought to paint a self-styled portrait of Duchamp on the blade of a shovel, titling his work “Duchamp in Spades,” this artist’s personal touch would very likely be independently copyrightable.  Similarly, an example wherein an artist places an ordinary snow shovel on top of a wooden chair and titles it “Duchamp at Rest” could be saved from infringement damages under a theory that the artist was merely “framing” Duchamp’s work.^[338]  Indeed, such a work could possibly be sufficiently original to qualify for independent copyright, when considered in light of Rauschenberg’s Pilgrim.^[339]  Rauschenberg’s Pilgrim consists of a rec-tangular painting sitting atop a simple wooden chair, wherein the paint flows outside the frame of the painting and onto the chair.   “Duchamp at Rest” could likewise be seen as an expansion of the original readymade work into the real life spaces that the shovel touches.  The work could be understood as proclaiming the importance of relations, for not only is Duchamp’s shovel unique by virtue of being an artwork, it also passes its art-quality on to the chair-setting in which it is framed.

Now consider the case of an artist who, desiring to honor Duchamp, fashions from hand five-inch tall replicas of Duchamp’s shovel, labeling them “Your Very Own Duchamp.”  The artist in this case would be able to point to several significant differences in style and manner of production between his work and the original Duchamp shovel.  Where Duchamp’s original is suitable for actual use in shovel-ing snow, the replicas have no practical functionality (other than use as a paperweight).  Where Duchamp took his shovel off the shelf of a hardware store, these replicas were meticulously handmade, signed and serially numbered.  Because the new works were fashioned from hand for commemorative art-purposes, and not mass-produced copies of Duchamp’s original shovel, the artist who created the replicas would be able to claim artistic license in their production.  If the artist were to subsequently seek independent copyright protection for his replica, the court would look at factors such as the degree of transformation between the original and the replica, including any differences in size, shape, color, or texture.  In any event, it is unlikely that the creator of the replicas would be liable for infringement of Duchamp’s shovel.  Just as Warhol would not be liable to The Campbell Soup Company for crafting his handmade Campbell’s Soup Cans^[340] even though Warhol’s cans look nearly identical to the ones on the shelf of the local supermarket, our Duchamp admirer should be free from liability for artistically rendering Duchamp’s shovel.  This is because any copyright protection that extends to Duchamp’s readymade work is necessary a weaker form of copyright, which is, as the next section explains, congruent to the idea of “Thin Copyright.”

2.        Limiting Certain Artworks to “Thin Copyright” Protection

Readymade artworks, by virtue of their unmitigated focus on realism, are less likely to chill innovation than traditional artworks.   This is because copyrights on simple, unflourished items are consid-ered by courts to be “weaker” than copyrights on finer, more creative objects.^[341]  The Third Circuit in Franklin Mint noted that

[I]n the world of fine art, the ease with which a copyright may be delineated may depend on the artist’s style.  A painter like Monet when dwelling upon impressions created by light on the facade of the Rouen Cathedral is apt to create a work which can make infringement attempts difficult.  On the other hand, an artist who produces a rendition with photograph-like clarity and accuracy may be hard pressed to prove unlawful copying by another who uses the same subject matter and the same technique.^[342]

These observations foreshadowed the Supreme Court’s introduction in Feist of the notion of “thin copyright,” a weaker form of copyright protection that applies to “factual compilations.”^[343]  The Court noted that their decision in Feist, finding a particular telephone directory to be uncopyrightable, “inevitably means that the copyright in a factual compilation is thin.  Notwithstanding a valid copyright, a subsequent compiler remains free to use the facts contained in another’s publication to aid in preparing a competing work, so long as the competing work does not feature the same selection and arrange-ment.”^[344]  A comment on a 2002 proposed Copyright Office rule rec-ommended creating a formal category of “Thin Copyright works” that includes “works that contain limited copyrightable subject matter, and which derive significant value from material in the public domain, such as facts, processes, ideas, or other elements that are beyond the scope of copyright protection.”^[345]  The comment urged that “Copyright own-ers should not be able to preclude the public from accessing nonprotectible features of a ‘Thin Copyright’ work.”^[346]

This Article proposes that certain categories of recent art should be extended “thin copyright” protection to reflect the fact that they “derive significant value from material in the public domain.”^[347]  Readymade artworks, which are taken without modification from common manu-factured goods, are naturally described as being “thinly copyrightable.”  Accordingly, copyright protection to Duchamp’s shovel should be closely limited to near-replicas of the shovel itself.   Infringement liab-ility in the case of Duchamp’s shovel should attach only to deliberate copying of the shovel, as in the fictional work “Homage to Duchamp” discussed above.^[348]  Likewise, purist works such as Klein’s Blue Monochrome, which commit themselves to abstract representation of an idea via the presentation of a single color, are logical subjects of “thin copyright.”

3.        The Work of Art in the post-Industrial Era

Industrialism tore down the traditional barriers between art and industry, such that both sides must now accommodate each other for forms of trespass previously unforeseen.^[349]  Walter Benjamin has commented on the effects of the exponential speed at which technology has increasingly encroached on the Artworld.^[350]  The category of readymade art can thus be seen as part of the Artworld’s cultural revolution against “the age of mechanical reproduction.”  If mechanical reproduction takes away “the aura” of an artwork as a unique phenomenon, then a readymade work challenges the industrial era’s claim that “mere objects” are the sole domain of manufactured goods.

Notwithstanding readymade art’s reclamation of purportedly “mere objects” as denizens of the Artworld, it is important to note that an artist who purchases a commercial good and subsequently transforms it into a display in an art gallery creates no economic unfairness to the original manufacturer or seller of the shovel.  First, the original manu-facturer was willing to sell (and is able to continue selling) the shovel at the price for which the product was sold.^[351]  Under the first sale doctrine, also known as the exhaustion doctrine, “[a]n alteration that includes (or consumes) a complete copy of the original lacks economic significance.”^[352]  Second, the manufacturer may well appreciate the free advertisement of its product.  Third, any manufacturer is free to submit its own products to art galleries.   Anyone who wishes to con-tribute to the Artworld may seek to do so, though the creation of a commercially successful artwork typically involves considerable aesthetic understanding and judgment.^[353]

4.        Artists Have Feelings, Too

One of the most important benefits of copyright protection is that the author of the copyrighted work becomes eligible for protection of his “moral rights” over the work.  The Visual Artists Rights Act of 1990 (VARA)^[354] grants to creators of “work[s] of visual art”^[355] the fundamental rights to claim authorship of and to prevent destruction or defacement of their works.^[356]  The VARA rights vest in the author of the work of art, and do not transfer to the owner of the work of art upon purchase of the artwork.^[357]  These rights are so fundamental that the VARA rights apply even after the work transfers ownership, such that an artist can protect the integrity of her work even when there is no privity of contract between the artist and the owner of the artwork.^[358]   However, VARA explicitly denies its moral rights protection to “any work not subject to copyright protection.”^[359]  Because Duchamp’s work is not copyrightable under the current copyright scheme, Duchamp (if he were still around today) would be denied the right under VARA to “prevent any intentional distortion [or] mutilation” of his work in ways he would find repulsive.^[360]  Moral rights are important to artists, who are often bound up personally in their work.^[361]  VARA rightly protects the often intense emotional investment that artists make in their art, as well as preserving important artworks for the benefit and cultural education of posterity.^[362]  Every artist deserves the right to protect the integrity of his works, and a denial of copyright currently carries with it the denial of these basic moral rights.^[363]  Thus, courts that apply the Historical Definition of Art to determine the existence of an artwork for copyright purposes simultaneously restore the scope of moral rights protection to their rightful authors.^[364]

V.        The New Statutory Exception for Useful Articles

Reformulating the originality standard to grant equal protection to certain categories of recent art raises concerns arising from a copyright owner’s power to prevent others from copying or using his work.  The most significant of these concerns focus on chilling innovation or limiting free speech.^[365]  This section reviews these concerns and pro-poses the creation of a new statutory exemption to balance the equities between artists and the public.

A.        Objections to Extending Copyright Protection to Recent Artworks

1.        Concerns about Limiting Free Speech

Extension of the current copyright scheme to include recent forms of art would be consistent with free speech principles and with copyright’s purpose to “promote the creation and publication of free expression.”^[366]  The Supreme Court has noted that copyright law “reflects a balance of competing claims upon the public interest: Creative work is to be encouraged and rewarded, but private motivation must ultimately serve the cause of promoting broad public availability of literature, music, and the other arts.”^[367]  Because the copyright scheme “incorporates its own speech-protective purposes and safeguards,” courts do not apply heightened judicial review under the First Amendment.^[368]

Concerns about limitation of free speech are answerable with “copyright’s built-in free speech safeguards.”^[369]  First, as noted above, copyright does not protect ideas, but only expression.^[370]  Second, the “fair use” defense allows the use of a copyrighted work “for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research.”^[371]  This defense “affords considerable latitude for scholarship and comment, and even for parody.”^[372]  Third, the right of a retailer or a news reporter to display of the copyrighted work for commercial advertisement or news purposes would remain protected by Section 113 of The 1976 Act.^[373]

Furthermore, commercial protection of expressive works itself promotes free expression.  The Supreme Court has noted that “[b]y establishing a marketable right to the use of one’s expression, copyright supplies the economic incentive to create and disseminate ideas.”^[374]

2.        Concerns about Chilling Innovation

Current copyright law doctrine contains certain mechanisms designed to protect innovation.  One of these built in safeguards is reflected in the process of proving infringement.  The standard of proof for graphical or three-dimensional works is higher than that for literary works, which have a “linear dimension.”^[375]  As the Second Circuit explained in Warner Bros. v. ABC, a defendant who copies “substantial portions of [an author’s literary] sequence . . . does not escape infringement by adding original episodes.”^[376]  In contrast, “[a] graphic or three-dimensional work is created to be perceived as an entirety,” such that significant additions or changes to the non-copied portions of the graphical or three-dimensional work could negate an impression that the work was copied.^[377]  Thus, objects originally based on but sub-sequently improved from copyrighted readymades would be sig-nificantly less likely to face an infringement injunction.

The 1976 Act also encourages utilitarian adaptations of artworks by protecting the subsequent commercial display and advertisement of the utilitarian adaptations.^[378]  Section 113 grants the owner of copyright in a work “lawfully reproduced in useful articles that have been offered for sale or distribution to the public” no rights to exclude pictures or photographs of the usefully adapted works from being used in advertisements or news reports.^[379]  Thus, the statutory scheme encour-ages innovation by allowing situations similar to Brandir, where an innovator adapts an extant sculpture for a utilitarian function and then advertises his innovation.^[380]

Notwithstanding the above safeguards, one may rightly be concerned that to extend copyright protection to ever-increasingly minimalist forms of art could significantly stifle innovation.  A sub-stantial body of scholarly literature has poignantly criticized copyright law’s excesses and argued for legal reform.^[381]  Certainly, consistent with the goals of the Constitution, copyright protection must extend only for “limited Times.”^[382]  Similarly, copyright protection must ex-tend only to original works.  One may fear that to extend copyright to readymade artwork would be to accord copyright to all “mass-produced, commercial articles,” a position that was explicitly rejected in Mazer v. Stein.^[383]  Indeed, if copyright were extended to readymade artworks, artists would have the statutory rights to exclude others from “reproduc[ing] the copyrighted work in copies,”^[384] from “distribut[ing] copies,”^[385] and from “prepar[ing] derivative works based upon the copyrighted work.”^[386]

Classical artworks in painting, photography, or sculpture do little to chill innovation insofar as they merely portray a useful article.  The 1976 Act does not grant copyright owners in these cases rights to control the “making, distribution, or display” of the useful article depicted.^[387]  This precludes an artist who paints or photographs a shovel from preventing future manufacture or sale of the depicted shovel.^[388]  However, readymades break down this traditional barrier in that Duchamp’s “artwork” shovel not only portrays, but is physically identical to, the “mere object” shovels lining the shelves of any hardware store.  A formulation of originality that comprehends the rapidly evolving state of the Artworld necessarily expands intellectual property protection and destabilizes the current copyright protection scheme.  This expansion necessitates a further statutory limitation on the scope of copyright protection.

B.        The Need for a New Statutory Exemption for Useful Articles

Copyright law must not only afford equal rights to all artists, but it must do so in a manner that continues to encourage innovation for public benefit.  As the Supreme Court noted, “[t]he sole interest of the United States and the primary object in conferring the [copyright] monopoly lie in the general benefits derived by the public from the labors of authors.”^[389]  The copyright scheme must therefore guard against any expansion of power that detracts from public well being.

This Article’s art-theoretical standard of originality affords copyright protection to previously uncopyrightable categories of recent art, including readymade art.  Because readymades are art-adaptations of existing works, the copyright on a readymade artwork should never work economic unfairness on creators of art-adapted commercial goods.  The original manufacturer of a subsequently art-adapted commercial good, such as Duchamp’s shovel, would not be liable for infringement under current copyright doctrine.  This is because the original manufacturer independently designed his the shovel, rather than basing his design on Duchamp’s work.  Indeed, at the time of the original manufacturer’s design of the shovel there was no copyrighted work to copy.  However, manufacturers that enter the shovel-manufacturing market after Duchamp’s art-appropriation of the original shovel could potentially be liable for damages upon a showing that the manufacturers intentionally copied Duchamp’s work.  This result is plainly counterintuitive, because Duchamp should not be able to block manufacturers from using a design that Duchamp did not even create.  Copyrights on works not created or substantially modified by the author of the work should not include any right to prohibit the manufacture, sale or purchase of the original products.

In the interests of encouraging innovation, Congress should grant a statutory exemption from infringement liability^[390] to manufacturers who seek to enter a product market of a good that has subsequently become accepted by the Artworld as a readymade artwork.^[391]  The new statutory exception would in such cases grant compulsory free license of the designs of readymade works to manufacturers of physical objects similar to the copyrighted work.^[392]  This system of compulsory license would be in line with the recently created statutory compulsory license systems for nondramatic musical works^[393] and cable retransmissions.^[394]  As scholars have noted, this recent proliferation of statutory compulsory license systems is indicative of the increasingly pressing need to rethink the basic modernist, materialist assumptions of the copyright statute in light of the need for freer availability of information in a digital age.^[395]  Because such a determined reform proj-ect would be unlikely to occur in the near future,^[396] however, this Article proposes the statutory exception as an interstitial remedy.

Where an artist substantially modifies the aesthetic design of a “useful article-turned artwork” under the new statutory exemption, the artist would remain free to sell or negotiate a commercial license on the aesthetic modification.  The statutory exemption would in such a case grant the original creator of the useful object a right to compulsory good-faith negotiation with the artist for a license to incorporate the aesthetic modification into the manufacturer’s next line of commercial products.  In the event that negotiation between the parties fails, the manufacturer would have the right to compel arbitration of license dispute.^[397]

Copyright law must balance the rights granted by the new statutory exception with artists’ legitimate interests in protecting the economic value of their artworks.^[398]  The reformulated originality standard would not alter the exclusive rights of an artist to publicly display her work in an art gallery.  A contemporary artist can continue to benefit from the exclusive sale of her work, and may prevent other artists from copying her work for purposes of public display or distribution in art galleries, print or online publications.

VI.        Conclusion

Copyright protection is intended to encourage and reward creative work.^[399]  However, judges have often been loath to make decisions about art-status, perhaps viewing art as subjective and nonrational, unfit for judicial determination.^[400]  Yet questions of copyrightability often hinge on art-status.

Art is a constantly evolving, reflexive field in which artists and philosophers continually challenge the status quo.  The American legal system is unable to continue avoiding the question of art versus non-art.  Indeed, judges would benefit from analyzing claims to art-status under the objectivity provided by aesthetic theories, aided by expert testimony when needed.  Due to the nature of certain types of recent art that would be granted limited copyright protection under an art-theoretical adjudicative analysis, a new statutory exception should be created to protect the free flow of ideas and the free production of useful articles.  This statutory exception would further the purpose of copyright law to “promot[e] broad public availability of literature, music, and the other arts.”^[401]

SHEDDING LIGHT ON COPYRIGHT TROLLS

Shedding Light on Copyright Trolls: An Analysis of Mass Copyright Litigation in the Age of Statutory Damages

James DeBriyn^[1]

Copyright law and the Internet are at an impasse.  The looming question is how to approach unlicensed distribution of copyrighted works in the age of peer-to-peer networks.  To supplement profits from copyrighted works, copyright holders have devised a mass-litigation model to monetize, rather than deter, infringement.  Because of the existence of statutory damages, plaintiffs utilize the threat of outlandish damage awards to force alleged infringers into quick settlements.

Statutory damages incentivize litigation-based businesses and encourage copyright holders to waste judicial resources by litigating even when actual damages are nominal.  This Article presents an analysis of the legal and policy issues that arise in a mass-litigation model primarily through filings in federal district courts. After a discussion of the original purposes of U.S. copyright law, this Article concludes that statutory damages should be removed from the 1976 Copyright Act.

I.         Introduction        

II.         Background        

A.         The Copyright Act of 1976        

B.         A Deterrence-Based Litigation Model: Early Litigation Strategies of the RIAA        

C.        A Profit-Based Litigation Model: The Rise of the Copyright Troll        

1.         Sampling: The Opportunist Troll        

2.         Online News: Individual Suits as a Business Model        

3.         File Sharing: Mass-Litigation as a Business Model        

III.         A Closer Look at Mass Litigation        

A.         Identifying Infringement        

B.         Cost Reduction Techniques for Litigation        

C.         Unequal Bargaining Power        

1.         Settlement Letter        

2.         The Possibility of Trial        

IV.         Addressing the Mass-Litigation Business Model        

A.         Procedural Solutions Are Insufficient        

B.         Can We Learn Anything from the Patent Troll Problem?        

C.         Removing the Incentive: Statutory Damages        

V.         Conclusion        

I.        Introduction

In May 2010, Voltage Pictures initiated a lawsuit against 5000 John Doe defendants for illegally distributing the Academy Award-winning movie The Hurt Locker.^[2]  In April 2011, Voltage Pictures amended its original complaint bringing the total number of defendants to 24,595.^[3]  While a lawsuit against 24,595 individuals is alarming, by the end of 2011, more than 250,000 individuals had been sued for similar alleged acts.^[4]  This trend becomes unfathomable when one considers that these lawsuits only involve a micro-fraction of the intellectual property being illegally traded on the Internet.^[5]  This Article follows the ongoing saga of The Hurt Locker litigation to illuminate the issues that arise in mass litigation of copyright claims.

On June 26, 2009, The Hurt Locker was released in movie theaters in the United States.^[6]  Despite winning six Academy Awards,^[7] the film grossed only $16.4 million in the theatrical box office—a disappointing return against a $15 million production budget.^[8]  Thousands of copy-right infringing Internet downloads of the movie months before its official theatrical release were blamed in part for the poor profits.^[9]  In response, the producers decided to sue individuals who downloaded the film.^[10]  When the lawsuits were first announced, there were an esti-mated 50,000 defendants.^[11]  There was also speculation that if the in-itial suits were successful, the total number of Does named for illegally sharing The Hurt Locker could reach 100,000.^[12]

        These types of lawsuits are not intended as a scare tactic to deter file sharing, but are used to encourage quick settlements.^[13]  Without regard to the existence of any actual damages, Voltage Pictures will likely press a claim for statutory damages, which will carry up to a $150,000 award for willful violations.^[14]  While these damages are be-yond an average defendant’s means, the purpose of each lawsuit is not to seek the full damages through a trial, but rather to pressure a defendant to settle claims for around $3000.^[15]

Had Voltage Pictures only sued the 5000 Does named in the original complaint,^[16] and 75 percent of the defendants could be iden-tified,^[17] were sued, and chose to settle^[18] for $2900,^[19] the litigation would generate $10.9 million.  Reports suggest that the plaintiffs will receive 30 percent^[20] of the $10.9 million—$3.3 million.  This creates such strong incentives to litigate^[21] that one may question whether an enforcement-based business model can be reconciled with the purposes of copyright law.

