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Artists and designers use reference images all the time. Creatives need inspiration from mood boards and source imagery for their work. After all, there is nothing truly new under the sun.

However, artists and designers need to be careful about what reference images they use and how they use them, considering a 2023 U.S. Supreme Court decision that found the Andy Warhol Foundation infringed against a photographer in publishing a portrait of Prince. 

“Fair use” is a complicated doctrine and this case tested artists’ use of copyrighted images as references without a license.

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The Andy Warhol Foundation Claims Fair Use of Prince Photo

 

In 1981, photographer Lynn Goldsmith shot an up-and-coming musician named Prince Rogers Nelson. She granted a limited, one-time use license to Vanity Fair to use one of the Prince photos as an artist reference for an illustration. Andy Warhol, hired by Vanity Fair, used the photo to create a series of silkscreen portraits of Prince, one of which — a purple one— was published in the magazine’s November 1984 issue. Goldsmith was paid $400 for the source photo and received credit in the magazine.

Prince died in 2016, and Vanity Fair’s parent, Condé Nast, asked the Andy Warhol Foundation if it could use the purple 1984 image for a memorial special edition magazine. But upon seeing the series, Condé Nast opted instead to use an orange illustration. When Goldsmith saw “The Genius of Prince” commemorative magazine with the orange Prince cover, she contacted the foundation, which sued her for declaratory judgment of noninfringement or fair use (Goldsmith’s accusation of infringement prompted the foundation to seek a court’s opinion on the matter). The foundation asked the court to declare either that there was no infringement, or that it did not need a license because, in the orange print, the original photograph had been completely transformed.

This transformation is an important factor for artists and designers to understand when they use copyrighted reference images, and it’s one that the Supreme Court scrutinized.

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When Does a Reference Image Fall Under Fair Use?

 

Fair use is a legal principle that derives from English legal customs. Fair use, in some instances, recognizes the truth of that adage that there is nothing new under the sun, and creative expression is almost always derived from or inspired by something that came before it. A reference is fair to use if it has been substantially transformed — an important question in this case — or if it is being used for criticism, education or parody, which is why Saturday Night Live does not drown in lawsuits.

The Copyright Act lists four factors to consider in assessing the fair use of a work:

1.    The purpose of the use — is it commercial?

2.    The nature of the original copyrighted work

3.    The proportion and substantiality of the new work in relation to the source material

4.    How the new work affects the value of, or potential market for, the original copyrighted work

The trial court applied these four factors in considering the Andy Warhol Foundation’s requests and decided that the publication of the orange Prince portrait was fair use.

Goldsmith appealed, and the U.S. Court of Appeals reversed and found in the photographer’s favor, instead.

When the Supreme Court took the case, it limited review to the first fair use factor — whether the use was for commercial profit, or for educational purposes.

The court found that the original photograph and the foundation’s use of it shared substantially the same purpose — a commercial one. Orange Prince added new expression to the photograph, but the first fair use factor favored Goldsmith, the court said. 

“If an original work and secondary use share the same or highly similar purposes, and the secondary use is commercial, the first fair use factor is likely to weigh against fair use, absent some other justification for copying,” the court said in its opinion.

 

Using Reference Images for Commercial Purposes May Not Be Fair Use

 

The takeaway from this case is that using a reference image can be risky if the use is for commercial purposes, even if there is substantial transformation. The Supreme Court was not impressed by the Warhol Foundation’s arguments that the silk screen portrait series was a commentary on the dehumanizing nature and commodification of celebrity, especially considering the Warhol Foundation used the Orange Prince portrait as a commodity to sell magazines.

Transforming an original reference work helps protect it from a copyright infringement claim, but in this case, the work wasn’t original enough and was deemed a derivative work. “Copying the photograph because doing so was merely helpful to convey a new meaning or message is not justification enough,” the court’s opinion said. Copyright protection includes the right to protect work from derivatives that transform the original. Hence, the court sided with Goldsmith.

When artists and designers use reference images that are still recognizable in the resulting derivative works, they need to be careful. The Supreme Court held that the Warhol Foundation infringed on Goldsmith because its portrait shared the same commercial purpose as the photograph. For the Supreme Court, the commercial purpose was the important factor excluding the portrait from fair use.

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If you need guidance navigating fair use, or want to protect your own intellectual property, email us or reach out at (212) 920-6050.

