Notes Archives – Page 2 of 31 – Southern California Law Review

Wage Theft in Los Angeles: Evaluating the Deputization of Worker Centers as an Enforcement Measure

April 2025April 2025Kalysa To*

In 2023, Los Angeles County was called the “wage theft capital of the nation,” with up to $28 million stolen from workers every week. This form of theft especially places low-income workers at risk; 80% of low-wage Los Angeles County workers reportedly experience wage theft. In spite of this vast problem, however, government agencies tasked with the enforcement of wage theft have been overworked and underfunded. The under-resourcing of government agencies results in short-staffed labor offices, prolonging the time it takes to resolve wage theft claims and increasing the likelihood that victims of wage theft either drop their claim or fail to raise a claim at all.

To address this problem in Los Angeles City, deputization by the Los Angeles Office of Wage Standards could extend authority to worker centers—community-based workers’ rights organizations—to support the enforcement of wage theft. The Los Angeles Municipal Code could grant worker centers the power to advise workers on their rights, inspect employer records for wage violations, and ultimately expand the enforcement of the issue and thereby reduce wage theft. This Note provides the first analysis of deputization within this space and at this depth, introducing new legal analysis and proposing a new enforcement tool with which to address the massive issue of wage theft.

This Note argues that the deputization of worker centers fits within Los Angeles’s existing statutory framework and would be a constitutional delegation of the legislature’s power under the California Constitution. In so doing, this Note makes recommendations to bolster the constitutionality of the deputization of worker centers by the Los Angeles Office of Wage Standards so that more resources can be put in place to reduce the rampant wage theft problem throughout the city.

Introduction

Wage theft is a pervasive problem in the United States, affecting over two million workers¹ and costing as much as $50 billion in lost wages each year.² Wage theft is one of the most common crimes committed in the United States,³ with employers stealing more wages from workers each year than is stolen in “bank robberies, convenience store robberies, street and highway robberies, and gas station robberies combined.”⁴ A “form of fraud” that “occurs when employers do not pay their workers” what they are legally entitled to, wage theft encompasses a broad range of employers’ activities that deprive workers of earned compensation.⁵ Victims of wage theft include workers who are (1) paid less than the legally mandated minimum wage (affecting almost two million workers in the United States),⁶ (2) misclassified as “independent contractors” and not provided with the legal rights employees are entitled to,⁷ or (3) not properly paid for overtime or provided with meal breaks.⁸

The problem is particularly prevalent in Los Angeles. In 2023, the Los Angeles Worker Center Network called Los Angeles the “wage theft capital of the nation,” with $26 to $28 million stolen from workers every week in Los Angeles County.⁹ The study also found that workers who stand up for their rights against wage theft place themselves at risk of retaliation, facing consequences such as “reduced hours, increased workload, firing and threats of deportation.”¹⁰ In addition, a 2024 report found that the Los Angeles metropolitan area lost an average of $1.6 to $2.5 billion a year between 2014 and 2023 through minimum wage violations alone,¹¹ and that over 7% of workers were paid below California’s state minimum wage.¹²

Recent findings about the prevalence of wage theft in Los Angeles have led lawmakers to introduce new legislation to ameliorate the problem.¹³ In April 2024, California’s Labor Commissioner’s Office created the Workers’ Rights Enforcement Grant to provide a new funding source targeted at deterring wage theft and other workplace exploitations.¹⁴ The Workers’ Rights Enforcement Grant awards grants to California public prosecutors to “develop and implement a wage theft enforcement program.”¹⁵ The grants are to be used to fund staff salaries and benefits; $8,550,000 was awarded during the first grant cycle in 2024–2025 and another $8,550,000 will be awarded between 2025–2026, with a maximum grant of $750,000 per applicant.¹⁶

While there have been recent laws targeting wage theft, laws aimed at remedying this issue have been in existence for several years. Various administrative agencies are tasked with the enforcement of employment laws, including determining whether workers are being paid the legally mandated minimum wage, whether employees are properly compensated for overtime worked, and whether employers have violated other employment laws. On the federal level, the Department of Labor’s Wage and Hour Division monitors the enforcement of laws including the federal minimum wage.¹⁷ On the state level, California’s Labor Commissioner’s Office (known formally as the Division of Labor Standards Enforcement) combats wage theft and protects workers from retaliation.¹⁸ On the local level, some cities have established agencies that enforce local laws and ordinances. Within the city of Los Angeles, the Office of Wage Standards “is responsible for implementing and administering the guidelines of the Los Angeles Minimum Wage and Minimum Wage Enforcement Ordinances.”¹⁹

However, agencies tasked with the enforcement of employment and labor laws have been “chronically” underfunded.²⁰ A 2018 report by Politico found that, in fifteen states, 41% of lost wages were unrecovered.²¹ This underenforcement comes even as employers’ violations of these laws grow rampant. A 2021 report published by the nonprofit advocacy group National Employment Law Project found that, in 2019 alone, workers earning less than $13 an hour were prevented from recovering over $9.27 billion in stolen wages because of employer-forced arbitration.²² In spite of this, the nonpartisan Economic Policy Institute (“EPI”) found that, between 2017 and 2020, only “$3.24 billion in stolen wages was recovered for workers” nationwide.²³ The underenforcement of minimum wage laws is a problem in California, where workers were owed $280 million in unrecovered claims from unpaid wages in 2017.²⁴ And these claims arise only when workers report these wage theft violations; underenforcement of these laws may mean there are a great number of workers who suffer wage theft but either choose not to report a violation or are not sufficiently informed of their rights to be aware that a violation has occurred.²⁵

