Bankruptcy Court Changes “Ground Rules” on Houston Astros; Athlete Tattoos and Copyright Laws; Tiny Antenna Dispute Transmits its Way to the U.S. Supreme Court

Spring 2014

Ilya Kovalchuk Contract: Sympathy for the Devil(s)
In 2010, Herrick's Sports Law Group represented then New Jersey Devils forward Ilya Kovalchuk in dealing with National Hockey League claims regarding his record 17-year, $102 million contract. The NHL argued that the contract wrongly circumvented the salary cap provisions of the then-existing collective bargaining agreement. The Devils ultimately signed Kovalchuk to a 15-year, $100 million contract.

At the time, the Devils were assessed a $3 million fine and stripped of several draft picks including a 1st rounder (at the Devils option) in 2011, 2012, 2013 or 2014. The Devils deferred the loss of the 1st round pick until 2014. This decision proved to be founded on "solid ice" as Kovulchuk retired from the NHL in 2013 and returned to play hockey in his native Russia.

On March 6th, the NHL modified that penalty. Although the NHL did not say so (at least not publically), the NHL (like the Rolling Stones several decades ago) apparently felt some sympathy for the Devil(s). The NHL announced that the fine assessed against the Devils would be halved (to $1.5 million) and the Devils could retain their 2014 1st round pick (albeit at the very end of the round, and not where it would fall based on the Devils' performance in 2013-14).

NHL Press Release "Devils' Penalty for Kovalchuk Contract Modified" (Mar. 6, 2014)

Bankruptcy Court Changes "Ground Rules" on Houston Astros
Traditionally, prior to the start of a baseball game, the ball park ground rules are discussed by the managers. Unfortunately for the Houston Astros, there was no prior discussion of the "ground rules" of the federal bankruptcy court located in Houston before the Astros took the "courthouse field."

The Astros are a partner in a regional sports network (the "RSN") formed as a Delaware limited partnership to televise Astros' baseball, Houston Rockets' basketball games and other sports programming in the Houston area. As permitted by Delaware law, the RSN's partnership agreement provided that the partners would not owe fiduciary duties to the RSN or each other and that each partner (and its designated director) would be entitled to act in its own self-interest in making decisions for the RSN.

In September 2013, an involuntary Chapter 11 bankruptcy petition was filed against the RSN. The Astros sought to dismiss the petition on the ground that the RSN's Chapter 11 reorganization would be futile. In support of its position, the Astros relied upon the unfettered right of its designated director under the RSN's partnership agreement to veto any proposal concerning the Astros' media rights agreement.

The bankruptcy court denied the Astros' motion to dismiss the petition and ruled that, notwithstanding the elimination of fiduciary duties under the RSN's partnership agreement, the Astros' designated director owed fiduciary duties to the bankruptcy estate that could not be waived. Accordingly, the Astros' designated director was not at liberty to indiscriminately veto proposals concerning the Astros' media rights agreement. The Astros appealed the bankruptcy court's decision on the ground that neither the U.S. Bankruptcy Code nor case law supports the bankruptcy court's decision that bankruptcy law does not recognize valid waivers of fiduciary duties under state law.

We will continue to keep our eye on the ball in this case and report further developments in future editions.

In re Houston Reg. Sports Network, L.P., No. 13-35998 (Bankr. S. D. Tex, Feb. 12, 2014)

Athlete Tattoos and Copyright Laws: Think Before You Ink
The proliferation of tattoos or "ink" on athletes cannot be denied. As the athletes' tattoos are disseminated over the seemingly ever-widening spectrum of broadcast, print and social media, tattoo artists have sought to receive copyright royalties for their work. This trend has raised the "prickly" issue of who owns the copyright to the tattoo images on the athletes' bodies.

The courts have not definitively ruled on the issue of "ink ownership" -- to date, parties to tattoo copyright lawsuits have settled their disputes, rather than fully litigate the issue. Despite the absence of a definitive ruling on tattoo copyright ownership, the courts nonetheless have left their mark. One court, in rejecting a tattoo artist's request for a preliminary injunction to bar the release of the movie, The Hangover: Part II, indicated that the tattoo artist would likely succeed on the merits of his copyright infringement claim. In this movie, the tattoo at issue is a large Maori-inspired tattoo which adorns the left side of former heavyweight boxer Mike Tyson's face. This lawsuit settled prior to going to trial.

More recently, a tattoo artist sued a video game maker and former Miami Dolphins running back, Ricky Williams, over a tattoo on one of Williams' biceps. The tattoo was visible on the image of Williams appearing on the cover of the video maker's game packaging. Despite the settlement of this lawsuit, the National Football League Players Association has identified tattoo copyright ownership as a "pressing issue." In the absence of a clear answer from the courts, the NFLPA has advised its player members to seek copyright waivers from their tattoo artists.

Clearly, the ink has not fully dried on this issue. Further developments will be reported in future editions.