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Navigating the post-pandemic commercial property market — especially in New York — has been fraught with challenges for both tenants and landlords. The sudden shift to remote work led to even further complexities in lease adjustments, and as companies consider returning to the office, negotiating with landlords for contract changes has become paramount. The economic impact has left tenants paying above-market rates while landlords grapple with financial strain, making landlord-tenant negotiations critical in finding solutions.

Navigating Lease Options and Negotiations with Landlords

The sudden shift to remote work changed the dynamics of office space needs. Some companies have been moving back to the office and seeking contract adjustments or payment flexibility. Some are looking at potential changes in space needs, others are looking to create safe and efficient work environments that comply with new health and safety protocols, and still others may be considering whether a brick-and-mortar location is even necessary. Each of these scenarios has catapulted lease negotiations to the forefront.

In a disrupted commercial property market, navigating lease options and negotiations can be a daunting task, so understanding the available strategies and seeking legal counsel can make a significant difference in securing favorable lease terms.

Here are some options tenants may want to consider when dealing with lease challenges.

1. Creating a subsidiary shell entity to sign the lease: By forming a new limited liability company (LLC) to sign the lease, the operating entity is insulated from direct lease exposure. With this setup, tenants can negotiate limited guarantees, notices, payback broker commissions, and other terms. It also could cause landlords to     consider the potential consequences of leaving the space vacant.
2. Consulting with an experienced lawyer: A knowledgeable attorney can review the lease agreement; identify whether potential claims are landlord defaults; and help use those items to work toward securing favorable lease concessions or reductions, as well as protect your interests as a tenant.
3. Subleasing or lease assignment: When the tenant has to exit the lease early, subleasing and lease assignment — both of which require landlord approval — could be viable options. Subleasing keeps the original tenant liable while a new tenant takes over the space; a lease assignment transfers the lease to a new party entirely, which often results in the original tenant being released from all obligations.
4. Negotiating in good faith: Building a positive relationship with the landlord and negotiating in good faith can open the door to mutually beneficial solutions. Demonstrating a willingness to work together and find common ground may lead to favorable lease adjustments that benefit both parties and ensure a positive ongoing relationship.
5. Considering financial hardship or insolvency: It may be beneficial to discuss a hardship or insolvency situation with the landlord and explore options for lease restructuring or payment adjustments. Landlords may be more willing to accommodate tenants facing genuine financial difficulties, to help maintain a stable tenancy. However, this might require opening the financial books to the landlord, which could pose a risk to future negotiations if the talks go sour.

Understanding the Landlord Dilemma to Create Leverage

Landlords are also in business, facing their own financial constraints due to the pandemic’s economic impact. Many have leveraged properties and face increasing cash-carry costs as rental rates have plummeted, leaving them with few tough choices and making them less amenable to lease concessions.

A landlord could hold strong to the lease and hope for the best, although this comes with risks. Alternatively, they might offer lease concessions, such as rent reductions or months of free rent, as a way to resolve issues through economic incentives to keep the tenant in place. Some landlords may even choose to cancel leases and evict tenants, but this carries significant risks and is usually approached cautiously.

Striking a Balance Between the Lease and the Law

The court system is often slow and expensive, and many tenants seek alternative lease remedies as a middle-ground solution to navigate the gray area between the lease and the law.

While the law provides a framework for commercial leases, there is usually room for negotiation. Avoiding court proceedings is generally the preferred path due tothe risks, uncertainties, and costs involved with litigation.

However, the court system can still serve as a valuable tool when dealing with unreasonable parties. Even after a default notice is issued and court proceedings have begun, negotiations can still take place. The legal process can sometimes prompt parties to become more reasonable and open to discussion, leading to fruitful negotiations.

Determining the Best Course of Action

Whether tenants seek lease concessions or landlords navigate financial constraints, alternative remedies offer hope for a more stable and balanced commercial property landscape where everyone gives a little to come to a resolution.

Determining the most suitable course of action requires a well-rounded team, including business finance experts, experienced lawyers, and knowledgeable brokers. Understanding the specifics of the lease, the current market conditions, and the landlord’s position is crucial in devising a strategic approach. Each decision comes with benefits and risks, and a well-informed team can navigate these challenges like a game of chess — anticipating the landlord’s response and countering effectively.

It’s a three-part process.

1-  The tenant determines what they need to resolve the lease conflict.

2-  Their lawyer looks at the lease terms to create different approaches for resolution.

3-  The broker offers information and guidance about the state of the market to help determine the best parameters and the likelihood of each potential resolution.

Tenants need a guide — someone who understands the court process and the current market — so they can determine what moves to make and how the landlord is likely to counter. Just like a chess game, it helps to be strategic and know the benefits and risks of each move and which is best for the unique situation, before approaching the landlord.