When the U.S. Supreme Court was called upon to illuminate the purposes of copyright, the Court found that the “purpose of copyright [law] is to create incentives for creative effort.”^[22]  Unfortunately, copy-right owners and attorneys have discovered unintended “incentives”—incentives to litigate—and are using their “creative effort” to craft profitable litigation strategies.  This is not the creativity the Framers had in mind when they wrote in the Constitution that Congress could enact laws that “promote the Progress of Science and useful Arts.”^[23]  Statutory damages distort incentives to create new works and reward companies that litigate over existing works, which are no longer, or never were, commercially viable.

U.S. copyright law attempts to create incentives to create new works, but, in reality, the promise of statutory damages creates an incentive to monetize a work though litigation even when the infringement results in nominal damage to the copyright holder.  This Article demonstrates how plaintiffs are monetizing infringement by enforcing copyrights though a litigation-based business model.  Part II explains how the 1976 Copyright Act created incentives to litigate as a business model.  Part III illuminates some of the issues surrounding mass copyright litigation, using The Hurt Locker litigation as an example.  Part IV discusses various strategies to combat this type of litigation.  Lastly, Part V concludes that the most effective and equit-able way to handle copyright enforcement in the Internet Age is to remove statutory damages from the U.S. copyright law.

II.         Background

A.         The Copyright Act of 1976

The Constitution grants Congress the power to create laws to protect authors’ rights in their works.^[24]  The Constitution provides that “[t]he Congress shall have Power To . . . promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”^[25]  The 1976 Copyright Act (the Copyright Act) governs copyright protections for works created after 1977.^[26]  The Copyright Act protects “original works of authorship fixed in any tangible medium of expression,” such as motion pictures and sound record-ings.^[27]  These protections give copyright holders various rights, in-cluding the exclusive right to reproduce, distribute, or prepare deriv-ative works from the copyrighted work.^[28]

The Copyright Act also provides damages for infringement of an owner’s rights.^[29]  A copyright holder can elect for either the actual damages caused by the infringement as well as the profits the infringer generated, or for statutory damages.^[30]  Statutory damages generally range from $750 to $30,000.^[31]  If the court finds the infringement will-ful, it has the discretion to raise the statutory award to as much as $150,000.^[32]  On the other hand, statutory damage awards can be as low as $200 if the defending party can prove that it was unaware that its acts infringed on the owner’s copyrights.^[33]  Because the copyright holder has the choice between statutory damages and actual damages, and statutory damages will often be significantly higher than actual damages, the copyright holder will likely select statutory damages.

B.         A Deterrence-Based Litigation Model: Early Litigation Strategies of the RIAA

        Blaming file sharing over peer-to-peer networks for sharp declines in sales, the Recording Industry Association of America (RIAA) employed a litigation strategy to curb the illegal distribution of its content on the Internet.^[34]  Initially, the strategy focused on litigating against peer-to-peer software providers, such as Napster,^[35] for facilitating infringement.^[36]  The RIAA succeeded in shutting down Napster in 2000, but this just prompted users to switch to new networks that lacked centralized servers.^[37]  Facing difficulty in suing companies that offered services without centralized servers,^[38] the RIAA began to sue individual infringers.^[39]  However, the lawsuits against in-dividuals were largely seen as a failure.^[40]  The RIAA was unable to stop illegal downloading of copyrighted material —in fact, peer-to-peer usage grew.^[41]  Furthermore, the lawsuits cost the record companies the goodwill of consumers and became a “money pit.”^[42]  In a five-year period the RIAA spent roughly $90 million on legal fees to recover only $2.5 million.^[43]  In 2008, the RIAA ended its strategy of deterrence through litigation.^[44]  Instead, the RIAA now works directly with certain Internet Service Providers (ISPs) to send notices to infringing users.^[45]  After witnessing the RIAA’s failure to deter infringement through litigation, commentators criticized the use of litigation to recover losses from file sharing as economically ineffective.^[46]

C.        A Profit-Based Litigation Model: The Rise of the Copyright Troll

        A copyright troll is a plaintiff who seeks damages for infringement upon a copyright it owns, not to be made whole, but rather as a primary or supplemental revenue stream.^[47]  Although the term is just recently gaining widespread use, the practice of monetizing copyright infringe-ment as a business model is over a century old.  The first real copyright troll, Harry Wall, appeared in England in the 1870s.^[48]  Wall purchased “public performance rights” that were otherwise unenforced.^[49]  He then enforced those rights against infringers with a statutory penalty of 40 shillings.^[50]  This troll, like many that came after him, found that enforcing copyrights with a statutory penalty could be more profitable than creating new works.

1.         Sampling: The Opportunist Troll

        Sample trolls, a subset of copyright trolls, have made millions by suing popular music artists who have incorporated a part of a copyrighted work (a sample) into their own songs.^[51]  Sample trolls, such as Bridgeport Music Inc., purchase the rights to older copyrighted works, then listen to new music for elements of songs it owns.^[52]  When a sample troll finds music that uses elements of a song in its catalog, it sues the artist for creating an unauthorized derivative work.^[53]  Sample trolls, like Bridgeport Music, do not represent the original artist, but are merely catalog companies that create profits by suing infringers of copyrights they have purchased.^[54]

Sample trolling is not limited to new music.  In 1990, Larrikin Publishing bought the rights to a nursery rhyme called Kookaburra written in 1932.^[55]  Seventeen years later, an Australian quiz show asked contestants to spot the similarity between Kookaburra and the flute riff in Down Under from the band Men at Work.^[56]  Despite the widespread popularity of Down Under,^[57] Larrikin did not notice the similarity until the quiz show pointed it out.  Larrikin then sued Men at Work in Australian Federal Court for unlicensed use of the flute riff.^[58]  After a “qualitative and quantitative consideration of [Kookaburra]’s contri-bution to [Down Under], looked at [as] a whole”, the Australian court found that Larrikin should receive five percent of royalties, starting from 2002,^[59] amounting to nearly $100,000 AUD.^[60]

In the United States, there have also been copyright suits targeting popular music despite the passage of a considerable amount of time.  In 2010, Drive-In Music Company filed suit against Sony BMG Entertainment for allegedly using a sample from Come On In by Music Machine in the 1991 release of Cyprus Hill’s How I Could Just Kill a Man.^[61]  The later song was widely popular and reached No. 77 on the Billboard chart in 1992^[62] and No. 37 on the Billboard Alternative Songs chart as a cover by Rage Against the Machine in 2001.^[63]  Like Down Under, How I Could Just Kill a Man achieved widespread commercial success for a considerable length of time before the copyright holder chose to enforce its rights under the Copyright Act.

It is uncertain whether copyright enforcement was meant to protect a use where the original was not commercially successful, rights were not asserted until well after the commercial success of the derivative work, and the original is only used in a limited fashion.^[64]  Under these circumstances, statutory damages create a windfall for a minimally injured plaintiff.  Motivated by copyright law incentives, sample trolls are able to make money simply by enforcing rights in old works without creating their own new works.^[65]  While sample trolling is a form of copyright trolling, sample trolls sue for actual damages rather than statutory damages because they are motivated by the commercial success of a derivative work.^[66]

2.         Online News: Individual Suits as a Business Model

In contrast to sample trolls, statutory damages create incentives for another type of troll, the online news troll.  For example, Righthaven LLC turned into a litigation-based business when it purchased the copyrights of various newspapers’ content, notably content from the Las Vegas Review-Journal, and began to sue users that reposted old articles on other websites.^[67]  By July 2011, Righthaven had filed 276 lawsuits and recovered an estimated $352,500 in 141 settlements.^[68]  In their complaints, Righthaven sought permanent injunctions, statutory damages, attorney fees, and costs, and demanded ownership of the domain name of the infringing website.^[69]  Righthaven has been willing to settle for around $5000,^[70] which is far less than the cost of hiring an attorney to defend against infringement claims, and it has the advantage of precluding the chance of losing at trial.^[71]  Therefore, it is not surprising that many Righthaven defendants were quick to settle, despite the possibility of a strong fair use^[72] defense.^[73]  Righthaven, like a sample troll, uses copyright law, not to protect its property from unlicensed use, but rather to generate profit from that use even in the absence of articulable harm to Righthaven.

Despite Righthaven’s ability to generate income through its litigation model, the effort, like that of the RIAA, has been described as a failure.^[74]  Righthaven has been ordered to pay attorney’s fees in several cases it pursued, including $116,718 for proceeding against a defendant without proper standing.^[75]  As of November 10, 2011, Righthaven had been ordered to pay over $225,000 including legal fees and a $5000 sanction for misleading the court.^[76]  While these costs cut into Righthaven’s profit margin, they do not disprove the Righthaven model.  Because these costs do not represent a failure of Righthaven’s substantive claims, Righthaven’s mistakes merely caution others to follow correct procedure.

3.         File Sharing: Mass-Litigation as a Business Model

Unlike sample trolls and online news trolls who sue individuals to recover lost profits from illegal distribution of the copyrighted work, Voltage Pictures sought statutory damages from unknown defendants for infringement of The Hurt Locker.^[77]  Dunlap, Grubb & Weaver, PLLC (DGW),^[78] the firm that represented Voltage Pictures explained that the firm was “creating a revenue stream and monetizing the equivalent of an alternative distribution channel.”^[79]  The Hurt Locker litigation may have been just a “test run” for DGW of an even higher volume mass-litigation model to generate profits through the threat of statutory damages.^[80]

Despite the possibility that some infringers will fight back in court, the copyright troll industry has been “multiplying like especially fertile rabbits” to scour the Internet in the hope of monetizing copyright infringement.^[81]  Nearly 100,000 Does were named in copyright law-suits over a period of thirteen months, starting from January 1, 2010.^[82]  The numbers are staggering considering it took the RIAA five years to sue 35,000 individuals.^[83]  These defendants represent only part of the infringement of a handful of copyright properties,^[84] evoking “flood-gate” analogies if the copyright troll’s mass litigation model gains widespread legal acceptance.  The new mass-litigation model embraces infringement and removes the risk of loss from the copyright holder by employing a contingency fee structure.^[85]  In a reversal from the normal contingency fee structure, the client only keeps around 30 percent, while the law firm keeps the remaining 70 percent.^[86]  According to a company specializing in this type of litigation, this fee structure allows copyright holders to “monetize peer-to-peer (P2P) activity and realize revenues from an unexpected source—Internet piracy.”^[87]

III.         A Closer Look at Mass Litigation^[88]

A mass-litigation business model raises numerous procedural questions and issues at every step of the process, many of which have been answered in the course of The Hurt Locker litigation.  This Part examines The Hurt Locker litigation to illuminate those issues that have been resolved, as well as those that remain.  First, this Part ad-dresses identification of possible defendants.  Second, this Part discuss-es the methods copyright trolls employ to keep litigation costs down.  Finally, this Part addresses the unequal bargaining positions of copy-right trolls and defendants.

A.         Identifying Infringement

        The Internet has allowed copyrighted materials to propagate in ways that the Copyright Act’s drafters could not have predicted.  With the introduction of Internet peer-to-peer technologies, ordinary Internet users have gained the ability to become large-scale copyright infringers.^[89]  These peer-to-peer technologies revealed a gap between what the law proscribes and the norms that exist on the Internet, creating a “nation of constant infringers.”^[90]

While peer-to-peer technologies facilitated widespread infringe-ment, the structure of the Internet also made acts of infringement traceable through Internet protocol (IP) log databases generated by ISPs.^[91]  Every computer on the Internet is assigned an IP address that is used to locate and identify other computers.^[92]  In a peer-to-peer network, two computers connect via their IP addresses while one computer distributes a file (uploading) and the other computer receives the content (downloading).^[93]  IP addresses are not fixed to a particular user because most residential computers do not maintain the same IP address indefinitely, but rather cycle through a finite list of IP addresses owned by the ISP.^[94]  To track an IP address, the ISP can determine which subscriber was assigned the IP address at a given time.^[95]  Therefore, to identify a suspected infringer, the copyright holder needs to supply a user’s IP address and the time the infringement occurred to an ISP to learn the identity of the infringer.^[96]

To obtain the necessary data, DGW hired a company to monitor peer-to-peer networks for illegal distribution of The Hurt Locker.^[97]  The exact methods used to gather IP addresses are a tightly held trade secret,^[98] but commentators have demonstrated simple and effective ways to gather this data.^[99]  The addresses are then checked for quality control and screened based on the chance of success.^[100]  At this point, the data merely consists of strings of numbers that still must be cross-referenced against an IP log to identify an unique individual.^[101]  The copyright holder’s inability to identify the infringer by name creates quasi-anonymity that allows many file sharers to avoid detection.^[102]  While a copyright holder cannot identify the specific individual infringer based on an IP address, the information can be cross-referenced against IP log databases kept by ISPs to determine the identity of the subscriber.^[103]  Matching an IP address to an individual requires ISP cooperation to identify the subscriber that was using the particular IP address at the supplied time.^[104]  Not all ISPs have been willing to freely share this information,^[105] and without the ISP’s logs, copyright holders are unable to identify subscribers.^[106]  To compel records from an ISP, the copyright holder must first file a complaint to get the power to subpoena.^[107]  The complaint, therefore, is the gateway to identifying an infringer.

B.         Cost Reduction Techniques for Litigation

Copyright trolls use different methods to keep litigation costs down.  For example, plaintiffs like Righthaven file suits against de-fendants with known identities and use a system of pleading where a model complaint is reused as a template.^[108]  Alternately, plaintiffs, like Voltage Pictures, who only know the defendants’ IP addresses, and not their identities, must file a lawsuit against each IP address to gain the power to subpoena ISPs for the records to match the addresses to identities.^[109]  The cost to file a complaint in federal court is $350,^[110] but DGW saved about $1.75 million in filing fees by filing Voltage Pictures’ claims in a single complaint.^[111]

This litigation model also requires a streamlined discovery process to identify alleged infringers.^[112]  The primary method copyright holders utilize to streamline the discovery process is using single complaints that name thousands of defendants, as Voltage Pictures did.  Initially, the copyright holder must file a complaint naming each defendant as a “Doe” defendant.^[113]  Once the identity of the infringer is discovered, the complaint is amended to recognize the real party to the controversy.^[114]  In mass litigation, a single complaint may join thou-sands of Does in a single suit.^[115]

Joining thousands of defendants in a single suit, however, raises questions about the scope of the joinder rules.^[116]  Voltage Pictures faced such a challenge brought by a possible defendant that claimed, inter alia, that joinder was inappropriate.^[117]  In U.S. District Court for the District of Columbia, Voltage Pictures successfully argued that joinder considerations were “premature and inappropriate at [such an early] stage” of the proceedings.^[118]  In contrast, U.S. District Court for the Eastern District of Pennsylvania found the joinder of 203 Doe defendants improper despite being in the same early discovery stages of litigation.^[119]  It is worth noting again that the purpose of sustaining a valid complaint is to obtain the power to subpoena ISPs for their logs, not necessarily to litigate against 5000 individuals in a single trial.^[120]  As will become clearer after a discussion of the unequal positions between the copyright troll and defendant,^[121] success at this stage is merely identification of the alleged infringer.

Defeating joinder may be a short-lived victory because the result would only be the severance of the misjoined parties.^[122]  The plaintiff would only have to re-file against each misjoined party.^[123]  While the cost of re-filing each complaint would be an additional $350, the plaintiff would already have the identity of the alleged infringer and could therefore pursue a settlement before re-filing.^[124]  Also, the court has the power to consolidate the actions after severance if the cases are in the same district and “involve a common question of law or fact.”^[125]  Therefore, even if the defendant wins the joinder battle, in the end, the plaintiff still will have the power to subpoena the ISP.

C.         Unequal Bargaining Power

The purpose of litigation in this circumstance is to seek settlements from identified infringers.^[126]  This Part investigates the unequal bar-gaining power between suspected infringers and copyright holders.  First, this Part discusses defendants’ possible pre-trial responses to receipt of a settlement letter.  Second, this Part discusses how the pos-sibility of outlandish statutory damages creates overwhelmingly strong incentives to settle.

1.         Settlement Letter

The subpoena to the ISP is the copyright troll’s most critical tool.  The subpoena directs the ISP to release the name and address of the subscriber of services relating to an identified IP address.^[127]  The identified subscriber is often sent a letter disclosing the information that the ISP will release and directing the individual to contact the issuing court if the individual seeks to quash the subpoena.^[128]  This initial letter may be enough to scare an individual to settle immediately.^[129]  Whether the ISP reveals the identity of the user, or the individual contacts the court to quash the subpoena, the plaintiff gains the true identity of the individual and can proceed against him or her.^[130]

Once the copyright holder knows the identity of the alleged infringer, the holder sends out a settlement letter.^[131]  The purpose of this letter is to elicit a quick settlement.^[132]  The letters often cite the possibility of statutory damages of up to $150,000 available to a successful plaintiff.^[133]  While this number is not entirely accurate,^[134] it scares many defendants into settling.^[135]  The individual is then offered the chance to settle for substantially less than the maximum statutory penalty.^[136]  To facilitate settlement, some plaintiffs have created online payment portals that allow a defendant to settle a claim over the Internet.^[137]

        To elicit a quick settlement, copyright holders rely on the vulnerability of the alleged infringers.^[138]  Defendants might not be able to hire an attorney or fight the allegations in a court far from home, or they might be embarrassed by the nature of the infringement.^[139]  This embarrassment factor is notably magnified when the material is pornographic in nature.^[140]  In the case of popular movies and music, embarrassment may still create a strong incentive to settle, even if the accused infringer could argue a persuasive defense.^[141]

Furthermore, because the cost of representation is often much greater than the cost to settle, many individuals settle despite strong defenses^[142] including mistaken identity,^[143] procedural violations,^[144] or fair use.^[145]  For example, of the estimated 35,000 people sued by the RIAA over five years, only two cases went to trial.^[146]  On the other hand, if a defendant does not settle due to a valid defense or because of wrongful identification, the next step is trial.^[147]

2.         The Possibility of Trial

One possible defense at trial is misidentification.^[148]  Although the information that the plaintiffs gather can identify an ISP subscriber, the identification is not conclusive because the subscriber is not necessarily the infringing party.^[149]  First, a subscriber can be mis-identified as an infringer without participating in any infringing behavior.^[150]  Second, IP addresses can be purposefully “framed” by malicious users.^[151]  Third, there are reliability issues with using IP addresses and timestamps to identify the correct party.^[152]  For these reasons, there are serious issues around the credibility of the evidence used by copyright trolls.

        Despite the defenses to the quality of evidence against alleged infringers, the possibility of losing creates a strong incentive for alleged infringers to avoid a judgment at trial.  In the first case brought by the RIAA for sharing music files on the Internet, the defendant, Jammie Thomas-Rasset, argued that an unknown third-party had implicated her IP address by sharing 24 songs.^[153]  Disbelieving her story, the jury awarded the RIAA $222,000.^[154]  In the retrial,^[155] Thomas-Rasset was represented pro bono.^[156]  This time, Thomas-Rasset lost with a jury verdict of $1.92 million.^[157]  That award was challenged^[158] and led to a third trial in which damages of $1.5 million were awarded.^[159]  For many individuals, the prospect of large damage awards, multiple trials, and the resulting legal fees make a settlement of a few thousand dollars appealing.

