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L.A. First Deputy Mayor Austin Beutner’s Development Reform Assessed

June 10th, 2011 by administrator

by Katy Young, Esq.

At the invitation of Los Angeles City Building and Safety General Manager Bud Ovrom, select representatives of the city’s real estate development industry gathered at the L.A. Chamber of Commerce headquarters on February 7th to offer input into what was described as a new, second term effort at “comprehensive revision” of the city’s entire approach to processing development projects. Mr. Ovrom noted that the mayor “was not satisfied (to put it mildly) with the pace of development reform during his first term.” He tasked First Deputy Mayor Austin Beutner with creating a development review process that is “efficient, transparent, and consistent.”

The well attended meeting at the Chamber—the first of three such sessions aimed at gathering developer feedback—was facilitated by KH Consulting Group, a private firm retained by the city for approximately $590,000 to spearhead this new reform initiative process and eventually generate a “Strategic Plan with Action Plans that outline what should be done, why it should be done, who should do it, and when it should happen.” KH Consulting also scheduled four community outreach meetings to gather broader input, as well as additional meetings with city staff and elected officials.

Over the course of more than two hours, this facilitated reform discussion at the L.A. Chamber revealed a disconnect between developers in attendance and KH Consulting’s President Gayla Kraetsch Hartsough regarding what was necessary to facilitate a more efficient, transparent, and consistent city development approval process.

The real estate development representatives— many of whom noted their involvement in past Los Angeles City development reform initiatives dating back nearly 30 years—repeatedly cited the need for updated and enforceable community plans, as well as a streamlined application process to eliminate current redundancies across departments. Many attendees identified a key underlying shortcoming of the city planning process to be outdated planning and zoning documents that developers and their representatives now work around rather than with.

Many attendees argued that real transparency and consistency would flow from updated and enforced planning documents. Specifically, attendees wanted both revised community plans that incorporate zoning reflective of current local land use expectations and comprehensive environmental review—including EIRs and associated impact studies—that analyzes the environmental impacts of the land use changes mandated in the updated community plans. If stringently enforced, these updated community plans would potentially remove most future project applications from the city’s discretionary review process, making them “by-right” (i.e., the city would merely confirm a proposed project’s compliance with a community plan’s applicable land use and zoning provisions and issue appropriate permits). This, in turn, would free city staff to focus on those large projects that will continue to require discretionary approvals. Given recent reductions in planning staff levels, the removal of a significant number of projects from the discretionary approval process is key, many in attendance claimed, to making the development review process not only predictable, but also more efficient and consensual.

As one attendee lamented, at least five community plan updates were all-but-complete and ready for Planning Commission review as of last year. Nevertheless, these updated community plans, paid for with legally dedicated city funding, remain unapproved.

In reaction to this input, Ms. Hartsough countered that KH Consulting was “asked [by the Mayor’s Office] to do the process improvement from the point of: ‘a decision’s been made to build, how do we improve the process so that buildings that meet the plan can get through the process?’ So, we’re not re-engineering how [the] planning [department] does community planning.” It appears from her comments that community plans are not on Ms. Hartsough’s reform to-do list this year.

Rather, Ms. Hartsough asked for “short-term technological solutions before we can come up with the large solution.” According to Ms. Hartsough, the mayor is focused on a full technological solution involving “a city-wide [technology] platform [that] could be $15 million and could take two to three years to implement.” The new technology, she asserted, would provide a single web-based access point for developers to obtain information on the status of their project application. It would not, however, revise any of the underlying planning documents upon which land use decisions in the city of Los Angeles are based. Ms. Hartsough acknowledged that the funding for such a technology platform has not been approved by the City Council, and that approval of funds could prove difficult given the city’s current fiscal woes.

Review of an audio tape of the meeting reveals much frustration in the room, as developers pushed back on the effectiveness of a quick technology fix, noting that the city’s development reform goal of creating an “efficient, transparent, and consistent” planning process requires, at a minimum, up-to-date community plans: “[I]f you knew really what the baseline was, it’d be much easier to figure out what the latitude is in either direction. Right now, there’s no baseline.” Another veteran developer agreed, asserting that community plan updates should be the first priority: “[T]hat’s number one. We need to figure out how we’re going to get there.” A third participant, a former chairman of the Chamber of Commerce, in contrast, expressed fear that a city community plan update process could be used to delay processing of interim development applications.