Benefiting from the Thompson Team Advantage

The Thompson team offers a unique blend of both transactional and litigation experience. We have a comprehensive understanding of commercial lease complexities and pride ourselves on being available, affable, and able, ensuring quick and responsible action. With decades of experience in the market, our team is equipped to guide tenants and landlords toward the best alternative remedies for amicable solutions.

Need help determining options for a commercial lease remedy? Reach out to us at inquire@thomplegal.com.

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Thom Browne’s victory over Adidas in January should have been good news for designers. After all, a jury decided that Thom Browne’s use of stripes in his designs did not infringe on Adidas’s intellectual property. But the case should give designers and fashion houses pause when they’re developing their collections.

The fact that the case went all the way to a jury means that companies can find themselves in expensive legal entanglements if a titan like Adidas decides to file a lawsuit — even if it is in the wrong.

Here’s a breakdown of the Adidas v. Thom Browne case and the legal lessons it can teach designers.

Trademark Dilution and Thom Browne’s Courtroom Fashion Statement

Adidas brought a lawsuit in a New York federal court against Thom Browne for trademark infringement, unfair competition, and dilution. Adidas claimed Thom Browne was selling sportswear and athletic footwear with stripe designs that were similar to Adidas’s iconic three-stripe trademark. Adidas sued for around $8 million.

Trademark dilution occurs when someone uses a name or design that could weaken or hurt the distinctiveness or fame of a widely recognized brand.

Thom Browne incorporates four white bars into many pieces, including outerwear and athleisure. Many pieces also feature a three-stripe ribbon in red, white and blue.

Thom Browne is a luxury brand. Its ready-to-wear collection— “the uniform” — consists of preppy monochrome blazers, slacks, and ties. The fashion house’s closest competitors are Chanel and Gucci. Browne designed couture for Olivia Rodrigo and Janelle Monáe for the 2023 Met Gala; his textured gown for model Sora Choi was widely hailed as the event’s best look. No one wore Adidas to the Met Gala this year.

So, it was simple enough to argue against the unfair competition claim in Adidas’s lawsuit. Arguably, the two brands have different customer bases.

Defense in the case against dilution included a lesson on the use of stripes throughout the history of fashion. Browne’s attorney started his closing statement to the jury with, “Adidas does not own stripes.”

Browne himself made a fashion statement on the first day of the trial, when he wore a shorts suit with knee-high socks displaying four white bar stripes.

Adidas has used promotion over the decades to make three stripes recognizable as its brand — but it’s not necessarily legally distinctive. 

The Three Stripes

To claim trademark infringement or dilution, one must have a mark that is distinct. In other words, the mark must serve the function of a trademark and identify the source of the goods to consumers — in other words, it must communicate to the consumer who made them. To be distinct and thus function as a trademark, the trademark itself must serve no aesthetic purpose. “Adidas,” the word on an article of clothes, is very protectable.

Three stripes are not. 

In design, the strongest mark would be something which does not appear as a design element of the garment, such as the small Ralph Lauren polo pony frequently found on their polo shirts. You want something that is not decorative. Stripes generally are commonly used to add decoration to apparel.

Even though that’s the case legally, designers will still want to think twice before using stripes as a signature design element in their athleisure garments if they want to avoid getting tangled up in a lawsuit.

Goliath v. Goliath: A Battle of Titans

Thom Browne fought Adidas all the way to a jury trial because he could afford it. Litigation is very expensive. In many intellectual property cases involving trademarks, there may be multiple proceedings running parallel to each other, further increasing costs.

In this case, Thom Browne sought to register a footwear stripe design trademark with the U.S. Patent and Trademark Office, which Adidas opposed in a filing with the Trademark Trial and Appeals Board (TTAB). Therefore, lawyers for both sides worked on two cases at once: the New York federal case, and the TTAB proceeding.

At any point in the litigation process — even before a lawsuit is filed — the parties can reach a settlement. Thom Browne didn’t settle, and instead took the case all the way to a jury trial and won.

The brand took a victory lap on Instagram the next day, posting images of the midriffs of models wearing three-stripe jockstraps from the designer’s spring 2023 menswear collection.

Thom Browne had the resources to fight a mammoth like Adidas. But many smaller designers do not have the money to fight one of the world’s biggest and most recognizable brands.  

The Takeaway for Designers

In my experience, the challenge clients face most frequently is falling in love with an idea that is not distinctive enough.