Miguel Cotto v. Sergio Martinez
Speaking of tattoos, Top Rank Inc., the leading boxing promoter and our longtime client, recently announced the upcoming Miguel Cotto v. Sergio Martinez world middleweight title fight for June 7, 2014 in Madison Square Garden. Cotto will climb into the ring with a world class collection of tattoos on his muscular frame.

Tiny Antenna Dispute Transmits its Way to U.S. Supreme Court
In April, the U.S. Supreme Court is scheduled to hear American Broadcasting Co. v. Aereo, a case that has significant implications for the television industry, which is being challenged by alternative content providers. One of those alternative content providers is Aereo, which launched February 2012. Aereo uses thousands of dime-sized antennas to pick up free, over-the-air TV signals, which it sends to customers via the Internet for a monthly subscription fee. Aereo's users technically lease the tiny antennas, which are housed in nearby "antenna farms."

Shortly after commencing its operations, Aereo was sued by the major broadcasting networks, including CBS, NBC, FOX and ABC. The networks claim that Aereo's service amounts to outright theft, since Aereo does not pay a retransmission fee to the networks. Aereo has countered that it does not have to pay to retransmit network programming because it temporarily assigns each viewer an antenna at one of its antenna farms. Thus, from Aereo's perspective, the Aereo service transmits "private performances" to individual viewers over their own licensed antenna, rather than copyright protected "public performances."

Lower courts are split on Aereo's legality. The U.S. Second Circuit Court of Appeals in New York has ruled in favor of Aereo. The ruling, however, was issued by a divided panel with the dissenting judge equating Aereo's system to a "Rube Goldberg-like contrivance, over engineered in an effort to avoid the reach of the Copyright Act and to take advantage of a perceived loophole in the law." Other federal courts have ruled against Aereo's system forcing Aereo to shut down its operations in, among other locations, Denver and Salt Lake City.

If the U.S. Supreme Court rules in favor of Aereo, that ruling could be the catalyst for an upheaval in the broadcast TV model, which is based on cable and satellite companies paying an estimated $4 billion in annual retransmission fees to the broadcasting networks. Such a ruling could eventually result in the networks migrating their sporting events and other popular programming from free, over-the-air TV to pay TV channels (such as ESPN and HBO). The NFL and Major League Baseball have warned that if Aereo receives a favorable ruling, broadcasts of events such as the Super Bowl and World Series may be moved to pay TV channels.

Please stay tuned to The Herrick Scorecard as the U.S. Supreme Court ruling will be reported in a future edition.

Do You Know the Way to San Jose? -- Part III
As we reported in prior editions, the City of San Jose filed an antitrust lawsuit against Major League Baseball in an effort to expedite the Oakland A's proposed relocation to San Jose. The Oakland A's have been waiting for more than four years for a committee appointed by MLB Commissioner Selig to make a determination whether the relocation request should be submitted for a vote by the MLB Clubs. In order to relocate, the approval of at least 75% of the MLB Clubs would be required.

U.S. District Court Judge Whyte batted down the City of San Jose's antitrust claim. Since the date of our last edition, the City of San Jose has appealed Judge Whyte's decision to the U.S. Ninth Circuit Court of Appeals. Further developments will be reported in future editions.

Washington Redskins Attract More Attention off the Field than on It -- Part II
As previously reported on in our last edition, Daniel Snyder, the owner of the Washington Redskins of the National Football League, has been besieged by a firestorm of pressure to change the team's name and logo. Numerous groups have charged that the Redskins' name and logo are out of date, offensive and racist. This controversy has not escaped the eye of President Obama who stated "If I were the owner of the team and I knew that there was a name of my team, even if it had a storied history, that was offending a sizeable group of people, I'd think about changing it."

Daniel Snyder has remained defiant despite the mounting criticism. The most recent round of criticism has come from Senator Maria Cantwell (D-Wash.) and Representative Tom Cole (R-Okla.). Ms. Cantwell is the chairperson of the Senate Indian Affairs Committee, while Mr. Cole is a senior member of the House Appropriations Committee. Mr. Cole is also a member of the Chickasaw Nation. These legislators sent a letter to NFL Commissioner Goodell imploring the NFL to no longer ignore and perpetuate the use of the "Redskins" name -- a name they characterized as a racial slur. In a subsequent interview, Ms. Cantwell stated that the Indian Affairs Committee would "definitely" examine the NFL's tax-exempt status as a means of applying pressure. Further developments will be reported in future editions.


For more information on the foregoing and other sports law issues, please contact:

Irwin A. Kishner at [email protected] or +1 212 592 1435
Daniel A. Etna at [email protected] or +1 212 592 1557

© 2014 Herrick, Feinstein LLP. This alert is provided by Herrick, Feinstein LLP to keep its clients and other interested parties informed of current legal developments that may affect or otherwise be of interest to them. The information is not intended as legal advice or legal opinion and should not be construed as such.