As the facilitated session neared its conclusion, a number of participants expressed doubt as to the feasibility of implementing any strategic plan halfway through the mayor’s second term, citing power dynamics at City Hall. Unions, general managers, land use expediters, lobbyists, and City Council members, attendees opined, all benefit from the current dysfunction and therefore continue to serve as barriers to long-term, meaningful development reform in Los Angeles. Specifically cited procedural barriers to development reform implementation also include existing term limits for Council and departmental staff turnover and reductions.

City employee unions, who have thus far successfully resisted major departmental streamlining, and department heads wary of ceding turf received some of the blame. Referred to by one developer as the “elephant in the room,” unions were credited with playing at least some role in the abandonment of the mayor’s most-recent development streamlining proposal. Known as “12 to 2,” the streamlining program sought to reduce the number of sign-offs required on a particular project from at least 12 departments to just two. Such a program would likely have resulted in city employee layoffs. Those present at the February 7 meeting agreed that any successful future development reform effort will require union sign-off.

Land use attorneys, expediters, and lobbyists constituted another self-acknowledged elephant in the room. According to one reform meeting attendee, “First of all, let me disclose, I’m a CEQA lawyer, so I’m shooting myself in my own pocket book [by offering reform recommendations].” Nevertheless, he then proceeded to offer several potential reform measures the city could adopt that might accelerate and rationalize the development review process for certain classes of projects.

Many present at the Chamber meeting cynically suggested that the City Council actually benefits from the current discretionary land use development process, dysfunction and all. According to one developer, “I think it’s the Council that’s slowing the [community] plans down because they like chaos, because they come in and take a piece out of somebody’s [project] and put it on the table and…get re-elected. They like the chaos.” Another agreed: “…[L]and use has been the most powerful tool the Council offices have to take…the next election. If, for example, the community plans are streamlined, if they implement the zoning code, you’re taking a lot of power away from the elected officials….”

Attendees then expressed frustration with a lack of initial buy-in for the reform initiative now before them. They were concerned that the mayor’s latest effort did not have up-front City Council support. According to one development process veteran, “This [development reform] plan is driven by the Mayor’s Office, as it always has been…. And I think we need to learn a little bit from the last three [development reform] plans… where they were driven by the mayor, really none of them have gone anywhere. I don’t think you can minimize or ignore the fact that we have fifteen very powerful council members and they’re equally as powerful as the mayor in their own area…. I don’t think [the council members] should be sold the plan once you guys put the plan together. They need to be involved from day one.”

Other impediments to lasting development reform, according to attendees, are city term limits and staff turnover. A sustained, comprehensive reform of the city’s development process would, it was asserted, require a significant, prolonged period of financial and political support from City Hall. One attendee commented, “[Y]ou’ve got to realize the inmates run the asylum. Two more years for the mayor; half the council will be gone a little bit after that. No matter what you implement, no matter how great these ideas, we’re going to have to figure out a way to make sure that they’re sustainable.” Moreover, several suggested that if rumors of a possible mayoral run by development reform proponent and First Deputy Mayor Austin Beutner prove accurate, this latest reform attempt may be dead before arrival to the City Council.

Given the candid development reform discussion on February 7th, it remains unclear whether Mayor Villaraigosa’s latest attempt at adopting comprehensive development process reform will result in any meaningful change in City Hall. As far as most attendees at the February 7 meeting are concerned, it seems unlikely, what with all the elephants crowding the room.

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Key Issues in Production Legal

February 10th, 2011 by administrator

by James Kidston, Esq.

Ever written a script for television or film?  Or come up with a great concept for a reality show?  If you have, congratulations!  You fit in nicely here in Los Angeles.  If you’re serious about actually putting your idea on film, then you’ll soon be confronted with a wide array of challenges and frustrations familiar to many an aspiring producer.  Chances are you’re focused on the artistic ones, but neglecting the legal side of things can sabotage your fledgling production.