Under the current structure of the law, large damage awards are often justified by the nature of the infringement.  First, sharing files over peer-to-peer networks is generally not accidental.^[160]  Second, as DGW claims, sharing files via torrent “requires a fairly complex set of steps to set up” which “adds to the ultimate legal liability of the individual downloader.”^[161]  Therefore, DGW hopes to achieve higher damage awards than the RIAA if cases go to trial because both the length of a film and the cost to create one are greater than for a song.^[162]  If large awards are justified by the statute, the issue then turns to whether the statute itself is justifiable in the age of Internet copyright trolls.

IV.        Addressing the Mass-Litigation Business Model

While there are other solutions that could combat the rise of copyright troll litigation, the best solution to realign the interests of the public with the interests of copyright holders is to remove statutory damages.  This Article does not argue that copyright infringement is morally justified or that the law should not protect copyright holders against infringement.  Instead, this Article illuminates the incentive structure that leads to copyright holders’ misuse of the judicial process to monetize infringement in ways that leave the targets with little choice but to settle.  Removing statutory damages for copyright claims is the best policy for furthering the public’s interest in copyright protection and relieving the courts, while still protecting the rights of copyright holders.

A.         Procedural Solutions Are Insufficient

Some have suggested that procedural changes could reduce the number of targeted individuals and therefore reduce the potential success of abusive litigation-based business models.  For example, ISPs could choose not to keep IP address logs.  While there might be no legal duty to store IP log data,^[163]  ISPs might be reluctant to give up those logs for fear of liability^[164] and because the data is a potential source of revenue.^[165]  There might also be business-related reasons for keeping the logs, including monitoring network use, preventing fraud and settling billing disputes.^[166]

A second procedural solution would be for judges to refuse joinder of thousands of defendants in a single suit.  If a plaintiff had to sue users individually, the cost to determine each user’s identity would increase,^[167] encouraging copyright holders to be more selective in choosing defendants.  But, it is also possible that plaintiffs would pass these costs along to defendants in the form of higher settlement requests.^[168]

Finally, lawyer discipline tribunals could create rules that prevent the unethical devices used in copyright troll suits.^[169]  Commentators have expressed outcry over the moral repugnancy of these suits.^[170]  Even before the rise of copyright trolls, Justice Burger wrote that when the public no longer supports the actions taken by lawyers, lawyer behavior needs to change.^[171]  Recognizing this, the preamble of the Model Rules of Professional Conduct states that “a lawyer should further the public’s . . . confidence in the rule of law . . . because legal institutions . . . depend on popular participation and support to maintain their authority.”^[172]  Unfortunately, procedural solutions can only offer limited relief because the prospect of large statutory damage awards would still encourage plaintiffs to find new ways of monetizing infringement.

B.         Can We Learn Anything from the Patent Troll Problem?

        There is an obvious relation between the copyright troll and the patent troll.^[173]  Patent trolls purchase the rights to a patent and wait for another company to unsuspectingly infringe on the patent.^[174]  Patent trolls use the threat of a permanent injunction to force the infringing company to pay high licensing fees.^[175]  Prior to eBay, Inc. v. MercExchange, L.L.C.,^[176] trolls and their victims knew that once infringement was proven, a permanent injunction was automatic.^[177]  That changed in eBay, where the Court rejected the automatic injunction doctrine and instituted a four-factor test that more accurately measures the actual harm to the plaintiff.^[178]  Post-eBay injunctions also consider whether the parties are in “direct market competition,” which eliminates trolls who do not practice their patents.^[179]  This furthers the policy of protecting commercially competitive patents, while elim-inating incentives for non-practicing entities to “engage in socially costly holdup[s].”^[180]

Because permanent injunctions are not the driving force in copyright troll litigation, a different tool is necessary.^[181]  However, a similar reform strategy, which aims to limit recovery by opportunistic copyright holders, might form a workable solution.  In eBay, the Court replaced automatic injunctions that put the patent troll in a superior bargaining position with an equitable solution that considers the legitimate needs of the patent holder.^[182]  To combat copyright trolls, removing statutory damages would equalize the bargaining position between infringers and copyright holders, yet still allow actual damages when infringement has caused significant, calculable harm.

C.         Removing the Incentive: Statutory Damages

        Statutory damages are no longer supportable based on their original purpose.  The original purpose of statutory damages was to provide compensation when there was uncertainty in determining actual damages.^[183]  Following this policy rational, early courts interpreting the original 1909 Copyright Act^[184] refused to award statutory damages when actual damages could be proven.^[185]  Because the original policy was that the awards should not be a penalty unless the plaintiff could prove actual damages, courts would either refuse to impose statutory damages or only impose the statutory minimum.^[186]

        Today, some argue that statutory damages are not only intended to compensate, but also to punish.^[187]  Consider the Jammie Thomas-Rasset case.^[188]  Thomas-Rasset was sued for infringing the copyrights of 24 songs, but was sharing 1702 songs at the time.^[189]  If the damages were calculated at the minimum award of $750^[190] for each of the songs she was sharing, the statutory award would be $1,276,500.  If we estimate that actual damages are two dollars per song,^[191] the ratio of punitive damages to actual damages would be 375:1.  This high ratio cannot be explained by a compensatory theory of statutory damages but, rather, suggests that the damages contain a punitive component.

Supreme Court doctrine limiting punitive damages can provide some insight into the proper penalty.  Punitive damages with a greater than single-digit multiplier have been struck down by the Court.^[192]  Were courts to accept the single-digit multiplier doctrine, Thomas-Rasset’s penalty would have been a more palatable $500.^[193]  While a judge in a bench trial could award damages that are in harmony with this reasoning, plaintiffs have a Seventh Amendment right to having statutory damages determined by a jury.^[194]  Thomas-Rasset’s damages were determined by three juries and the verdicts illustrate that juries do not always view damage awards in the same manner that judges do.^[195]

        Recognizing that copyright on the Internet is unique, commentators have proposed various solutions.^[196]  One proposed solution would be reductions in the availability of statutory damages combined with levies for Internet use and an inexpensive method of dispute resolution.^[197]  Other proposed solutions include statutorily treating “ordinary” infringers differently than “egregious” infringers.^[198]  Further still, some suggest that statutory damages be removed entirely.^[199]

Removal of statutory damages is the best remedy for both compensating copyright holders and protecting individuals from copyright troll suits for several reasons.  First, actual damages are a more accurate measure of the damage caused by infringement than statutory damages.  Second, copyright holders are adequately protected without statutory damages.  Most importantly, without statutory damages, copyright trolls would lose the incentive to litigate as a business model.^[200]

Tautologically, actual damages accurately measure the losses sustained by infringement.  The purpose of actual damages are to compensate the plaintiff for provable losses attributable to the defendant’s actions.^[201]  Provable losses can be measured by the dimi-nution of the work’s market value as a result of the plaintiff’s infringement.^[202]  This reduction in value is notoriously difficult to quantify but is likely related to the retail value of the work had a license been obtained legally.^[203]  Taking the highest possible value, this loss can be characterized as one lost sale for a download and one lost sale for an upload of an illegally shared file.^[204]  This calculation has the effect of assigning greater responsibility to more prolific infringers and lesser responsibility to casual infringers.

Copyright holders are able to adequately protect their interests using actual damages.^[205]  Actual damages would still give copyright holders an incentive to seek a recovery from infringers who cause significant market damage.  On the other hand, individuals who fall below this threshold would appear to be free to infringe.^[206]  For these individuals, deterrence can still be achieved without statutory damages by measuring damages based on the value to the infringer.^[207]  Furthermore, even if actual damages are insufficient to deter infringement, the plaintiff can still seek punitive damages within constitutional limits.^[208]  Finally, infringers still face the possibility of criminal sanctions.^[209]

The goal of copyright is not to maximize protection, but rather to encourage innovation.^[210]  While actual damages can in fact remove the incentive to recover minimal losses, this result correctly aligns incentives to sue with the purpose of copyright protection.  Moreover, because statutory damages give copyright holders the incentive to litigate over such small losses, removing the incentives would relieve courts from a flood of litigation.^[211]  Furthermore, plaintiffs could not use the threat of outlandish statutory damages to force settlement and thereby reduce the possibility of negotiation.^[212]

Without statutory damages, copyright trolls would be reduced to seeking only damages that result from the infringement rather than a windfall recovery when actual damages are minimal.  Because the trolls could not legitimately threaten to sue for thousands of dollars per infringement, defendants like Jammie Thomas-Rasset would face penalties that were rationally related to the actual damage they caused.

V.         Conclusion

In March, 2011, Voltage Pictures, as well as other DGW plaintiffs withdrew their complaints against a total of 10,583 defendants.^[213]  Voltage Pictures was able to identify 3970 defendants, with more in the process of being produced by ISPs.^[214]  While some commentators were quick to declare victory for the defendants,^[215] a dismissal does not mean those identified are forgotten.^[216]  Rather, it is more likely that Voltage Pictures will use the information gathered to attempt settlement, and, in the case that an infringer is unwilling to settle, re-file the complaint in the infringer’s jurisdiction.^[217]

The courts are faced with the dilemma of enforcing a law meant to compensate for loss, while plaintiffs use the law to monetize infringe-ment.  Copyright trolls would continue to use their superior legal position to extract large settlements from casual infringers as long as the law creates fertile ground for mass litigation of copyright troll suits.

Perhaps the best way for the law to adapt to the changing landscape of copyright in the digital age is actually to look to history.  Over a century ago, the United Kingdom addressed the issue created by the first copyright troll, Harry Wall.^[218]  The solution is the same today as it was then: eliminating statutory damages.^[219]  Viewing Wall’s actions as repugnant, Parliament removed automatic statutory penalties from the law.^[220]

Even if statutory damages are removed, copyright holders would still be able to protect their interests through recovery for actual losses due to infringement, individuals would still be deterred from file sharing through both civil damages and criminal sanctions and the judicial system would no longer be weighed down by cases that contain 24,595 defendants.  While copyright holders will resist the removal of statutory damages, legislators should remember that “the primary objective of copyright law is not to reward the author, but rather to secure for the public the benefits derived from the authors’ labors.”^[221]  Copyright law should give the authors the “incentive to create”^[222] not to litigate.

Chris Deubert^[1]

Glenn M. Wong^[2]

John Howe^[3]

The NFL survived the 2011 offseason despite being bombarded by a sports law perfect storm.  The National Football League Players Association (NFLPA or the Players) decertified itself as the bargaining representative of NFL players on March 11, 2011, hours before the expiration of the collective bargaining agreement that the NFL and the NFLPA agreed to in 2006 (the 2006 CBA).  That night, nine current NFL players and one prospective NFL player, led by New England Patriots quarterback Tom Brady, filed an antitrust lawsuit against the NFL and its 32 Clubs.

The Brady lawsuit was just part of a litigious 2011 in professional football.  The NFL responded to the Brady lawsuit with a “lockout.” Players could not report to work, Clubs could not have any contact with players and, eventually, games could have been missed.  In add-ition to the Brady lawsuit, the Players sought damages related to the NFL’s television contracts that allegedly violated the 2006 CBA, retired players fought for their rights in the labor negotiations, and the NFL contended that the NFLPA had failed to bargain in good-faith in a proceeding before the National Labor Relations Board.

The NFL and NFLPA ultimately reached a settlement of the various lawsuits and agreed to a new CBA (the 2011 CBA) without missing any regular season games.  This Article examines the history of labor negotiations in the NFL, provides a thorough examination of the most recent labor dispute and its related legal actions, and concludes with a detailed analysis of the 2011 CBA.

I.         Introduction        

II.         History of Labor Negotiations in the NFL        

III.         The 2011 CBA Negotiations        

A.         The Opt Out and Stagnant Negotiations (May 20, 2008 – February 17, 2011)        

B.         Federal Mediation (February 18, 2011 – March 11, 2011)        

IV.         The Lockout and Relevant Legal Proceedings        

A.        Television Case        

B.        The Brady Case        

C.        NLRB Case        

D.        Retired Players Cases        

V.         Analysis of 2011 CBA        

A.        Revenue Split        

B.        Salary Cap and Minimum Spending Requirements        

C.        Bonus Forfeitures        

1.        Denver Broncos and Ashley Lelie        

2.        Other Cases        

3.        Changes in 2011 CBA        

D.        Rookie Compensation        

1.        Contract Length        

2.        Prohibition on Certain Bonuses        

3.        Performance Incentives        

4.        The NFLPA’s Leak of Confidential Rookie Pool Information        

5.        Summary        

E.        Movement Toward Guaranteed Contracts        

F.        Commissioner Discipline        

G.    Drug Testing        

H.        Court Oversight        

I.        Retiree Benefits        

J.        Other Salary, Salary Cap and Contract Rules        

K.        CBA Duration        

L.        Practice Limitations and Season Duration        

VI.         Conclusion        

I.         Introduction

The National Football League (NFL) survived its longest work stoppage ever^[4] during the 2011 offseason despite being bombarded by a sports law perfect storm.  After years of negotiation, the National Football League Players Association (the NFLPA or Players) decertified itself as the bargaining representative of NFL players on Friday night, March 11, 2011.^[5]  The decertification came only hours before the expiration of the collective bargaining agreement (CBA) that the NFL and the NFLPA agreed to in 2006 (the 2006 CBA), which had already been extended by eight days.^[6]  By the end of the night, nine current NFL players and one prospective NFL player had filed an antitrust lawsuit against the NFL and its 32 Member Clubs.^[7]  The law-suit, styled Brady v. NFL for lead plaintiff and New England Patriots quarterback Tom Brady, was just one part of a lengthy and litigious 2011 in the world of professional football.

The NFL responded to Brady by “locking out” the Players just after midnight upon the expiration of the 2006 CBA.^[8]  Players could no longer report to work, Clubs could not have any contact with players^[9] and, eventually, games could have been missed.  Lay fans probably had no preference as to who won the Brady suit or the particulars of a CBA that would enable games to begin; instead, fans were mostly concerned that football be played.

The NFL earned an estimated $9.3 billion in revenues in 2009.^[10]  Approximately $3.735 billion of the NFL’s revenues were from television contracts.^[11]  The Players received approximately 50 percent of those revenues pursuant to the 2006 CBA.^[12]  Despite the billions in revenues—and absence of allegations that Clubs were losing money—the Clubs unanimously voted 32 to zero to opt out of the 2006 CBA on May 20, 2008.^[13]  The Clubs had voted 30 to two in favor of the 2006 CBA only 26 months earlier.^[14]  As a result of the Clubs’ dramatic change in perspective, the 2006 CBA expired in March 2011 as opposed to March 2013.^[15]

The Players insisted that the Clubs’ decision to opt out of the 2006 CBA and threaten the labor peace the game had enjoyed since 1993, was the result of a revenue-sharing dispute between higher-revenue and smaller-revenue Clubs.^[16]  The Clubs instead contended that the fin-ancial split between Clubs and Players no longer made financial sense.^[17]

As the 2006 CBA approached extinction, closing the gap on the financial split seemed hinged on the Clubs’ willingness to “open the books” and permit the NFLPA to review and understand the financial arguments being made by the NFL.^[18]  Several Clubs were reportedly prepared to do just that in hopes of accomplishing a deal.^[19]  In fact, the Green Bay Packers—the only publicly-owned NFL Club—reported operating profits of $12 million for the 2010 season.^[20]  With no evi-dence that the Clubs were in any type of financial distress, the Players did not agree that fundamental changes were needed to the NFL-player compensation model.

The NFL has served as the crash test dummy and model for labor relations and related litigation among the major North American sports leagues, including the NFL, Major League Baseball (MLB), the National Basketball Association (NBA), and the National Hockey League (NHL) (collectively, the Big Four).  The NFLPA’s 2011 decertification marked only the second time that a major professional sports league’s players association had decertified.^[21]  Of course, the NFLPA was the first do it in 1989.^[22]  Perhaps not surprisingly, con-temporaneous with Brady, the NFL and NFLPA were engaged in proceedings before the National Labor Relations Board (NLRB), a legal action involving the NFL’s television contracts, and a lawsuit brought on by retired NFL players.  Through it all, the NFL and NFLPA did reach a new CBA (the 2011 CBA) in July 2011 without any effect to the regular season.^[23]

This Article examines the history of labor negotiations in the NFL, provide a thorough examination on the most recent labor dispute and its related legal actions, and conclude with a detailed analysis of the 2011 CBA.

II.         History of Labor Negotiations in the NFL

The NFL has the most litigious labor history of the Big Four.  Much of the most important litigation in the Big Four can be traced to the Supreme Court’s 1922 decision in Federal Baseball Club of Baltimore v. National League of Professional Baseball Clubs,^[24] in which the Court held that MLB was not engaged in interstate com-merce and therefore exempt from antitrust laws.^[25]  The other Big Four leagues thereafter assumed they too were immune from antitrust laws, and the clubs in those leagues agreed to a variety of restrictions which limited players’ ability to offer their services on a free market.  NFL Players first challenged the Clubs’ restrictions in Radovich.^[26]

Bill Radovich, an offensive lineman for the Detroit Lions, asked to be traded to the Los Angeles Raiders following the 1946 season to be closer to his ailing father.^[27]  The Lions refused and Radovich instead chose to sign with the Los Angeles Dons of the rival All American Football Conference.^[28]  Radovich then attempted to return to the NFL after two seasons with the Dons, only to find that he had been blacklisted and that no team would sign him.^[29]

Radovich challenged the Clubs’ agreement not to employ him under Sections 1 and 2 of the Sherman Act.^[30]  The district court and Ninth Circuit granted the NFL immunity on the basis of Federal Baseball.^[31]  The Supreme Court reversed in 1957, holding that the business of football is clearly engaged in interstate commerce and subject to antitrust laws.^[32]  Radovich importantly established that other sports—but not baseball—were subject to antitrust laws, an important component of labor negotiations.^[33]

The NFLPA was formed in 1956.^[34]  The NFLPA made little progress in advancing Players’ issues until the Players went on strike during the 1968 preseason, and the Clubs instituted a lockout at the beginning of the regular season.^[35]  The first work stoppage in sports history ended with the first ever NFL-NFLPA CBA (the 1968 CBA).^[36]  The 1968 CBA resulted in an increased pension, but only lasted two years until a 1970 strike following the rise of the American Football League as a competitor for players’ services.^[37]  A CBA reached in 1970 increased salaries and minimum benefits, but expired in 1974 without an extension.^[38]  The Players engaged in two largely unsuc-cessful strikes in the 1974 preseason and 1975 season,^[39] while the Players’ next monumental legal challenge was working its way through the Courts.