It’s hard to be distinctive. Sure, it’s easy enough to avoid designing garments with three stripes. But there are thousands — if not hundreds of thousands — of other designs you could rub against but not be aware of, because they aren’t as famous as Adidas.

When it comes protecting any logos or trademarks on apparel, you should enlist an attorney to search the landscape and determine whether the idea is distinctive enough to avoid potential infringement. It’s best to do this search in the early stages of the design process so you don’t get too emotionally invested in something that is too similar to something else.

Need help reviewing your intellectual property portfolio? Reach out to us at inquire@thomplegal.com.

Thompson LLP is pleased to announce the significant expansion of its Commercial Real Estate team with the addition of new partner Daniel Seidenstein and new associates Andrew Meier and Danielle Stein.

All three attorneys most recently were with Jan Ira Gellis, P.C. in New York City.

“We are thrilled to welcome Daniel, Andrew and Danielle to our firm and we are excited about their significant contributions to the commercial real estate services that we offer to our clients,” said Ben Thompson, managing partner of Thompson LLP.

Daniel Seidenstein has nearly two decades of experience negotiating complex transactions involving the sale, purchase, and leasing of commercial properties. He has represented clients on transactions involving major office spaces, retail stores, and billboard space. His commercial litigation practice has involved matters before the New York civil courts, as well as litigating and arbitrating real estate disputes in New York federal, state, and civil courts and with the American Arbitration Association. His representative matters include disputes concerning lease interpretation, contractors, and brokerage claims. He received his J.D. from Cardozo School of Law and his B.A. from Wake Forest University.

Prior to his work on commercial real estate matters with his previous law firm, Andrew Meier worked as a deputy section chief with the Office of the New York State Attorney General. He received his J.D. from Rutgers Law School and his B.A. from Colgate University.

Danielle Stein focuses her practice on commercial and residential real estate transactions. She received her J.D. from Cardozo School of Law and her bachelor’s degree from the University of Florida.

Ben Thompson and Robert Moorman co-authored an article entitled “Trademark Opposition Proceedings Can Lead to Unintended Benefits Through Coexistence Agreements,” that published in the New York Law Journal on April 22.

The article explains how trademark oppositions may afford an applicant a discussion with the opposer that can ultimately be helpful, and that carefully negotiated coexistence agreements between and among owners of marks that are less distinctive can help build a stronger network of protection and defense than might otherwise be accomplished.

Trademark oppositions can be approached and managed in a variety of ways. This article examines some of those approaches while looking more closely at the dynamics of a negotiated process and discusses the benefits that can be achieved through well-designed and strategized coexistence.

Learn more about the process and the benefits of coexistence agreements in the full article here.

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Managing partner of Thompson, LLP, Ben Thompson focuses his practice on mergers and acquisitions, corporate governance, and general transactional matters, often based in or involving complex intellectual property issues. Ben has represented buyers, sellers, and other interested parties in acquisitions, divestitures, investments, and strategic alliances. To learn more about Ben, please click here.

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‍Robert Moorman focuses his practice on corporate transactions including M&A, corporate governance, and intellectual property. He has represented an array of private and government entities in transactional matters from publicly traded and privately owned corporations to public housing authorities and local municipalities. To learn more about Robert, please click here.

The United States Copyright Office has adopted a new process for registering Agents under the Digital Millennium Copyright Act (“DMCA”). The new system has simplified the process but has also created a renewal requirement as well as discarding all prior registrations.

The Importance of DMCA Agent Registration

Registering a DMCA Agent with the US Copyright Office has become a vital part of almost every website operator’s operations--arguably as important as paying for domain name registration and hosting costs. This is owed to the DMCA’s Section 512 “safe harbor” provision which protects website operators from claims of copyright infringement brought by content owners. 

The inclusion of the safe harbor provision was an attempt to balance the interests of website operators, copyright owners, and internet users and has arguably served that purpose for nearly two decades. 

Websites that allow users to post content could reduce their liability for copyright infringement claims arising from content uploaded by their users by:

1. Registering a DMCA Agent responsible for receiving takedown notices with the Copyright Office;
2. Listing that Agent’s contact information on their website;
3. Informing users that repeated posting of infringing content will result in termination of their right to access the website; and
4. Removing the infringing material identified by the content owner.

DMCA Agent Registration Prior to December 1, 2016 

Prior to December 1, 2016, DMCA Agents were designated by completing a paper form and mailing it to the US Copyright Office. Registration cost $105 and the paper form could take weeks or months to process. Once complete, DMCA Agent registration remained valid indefinitely and website operators were only required to update their registration when their Agent’s information changed. As long as the website operator complied with the additional requirements listed above it would enjoy reduced exposure to copyright infringement liability. 