Location Agreements

If you own or control all the sites where you’ll be filming, then great – you’re all set.  We should all be so lucky!  In the likely event that you don’t, however, you’ll need to lay some groundwork before you go in.  If you’re filming in public, you may need a permit or some other form of official authorization – consult the local government or film office where you plan to shoot (permits are required in most of Los Angeles).  To film on private property, you’ll need an agreement with the owner or person in charge of the property.  Usually that person will be the owner of the property or the owner’s representative, but not always – if your shoot will take place entirely on property occupied by a tenant of the owner, the tenant’s agreement may be all you need.

Location agreements don’t need to be complicated; at minimum, they need to give you sufficient access to the property to get the necessary shots, along with the rights to actually use the recordings you’ve made in your production.  It may seem that the former implies the latter, but that is not the case – make sure your agreement clearly grants you both of the above rights, and the more broadly the better.  A good rule of thumb is to seek the right to use your recordings in all media now known or hereafter devised, throughout the world, in perpetuity.  If the location features any trademarks, logos or other intellectual property of the owner (or other parties), the agreement should address your rights to include recordings of them in your production.

Image and Likeness Rights

Generally, it’s good policy to secure an agreement from any recognizable people appearing on screen in your production, granting you the right to use their image and likeness.  There are situations where such agreements aren’t required, such as where the First Amendment is implicated (i.e., for newsworthy material, etc.).  Even in such cases, it’s beneficial to get an agreement anyway if you can, so as to head off any possible problems at the pass.  If you fail to obtain the rights to the likenesses you include in your film, those people can sue to prevent you from using their image, which can in turn prevent you from distributing your finished work, essentially holding you ransom.  A scary thought, no?

The appearance agreement you need may take the form of a detailed talent agreement for a main character, with compensation provisions, back-end participation and any number of other bells and whistles, or it may be as simple as a one-page consent form for unpaid extras or passers-by in the background.  It all depends on your particular situation.  However you do it, the agreement must at minimum give you permission to use the person’s image in your film, and should make clear that you may edit, broadcast, and exploit the film however you want, wherever you want, forever.  Consider including a waiver of a participant’s right to sue you for an injunction – this will make it difficult for them to prevent you from distributing your production in the event they don’t like their portrayal.  Be aware that often, talent with leverage may seek to limit your rights to use their likeness (for example, to just the right to depict them in your film, but not in associated promotions).

A thorough, individually signed release is always preferable, but not always possible; if you know a shot will contain large numbers of recognizable people – for example, if you’re filming in a public square – you may elect to post area releases around the scene, notifying people that if they enter they are consenting to being filmed for your production.  If minors appear in your production, note they lack the legal capacity to consent to an area release, and you’ll need to have a parent or legal guardian sign off on their appearance agreement.

Music Licensing

It’s likely that your film will feature a variety of clips or other musical recordings.  If you personally created all the music in your production, then not only are you one very talented individual, you also don’t have to worry about licensing the music.  If you use any music created by others, then yes, you guessed it – you need permission for each and every clip.  Usually you’ll get a synchronization and master license – often called  “synch” license – which gives you the right to synchronize a particular master recording to the images on screen.  The rights to well-known songs are often very expensive; assuming you’re able to afford your chosen track, you’ll need to secure a license from the rights holders.  Usually you’ll be dealing with a music publishing company, but sometimes the artist itself will administer the song.

As always, you should seek the broadest possible rights in the music you’re licensing.  For example, you’ll want the right to use it in your film in any manner in any media throughout the world in perpetuity, as well as to use as much of the song as you want, and to edit it in any way you see fit.  The breadth of the license you get will be open to negotiation, so do the best you can with the leverage you possess.  If, on the other hand, you’re commissioning music for your production, make sure you have an agreement with the composer stating that the resulting piece is a work-for-hire; that way, you will be the sole owner of the copyright in the completed work, and you won’t need a license to use it in your film.  Regardless of where you find that perfect song, the associated legal issues are often complicated, and it’s essential to do your homework and secure the necessary rights.