In 1972, Colts’ tight end John Mackey and 35 other NFL players brought a class action lawsuit against the NFL and its, at that time, 26 Member Clubs.^[40]  The suit challenged the Rozelle Rule, named after NFL Commissioner Pete Rozelle.^[41]  The Rozelle Rule permitted Com-missioner Rozelle to determine the compensation, in the form of draft picks, players, or cash, to be paid to a Club who signs a player who most recently played for a different Club.^[42]

The plaintiffs argued that the Rozelle Rule was an unreasonable restraint on trade under the antitrust laws because it deterred Clubs from signing free agents and suppressed player salaries.^[43]  The NFL argued that the Rozelle Rule was implemented as part of the 1968 and 1970 CBAs and therefore immune from antitrust law by the non-statutory labor exemption.^[44]

The 32 Member Clubs of the NFL are generally exempt from antitrust laws while there is a CBA in effect.^[45]  This policy is known as the non-statutory labor exemption.^[46]  The Supreme Court has reasoned that “to give effect to federal labor laws and policies and to allow meaningful collective bargaining to take place, some restraints on competition imposed through the bargaining process must be shielded from antitrust sanctions.”^[47]

In Mackey, the Eighth Circuit ruled in favor of the plaintiffs and found that the Rozelle Rule was not protected by a non-statutory labor exemption.^[48]  The Mackey case established an important three-prong test for determining when the non-statutory labor exemption applies:

(1) The restraint on trade must primarily affect only the parties to the collective bargaining agreement;

(2) The issue must concern a mandatory subject of bargaining; and

(3) The issue must have been achieved through arm’s-length bargaining.^[49]

The Eighth Circuit determined that the NFL could not meet the third prong in Mackey.^[50]  The court found that, even though the Rozelle Rule was included in the 1968 and 1970 CBA, it served no benefit to the Players and had not been accomplished through arm’s length bargaining.^[51]

A new CBA was reached in 1977 (the 1977 CBA), following the Mackey ruling, which replaced the Rozelle Rule with a right of first refusal system and agreed upon compensation for the Club losing the player.^[52]  However, the Players did not gain the right to unrestricted free agency in the 1977 CBA even though players in MLB, the NBA, and the NHL now enjoyed this right due to a variety of legal proceedings.^[53]  The Players instead agreed to increased minimum sal-aries and benefits.^[54]

The NFL Draft was successfully challenged as an unreasonable restraint of trade the next year in 1978 in Smith v. Pro Football.^[55]  James Smith was drafted by the Redskins in 1968.^[56]  Smith played only one season in the NFL and argued that if he had not been drafted, he would have been able to secure a far more lucrative contract than the one he signed with the Redskins.^[57]  The district court and the United States Court of Appeals for the District of Columbia agreed, holding that the NFL Draft’s allegedly pro-competitive effects did not outweigh the anticompetitive effects on the market for players’ services.^[58]

The Players engaged in a 57-day strike during the 1982 season, following the expiration of the 1977 CBA,^[59] resulting in cancelled games.^[60]  A new CBA (the 1982 CBA) was ultimately reached that included the first ever drug-testing program in the Big Four and improved salaries, pension and benefits for Players.^[61]

The expiration of the 1982 CBA in 1987 marked a dramatic and litigious turning point in NFL labor relations.  The Players went on strike for 23 days during the 1987 season,^[62] during which time the NFL used replacement players.^[63]  The Players decided to end the strike and instead filed a class action lawsuit challenging the right of first refusal/compensation system that had existed since the 1977 CBA in the Powell case.^[64]

In Powell, the Players argued that the system was in violation of Section 1 of the Sherman Act^[65] because it unreasonably restrained player movement.^[66]  The NFL moved for summary judgment, arguing that the system was protected by the non-statutory labor exemption.^[67]  The Players responded by contending that the exemption was no longer applicable because the 1982 CBA had expired and impasse had been reached.^[68]  Judge David Doty of the United States District Court for the District of Minnesota agreed that the labor exemption survived expiration of the 1982 CBA because the terms and conditions of the 1982 CBA were still in effect.^[69]  However, Judge Doty also ruled that the labor exemption would expire once an impasse was reached.^[70]  From this point forward, nearly all NFL labor disputes were litigated before Judge Doty, as will be explained below.

The Eighth Circuit, in 1989, reversed Judge Doty’s decision regarding when the labor exemption would expire.^[71]  The Eighth Cir-cuit ruled that the labor exemption would survive impasse and exist so long as there was an ongoing collective bargaining relationship.^[72]  In dissent, Judge Donald Lay recognized that the Players’ only option to seek redress under the antitrust laws was to decertify the NFLPA as its bargaining representative.^[73]

The Players voted to decertify the NFLPA shortly after the Eighth Circuit’s decision in Powell.^[74]  Several NFL players, led by the aptly named Freeman McNeil, then filed a lawsuit seeking an injunction against the NFL’s proposed “Plan B” free agency system and wage scale, alleging they violated the antitrust laws.^[75]  The NFL had altered the right of first refusal/compensation system prior to the lawsuit in hopes it would be able to prove that the system was necessary for the survival of the league and was in its least restrictive form.^[76]  Plan B free agency permitted Clubs to designate 36 players who would be subject to the right of first refusal/compensation system after each season.^[77]  Undesignated players became unrestricted free agents.^[78]

Judge Doty had already determined that the NFLPA had successfully relinquished its ability and right to bargain on behalf of NFL Players and that the labor exemption no longer applied as part of the Powell proceedings in 1991.^[79]  The parties in McNeil cross-moved for summary judgment and Judge Doty ruled in the Players’ favor in 1992, finding that if implemented, Plan B free agency and the wage scale would likely violate the antitrust laws.^[80]

In 1992, following the McNeil decision, Miami Dolphins’ Keith Jackson and nine other players filed a lawsuit seeking injunctive relief preventing the implementation of the Plan B free agency system.^[81]  Judge Doty granted the plaintiffs’ request, finding that the outcome was likely to be the same based on the McNeil decision.^[82]

Riding the success of the McNeil and Jackson decisions, the Players filed a class action lawsuit in 1992 against the NFL seeking injunctive relief and antitrust damages for the NFL’s Plan B free agency system, the NFL Draft and the NFL Player Contract.^[83]  The lead plaintiff in the lawsuit was the well-respected and future Hall of Fame defensive end Reggie White.  White v. NFL presented NFL Clubs with the possibility of over a billion dollars in damages, after trebling, due to the restrictive policies it had imposed since the expiration of the 1982 CBA in 1987.

On January 6, 1993, the parties reached a Stipulation and Settlement Agreement (SSA), approved by Judge Doty in August 1993, resolving the White case.^[84]  The SSA included a $200 million payout to the Players.^[85]  The NFLPA recertified as the official bar-gaining representative of the Players as part of the SSA and the SSA became, in sum and substance, the new CBA between the NFL and Players (the 1993 CBA).^[86]  Judge Doty retained jurisdiction over the SSA and CBA—an arrangement that would prove controversial in future years.^[87]

The SSA was a monumental and long overdue resolution to years of litigation and labor strife.  Furthermore, the 1993 CBA was a groundbreaking CBA that set the framework for every NFL CBA since.  The Players gained the right to unrestricted free agency for the first time in exchange for a hard salary cap.^[88]  Players could become unrestricted free agents after five years of experience and Clubs’ payrolls were limited to a range of 62 percent to 64 percent of Defined Gross Revenue (DGR) depending on the year.^[89]

In a case slightly detached from the constant proceedings in the United States District for the District Court of Minnesota, several practice squad players filed an antitrust challenge to the NFL’s restrictions on practice squad player salaries in the District Court for the District of Columbia.^[90]  In May 1989, prior to the NFLPA’s renun-ciation, the Clubs agreed to restrict practice squad salaries to $1,000 per week.^[91]  The NFLPA adamantly rejected the NFL’s decision to im-pose the wage restrictions.^[92]  Consequently, the district court, applying the Mackey test, determined that the wage restriction was not reached through arm’s length bargaining and therefore was not protected by the labor exemption.^[93]

The Supreme Court ultimately reversed the district court’s decision in 1996 and determined that the NFL’s unilateral imposition of the practice squad salary limitations was protected by the non-statutory labor exemption.^[94]  The Supreme Court established a loose four-pronged test, holding that the non-statutory labor exemption applies where the challenged conduct:

(1) Took place during and immediately after a collective bargaining negotiation;

(2) Grew out of, and was directly related to, the lawful operation of the bargaining process;

(3) Involved a matter that the parties were required to negotiate collectively; and

(4) Concerned only the parties to the collective bargaining relationship.^[95]

The Brown v. Pro Football decision importantly allows employers to implement terms and conditions of employment after a bargaining impasse has been reached, so long as the terms were “reasonably comprehended” within the employers’ proposals.  The Supreme Court’s analysis of the non-statutory labor exemption has been and will continue to be applied in sports labor disputes.^[96]

The 1993 CBA was extended without a work stoppage or litigation in 1998, 2001 and 2006.^[97]  The most substantive changes occurred in the 2006 CBA.  The 2006 CBA replaced the DGR definition with that of Total Revenue (TR).^[98]  TR included certain increasingly important revenue sources not previously included in DGR.  These sources inclu-ded stadium revenues related to football such as concessions, parking, local advertising and promotion, signage, magazine advertising local sponsorship agreements, stadium clubs, and luxury box income—revenue sources explicitly excluded from DGR previously.^[99]  Conse-quently, TR was significantly higher than DGR had been.  In exchange, the Players only received approximately 57.5 percent of TR as opposed to a maximum of 65.5 percent of DGR.^[100]  Nevertheless, the Salary Cap increased significantly.^[101]

The 2006 CBA was widely regarded as a win for the Players. The NFL and its Clubs complained that the new revenue-sharing arrange-ment significantly reduced their profits, but did not claim they were no longer profitable.^[102]  The perceived issues with the 2006 CBA led directly into the Clubs’ decision to opt out of the 2006 CBA in May 2008 and to begin negotiations for what would ultimately become the 2011 CBA.

III.        The 2011 CBA Negotiations

A.         The Opt Out and Stagnant Negotiations (May 20, 2008 – February 17, 2011)

The collective bargaining process was, at least in part, significantly accelerated when the Clubs unanimously voted to opt out of the 2006 CBA in May of 2008.  The 2006 CBA was not scheduled to expire until after the 2013 Super Bowl, but the Clubs’ decision to opt out eliminated the final two years of the deal.

Complicating the negotiations was the fact that the Clubs’ opt out also moved the Final League Year forward two years, beginning in March 2010 and encompassing the 2010 regular season.  The Final League Year—under the 2006 CBA and its predecessors arising out of the 1993 CBA—contained unique provisions that were designed to incentivize the Clubs and the Players to reach a new CBA well before the expiration of the old one.  Most notably, in the Final League Year there was no Salary Cap and players needed six accrued seasons to become an unrestricted free agent as opposed to the four required in any other year.^[103]  These terms are referred to as poison pills and his-torically were successful at encouraging the two sides to agree to a new CBA prior to the Final League Year.  Consequently, to avoid having to go through the oddity of a Final League Year, the Clubs and Players needed to agree to a new CBA before March 2010.  With fundamental and vast differences over the revenue arrangement, the Clubs and Players did not even come close to avoiding the Final League Year.  The effect of the poison pills is discussed below in Part IV.K.

NFLPA Executive Director and Hall of Fame offensive lineman Gene Upshaw died unexpectedly on August 21, 2008—only three months after the Clubs’ decision to opt out of the 2006 CBA.^[104]  Upshaw’s sudden death undoubtedly halted any progress on negotia-tions for a new CBA.  On March 16, 2009, the NFLPA elected Wash-ington, D.C.-based litigation attorney DeMaurice Smith as its new Executive Director.^[105]  Smith, who had no prior experience in football or labor negotiations, had to quickly meet his constituents, learn the 2006 CBA, and begin negotiating a new CBA.

The 2010 regular season was played without a Salary Cap and little to no progress was reported on a new CBA.  Sporadic talks were held in the fall of 2010, but neither side pressed the issue until the week of the 2011 Super Bowl, in Dallas, Texas.^[106]  NFL Commissioner Roger Goodell, NFL attorneys, and four Club owners (Jerry Richardson (Carolina Panthers), Clark Hunt (Kansas City Chiefs), John Mara (New York Giants), and Dean Spanos (San Diego Chargers)) met with Smith, New Orleans Saints quarterback Drew Brees, Indianapolis Colts quarterback Peyton Manning, retired wide receiver Sean Morey, and other players the day before the Super Bowl.^[107]

The meeting was the first since November 2010, and Goodell labeled it as “beneficial.”^[108]  However, it was reported that Richardson, the only owner to have ever played in the NFL, was condescending and disrespectful towards the players, forcing other owners to apologize on his behalf.^[109]  The positives that came out of the meeting were the scheduling of at least two meetings later that week^[110] and a pledge to meet aggressively over the next few weeks.^[111]

The two sides next met in Washington, D.C. on Wednesday, February 9, but any optimism from the Super Bowl evaporated by the end of that day.  A meeting scheduled for the next day was cancelled and there were no plans for any future meetings.^[112]  The talks broke down when the NFLPA proposed a fifty-fifty split of the revenue (with no off-the-top expense deductions) and the owners walked away from the bargaining table.^[113]  The fifty-fifty split would have effectively maintained the status quo.^[114]  The NFL refused to comment on the cancellation of the Thursday negotiation session.^[115]

The main issue preventing meaningful discussion was the split of revenues.^[116]  The Players received 57.5 percent of TR pursuant to the 2006 CBA.^[117]  However, before the Players’ share of TR was determined, the NFL deducted five percent for expenses and 1.8 percent for the NFL’s G-3 Stadium Program.^[118]  These expense deductions were estimated to be approximately $1 billion per year.^[119]  As a result, the Players actually received much closer to 50 percent of all revenues.^[120]  The Clubs were seeking additional credits which would have equaled close to $2 billion and lowered the Players’ actual share of revenues to just over 40 percent – far lower than the amount received by players in the NBA or the NHL (the other leagues with salary caps).^[121]

B.         Federal Mediation (February 18, 2011 – March 11, 2011)

No progress was reported until the Clubs and Players agreed, on February 17, 2011, to conduct the negotiations under the auspices of George H. Cohen, the director of the Federal Mediation and Conciliation Service (FMCS).^[122]  The use of mediation was at the invitation of Cohen.^[123]  Mediation is a voluntary and non-binding pro-cess, but the parties’ agreement to mediate was seen as progress.^[124]  Cohen had no power to issue a ruling, but could offer suggestions and speak openly about the merits of each side’s arguments.^[125]

Mediation sessions were held in three blocks, for a total of 16 days, at FMCS offices in Washington, D.C.  The NFL and NFLPA met for seven straight days from Friday, February 18, 2011 to Thursday, February 24, 2011.  The NFL was exclusively represented by Goodell, Jeffrey Pash, the NFL’s Executive Vice President of Labor, and outside counsel Bob Batterman^[126] during this first week, except for a Tuesday visit from Washington Redskins General Manager Bruce Allen.  The NFLPA was represented by Smith and General Counsel Richard Berthelsen during this first week. Twelve current or retired players participated during the week and NFLPA outside counsel Jeffrey Kessler^[127] was also present for four of the sessions.

At the conclusion of the first round of mediation sessions on Thursday, February 24, the sides agreed to another round of mediation beginning on Tuesday, March 1.^[128]  The sides did not publicly disclose any details of the mediation sessions pursuant to Cohen’s directive.^[129]  Cohen released a lukewarm statement on February 24 stating that “[t]he tenor of the across-the-table discussions reflected a noteworthy level of mutual respect even in the face of strongly held competing positions.”^[130]  Cohen further tempered any optimism by adding that “some progress was made, but very strong differences remain on the all-important core issues.”^[131]  The parties then left D.C. to attend the NFL Scouting Combine in Indianapolis, Indiana.^[132]

Leaders from the NFL and NFLPA updated their respective sides while in Indianapolis. Goodell, Pash, and Batterman briefed the NFL’s Labor Committee, which included: Richardson, Hunt, Mara, Spanos, Pat Bowlen (Denver Broncos), Art Rooney II (Pittsburgh Steelers), Mark Murphy (Green Bay Packers), Jerry Jones (Dallas Cowboys), Mike Brown (Cincinnati Bengals) and Robert Kraft (New England Patriots).^[133]  Few details emerged from the NFL meeting, but some rumors did circulate from Smith’s meeting with NFLPA-certified player-agents.^[134]  Albert Breer of NFL.com reported that the NFLPA intended to decertify before the expiration of the 2006 CBA.^[135]  Adam Schefter of ESPN then tweeted the following text from an unnamed agent: “Not close on one single issue . . . This WILL go into September.”^[136]  There were conflicting reports about Smith’s actual comments, but nevertheless, the reports highlighted a key difference between the NFL and the NFLPA during the negotiations: the NFL only had to provide information to its 32 owners and their lead executives who could disseminate that information within the Club as necessary; the NFLPA was required to provide ongoing information to nearly 2,000 players and approximately 773 agents.^[137]  Consequently, the chances of anything Smith said not being leaked to the media were close to zero.

Talks resumed in Washington, D.C. on Tuesday, March 1, with the 2006 CBA set to expire at midnight on March 3.  Mara became the first owner to be involved in the talks.^[138]  The most significant event on Tuesday was a decision handed down by Judge Doty.  Judge Doty reversed an earlier ruling by Special Master Stephen Burbank and found that the NFL had violated the 2006 CBA by agreeing to deals with television networks that required the networks to continue making payments to the NFL in the event of a work stoppage.^[139]  The proced-ural history and reasoning for Judge Doty’s ruling will be discussed in greater detail in Part III.A. Television Case.  Judge Doty’s ruling appeared to provide leverage to the NFLPA by eliminating substantial revenues the Clubs would have received during a lockout.

Wednesday, March 2, marked the most heavily attended mediation session yet.  At least nine current or retired players and the entire ten-owner NFL Labor Committee attended.^[140]  Notably, NFLPA President Kevin Mawae joined the sessions for the first time.  There was spec-ulation that Mawae had been absent from the previous meetings due to the NFL’s repeated restating of Mawae’s January 2011 comments that the Players “got such a great deal” in the 2006 CBA.^[141]

Thursday, March 3, the day on which the 2006 CBA was set to expire, again required all-hands-on-deck for the NFL and NFLPA.  The NFLPA had to weigh throughout that day’s session whether to continue negotiating or to decertify as a labor union and file an antitrust lawsuit.^[142]  The parties ultimately agreed to extend the CBA and continue negotiating for another 24 hours.^[143] The next day, the parties agreed to a seven-day extension through Friday, March 11, with plans to reconvene on Monday for another five days of mediation.^[144]

The weekend offered a time for the sides to reflect on their positions and for those positions to be divulged to the media.  The New York Times reported that the sides had moved closer on certain non-economic issues: a rookie wage scale; post-career benefits; the 18-game season and cutbacks in physical contact during off-season workouts.^[145]  However, the sides still remained far apart on the issue of dividing the $9 billion in annual revenue.^[146]

The Players continued to express dissatisfaction with the financial information being provided by the NFL.^[147]  Smith called the financial information provided “insufficient” and “meaningless.”^[148]  The NFLPA sent a letter to the NFL in May of 2009 requesting “each team’s total operating income, total operating expenses, profit from operations, other income/expenses, income before provision for income taxes, provision for income taxes, net income, cash and investment assets, dividends and other distributions to owners and their families, and financial statement notes.”^[149]  However, the NFL only offered the NFLPA audited profitability data from all 32 Clubs for 2005–2009.^[150]  The offered data would have listed the number of Clubs that posted better or worse results relative to the previous year.^[151]  Owners remained unwilling to release any further financial data, claiming that the information they had offered “was more than teams receive and more than the union had ever received in negotiations.”^[152]

Frustrations were at fever pitch as the stipulated extension rapidly approached.  As the meetings adjourned with little to no progress reported, Pash told reporters, “[i]f both sides have an equal com-mitment to getting this deal done, it will get done. I don’t know if both sides have an equal commitment.”^[153]  Pash’s comments reportedly caused Smith to turn his car around and return to FMCS headquarters to respond to Pash’s comments: “[w]e’re committed to this process.  We have been committed to this process.  But for anyone to stand and turn to the American people and say that they question that . . . uh, look.  I understand that there’s probably some things that Jeff Pash has to say.  But this is the truth.”^[154]  The media battle continued throughout the evening on Twitter between each side’s media spokesman, Greg Aiello (NFL) and George Atallah (NFLPA).^[155]

With a negotiation deadline set for 5 p.m. on Friday, Smith emerged from the offices at 4:43 p.m. and stated that “[a]t this time, significant differences continue to remain” and reiterated that “the NFLPA want[ed] [ten] years of the owners’ audited financial records by the deadline before they would agree to a third extension to negotiations.”^[156]  The NFL did not respond to the NFLPA’s request and the NFLPA announced at 5:00 p.m. that it had decertified as the collective bargaining representative of the Players, clearing the way for the Brady action.^[157]

The NFL responded by releasing public statements through the media, saying the union walked away from a “good deal”^[158] and listed the concessions that the NFL was willing to make.^[159]  The NFL then imposed a lockout (the Lockout)—the first work stoppage for the League since 1987.^[160]

IV.        The Lockout and Relevant Legal Proceedings

The Lockout put an end to the collective bargaining process.  In its place, several lawsuits were initiated or continued.  Collective bar-gaining could not resume—and a 2011 CBA could not be reached—without the settlement or cessation of the various actions.