The new system has introduced two major improvements and one glaring drawback to this process.

New Areas of Concern for Website Operators

The new online-only system, launched on December 1, 2016, boasts a drastically reduced $6 filing fee and a simple online registration form which takes approximately 10 minutes to complete and, once submitted, provides instant registration. While the significant reduction in cost and waiting period are obvious improvements over the old format, the new system creates a new vulnerability for website operators: All DMCA Agent registrations expire and become invalid after three years--requiring website operators to regularly renew their registration in order to maintain liability protection. 

This new requirement can have drastic legal and financial consequences for website operators. The actual task of renewing a registration is simple, quick, and cheap. Remembering to do so, however, may prove difficult, especially for startup providers with limited staff and no dedicated legal, IT, or other form of compliance personnel. The periodic renewal requirement thus increases the odds of an inadvertent lapse in registration and subsequent exposure to potentially costly liability.

Important Alert

In addition to requiring website operators to renew their registration every three years, the U.S. Copyright Office will also be discarding all registrations previously filed under the paper system. Website operators who have yet to re-register through the online system must do so by December 31, 2017 in order to maintain protection.

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Update: Changes in the US Federal Tax Law 2018 (Part 2 – Impact on Entity Choice)

In Part 1 we discussed the impact of recently passed tax bill, formerly known as the Tax Cuts and Jobs Act (the “Act”), on certain types of investment funds including hedge funds and venture capital funds. Here we discuss how modifications to tax rates applicable to corporations and certain businesses operating as “passthroughs” should cause certain businesses to restructure.

As mentioned in Part 1, the highest corporate tax rate has been reduced from 35% to 21% starting with the 2018 tax year. In addition, the corporate alternative minimum tax has been repealed. This in tandem with certain other provisions of the Internal Revenue Code could make corporate form much more appealing, particularly for startup companies.

The Act also provides for a maximum 20% deduction for noncorporate owners of pass-through entities on the qualified business income they earn from the entity. The deduction does not apply to entities in specified service businesses including health, law, consulting, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of its employees or owners, or which involves the performance of services that consist of investing and investment management, trading, or dealing in securities, partnership interests, or commodities.

The pass-through deduction available for an individual owner with respect to each eligible pass-through business is capped at the greater of (i) 50% of the individual’s share of the W-2 wages paid by the business to employees and (ii) 25% of such W-2 wages plus 2.5% of the unadjusted cost basis of the business’s “qualified property” (generally depreciable assets used in the business). This cap does not apply to taxpayers below certain income thresholds ($315,000 for married couples), nor are such taxpayers subject to the qualified business limitation.

Additionally, there are special rules for REIT dividends but not for income from other real estate investments. Finally, an individual’s total pass-through deduction is capped at 20% of the excess of the taxpayer’s taxable income for the year over the taxpayer’s net capital gain for the year.

Update: Changes in the US Federal Tax Law 2018 (Part 1 – Impact on Investment Funds)

On December 22, 2017, the President signed the bill formerly known as the Tax Cuts and Jobs Act (the “Act”). The Act significantly changes some crucial domestic and international tax rules.  

The Act includes a large reduction in the corporate tax rate from 35% to 21% and a major change in international tax to a hybrid participation exemption system that reduces and sometimes eliminates tax on profits of foreign operations.  The Act also modifies the effective rate for individual owners of businesses in LLCs and other pass-through entities with a reduction as much as 20% in some instances.

Impact on Certain Alternatives Funds including Hedge Funds and PE Funds that hold medium term assets

A number of The Act provisions could impact hedge funds, PE funds and other alternative funds.   These include a new three-year holding period to be eligible for long-term capital gains treatment with respect to carried interests as well as a new limitation on the deductibility of interest and the repeal of the ability to carryback net operating losses.  

The Act increases the holding period before a taxpayer would qualify for long-term capital gain rates with respect to certain carried interests from one year to three years. Such partnership interests would include partnership interests received in connection with the performance of substantial services in a trade or business relating to (i) raising or returning capital, and (ii) either investing in (or selling) certain securities, commodities, real estate, cash or cash equivalents, or derivatives or developing such assets.

For investors in companies, the 20% deduction applicable to non-excluded passthrough businesses (described more fully in Part 2 of our Update) is available with respect to the income earned by non-corporate taxpayers through a fund’s portfolio companies that are owned in pass-through form. Such companies must have adequate W-2 wage income or qualified property.