An ounce of prevention…

The above are just a few of the most common production legal issues, and the preceding discussions are by no means exhaustive.  Complications will invariably arise, and if you’re not on top of the situation from the start, delays and other problems can result.  You would be well served to consult with a lawyer before you begin, lest you allow legal issues to come between you and the realization of your creative vision.

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Improperly Drafted Trademark Licenses May Result In Abandonment

February 10th, 2011 by administrator

by David Kim, Esq.

A strong, recognizable trademark is a valuable asset to a business owner.  A focus on quality products and services will quickly establish your brand and create a favorable impression on consumers.  Eventually, your trademark may become so valuable that other businesses may want to license it.  Licensing your mark can be lucrative for your company, but if the licensing agreement is not drafted carefully, you could be forced to abandon the trademark.  Trademark owners have a duty to control the quality of their trademarks, even when used by licensees.  When a trademark owner fails to exercise adequate quality control over a third party’s use of its trademark, it is deemed to have engaged in “naked licensing.”  Courts find this practice deceptive to consumers and will force the trademark owner to forfeit the right to exclusive use of the trademark.

A recent decision from the 9th Circuit, FreecycleSunnyvale v. Freecycle Network , provides some guidance on how trademark owners may avoid “naked licensing” situations.  In this case, the parties had agreed to a trademark licensing arrangement, but a dispute eventually arose over the continued use of the trademark in question.  The trademark licensee refused to surrender use of the trademark, arguing that the owner had engaged in “naked licensing.”  In reaching its decision, the 9th Circuit relied on a three part test: 1) whether the license allowed the trademark owner to inspect and supervise the licensee’s operations; 2) whether the trademark owner actually supervised or inspected the quality of the goods or services associated with its mark; and 3) whether the parties involved had such a close relationship that the trademark owner could justifiably rely on the quality control measures of the licensees.  The 9th Circuit ultimately concluded that the licensing agreement failed to provide the trademark owner with the needed control and quality assurances that would prevent “naked licensing.”  Consequently, the trademark owner lost the right to exclusive use of the trademark.

Losing your trademark can be the harsh reality of an improperly drafted licensing agreement.  Proper licensing agreements should establish the owner’s right to supervise and otherwise control use of the trademark, and also provide some system for terminating the license in the event that the licensee’s goods or services fall below the owner’s standards.  Additionally, owners should be diligent in actually taking the time to inspect goods or services that are being offered to consumers under the trademark.  In the event that you have a close business relationship with a licensee whose quality control measures you know and trust, you don’t necessarily have to expend a lot of resources on monitoring their goods and services.  Even in a relationship like that, however, trademark owners should continue to ensure that the goods and services live up to the standards of the brand.  Drawing from the lesson learned inFreecycleSunnyvale, trademark owners should review their trademark licensing agreements to make sure they haven’t engaged in “naked licensing.

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Negotiating International Business Agreements: Helpful tips for issues unique to international business contracts

November 3rd, 2010 by administrator

by Ju Park, Esq.

I.   Introduction

Globalization helps business in a variety of ways. For one, it creates business opportunities. You can expand your company’s playing field by utilizing resources and markets available anywhere on earth rather than limiting your company’s reach to the borders of your country. Oftentimes, companies will find international transactions to be beneficial due to novelty or competitive pricing. Additionally, globalization creates jobs. Many people believe a one-to-one trade occurs, where jobs in the native country are displaced to a foreign one. While this may happen in some microcosmic situations, the larger impact of globalization is the greater potential for synergy, which results in a higher net number of jobs globally. Globalization is also good because it affords us the opportunity to learn new ways of doing things.  Exposure to different values, cultures, and business methods help us assess our own practices and see if there are opportunities to change for the better.