A.        Television Case

In June 2011, the NFLPA filed a complaint with Special Master Stephen Burbank concerning the structure of the NFL’s contracts with television networks.^[161]  The NFLPA alleged that the NFL violated the 2006 CBA and breached its fiduciary duty to the Players by requiring the television networks to pay approximately $4.5 billion to the NFL in 2011 even if no games were played as a result of a work stoppage.^[162]  The NFLPA argued that by requiring the networks to pay the Clubs’ so-called “lockout insurance,” the amounts the networks would have paid in years in which there actually was football being played were reduced.^[163]  And because the NFL and NFLPA share revenues pursuant to the 2006 CBA, the Players’ share of revenue was also decreased because the Players would not receive any share of the “lockout insurance” money.  Executive Director Smith argued that these pay-ments provided the NFL a powerful incentive to lockout the Players.^[164]  The NFL countered by explaining that the money would have to be repaid with interest.^[165]

The NFL began negotiating the lockout insurance shortly after opting out of the 2006 CBA in May 2008.  The NFL already had pro-visions requiring continued payment in the event of a work stoppage with CBS, FOX, NBC, and ESPN.^[166]  These provisions were amended in various ways to remove a requirement that the NFL repay rights fees for lost games (or subscribers in the case of ESPN) and allowed the NFL instead to repay the fees with interest over the term of the contracts.^[167]  In exchange, the networks gained a variety of digital and internet rights.^[168]

The NFL also renegotiated its contract with DirecTV to add a work-stoppage provision.  The provision provided that DirecTV would pay its 2011 licensing fee and, in the event of a work stoppage, 58 percent of the 2011 fee would be applied towards the 2012 season.^[169]  The NFL similarly negotiated a non-refundable rights fee with Verizon Wireless.^[170]  In sum, the NFL negotiated access to over $4 billion in rights fees in 2011 in the event of a lockout—$421 million of which it had no obligation to repay.^[171]

The Players argued that the NFL violated Article X, § 1(a)(i) of the SSA which required that the “NFL and each NFL Team shall in good faith act and use their best efforts, consistent with sound business judgment, so as to maximize Total Revenues for each playing season . . . .”^[172]  The SSA, according to the Players, did not permit the NFL to “structure TV Contracts—the largest source of shared Total Revenues, by far—to intentionally inflict economic harm on the Players.”^[173] The Players were required to prove “by a clear prepon-derance of the evidence that the challenged conduct was in violation of . . . Article XVI.”^[174]

In an Opinion dated February 1, 2011, Special Master Burbank denied the NFLPA’s grievance.^[175]  Special Master Burbank ruled that the NFL’s decision to “maximize revenues for 2011 and beyond . . . reflected good faith, best efforts and sound business judgment.”^[176]  The vast majority of Special Master Burbank’s factual findings on which his decision was based are available only in redacted form, but Special Master Burbank cited the depressed economy and the increased digital rights negotiated in the new deals as legitimate reasons for the NFL’s negotiated receipt of the television fees in 2011.^[177]

Special Master Burbank did, however, award the Players $6.9 million in damages arising out of the NFL’s grant to NBC of an additional 2010 regular season game in exchange for digital rights.^[178]  Special Master Burbank awarded the Players their 57.5 percent share of the estimated $12 million value of the game.^[179]

On February 11, 2011, the NFLPA filed an Objection to Special Master Burbank’s ruling with Judge Doty pursuant to the 2006 CBA and Fed. R. Civ. P. 53.^[180]  The NFLPA moved for an expedited hearing and also to unseal certain documents.^[181]  On February 24, 2011, Judge Doty ordered that Special Master Burbank’s 48-page decision, and the NFLPA’s 63-page brief in support of their Objection, be unsealed and filed as redacted.^[182]  The unsealing of the documents provided the public an opportunity to view the Players’ claims and Special Master Burbank’s decision.

Judge Doty overruled the majority of Special Master Burbank’s Opinion in a decision dated March 1, 2011.^[183]  Judge Doty found that Special Master Burbank erred by considering the phrase “consistent with sound business judgment” in the context of the business-judgment rule applicable to the fiduciary duties of corporate directors.^[184]  Instead, Special Master Burbank “should have considered the intent of the parties and the context from which [the sound business judgment] language arose.”^[185]  Judge Doty further stated that the SSA and 2006 CBA required “that the parties act in good faith and use best efforts to maximize total revenues for the joint benefit of the Players and the NFL.”^[186]

The NFL violated the SSA and 2006 CBA, according to Judge Doty, by “pursu[ing] its own interests at the expense of maximizing total revenues . . . .”^[187]  Judge Doty determined “that the NFL under-took contract renegotiations to advance its own interests and harm the interests of the players.”^[188]  There was evidence that “at least one broadcaster would have considered paying more in the 2009-2010 sea-sons to have the work-stoppage provision go away.”^[189]  The NFL was required by the SSA and 2006 CBA to “use best efforts to maximize total revenues for the 2009-2010 seasons when [entering] into widespread and lucrative contract renegotiations,”^[190] but failed to do so.

Judge Doty ordered a hearing on May 12, 2011, to consider damages in the case.^[191]  The specter of a damages award in the hun-dreds of millions of dollars supplied the NFLPA with important lever-age during the CBA negotiations.^[192]  Although the NFLPA’s requested damages amount is redacted in the publicly available version of its brief,^[193] by replicating the redacted compensatory damages chart used in the NFLPA’s brief and combining it with the unredacted transcript from the May 12, 2011 hearing, it is possible to determine the damages requested by the NFLPA:

The NFLPA also requested punitive damages at least three times the total compensatory damages award, an injunction against the NFL from collecting television revenues during any lockout, and an order that any non-refundable amounts received by the NFL from DirecTV be placed in escrow until an agreement has been reached on how to share the funds.^[197]

Judge Doty never had to make a final ruling in the Television Case.  All claims regarding the SSA, including claims asserted in the Television Case, were dismissed with prejudice by stipulation of the parties pursuant to the 2011 CBA.^[198]

B.        The Brady Case

As discussed in the opening of this Article, the NFLPA decertified itself as the bargaining representative of NFL players on Friday night, March 11, 2011,^[199] after years of negotiation and 16 days of federal mediation.^[200]  The Brady class-action lawsuit was filed later that even-ing and sought to enjoin the Clubs from violating federal antitrust and state contract and tort laws, such as the Lockout.^[201]

Brady was filed in the United States District Court for the District of Minnesota.  The clear purpose for this forum selection was that court’s long history of resolving NFL and NFL player disputes, most notably Judge Doty’s 18-year reign over the SSA and CBA.  The NFL was so bothered by Judge Doty’s oversight that it sought to have Judge Doty recuse himself from the role in 2009—a motion rejected by Judge Doty and the Eighth Circuit Court of Appeals.^[202]  However, Judge Doty was not assigned the case pursuant to the court’s random selection system.  The first two judges assigned to the case—Richard Kyle and Patrick Schiltz—recused themselves from the case for unspecified reasons and previous work with the NFL’s local counsel respectively.^[203]  Judge Susan Richard Nelson eventually accepted the assignment.^[204]

The Brady Plaintiffs—the consistency of whom will be discussed in more detail below—alleged that the impending lockout constituted an unlawful group boycott and concerted refusal to deal in violation of Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1.^[205]  Fur-thermore, the Brady Plaintiffs alleged that the NFL’s Salary Cap and free agency restrictions were anticompetitive and sought to suppress player wages below those that would exist in a competitive market.^[206]

The Brady Plaintiffs devoted several pages of their complaint to allegations that the NFLPA had renounced its role as the collective bargaining representative of NFL players and therefore, relying on McNeil, Powell, White, and Brown, the non-statutory labor exemption no longer applied.^[207]  The actions of the NFL and its thirty-two Mem-ber Clubs would then be subject to the antitrust laws.

The Brady Plaintiffs consisted of nine current NFL players and one prospective NFL player.^[208]  The Brady Plaintiffs included persons al-legedly representative of three subclasses: the “Under-Contract Subclass” consisted of Tom Brady, Drew Brees, Minnesota Vikings defensive end Brian Robison, and New York Giants defensive end Osi Umenyiora; the “Free Agent Subclass” consisted of former Indian-apolis Colts quarterback Peyton Manning, former San Diego Chargers wide receiver Vincent Jackson, former Minnesota Vikings linebacker Ben Leber, former New England Patriots offensive lineman Logan Mankins, and former Kansas City Chiefs linebacker Mike Vrabel; and the “Rookie Subclass” consisted of former Texas A&M linebacker Von Miller.^[209]  Labeling the players in the Free Agent Subclass as being “former” players of their respective Clubs only indicates that the players were not under any contract with any Club at the time of the lawsuit.

The qualifications for the different classes are fairly obvious: the Under-Contract Subclass represented all players under contract on the date of the expiration of the 2006 CBA (March 4, 2011); the Free Agent Subclass represented all players who were free agents (exclusive, restricted, or unrestricted) following the 2011 season; and the Rookie Subclass represented all players who had never signed an NFL contract but were eligible to do so.^[210]

The different subclasses purposely provided the Brady Plaintiffs standing to challenge the Lockout and various Salary Cap and free agent rules that suppress compensation and restrict movement but are otherwise permissible when the non-statutory labor exemption applies.  For example, Jackson, Mankins, and Manning were each designated as Franchise Players prior to the expiration of the 2006 CBA.^[211]  Under the 2006 CBA, a Club was permitted to designate one player as its Franchise Player by tendering to that player a salary equal to approximately the average salary of the ten highest paid players at the same position in the immediately preceding season.^[212]  The player may still sign with another Club, but the signing Club will be forced to forfeit two first round draft picks to the original Club.^[213]

The Under-Contract Subclass alleged that the Lockout caused the breach of and tortiously interfered with the subclass’ existing contracts by preventing them from playing football and earning their agreed-upon compensation.^[214]  The Rookie Subclass challenged the NFL Draft and Entering Player Pool as unreasonably restricting the rights of rookies to offer their services to any NFL Club and for the highest price.^[215]

The decision to name Brady, Brees, and Manning as the first three Plaintiffs was clearly for public relations and symbolic purposes.  Just as the Players had purposely chosen the aptly-named Freeman McNeil and the beloved Reggie White to lead the antitrust suits two decades earlier, Brady, Brees, and Manning are three of the most highly accomplished, recognizable, and respected players in the NFL.  Collectively, the three star quarterbacks had been named to 22 Pro Bowl teams, won six MVPs and six Super Bowls.^[216]  The NFL labor dispute played out in essentially real-time before its millions of fans.  Each side surely wanted the extra leverage that could come from having the fans and/or media supporting its position rather than blaming them for depriving fans of football.  The Players consequently chose to have three players adored by fans as the faces of their lawsuit.

The Brady Complaint was accompanied by a motion for a preliminary injunction to enjoin the Lockout.^[217]  The Brady Plaintiffs devoted significant parts of their motion to establishing that the decertification was not a sham and that the NFL had agreed as part of the SSA and 2006 CBA that it would not challenge the NFLPA’s decertification.  In support of their argument, the Brady Plaintiffs ar-gued that: (1) the players gave up all rights to bargain collectively; (2) the NFLPA disavowed any interest in continuing to represent the players in collective bargaining in a letter to Commissioner Goodell; (3) agents were notified that they were no longer representatives of the NFLPA; (4) the NFLPA withdrew from all pending fine appeals; (5) the NFLPA ended all participation in the benefit plans; and (6) the NFLPA was in the process of filing a labor organization termination notice with the United States Department of Labor.  The fact that the Players recertified the NFLPA in 1993 following its decertification in 1989 created plenty of skepticism that the NFLPA was permanently renouncing its rights to represent the Players in collective bargaining.

Whether the NFL could challenge the NFLPA’s decertification hinged on the interpretation of § 3(b) of the 2006 CBA:

The Parties agree that, after the expiration of the express terms of this Agreement, in the event that at that time or any time thereafter a majority of players indicate that they wish to end the collective bargaining status of the NFLPA on or after the expiration of this Agreement, the NFL and its Clubs and their respective heirs, executors, administrators, representatives, agents, successors and assigns waive any right they may have to assert any antitrust labor exemption defense based upon any claim that the termination by the NFLPA of its status as a collective bargaining representative is or would be a sham, pretext, ineffective, requires additional steps, or has not in fact occurred. (The italicized portions are those emphasized by the NFL in its brief and the underlined portions are those emphasized by the Brady Plaintiffs in their brief.)^[218]

The NFL insisted that § 3(b) did not apply because the NFLPA decertified before the 2006 CBA expired.^[219]  In response, the Brady Plaintiffs argued that, although the NFLPA announced its intention to decertify as a union prior to the expiration of the 2006 CBA, the decertification was not intended to be effective until “at” or “after” the 2006 CBA’s expiration.^[220]

In support of its argument, the NFL pointed to § 3(a) of the 2006 CBA which, as the Brady Plaintiffs admitted,^[221] required the Players to wait until six months after the expiration of the 2006 CBA to bring an antitrust lawsuit, provided that the NFLPA existed at the time of the 2006 CBA’s expiration.^[222]  The NFL argued that the Players made the strategic choice to decertify before the expiration of the 2006 CBA to avoid the six-month waiting period and that doing so permitted the NFL to make the argument that the decertification was a sham and that the non-statutory labor exemption still applied.^[223]

The legitimacy of the decertification would be a consideration in determining whether the Players were entitled to a preliminary injunction.  A court must consider several factors in granting a prelim-inary injunction: “(1) the threat of irreparable harm to the moving party; (2) balancing this harm with any injury an injunction would inflict on other interested parties; (3) the probability that the moving party would succeed on the merits; and (4) the effect on the public interest.”^[224]  The Brady Plaintiffs emphasized the short careers of pro-fessional athletes in alleging irreparable harm.^[225]  Furthermore, the Brady Plaintiffs argued that the Lockout “operates as both a group boycott and a horizontal agreement to fix prices for player services, and is therefore per se illegal.”^[226]  Lastly, the Brady Plaintiffs identi-fied the loss of an NFL season to communities, workers, businesses, and fans as evidence that injunctive relief would serve the public interest.^[227]

The NFL, in opposition, focused on jurisdictional arguments.  First, the NFL claimed that the Norris-LaGuardia Act prohibits federal courts from enjoining work stoppages arising out of labor disputes.^[228]  Section 4 of the Norris-LaGuardia Act provides that “[n]o court of the United States shall have jurisdiction to issue any restraining order or temporary or permanent injunction in any case involving or growing out of any labor dispute. . . .”^[229]  The NFL also argued that it was irrel-evant that the Brady Plaintiffs had brought an antitrust suit because Section 5 of the Norris-LaGuardia Act expressly provides that the prohibition against injunctive relief extends to injunctions sought under the antitrust laws.^[230]

Second, the NFL argued that the NLRB had to decide threshold labor law issues within its primary jurisdiction before the Brady case could proceed.^[231]  The NFL specifically claimed that the NLRB need-ed to determine the legitimacy of the NFLPA’s decertification.^[232]  The NFL requested that that the Brady action be stayed pending the NLRB’s determination of the previously-filed unfair labor practice charges.^[233]

The Brady Plaintiffs argued in response that the Norris-LaGuardia Act did not apply, and the NLRB no longer had jurisdiction because the NFLPA had decertified as a union.^[234]

Judge Nelson held a hearing on April 6, 2011, concerning the motion for a preliminary injunction.  Ten attorneys appeared on behalf of the Brady Plaintiffs, and seven attorneys appeared on behalf of the NFL, including David Boies,^[235] a leading trial lawyer who represented Al Gore in his 2000 presidential election case.^[236]  Two days later, DeMaurice Smith joined the Brady Plaintiffs’ counsel.^[237] Notably, Roger Goodell, Jeff Pash, Tom Brady, Drew Brees, and Peyton Manning did not attend the hearing.^[238]

Reports of the hearing seemed to indicate that Judge Nelson favored the Brady Plaintiffs’ point of view.  Boies spoke for nearly three hours^[239] and fielded approximately 64 questions or comments from Nelson.^[240]  In contrast, James Quinn, appearing on behalf of the Brady Plaintiffs, spoke for about an hour and a half and answered approximately 14 questions.^[241]  Reports also indicated that Judge Nel-son disagreed with the NFL’s argument that the Norris-LaGuardia Act divested the court of jurisdiction to grant injunctive relief.^[242]

On April 11, Judge Nelson ordered the parties to engage in mediation before U.S. Magistrate Judge Arthur J. Boylan.^[243]  The parties engaged in four days of talks in the subsequent two weeks but then agreed to take a nearly month-long break until May 16.^[244]

Judge Nelson granted the Brady Plaintiffs’ motion for a preliminary injunction on April 25.^[245]  Judge Nelson ruled against the NFL on its jurisdictional arguments.  Concerning the NFL’s argument that the NLRB had primary jurisdiction over the dispute, Judge Nelson explained that the NFL confused the NLRB’s primary jurisdiction with exclusive statutory jurisdiction.^[246]  Judge Nelson can “refer” to the NLRB pursuant to primary jurisdiction but there was no statute directing that the issues be resolved by the NLRB.^[247]

Judge Nelson also ruled, perhaps most importantly, that the NFLPA’s decertification was valid, effective and made in good faith.^[248]  Furthermore, because the NFLPA had properly decertified, there was no dispute under the federal labor laws to which the Norris-LaGuardia Act applied.^[249]

Judge Nelson then examined the irreparable harm that each Plaintiff was likely to suffer. Judge Nelson explained that the Free Agent Subclass (Jackson, Mankins, Manning, Leber, and Vrabel) could not negotiate with any Club, a process “which typically entails more compensation for a player’s services, and therefore higher compensation.”^[250]  The Rookie Subclass (Miller) would be harmed by missing training camp, and a year of experience against NFL-level competition, and would have to compete against other rookies in a future season.^[251]  The Under-Contract Subclass (Brady, Brees, Robison and Umenyiora) would be harmed by not being paid amounts owed under their current contracts and not being able to play towards future contracts.^[252]