Successful negotiation in international business transactions requires your understanding of the other party’s position and perspective.  Thus, you must learn the foreign country’s culture in business dealings, communication style, as well as familial, political or social pressures that may impact the foreign company or its agreement with your company.  Oftentimes, many viable and potentially lucrative cross-border business opportunities are not realized, or are ruined because the negotiating parties are simply unaware of the various factors that are critical to international negotiations as opposed to negotiating with other parties in the same country.  Here are a few things to keep in mind when discussing international business opportunities:

II.  State the (Seemingly) Obvious

Negotiations always have underlying assumptions that parties often believe are so basic or obvious as not to need explanation.  Certain terms  of agreements can become so customary that parties neglect to raise them during discussions.    However, obviousness is a subjective judgment of common understanding based on a shared set of rules, knowledge and culture.  Varying legal, educational, and cultural backgrounds can alter what is “obvious” and what is not.  In a domestic transaction, you can usually rely on industry standards  and custom to fill in any unspoken terms.  This may not be the case with an international transaction, however, as you may be dealing with an entirely different set of practices.

If the parties aren’t on the same page, they will have entirely different expectations and understandings of the agreement.  Failing to specify “US” before the “$” might lead to complications when you’re dealing with a Hong Kong business partner, for example.  It is therefore necessary to assess the important terms of your agreement and question whether any underlying assumptions are shared with the other party.  Identifying and dealing with areas of confusion and making sure the agreement reflects the clarification could be key in avoiding surprises later on.

III.  Allocate Risk of Fluctuations in Exchange Rates

When dealing with foreign currencies, it is important to consider the risk posed by fluctuating currency values.  Due to factors entirely outside of your control, you may find that your profits and expenses vary from month to month, leaving you with difficulties in predicting and planning.  You can protect against fluctuations in exchange rates by allocating the risk to one or both of the parties.  Exchange rates may be fixed at a certain value, or within a band specified during negotiations, for example, which would help prevent either party from receiving a windfall due to the exchange rate.  A party might require that payment be made in the currency of their country, ensuring predictable monthly payments, and leaving the other party to bear with the variation.  Companies also have the option of opening a subsidiary in the foreign country for the purpose of transacting business.  Doing so would allow for increased flexibility in converting the revenue at a time when the rates are favorable for the parent company.

IV.  Understand INCOTERMS (for international shipments only)

Seasoned international negotiators are familiar with the International Commercial Terms (INCOTERMS), created by the International Chamber of Commerce (ICC).  For those who are unfamiliar, INCOTERMS are an internationally recognized standard that allocate tasks, costs, and risks to parties in the various stages of the delivery of goods from seller to buyer.  Generally, the applicable INCOTERM will be included in the agreement’s Shipping Terms, and business owners may be unaware of their importance, until the additional costs of international shipping, insurance, and duties start to add up.  If the business is subject to budgetary limitations, fluid communication between the executive, legal, and financial team is essential throughout negotiations to ensure that there are no hidden costs in the agreement.

Not all countries are members of the ICC, and may not use INCOTERMS as a matter of practice.  There can be some confusion even with INCOTERMS, as there are some differences between goods shipped by air and by water.  They are available to serve as a reference, however, and are useful in identifying costs to be negotiated even where they do not apply.  The following are some of the more common INCOTERMS:

Ex-Works (“EXW”).  The minimum obligation for the seller, this term specifies that the seller’s only responsibility is to make the goods available at their premises, ready for transportation.

Free on Board (“FOB”).  Commonly used with shipments for water transport, this term indicates that the responsibility for the shipment shifts from the seller to the buyer once the goods have been loaded on the ship.  The seller bears costs for storage, packing, shipping goods to the port, port charges, and fees for loading the goods onto the ship.  The buyer bears all costs once the goods have passed the ship’s rail.

Cost and Freight (“CFR”).  The seller clears goods for export and bears the cost of shipping goods to the destination specified in the sales contract.  The buyer assumes responsibility for the goods once they pass the ship’s rail at the final port.  The seller does not bear the cost of insuring the goods against loss or damage during transit.

Delivered at Frontier (“DAF”).  Most commonly used for goods shipped by rail or road transport, this term specifies that the seller must deliver the goods to a named point, at which the buyer will take the goods and clear them through Customs.  If the goods must be shipped by water or air prior to arriving at the named point, the seller will pay for those costs as well.