Judge Nelson explicitly stated that she was not ruling on whether the non-statutory labor exemption applied, so as to shield the NFL from the Brady Plaintiffs’ antitrust claims.^[253]  Instead, Judge Nelson merely found that the non-statutory exemption did not protect the Lockout.^[254]  The non-statutory labor exemption generally only protects employers from antitrust scrutiny where the agreements sought to be exempted concern mandatory subjects of bargaining, such as wages, hours or conditions of employment.^[255]  The non-statutory labor exemption therefore did not shield the Lockout from antitrust scrutiny because a “lockout is not a substantive term or condition of employment.”^[256]

Judge Nelson’s ruling set off a firestorm of activity as the NFL had to prepare to open for business while also seeking a stay of the court’s ruling pending appeal to the Eighth Circuit Court of Appeals.  On April 27, 2011, Judge Nelson denied the NFL’s expedited motion for a stay.^[257]  Judge Nelson rejected the NFL’s argument that it would be irreparably harmed absent a stay, noting that the Lockout actually imposed significant financial harm on the NFL.^[258]

The NFL and its 32 Member Clubs opened Club facilities on Friday, April 29, as a result of Judge Nelson’s decision while seeking a stay from the Eighth Circuit.^[259]  A three-Judge panel of the Eighth Cir-cuit granted the NFL a temporary stay later that evening—ending the one-day Lockout reprieve.^[260]  While the stay was only intended to be temporary, the parties proceeded with the appeals process.^[261]  On May 16, 2011, the Eighth Circuit extended the stay pending the appeal and indicated that it was likely to rule in the NFL’s favor on the appeal.  The Eighth Circuit stated that “we have serious doubts that the district court had jurisdiction to enjoin the League’s lockout, and accordingly conclude that the League has made a strong showing that it is likely to succeed on the merits.”^[262]

Mediation resumed for two uneventful days in mid-May prior to oral argument before the Eighth Circuit on June 3.^[263]  At a hearing to consider the stay, Judge Kermit Bye urged the parties to try and settle the case before the Eighth Circuit issued its ruling.^[264]  Amazingly, it appeared that the two sides heeded Judge Bye’s warning.  The parties engaged in what were at first relatively secret meetings throughout the month of June in a variety of places, including St. Charles, Illinois,^[265] Long Island, New York,^[266] New York City,^[267] Maryland,^[268] and Minn-eapolis.^[269]

Despite the apparent sense of urgency to get a deal done,^[270] no settlement was reached prior to the Eighth Circuit’s decision.  In a decision dated July 8, 2011, the Eighth Circuit vacated Judge Nelson’s decision to grant the preliminary injunction.^[271]

The Eighth Circuit disagreed with Judge Nelson’s conclusion that there was not a “labor dispute,” which would necessitate the application of the Norris-LaGuardia Act.^[272]  Section 13(c) of the Act states that “[t]he term ‘labor dispute’ includes any controversy concerning terms or conditions of employment….”^[273]  The Eighth Circuit found that there was a labor dispute because the Brady Plaintiffs were seeking “broad relief that would affect the terms or conditions of employment for the entire industry of professional football.”^[274]

The Eighth Circuit determined that the Norris-LaGuardia Act deprived the District Court of any power to issue an injunction prohibiting a party to a labor dispute from implementing a lockout.^[275]  Section 4(a) of the Norris-LaGuardia Act prohibits federal courts from issuing injunctions “in any case involving or growing out of any labor dispute to prohibit any person or persons participating or interested in such dispute . . . [from] [c]easing or refusing to perform any work or to remain in any relation of employment.”^[276]  The Eighth Circuit first held that employers, such as the NFL and the thirty-two Clubs, are clearly persons interested in a labor dispute.^[277]  Next, the Eighth Circuit held that a lockout is encompassed by the language “remain[ing] in any relation of employment.”^[278]

There were concerns that the Eighth Circuit’s decision would embolden the NFL and stall the progress seemingly being made in negotiations.^[279]  However, the Eighth Circuit did grant the Brady Plain-tiffs a minor victory that may have eased that concern.^[280]  The Eighth Circuit held that § 4(a) did not apply to non-employees, such as free agents and rookies.^[281]  Therefore, Judge Nelson could issue an injunct-ion against the Lockout as it related to these employees if she held a hearing to gather testimony and evidence as required by § 7 of the Norris-LaGuardia Act.^[282]  Fortunately, both sides issued a joint state-ment stating that the decision would have no effect on the ongoing negotiations.^[283]

The NFL meanwhile filed a notice of motion to dismiss the case on June 6, 2011.^[284]  The Brady Plaintiffs countered with a notice of mot-ion for summary judgment on July 18, 2011.^[285]  However, the two sides jointly requested, and were granted, multiple extensions to file their memorandum of law in the case in light of the ongoing settlement discussions.^[286]  Finally, on July 26, 2011, the two sides informed Judge Nelson that the case had been settled.^[287]

C.        NLRB Case

The NFL filed an unfair labor practice (ULP) charge with the NLRB against the NFLPA on February 14, 2011.^[288]  The NFL claimed that negotiations were stalled because the NFLPA had failed to bargain in good faith and was committed to decertifying the union and filing an antitrust suit.^[289]  Specifically, the NFL contended that the NFLPA violated Section 8 of the NLRA by: (1) delaying the scheduling of bargaining sessions; (2) failing to respond in a timely and meaningful manner to the NFL’s proposals; (3) inducing the NFL to make proposals that were categorically rejected by the NFLPA; (4) insisting upon financial data to which the NFLPA has no legal right; (5) conditioning contract proposals on the NFL’s agreement to non-mandatory subjects of bargaining, such as the extension of the United States District Court for the District of Minnesota’s oversight of the collective bargaining relationship; and (6) engaging in other actions demonstrating that the NFLPA had no intent to reach an agreement.^[290]

The National Labor Relations Board explains that:

In determining whether a party is bargaining in good faith, the Board will look at the totality of the circumstances.  The duty to bargain in good faith is an obligation to participate actively in the deliberations so as to indicate a present intention to find a basis for agreement.  This implies both an open mind and a sincere desire to reach an agreement as well as a sincere effort to reach a common ground.  The additional requirement to bargain in ‘good faith’ was incorporated to ensure that a party did not come to the bargaining table and simply go through the motions.  There are objective criteria that the NLRB will review to determine if the parties are honoring their obligation to bargain in good faith, such as whether the party is willing to meet at reasonable times and intervals and whether the party is represented by someone who has the authority to make decisions at the table. Conduct away from the bargaining table may also be relevant.^[291]

The NFL amended its ULP charge following the NFLPA’s decertification on March 11, 2011, alleging that the decertification was a sham.^[292]  The entire text of the amendment is below:

The CBA expires on March 11, 2011, with no new agreement in place between the NFLMC and the NFLPA.  Since on or about March 11, 2011, the NFLPA has continued its unlawful course of conduct by (i) purporting to disclaim interest in the representation of the players; and (ii) initiating antitrust litigation against the League and its member clubs, all as anticipated and described above in the original unfair labor practice charge filed against the NFLPA in Case No. 2-CB-22939 on February 14, 2011.

NFLPA President Kevin Mawae was unmoved by the NFL’s charges, stating that “any case by the NLRB is trumped by a decert-ification.  So we’re not a union anymore, so it doesn’t matter.”^[293]  Moreover, former chairman of the NLRB and Stanford law professor William Gould noted that “the owners faced a ‘real challenge,’ . . . but it was not insurmountable”^[294] and that “this board is perceived to be more pro-union than my board was ever perceived to be.”^[295]  The NFL’s claims were certainly buoyed by historical fact: the NFLPA and the Players had performed the exact set of maneuvers from 1989–1993 that led to the White settlement.

The NFL’s unfair labor charges were presumably resolved as part of the 2011 CBA.  The NLRB website indicates that the case was closed on August 31, 2011, about a month after the parties agreed to the 2011 CBA.

D.        Retired Players Cases

On March 28, 2011, several retired NFL players, led by Carl Eller, filed a class action lawsuit against the NFL and its thirty-two Clubs (the Eller I Case).^[296]  Carl Eller was a defensive end for the Minnesota Vikings and Seattle Seahawks from 1964 to 1979 and was inducted into the Pro Football Hall of Fame in 2004.^[297]  The Eller I Plaintiffs, like the Brady Plaintiffs, alleged the Lockout violated Section 1 of the Sherman Act and sought a preliminary injunction against the Lock-out.^[298]

The Eller I Case sought to protect the rights of retired players who were not considered part of the collective bargaining unit in the 2006 CBA and were not represented in the Brady case.^[299]  The Eller I Plain-tiffs also interestingly sought to represent rookies who were not yet part of the bargaining unit.^[300]  The Eller I Plaintiffs argued that the Lockout would irreparably harm them by terminating or reducing certain health benefits and programs provided to them by the NFL.^[301]  The Eller I Plaintiffs claimed that the 2011 NFL Draft constituted a group boycott and price-fixing agreement in violation of Section 1 of the Sherman Act.^[302]

On April 1, the Eller I Plaintiffs filed an Amended Complaint that included Antawan Walker as a new plaintiff.^[303]  Walker was a wide receiver for the University of Wisconsin-Stout football team who completed his collegiate career in 2010 and intended to enter the NFL Draft.^[304]  The inclusion of Walker provided a more legitimate basis for the Eller I Plaintiffs to pursue their claims against the NFL Draft.^[305]  Without Walker, the only plaintiffs were retired players who likely would not suffer any harm as a result of the NFL Draft.

Judge Nelson heard argument on the Eller I Plaintiffs’ motion for a preliminary injunction at the same April 6, 2011 hearing as for the Brady Plaintiffs’ motion for a preliminary injunction.^[306]  On April 12, 2011, The Eller I Case was consolidated with the Brady case pursuant to a motion by the Eller I Plaintiffs, which was uncontested by either the Brady Plaintiffs or the NFL.^[307]  Judge Nelson’s April 25, 2011 rul-ing granting the Brady Plaintiffs’ motion for a preliminary injunction mooted the Eller I Plaintiffs’ motion for the same relief.^[308]

The Eller I Plaintiffs were mostly relegated to the sidelines as the Brady Plaintiffs and the NFL worked to reach a new CBA.  However, the Eller I Plaintiffs continued to press both sides to ensure that a new CBA would provide increased benefits to retired players.^[309]  The Eller I Plaintiffs were excluded from certain settlement discussions between the two sides and threatened in late June not to agree to a settlement unless their needs were properly addressed.^[310]  The Eller I Plaintiffs fortunately backed off their threat in late July and declared that they would not block the pending settlement.^[311]

The Eller I Case survived the settlement between the Brady Plaintiffs and the NFL for about one month.^[312]  On August 24, the Eller I Plaintiffs voluntarily dismissed their action without prejudice.^[313]

Eller, apparently unsatisfied with the results of the 2011 CBA, filed a new class action lawsuit against the reconstituted NFLPA, Tom Brady, Mike Vrabel, and DeMaurice Smith on September 13, 2011 (Eller II).^[314]  Eller and an expanded group of retired players alleged that the Defendants had no authority to bargain with the NFL about the terms of pension, retirement, and disability benefits.^[315]  The Complaint sought a declaratory judgment that the Defendants had no such authority, and damages for the Defendants’ alleged intentional inter-ference with prospective economic advantage and the NFLPA’s alleged breach of fiduciary duty.^[316]  The Plaintiffs also sought to have any issues relating to NFL retirees in the 2011 CBA “excised from that agreement and . . . renegotiated between Plaintiffs and the League.”^[317]

The Defendants in Eller II moved to dismiss the action on December 2, 2011.  The Defendants’ motion is currently pending be-fore Judge Nelson and all pleadings in the action are being filed under seal.  The case is pending as of publication of this article.

V.        Analysis of 2011 CBA

The 2011 CBA included the most extensive changes to an NFL CBA since 1993.  The changes further complicated some parts of NFL business while simplifying others.  Reading our earlier law review article, Understanding the Evolution of Signing Bonuses and Guaranteed Money in the National Football League: Preparing for the 2011 Collective Bargaining Negotiations,^[318] provides important background knowledge to understand the more complex changes to the 2011 CBA.

A.        Revenue Split

Leading into and during the 2011 CBA negotiations and Lockout it was often said that if the two sides could agree on how to divide the revenues, then the other issues would fall into place.^[319]  The NFLPA undoubtedly wanted to ensure that its Players continued to receive their fair share of revenues that Commissioner Goodell projected to grow by over $1 billion per year to a goal of $25 billion in 2027.^[320]

Players received 57.5 percent of TR under the 2006 CBA.^[321]  The 2006 CBA negotiations resulted in TR including certain stadium revenues previously excluded, such as concessions, parking, local advertising and promotion, signage, magazine advertising, local sponsorship agreements, stadium clubs, and luxury box income.^[322]  However, before the Players’ share of TR was determined, the NFL deducted five percent for expenses and 1.8 percent for the NFL’s G-3 Stadium Program.^[323]  These expense deductions were estimated to be approximately $1 billion per year.^[324]  As a result, the Players actually received much closer to 50 percent of all revenues.^[325]

The two sides were having difficulty determining how to divide up the increasingly diverse and significant revenue streams until a proposal from the NFL’s Treasurer, Joe Siclare, was made.^[326]  Siclare substantially proposed the revenue split to which the two sides agreed.  The parties scuttled TR and now divide up All Revenue (AR), which includes all revenues “from all sources, whether known or unknown, derived from, relating to or arising out of the performance of players in NFL football games. . . .”^[327]  The Players and Clubs now divide three main “Revenue Buckets,”^[328] with the Players receiving the following shares:

(a) 55 percent of League Media.^[329]  League Media includes all broad-casting revenues, including television, satellite, radio and internet.^[330]  These revenues were worth approximately $4 billion in 2011.^[331]

(b) 45 percent of NFL Ventures/Postseason.^[332]  NFL Ventures/Post-season includes all revenues arising from the operation of postseason NFL games and all revenues arising from operating of NFL-affiliated entities,^[333] including NFL Ventures,^[334] NFL Network,^[335] NFL Prop-erties,^[336] NFL Enterprises,^[337] NFL Productions,^[338] and NFL Digital.^[339]

(c) Forty percent of Local.^[340]  Local revenues include those revenues not included in League Media AR or NFL Ventures/Postseason AR, and specifically include revenues from the sale of preseason television broadcasts.^[341]

It is important to point out that the amount the Players “receive” is actually the Player Cost Amount, which includes the Players’ bene-fits.^[342]  In the 2011 League Year, the Player Cost Amount was pegged at $142.4 million per Club, with $22.025 (15 percent) of that amount allocated towards Player benefits.^[343]

The 2011 CBA reduced the acceptable range for the Players’ share of revenues to a 1.5 percent band.  The Players are limited to an upward band of 48 percent of AR for League Years 2012-2014 and 48.5 percent from 2015-2020.^[344]  At the same time, the Players’ share of AR cannot be below 47 percent.^[345]

Under the 2006 CBA, the Players were effectively guaranteed 50 percent of TR, including both salary and benefits.^[346]  The 2006 CBA also prohibited the Players’ share of TR, including both salary and benefits, from exceeding 61.6 percent of TR.^[347]  AR under the 2011 CBA will exceed TR under the 2006 CBA based on the absence of expense deductions. Consequently, the Players are receiving a more definite piece of a larger pie.

Certain revenues are excluded from AR.^[348]  Most notably, revenues from Personal Seat Licenses which are “dedicated to stadium construction or stadium renovation,” are not included in AR.^[349]  In add-ition, the Clubs receive a “Stadium Credit” for 50 percent of the private cost to construct or renovate a stadium, amortized over a maximum of fifteen years.^[350]

B.        Salary Cap and Minimum Spending Requirements

The process by which each Club’s Salary Cap is determined did not change.  Each Club’s Salary Cap is calculated by deducting Player benefits from the Players’ share of revenues and then dividing by the number of Clubs in the NFL.^[351]

The 2011 CBA has made important changes to how much each Club must spend in actual cash.  Under the 2006 CBA, Clubs were required to have a Team Salary of at least 84 percent of their Salary Cap, increasing 1.2 percent annually to a high of 87.6 percent in 2009.^[352]  However, the calculation of Team Salary is the same as that used for Salary Cap purposes,^[353] meaning it includes the prorated portions of signing and option bonuses paid in previous years.  Consequently, Team Salary was always actually less than the actual cash paid by the Club for that League Year.

The 2011 CBA is not concerned with what a Club’s Salary Cap total might be, but rather with the actual amount of cash that is being spent by the Clubs.  The 2011 CBA requires that the Clubs, as a col-lective unit, spend 99 percent of the Salary Cap for the 2011 and 2012 League Years in cash (Guaranteed League-Wide Cash Spending).^[354]  For each four-year period from 2013-16 and 2017-20, the Clubs must spend 95 percent of the Salary Cap in cash.^[355]

It is important to recognize that the Guaranteed League-Wide Cash Spending requirements do not require individual Clubs to use nearly their entire Salary Cap.  A Club may spend a considerable amount in cash in one League Year on signing bonuses, which are then prorated over the life of the contract for Salary Cap Purposes.  Consider as an example a player who signs a five-year contract with a $10 million signing bonus prior to the 2012 League Year.  The Club’s contribution towards the Guaranteed League-Wide Cash Spending will be $10 million for the 2012 League Year, but the player’s salary cap charge for the 2012 through 2016 League Years is only $2 million per year.

The 2011 CBA technically does not impose a Salary “floor” for each Club as the 2006 CBA did.^[356]  The 2011 CBA instead requires that Clubs spend at least 89 percent of the Salary Cap in cash for each four-year period from 2013-16 and 2017-20 (Minimum Team Cash Spending).^[357]  The Players are not interested in how Clubs structure contracts and allocate salaries for Salary Cap purposes, but instead are concerned with ensuring that the Players actually receive a certain percentage of money.  A Club that fails to reach the Minimum Team Cash Spending threshold must pay the shortfall to its players before the next season.^[358]  There is no Minimum Team Cash Spending in the 2011 or 2012 League Years.

C.        Bonus Forfeitures

The 2006 CBA inserted a new provision governing when players could be required to forfeit certain portions of their income.  Article XIV, Section 9(c) stated that there were “[n]o forfeitures permitted (current and future contracts) for signing bonus allocations for years already performed, or for other salary escalators or performance bonuses already earned.”^[359]  The interpretation of Section 9(c) led to unexpected and litigious results.^[360]

1.        Denver Broncos and Ashley Lelie

Confusion arose when Special Master Burbank ruled that former Denver Broncos wide receiver Ashley Lelie could keep $220,000 from a previously paid option bonus.  Prior to the 2002 season, the Broncos signed Lelie to a five-year contract that included a team option for a sixth season.^[361]  The Broncos exercised the option prior to the 2003 season and paid Lelie an option bonus of $1.1 million.^[362]  The $1.1 million option bonus was prorated over the remaining five years of the contract for an annual Salary Cap charge of $220,000 through the 2007 season.^[363]

Payment of the option bonus required Lelie to agree that if he ever refused to play for the Broncos—“defaulted”—he would be required to return the proportionate amount of the bonus affected by the default.^[364] This type of forfeiture provision was and is used by virtually every NFL Club for every type of bonus paid.  The Broncos contemplated, for example, that if Lelie refused to perform prior to the 2005 season—with three years remaining on the contract—that he would be required to forfeit $660,000 of the option bonus (three years multiplied by $220,000 per year).  Signing bonuses had long been subject to similar forfeiture provisions, and indeed players had been required to return the proportionate share of their signing bonus on default.^[365]

Lelie refused to report to the Broncos for the 2006 season.^[366]  The Broncos agreed to trade Lelie to the Atlanta Falcons conditioned on Lelie’s execution of an “Acknowledgement and Agreement” in which Lelie admitted that he breached his contract and agreed to return $220,000, other portions of his original $3.3 million signing bonus, and other fines.^[367]  The Broncos could have demanded the return of $440,000 for the $220,000 option bonus allocation for each of the two years remaining on the contract.