V.   CONCLUSION

International business opportunities are a great way for a company to broaden its markets and find technology and expertise that may not otherwise be available at home.  Foreign business partners offer challenges, however, that must be kept in mind for a successful venture.  In the early stage of negotiations, make sure that everyone has a similar understanding of the project so that opportunities aren’t lost because of miscommunication.  When ironing out the project details, make sure not to assume that your partner is used to doing things the way that you are, or will understand exactly what you mean even if you don’t say it.  Finally, using international standards like INCOTERMS can help you identify areas for allocating risk, and preventing costly surprises.

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Enforceable Restrictions on Future Transfers in End User License Agreements

November 3rd, 2010 by administrator

by David Kim, Esq.

It’s a common practice in the software industry for vendors to require customers to agree to End User License Agreements (“EULAs”) before installing and using programs.  These EULAs are the contracts that provide the terms of use of the software, and generally provide that the customer is permitted to use the software subject to certain restrictions, but does not own it.  The enforceability or fairness of these licensing agreements has long been a point of discussion, but the recent decision in Vernor v. Autodesk has clarified that in California, EULAs may be used to prevent the resale or transfer of software.  This ruling has important implications for creators of software, as a properly drafted EULA can help protect future revenue as well as intellectual property rights.

A copyright grants its holder a number of rights, including the exclusive right to make and sell copies of a copyrighted work.  The “first sale” doctrine limits the copyright holder’s right to receive proceeds from the sale of a work to the first lawful purchase of the copy, though.  After that first sale, the purchaser may transfer the copy without the holder’s permission, subject to the terms of the sale.  A common example of the “first sale” doctrine occurs with books.  After you purchase the book, you may re-sell that book without the copyright holder’s permission.  You are restricted from making further copies of that book, but the copyright holder’s right to receive proceeds from the sale of the book was extinguished with the first sale.

The applicability of the “first sale” doctrine to software is not as clear as with books.  Some Federal Circuits have applied the doctrine and allowed consumers to re-sell software, despite restrictions in the EULA.  In Vernor v. Autodesk, however, the Ninth Circuit held that a EULA prohibiting the resale of software and the transfer of the license without the vendor’s consent is enforceable.  The Vernor plaintiff had purchased used copies of Autodesk’s software, and attempted to resell them on eBay.  Along with strict restrictions on use, the EULA for the software stated that Autodesk retained title to all copies, the customer had a nonexclusive and nontransferable license, and that customers could not rent, lease, or transfer the software without Autodesk’s consent.  Customers had to agree to the EULA prior to installation, and could return the software for a full refund if they did not agree.  The U.S. District Court hearing the case ruled that the conveyance to Autodesk’s original customer was a sale, and Vernor had the right to resell under the “first sale” doctrine.  The Ninth Circuit reversed that ruling, however, and held that among other things, the EULA was enforceable against Autodesk’s original customer, and prohibited the transfer of the software to Vernor.  In reaching this decision, the Ninth Circuit reconciled differing opinions of the lower courts, and concluded that there are three factors that determine whether a user is a licensee or an owner: 1) whether the copyright holder specifies that the user is granted a license; 2) whether there are significant restrictions on the user’s ability to transfer the software; and 3) whether the user is subject to notable use restrictions.

The Ninth Circuit’s decision is important for software vendors in that it allows them to restrict the resale of their software through a carefully crafted EULA.  In order to satisfy the three factor test, EULAs need the following:

Statement of License

Significant Restrictions on Transfer

Notable Use Restrictions

The decision in Vernor means that the transferability of software will be determined by the agreement between vendor and user.  A properly crafted EULA will allow vendors to regulate the resale of their software, and potentially realize important financial gains.  As the law regarding whether a user licenses or purchases software varies in the Federal Circuits, it is possible that there will eventually be a Supreme Court decision on the question.  For the time being, though, Vernor is the law in California, and savvy software vendors will reassess their existing agreements to ensure that they provide adequate protection.

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