The NFL initiated a non-injury grievance on behalf of the Broncos to recover the unremitted amounts.^[368]  The NFLPA countered by re-questing that Special Master Burbank declare that the Acknowledge-ment and Agreement violated Section 9(c) and order the Broncos to return the $220,000 to Lelie.  Special Master Burbank ruled in the NFLPA’s and Lelie’s favor, prompting an objection to Judge Doty of the United States District Court for the District of Minnesota.^[369]  Judge Doty affirmed Burbank’s decision and ruled that the option bonus was “earned” upon the Broncos’ exercise of the option, and therefore could not be forfeited under Section 9(c).^[370]

The Lelie case was significant because it differentiated the forfeiture treatment of option bonuses from that of signing bonuses.  Despite the fact that both bonuses are prorated over the term of the contract for Salary Cap purposes, defaults on option bonuses could not result in a proportionate return of the option bonus while default on signing bonuses would.  The ruling created two schemes relevant to contract structures: one for forfeiture and one for salary cap purposes.  The separate schemes shocked NFL front offices and resulted in certain clubs refusing to use option bonuses.^[371]

2.        Other Cases

Clubs’ attempts to enforce forfeiture provisions were further frustrated by two subsequent cases.  First, in 2008, Judge Doty reversed in relevant part Special Master Burbank and ruled that former Falcons quarterback Michael Vick could keep $16.22 million in previously paid roster bonuses.^[372]  The Falcons had paid the roster bonuses on the condition that the bonuses be subject to proportional forfeiture.^[373]  Judge Doty expressly found that the treatment of bonuses for Salary Cap purposes was not relevant to forfeiture determinations.^[374]  Nevertheless, the Vick ruling did comport with the Salary Cap scheme in which the entire amount of a roster bonus counts against the Salary Cap for the League Year in which it is paid.^[375]  Secondly, in 2009, Special Master Burbank ruled that the New York Giants could not withhold portions of a signing bonus owed to wide receiver Plaxico Burress following Burress’ accidental self-inflicted gunshot wound.^[376]  Special Master Burbank ruled that Burress’ actions were not “willful” so as to permit forfeiture of signing bonus allocations.^[377]

3.        Changes in 2011 CBA

The 2011 CBA significantly expanded and clarified the rules on forfeiture of Player bonuses and salaries.  Furthermore, the new forfeiture language is NFL-friendly, implicitly overrules Lelie and Vick,^[378] and explicitly overrules Burress.^[379]

Section 9(b) of the 2011 CBA permits signing, roster, option, and reporting bonuses to be subject to proportional forfeiture based on the length remaining on the player’s contract.^[380]  Section 9(b) specifically states that the scheme for forfeiture is independent of the scheme for Salary Cap purposes.^[381]  Consequently, per the 2011 CBA’s example, a $1 million roster bonus, which is paid when a player has two years remaining on his contract, is subject to a $1 million forfeiture in the event of default prior to the first remaining season and a $500,000 forfeiture in the event of default prior to the last remaining season.^[382]  Such a forfeiture ignores that the entire roster bonus counted entirely against the Club’s Salary Cap during the first season.  These pro-visions overrule the Lelie and Vick decisions.

The 2011 CBA also redefined what constitutes a default or “Forfeitable Breach.”  Under the 2006 CBA, a default occurred when a player voluntarily retired, withheld his services, or willfully took action which undermined his ability to play.^[383]  To this list, the 2011 CBA added a player’s unavailability due to “conduct by him that results in his incarceration”^[384] or a non-football injury resulting from a player’s engaging in activities outside of football in violation of the Standard NFL Player Contract.^[385]  These provisions overrule the Burress decision, and Section 9(i) specifically states that the new forfeiture rules are intended to “overrule the decision . . . involving Plaxico Burress.”^[386]

It was expected that the Lelie and Burress decisions would be overruled by the 2011 CBA.  However, the express disavowal of the Salary Cap scheme for forfeiture purposes—and the implied overruling of the Vick decision—is surprising.  The new forfeiture provisions completely eliminate any application of the historical purpose of signing bonuses.  Signing bonuses were traditionally used in sports as an inducement for execution of the contract,^[387] and interpreted by several courts as evidence of the contract in the context of professional football.^[388]  Signing bonuses played an important part in bidding wars between AFL clubs, and later USFL clubs, and NFL Clubs.^[389]  Notably, the AFL persuaded Alabama quarterback Joe Namath to join the New York Jets, rather than the NFL’s St. Louis Cardinals, by offering a $200,000 signing bonus in 1965.^[390]  Moving forward, the 2011 CBA establishes that nearly any bonus paid to a player is subject to forfeiture regardless of its purpose and Salary Cap treatment.

D.        Rookie Compensation

Rookie compensation was probably the most contentious issue following the revenue split.  2010 first overall pick Sam Bradford agreed to a six-year, $78 million contract with the St. Louis Rams, including $50 million guaranteed.^[391]  By comparison, Tom Brady, a three-time Super Bowl champion and two-time MVP, received only a four-year, $72 million contract with $48.5 million guaranteed from the New England Patriots prior to the 2010 season.^[392]  As a result, Clubs often looked to trade their high draft picks to avoid guaranteeing an unproven rookie tens of millions of dollars.^[393]  NFLPA President Kevin Mawae also agreed that rookie compensation was out of balance and argued that the money should instead be used to pay proven veterans.^[394]

The exorbitant sums being paid each year to rookies may have created the false impression that there was no limit on rookie compensation.  However, the 2006 CBA and the preceding 2002 CBA included an Entering Player Pool that was the total amount of money that could be paid to drafted rookies.^[395]  Each Club was provided the maximum Salary Cap charge (the Rookie Allocation) it could incur for that League Year.^[396]  The Rookie Allocation was determined based on a formula agreed to by the NFL and NFLPA that accounted for the number, round, and position in round of the Club’s draft picks in that year’s NFL Draft.^[397]  The formula designates a certain Salary Cap charge for each drafted player.  The combined Salary Cap charges for each Club make up that Club’s Rookie Allocation.

Under the 2006 CBA, Clubs were given their Rookie Allocation, but not the formula or the designated Salary Cap charge for their drafted players.  The NFL and NFLPA agreed not to provide this infor-mation because it would significantly curtail negotiations and the free market sensibility.  The growth of a rookie’s compensation is limited by the 25 Percent Rule.^[398]  The 25 Percent Rule does not permit a player’s Salary Cap charge to grow by more than 25 percent per year unless he was being paid the minimum Paragraph 5 salaries.^[399]

Nevertheless, industrious agents and Clubs eager to prevent holdouts continuously found new and creative ways to increase rookie compensation.  A rookie’s compensation was only restricted by the Entering Player Pool for his first year.  To circumvent the purposes of the 25 Percent Rule, many creative contract structures were created.  For example, a contract may include a Club’s right to “supersede” the contract.  When the Club exercises its right to supersede the contract, the originally executed contract is discarded in favor of a new contract that will pay the player a higher salary.  The player is protected against the Club’s possible non-exercise of the right to supersede by a “nonexercise fee.”  A nonexercise fee required the Club to pay the player a substantial bonus if the contract is not superseded—typically in the same amount that would have been included had the Club exercised its right to supersede.

The Entering Player Pool increased annually at the same rate as the Salary Cap up to a maximum of five percent.^[400]  Consequently, it would seem logical that each year a drafted rookie’s compensation should be a maximum of five percent more than the compensation paid to the player drafted in the same position in round in the previous year’s Draft.  However, the amounts being paid to first round draft picks routinely increased at much higher rates.^[401]  The compensation for later round draft picks typically increased at much slower rates—and less than the growth of the Salary Cap—because the first round draft picks were consuming more than their allotted share of the Rookie Allocation.

The 2011 CBA dramatically overhauls and limits the manner in which rookies are compensated.  The Entering Player Pool remains—relabeled the Total Rookie Compensation Pool—and continues to increase along with the Salary Cap up to five percent plus 50 percent of any increase over five percent.^[402]  However, the 2011 CBA removes nearly all of the flexibility Clubs and agents used to inflate rookie compensation within the new Total Rookie Compensation Pool.  These changes are discussed in detail below.

1.        Contract Length

Rookie contract lengths are now “fixed and unalterable.”^[403]  Rook-ies drafted in the first round are limited to four-year contracts with a Club option for a fifth year.^[404]  Under the 2006 CBA, rookies drafted in the first 16 picks could sign six-year contracts and rookies drafted in picks 17 through 32 could sign five-year contracts.^[405]  Rookies drafted in rounds two through seven must sign four-year deals.^[406]  Previously, under the 2006 CBA, rookies in rounds two through seven were limited to four-year deals, but they were not mandatory.^[407]

The fixed duration of rookie contracts in rounds two through seven removes a strategic choice made by Clubs as to whether to sign players to three or four-year contracts.  A player who received a three-year contract could then become a Restricted Free Agent at the expiration of his contract and command a larger salary.  However, because most players’ careers will never last four years, many Clubs were willing to take that risk.

Four-year rookie contracts almost always included an “escalator.” The escalator often increased the player’s fourth year salary to the Restricted Free Agent Qualifying Offer for a Right of First Refusal if the player met certain playtime requirements and the Club improved in certain statistical categories.  By agreeing to a four-year deal, the player gave up the right to be a Restricted Free Agent after three seasons.^[408]  Clubs offset that choice by contracting to pay the player potentially the same amount as if he had become a Restricted Free Agent.

The 2011 CBA mandates a “Proven Performance Escalator” be incorporated into every rookie contract for third through seventh round draft picks.^[409]  Importantly, the Proven Performance Escalator does not count for purposes of the 25 Percent Rule.^[410]

Lastly, Clubs will hold an option on their first round picks for a fifth year.  The player’s salary for that fifth year is based on the Tran-sition Tender for that player’s position.  The Transition Tender is the amount a Club must offer to a player whom the Club has designated as a Transition Player.^[411]  The Transition Tender is offered to otherwise Unrestricted Free Agents and provides the player’s former Club the opportunity for a Right of First Refusal on any offers made to the player.^[412]  The Transition Tender for a particular player equals the ave-rage salary of the ten highest paid players at that player’s position.^[413]  The fifth-year salary of rookies drafted in the first ten picks will equal the Transition Tender for that year.^[414]  All other rookies drafted in the first round will receive a fifth-year salary based on a Transition Tender using the third through twenty-fifth highest salaries at that position.

The fifth-year option must be exercised by May 3 of the fourth year of the contract.^[415]  This is approximately two months into the League Year and following the bulk of free agent signings.  Consequently, Clubs will have the ability to go after certain free agents before determining whether they need to exercise the fifth-year option.  The option year Paragraph 5 salary is guaranteed for injury upon exercise of the option, and becomes fully guaranteed for skill, injury, and Salary Cap purposes if the player is on the Club’s roster at the start of the player’s option year.^[416]

2.        Prohibition on Certain Bonuses

The 2011 CBA continues only to restrict player compensation during the first year of the contract.  Nevertheless, circumvention of the Rookie Compensation Pool’s purpose is nearly impossible due to the restricted contract lengths and the prohibition on previously used mechanisms.  The 2011 CBA specifically prohibits “option bonuses, option exercise fees, option nonexercise fees, Salary Advances . . . voidable year(s) provisions, buybacks of voidable year(s) provisions, and any “contract within the contract” (i.e. terms and conditions of a contemplated superseding contract within the Rookie Contract).”  In addition, the 25 Percent Rule remains.^[417]

3.        Performance Incentives

The 2011 CBA eliminates the negotiation of extensive incentive provisions which provided opportunities for players to earn additional income based on their on-field performance.  The most complicated provisions were almost exclusively the purview of first round picks.  Rookies from all rounds are now limited to negotiating certain Performance Incentives.^[418]

The Performance Incentive described by the 2011 CBA is effectively what has been known as a “One-Time Incentive.”^[419]  The Performance Incentive is a lump-sum cash payment that can be earned when a player participates in a certain percentage of his Club’s plays.^[420]  For a first or second rounder to earn the Performance Incentive, he must participate in at least 35 percent of the Club’s offensive or defensive plays in his first year or 45 percent in any subsequent year of the contract.^[421]  Third through seventh round picks need only play in 15 percent of the Club’s offensive or defensive snaps in the first year and 30 percent in any subsequent year.^[422]

The 2011 CBA does not prescribe that the playtime requirement in the Performance Incentive be coupled with a requirement that the Club improve in a certain statistical category.  However, Clubs will almost certainly continue to include such requirements as they long have in One-Time Incentives.^[423]  The 2011 CBA also does not state that the Performance Incentive can only be earned “one time,” but this practice will likely continue as well.

One-Time Incentives were most importantly used as part of the compensation package for second round draft picks.  Due to the En-tering Player Pool, Clubs could not pay signing bonuses sufficient to satisfy the second round rookies’ demands for guaranteed money.  As a result, the One-Time Incentive was a way for Clubs to supplement and partially replace the signing bonus.  Although not actually guaranteed, the relative ease with which a player can earn the One-Time Incentive meant that the One-Time Incentive was considered part of the player’s guaranteed money.

An important change is that the Performance Incentives count towards the Salary Cap for each year in which they can be earned.^[424]  One-Time Incentives were previously structured with those particular playtime requirements so that they would be considered “not likely to be earned” and would not count against the Salary Cap.^[425]

Additionally, because the Performance Incentive counts towards the 25 Percent Rule,^[426] a player would have to replace some form of his compensation with the Performance Incentive for the Performance Incentive to be included in his contract.  Rookies in rounds two through seven generally only have two forms of compensation: Paragraph 5 salary and signing bonuses.  Rookies generally receive the minimum Paragraph 5 salaries so as to comply with the 25 Percent Rule^[427] and to maximize their signing bonus under the Club’s Rookie Compensation Pool.  Therefore, to include an unguaranteed Perform-ance Incentive in a contract, the player would have to agree to a decreased guaranteed signing bonus—an unlikely accord.  Conseq-uently, it is not surprising that not a single player in the 2011 NFL Draft agreed to a Performance Incentive.

4.        The NFLPA’s Leak of Confidential Rookie Pool Information

The NFL and NFLPA have never disclosed the formula that determines each Club’s Rookie Allocation.  The formula and its ac-companying calculations would reveal the allotted Salary Cap charge for each player in the Draft.  The NFL and NFLPA have not disclosed the formula to permit free negotiation between agents and Clubs.

Unfortunately, prior to the 2011 League Year, an NFLPA employ-ee inadvertently sent to all agents the 2011 Rookie Allocations for each Club, including the Year-One Rookie Allocation for every drafted player.^[428]  As a result, Clubs and agents had the exact Salary Cap figure allocated to each player.  With this information, the agents and Clubs could easily calculate the signing bonus owed to each player drafted in rounds two through seven and negotiations could take less than five minutes.

The player’s contract value can be determined by first deducting the Minimum Salary from the Year-One Rookie Allocation.  The re-maining amount can then be multiplied by four years—the only permissible contract length for rookies in rounds two through seven—to reach the total signing bonus amount.  It is important to remember that signing bonuses are prorated for Salary Cap purposes of the life of the four-year contract.  The below example demonstrates the ease with which rookie contract negotiations occurred prior to the 2011 League Year:

Year-One Rookie Allocation:                 $518,813

Less Minimum Salary in 2011:                 $375,000^[429]

Year-One Signing Bonus Proration:        $143,813

X Four Year Contract:                         4

Total Signing Bonus:                        $575,252

In fact, Jerrel Jernigan, the 19th pick of the third round of the 2011 NFL Draft, agreed to exactly a $575,252 signing bonus.  Agents were quick to agree to these deals because—without first round picks consuming more than their fair share of the Rookie Pool—later round picks received deals with significantly larger signing bonuses than in years past.

In future years, Clubs and agents can simply increase the allocated Salary Cap charges by the same amount that the Salary Cap increases to determine the allocated Salary Cap charge for a player.  For example, if the Salary Cap for the 2012 League Year increases 5 percent, the Entering Player Pool will also increase 5 percent.^[430]  Consequently, the allocated Salary Cap charge for the 19th pick of the third round of the 2012 NFL Draft should be approximately $604,015 ($575,252 X 105%).  As a result, rookie contract negotiations should continue to be relatively easy affairs for the length of the 2011 CBA.

5.        Summary

In general, the new rookie compensation system significantly limits the scope of rookie contract negotiations and permissible provisions.  The new system is much closer to the system used in the NBA, in which each draft position is specifically allocated a salary.^[431]  The curtailed negotiating power of the agent also led the NFLPA to limit agent fees on rookie contracts to two percent instead of the previously permitted three percent.^[432]  Lastly, the largely predetermined compen-sation structure will greatly reduce the threat of rookie holdouts, as players will have little choice or leverage in negotiating how much they want to make.^[433]

The new rookie compensation system resulted in 2011 first overall pick Cam Newton agreeing to a four-year contract for $22,025,498 with the Carolina Panthers.^[434]  The Rookie Allocations accidentally released by the NFLPA showed that Newton’s Total Rookie Allocation was actually $22,025,500.^[435]  Clearly the Panthers and Newton’s representatives used the Rookie Allocations as a guide, at a minimum.  Newton’s total contract value, including an approximate $14 million option in year five, is only about $36 million.^[436]  Thus, Newton’s contract was less than half of what Bradford received as the first overall pick in the prior year.  The most positive point for Newton is that his entire $22 million pre-option contract is guaranteed—even if it is still less than half of what Bradford was guaranteed.

Moving forward it will be interesting to see the extent to which rookie compensation is guaranteed.  Approximately half of the first round picks in 2011 had their contracts fully guaranteed.^[437]  The re-maining first rounders had the first three years of their contract guar-anteed.^[438]

E.        Movement Toward Guaranteed Contracts

A review of the changes to the Salary Cap and compensation schemes makes it appear that the 2011 CBA was a clear win for NFL Clubs.  The 2011 CBA reduces the Players’ share of revenue, permits forfeiture of nearly any type of compensation, cuts rookie compensation in half, effectively eliminates the use of One-Time Incentives, and otherwise prohibits creative contract structures designed to increase player compensation.  The possible upside for the Players is that the new structure appears to be part of a larger movement towards guaranteed contracts in the NFL.

As already mentioned, most of the compensation to be paid to 2011 first round picks is guaranteed.  Not surprisingly, that trend trickled into the second round where nearly all of the players had at least one year’s salary guaranteed against skill, injury, and the Salary Cap.

Possibly the biggest reason Clubs have avoided guaranteed compensation is the high rate of injury in the NFL.  Nevertheless, both the 2006 and 2011 CBAs provided that a certain portion of a player’s salary is guaranteed when his career is cut short by injury.  This benefit is known as “Injury Protection.”^[439]

Under the 2006 CBA, if a player was injured during the season and subsequently failed the pre-season physical for the next season, the Club could cut the player and the player could receive 50 percent of his contract salary for that season up to $275,000.^[440]  The 2011 CBA increases the maximum payment to $1 million in the 2011–2012 League Years, up to $1.2 million for the 2019-20 League Years.^[441]  Furthermore, the 2011 CBA provides that the player may receive up to 30 percent of his Paragraph 5 Salary for the second season following the season of injury if he is still physically unable to play.^[442]  This second-year payment is capped at $500,000 for the 2011–2012 League Years, up to $575,000 for the 2019-20 League Years.^[443]

The new rules effectively provide that a player is guaranteed to receive $1.5 million if at least $1.5 million is owed on a multi-year contract.^[444]  Under both the 2006 and 2011 CBAs, a player can receive Injury Protection only once during his career.^[445]

Veteran contracts may also be increasingly guaranteed in light of the guarantees given to rookies and the guarantees provided by Injury Protection.^[446]  The abbreviated 2011 offseason did in fact see many veterans sign long-term contracts with substantial guarantees.  For example: linebacker David Harris and the New York Jets agreed to a four-year deal worth $36 million with $29.5 million guaranteed (82 percent);^[447] linebacker Tamba Hali and the Kansas City Chiefs agreed to a five-year deal worth $60 million with $35 million guaranteed (58 percent);^[448] safety Quintin Mikell and the St. Louis Rams agreed to a four-year deal worth $27 million with $14 million guaranteed (52 percent);^[449] and linebacker Jon Beason and the Carolina Panthers agreed to a five-year deal worth $50 million with $25 million guaran-teed (50 percent).^[450]  Veteran contracts with greater than 50 percent of compensation guaranteed are rare, but increasingly common, in the NFL.

F.        Commissioner Discipline

Perhaps the most memorable piece of Commissioner Goodell’s legacy will be his strict enforcement of a personal conduct policy for Players as well as Club employees.  The 2006 CBA permitted the Commissioner to fine or suspend a player for “conduct detrimental to the integrity of, or public confidence in, the game of professional football.”^[451]  There were no limitations placed on the Commissioner’s disciplinary authority.  Goodell became Commissioner in August 2006—shortly after the 2006 CBA’s ratification.  Commissioner Goodell proceeded to enforce a personal conduct policy in ways never previously imagined.^[452]

Since Goodell became Commissioner, the following players have all been given suspensions ranging from six games to a full season or more for various types of illegal and inappropriate conduct: Michael Vick, Adam “Pacman” Jones, Tank Johnson, Chris Henry, Donte Stallworth, Ricky Manning, Joey Porter, Plaxico Burress, and Ben Roethlisberger.^[453]  Consequently, it was anticipated that the Players would attempt to reign in Commissioner Goodell’s unchecked disci-plinary authority in the 2011 CBA.^[454]

The 2011 CBA, however, makes almost no change to the Commissioner’s disciplinary authority.^[455]  Commissioner Goodell made clear that retaining full control over disciplinary matters was an important point for him and the NFL successfully retained that control in the 2011 CBA.^[456]

The only positive change for the Players concerning Commissioner discipline is the amount of imposed fines.  The 2011 CBA permits a player to assert as a defense that the fine “should be reduced because it is excessive when compared to the player’s expected earnings for the season in question.”^[457]  A fine may be reduced to 25 percent of one week of a player’s salary for a first offense, and 50 percent of a player’s weekly salary for a second offense.^[458]

This possible change in the fine schedule was brought to light by Minnesota Vikings linebacker Erin Henderson during the 2010 preseason.  Henderson expected a fine after throwing a ball into the stands following a fumble recovery for a touchdown.^[459]  Henderson, an undrafted free agent, was entering his third-year in the league and likely making the league minimum of $475,000, or about $27,941 per week.^[460]  The NFL ultimately fined Henderson $5000^[461]—about 18 percent of his weekly pay.  The $5000 fine clearly meant significantly more to Henderson than some of his multimillionaire teammates and opponents.  For example, a week earlier Detroit Lions defensive tackle Ndamukong Suh was fined $7500 one month after signing a contract guaranteeing him $40 million.^[462]  The 2011 CBA will at least help to bring some proportional fairness to the fines levied on players.

G.        Drug Testing

The NFL and NFLPA have jointly administered two long-standing policies concerning drug use: (1) the Policy and Program on Substances of Abuse; and (2) the Policy on Anabolic Steroids and Related Substances.  Neither is an explicit part of the 2011 CBA, but both are incorporated by reference.^[463]

The major change in the 2011 CBA is that the Players agreed to blood testing for human growth hormone (“HGH”).^[464]  The testing in-cludes both annual and random blood testing.^[465]  The NFL and NFLPA disputed the specifics of the testing, and none occurred, during the 2011 season,^[466] but ultimately the NFL became the first major North American professional sports league to obtain permission for blood testing of its athletes.^[467]  The number of players in the NFL taking HGH is uncertain,^[468] but hopefully dwindling as a result of this change in policy.

The NFL and NFLPA also agreed to reduced suspensions for four players originally suspended in 2008 but permitted to continue playing by court order.  Minnesota Vikings defensive tackles Pat Williams and Kevin Williams and New Orleans Saints defensive ends Will Smith and Charles Grant were suspended prior to the 2008 season after testing positive for bumetanide, a banned diuretic.^[469]  The players con-sumed bumetanide through a product known as Star Caps—which did not list bumetanide as one of its ingredients.^[470]

The Williamses sued in Minnesota state court, alleging that the NFL had violated its fiduciary duties to the players by not informing them that Star Caps contained a banned substance, even though they knew players would continue to take Star Caps and test positive.^[471]

The Williamses successfully obtained a temporary restraining order blocking the suspensions pending the outcome of the lawsuit.^[472]  Through a twisted procedural history—which included the case being removed to federal court, consolidated, and then remanded—the Williamses added claims that the NFL violated the Minnesota Drug and Alcohol Testing in the Workplace Act (DATWA).^[473]  DATWA requires employers to notify employees of a positive drug test within three days of the positive test.^[474]

The NFL admittedly violated DATWA’s three-day notice policy but argued that the Williamses’ Minnesota state law claims were preempted by the collective bargaining agreement pursuant to the Labor Management Relations Act.^[475]  The District Court of Minnesota rejected that argument and the Eighth Circuit affirmed.^[476]

On remand, the Minnesota trial court found that the NFL violated DATWA but refused to issue a permanent injunction against the suspensions because the players were not harmed by the DATWA violation.^[477]  The Court of Appeals of Minnesota affirmed on different grounds^[478] and the Minnesota Supreme Court denied review in April 2008.^[479]

The litigation lasted two-and-a-half years and through three NFL seasons.  In the meantime, the NFL could not suspend the Williamses and chose not to suspend Smith and Grant while the Williamses’ litigation was pending.  The NFL was free to impose four-game suspensions as mandated by the steroid policy following the Minnesota Supreme Court’s denial of review.  However, the NFL, through negotiations with the NFLPA, agreed to suspend the players for only two games.^[480]  The NFLPA likely would not have had any leverage to negotiate shorter suspensions had there not been ongoing CBA negotiations.  The suspensions for Pat Williams and Charles Grant were mooted as neither veteran signed with a team for the 2011 season.

H.        Court Oversight

The 2006 CBA was part of a series of extensions of the modern CBA agreed to in 1993.  As discussed earlier, the 1993 CBA arose out of the White class-action antitrust lawsuit brought against NFL Clubs.  The SSA logically settled all matters related to the White lawsuit.  These issues—affecting player compensation and free agency—were clearly the most important parts of the 1993 CBA.  The 1993 CBA inc-orporated the SSA, and Judge Doty and the District Court of Minnesota retained jurisdiction over the SSA.  Pursuant to Fed. R. Civ. P. 53, Judge Doty appointed a Special Master to enforce the CBA terms incorporating the CBA.  Specifically, the Special Master retained oversight over the following articles of the CBA:^[481]

Art. I: Definitions;

Art. XIV: NFL Player Contract;

Art. XVI: College Draft;

Art. XVII: Entering Player Pool;

Art. XVIII: Veterans with Less than Three Accrued Seasons;

Art. XIX: Veteran Free Agency;

Art. XX: Franchise and Transition Players;

Ar. XXI: Final Eight Plan;

Art. XXIV: Guaranteed League-Wide Salary, Salary Cap, & Minimum Team Salary;

Art. XXV: Enforcement of the Salary Cap and Entering Player Pool;

Art. XXVI: Special Master;

Art. XXVII: Impartial Arbitrator;

Art. XXVIII: Anti-Collusion;

Art. XXIX: Certifications;

Art. XXX: Consultation and Information Sharing;

Art. XXXVIII-A: Minimum Salary Benefit;

Art. XXXVIII-B: Performance-Based Pool;

Art. LVI: Final League Year;

Art. LVII: Mutual Reservation of Rights: Labor Exemption; and

Art. LVIII: Duration of Agreement.

University of Pennsylvania law professor Stephen Burbank—an admitted non-football fan—was chosen as the third Special Master in November 2002.^[482]  The parties retained the right to seek the District Court’s review of the Special Master’s rulings.^[483]  On appeal, the parties agreed that the District Court would accept the Special Master’s findings of fact unless clearly erroneous and the Special Master’s recommendations of relief unless based upon clearly erroneous findings of fact, incorrect application of the law, or abuse of discretion.^[484]

A perception developed over the years that Judge Doty was biased in favor of the Players.  Doty granted the Players major victories in the Lelie and Vick cases, including reversing the bulk of Special Master Burbank’s decision in Vick.  The NFL moved for Judge Doty to recuse himself from the Vick case because of an alleged bias.^[485]  Judge Doty denied the NFL’s motion and the Eighth Circuit affirmed that decision in the fall of 2009.^[486]

The 2011 CBA removes a Special Master subject to the jurisdiction of Judge Doty or any district court.  Instead, the parties agreed to a “System Arbitrator,”^[487] whose decisions are subject to the review of an Appeals Panel.^[488]  The System Arbitrator has exclusive jurisdiction over the following Articles of the 2011 CBA:

Art. 1: Definitions;

Art. 4: NFL Player Contract;

Art. 6: College Draft;

Art. 7: Rookie Compensation and Rookie Compensation Pool;

Art. 8: Veterans with Less than Three Accrued Seasons;

Art. 9: Veteran Free Agency;

Art. 10: Franchise and Transition Players;

Art. 11: Transition Rules for the 2011 League Year;

Art. 12: Revenue Accounting and Calculation of the Salary Cap;

Art. 13: Salary Cap Accounting Rules;

Art. 14: Enforcement of the Salary Cap and Rookie Compensation Pool;

Art. 15: System Arbitrator;

Art. 16: Impartial Arbitrator;

Art. 17: Anti-Collusion;

Art. 18: Certifications;

Art. 19: Consultation and Information Sharing;

Art. 26: Salaries;

Art. 27: Minimum Salary Benefit;

Art. 28: Performance-Based Pool;

Art. 31: Additional Regular Season Games;

Art. 68: Mutual Reservation of Rights: Labor Exemption;

Art. 69: Duration of Agreement; and

Art. 70: Governing Law and Principles.

The Articles over which the System Arbitrator has jurisdiction are nearly the exact same as those governed by the Special Master.  The only substantive Articles added to the System Arbitrator’s jurisdiction are Art. 31: Additional Regular Season Games; and Art. 70: Governing Law and Principles.

It is unknown whether Professor Burbank will be retained as the System Arbitrator.  Likewise, the members of the Appeals Panel are still to be determined.  Nevertheless, the NFL successfully removed interpretations and decisions concerning the most important aspects of the CBA from the jurisdiction of Judge Doty or any other district court that might have retained jurisdiction over the Players’ antitrust claims.

I.        Retiree Benefits

The physical costs of an NFL career have gained significant attention in recent years.  Consequently, the NFL and the NFLPA made it a priority to provide much-needed benefits to retired and future retired players in the 2011 CBA.  The 2011 CBA created a Legacy Benefit Fund to provide benefits to players who played prior to the 1993 season.^[489]  The NFL and its Clubs agreed to pay $620 million into the Legacy Fund over the ten-year life of the CBA.

The 2011 CBA also created an NFL Player Disability Benefit,^[490] a Long Term Care Insurance Plan,^[491] a Former Player Life Improvement Plan,^[492] and a Neuro-Cognitive Disability Benefit.^[493]  The NFL Player Disability Benefit provides a benefit of up to $250,000 depending on the player’s level of disability.^[494]  The Former Player Life Improve-ment Plan permits qualifying retired players not otherwise covered by health insurance to receive up to $250,000 in medical costs.^[495]  Lastly, the Neuro-Cognitive Disability Benefit permits qualifying retired players to receive no less than $3000 per month for a maximum of 180 months.^[496]

J.        Other Salary, Salary Cap and Contract Rules

One of the seemingly rare benefits the Players obtained in the 2011 CBA is significantly increased minimum salaries.  During the 2010 season, a rookie’s minimum salary was $320,000.^[497]  The 2011 CBA raises a rookie’s salary for the 2011 season to $375,000,^[498] a 17 percent increase.  The salary increases are important because nearly half of the Players earn the league minimum.^[499]

Although the increased minimum salaries are beneficial to rookies, new limits were placed on signing bonuses for undrafted rookies.  Clubs are now limited to a total of $75,000 in signing bonuses to be paid to undrafted rookies, an amount to increase annually with the Rookie Compensation Pool.^[500]  Undrafted players were previously able to determine which Clubs were seriously interested in having them as a member of the Club by the signing bonus being offered.

Clubs’ interests are now less clear as a result of the cap on signing bonuses to undrafted players.  As a result, undrafted rookies might not have the same chances to establish themselves and stay in the NFL as they did previously.^[501]

Rookie contracts previously could not be renegotiated until after the player’s second season.^[502]  Consequently, players had to wait at least until after their second year to consider holding out for purposes of obtaining a new contract.  Some Clubs—notably the Philadelphia Eagles—renegotiated rookie contracts after the second year believing they could negotiate a long-term deal at a lower salary than if the player were closer to free agency.^[503]  This strategy, although poten-tially cost-saving, also invited young players to demand higher salaries, whether privately or in the media, based on limited credentials.  The 2011 CBA has further limited the leverage of rookies who have outperformed their contracts by prohibiting renegotiation of rookie contracts until after a player’s third season.^[504]

The NFL Salary Cap has long been known as a “hard cap” under the assumption that there are no ways for a Club to exceed the Salary Cap.^[505]  In reality, the NFL Salary Cap does permit for certain excep-tions for veterans playing for the league minimum.^[506]  Also, each Club’s Salary Cap is uniquely based upon whether certain incentives were earned by the Club’s players in the previous season.^[507]

The 2011 CBA provides Clubs with further flexibility by permitting Clubs to carry over Salary Cap room from one year to the next.^[508]  The 2011 CBA does not limit the amount a Club may carry over.  However, the carry-over amount will be practically limited by the requirement that each Club spend at least 89 percent of the Salary Cap in cash for each four-year period from 2013–2016 and 2017–2020.^[509]  Nevertheless, Clubs may be more strategic in their spending plans and may target specific years for success by signing better players as a result of carried over Salary Cap room.

K.        CBA Duration

The 2011 CBA is a ten-year agreement that runs through the 2020 League Year.^[510]  This is the longest CBA in the history of the Big Four.^[511]  Furthermore, there are no opt-out provisions.  In contrast, the 2006 CBA ran through 2012 but permitted the NFLPA or the NFL to opt out of the CBA and terminate the 2011 and/or 2012 League Years.^[512]  Of course, the NFL exercised its option to terminate the 2011 and 2012 League Years.

The NFL enjoyed relative labor peace from 1993 until the 2011 CBA.  During that time, the CBA was extended in 1998 and 2001 without the CBA expiring.^[513]  The NFL and NFLPA’s ability to extend the CBA without much controversy can, in part, be attributed to the existence of “poison pills” in the previous CBAs.  The 2006 CBA and its predecessors included provisions that were meant to incentivize each side to extend the CBA.  The NFL was incentivized to extend the CBA because the Final League Year of a CBA was agreed to be played without a Salary Cap.^[514]  Players believed this would lead to increased salaries in the Final League Year of any CBA.  On the other hand, players were not eligible for unrestricted free agency in the Final League Year unless they had six years of experience^[515] as opposed to four years in a normal League Year.^[516]

The 2010 League Year did not result in the type of spending bonanza for which the Players had hoped.  Although there was no Salary Cap, there was also not a salary floor.^[517]  Consequently, during the 2010 season, several Clubs spent well below what they would have been required to had there been a Salary Cap.^[518]  For example, the Tampa Bay Buccaneers’ player payroll was only about $80.5 million—nearly $30 million below the salary floor in the 2009 League Year.^[519]

The 2011 CBA does not include these poison pills.  Ultimately, the poison pills seemed to favor the Clubs over the Players as owners enjoyed the ability to control players through their first six years of service.  In general, the Uncapped Year did not provide the type of unwanted scenario that was intended to incentivize the NFL and the Players to extend an existing CBA.  As a result, it seems that the parties determined the poison pills were no longer necessary.

L.        Practice Limitations and Season Duration

Perhaps the Players’ biggest gains concerned preventing and rectifying the wear and tear of an NFL career on players’ bodies.  The NFL made known its desire to extend the NFL regular season from 16 to 18 games.^[520]  However, the Players were adamant not to add addi-tional games that would almost certainly shorten careers. The 18-game season never became a major issue during the negotiations and the 2011 CBA specifically states that the NFL may only add games to the regular season “with NFLPA approval, which may be withheld at the NFLPA’s sole discretion.”^[521]

Offseason workouts were also significantly reduced.  Clubs may only hold offseason workouts for a total of nine weeks.^[522]  Previously, Clubs could conduct offseason workout programs over a 14-week period.^[523]  The new offseason program is broken down into three Phases: Phase One is two weeks long and consists solely of strength and conditioning work;^[524] Phase Two is three weeks long, includes individual player drills but prohibits live contact and helmets;^[525] and Phase Three is four weeks long, permits helmets but no pads, and still prohibits live contact.^[526]  Clubs are limited to holding one mandatory veteran minicamp not to exceed three days in length during Phase Three.^[527]

Furthermore, veterans—other than quarterbacks and injured players—cannot be required to report to preseason training camp more than 15 days prior to the first preseason game.^[528]  During training camp, Clubs are limited to one padded practice per day for a maximum of three hours per day.^[529]  In addition, Clubs may only hold 14 total padded practices during the regular season and one padded practice per week in the postseason.^[530]

The 2011 CBA also includes requirements that all minicamp, training camp, and regular season practices be filmed.^[531]  This require-ment seems to address constant accusations that Clubs routinely violated previous practice limitations.^[532]  The 2011 CBA also adds significant fines for coaches and Clubs that break the rules: coaches will be fined $100,000 for a first offense and $250,000 for a second; Clubs will be fined $250,000 for a first violation and $500,000 for a second.^[533]

VI.        Conclusion

The NFL has managed to become by far the most popular sports league in the United States despite an extensive legal history that has often threatened play.  The 2011 CBA was reached despite the most recent incarnations of that history.  The 2011 CBA should provide the NFL, Players, and fans with ten years of labor peace.  However, many complex legal issues spanning several decades of review in football and labor relations in sports generally remain unresolved.  The nego-tiations leading up to—and the eventual successful negotiation of—the 2011 CBA demonstrated that both the Clubs and Players earn significant amounts of money from the business of football.  Nevertheless, the 2011 CBA appears to strongly favor the Clubs when compared to the 2006 CBA.  Time will tell whether the 2011 CBA is a fair agreement that can be extended without significant rancor, or if the NFL’s extensive legal history will only be expanded in 2020.