The inefficiency of agencies enforcing wage theft has also become apparent in recent years. A report by the California Legislative Analyst’s Office found that, although state law requires wage claims to be adjudicated within 120 days, the average claim took nearly 400 days to be adjudicated in 2018.²⁶ These long wait times disadvantage victims of wage theft by discouraging affected workers from filing claims, increasing the likelihood that the worker will drop their claim before resolution, and potentially compelling workers “to settle their claims for smaller amounts.”²⁷

Wage theft has far-reaching and pernicious effects. Wage theft can cause economic insecurity by introducing financial uncertainty and causing workers to fear the repercussions of speaking up.²⁸ In addition, a 2014 study from a nonprofit public health organization found that wage theft reduces the income that is necessary to provide for an employee’s family, which gives way to downstream effects: employees’ children are “less likely to succeed in school,” and workers’ increased stress causes them to feel more anxious and experience poor mental and socioemotional health.²⁹ Wage theft also has effects on society at large, such as creating unfair competition with businesses that do comply with the law, increasing the need for safety-net and welfare programs, and “reducing needed tax revenues.”³⁰

Given the seriousness of wage theft and the inadequacy of its current enforcement, deputization offers a solution. Deputization would endow private citizens with the authority extended to governmental wage theft authorities. The rights granted to private citizens could vary widely, ranging from entering work sites and advising workers of their rights to accessing employer records to inspect wage violations. However, more rigorous embracing of deputization would lead to more momentum for addressing the enforcement of wage and hour law and decreasing the instances of wage theft suffered by workers.

I. Deputization

Despite the enormity of the wage theft problem in the U.S., the enforcement and containment of the issue is limited. Victims of wage theft currently have a few potential avenues of recourse: (1) file a complaint with the relevant federal, state, or local labor agency;³¹ (2) file a private lawsuit under the federal Fair Labor Standards Act (“FLSA”); (3) file a private lawsuit under state or local wage and hour standards; or (4) do all three.³² Filing a private lawsuit is burdensome and sometimes out of the question for low-income and marginalized workers (whom wage theft disproportionately affects and who may face difficulty finding attorneys interested in taking low-dollar cases).³³

However, leaving the enforcement of wage theft up to the designated government entities is not a solution either—most state and local governments lack sufficient resources to investigate and enforce workplace standards.³⁴ In recent years, the California Labor Commissioner’s office has reportedly been “too short-staffed to do its job,” an issue that was exacerbated by the COVID-19 pandemic and resulting labor shortage.³⁵ In 2023, employees at the California Labor Commissioner’s office cited a 30%–40% vacancy rate in the office and reported that these vacancies caused employee burnout, stress, lowered morale, and sometimes the decision to leave the office altogether.³⁶ A high vacancy rate, overworked staff, and the resulting “exodus of talented workers” result in an office that is poorly equipped to handle the sheer volume of wage theft claims.³⁷

One way to address this problem is to deputize private citizens to provide them with the same authorizations that a governmental entity is granted under relevant statutes. Deputized citizens could help the agency more effectively use its authority to enforce the laws among a greater number of affected employers and employees. In particular, private citizens may be deputized to investigate wage theft such that they could enter worksites, speak with employees, and inspect employer records. Sharing the responsibilities of wage theft enforcement with private citizens would reduce the workload of government employees, allowing them to focus their resources on the other stages of resolving a wage theft claim, such as settlements, hearings, and recommendations.

A. What Is Deputization?

Deputization occurs when a principal party “empowers an agent” (“deputizes” the agent) to perform some agreed-upon function,³⁸ authorizing the agent to act on the principal’s behalf in limited ways.³⁹ Throughout history, deputization has taken many forms and currently exists in many different contexts.⁴⁰ The judiciary has engaged in deputization; as early as the 19th century, federal courts deputized employer-hired private security personnel to enforce federal injunctions against striking workers.⁴¹ Today, the deputization of private attorneys by local prosecutorial agencies to head criminal prosecutions is still common.⁴² The federal government has also deputized state and local officials to enforce laws; for instance, the legislature authorizes state and local law enforcement agencies to perform immigration law enforcement functions through the Immigration and Naturalization Act.⁴³

In addition to deputization of government officials, existing examples of deputization also involve private individuals. The Private Attorneys General Act (“PAGA”) is a model of deputization which gives authority to private citizens under California law,⁴⁴ meaning that an official government entity is not needed to litigate these violations. This statute “deputizes” private citizens by “authoriz[ing] aggrieved employees to file lawsuits to recover civil penalties on behalf of the State of California for Labor Code violations.”⁴⁵ PAGA was passed in response to deficiencies in the state’s ability to “effectively investigate and prosecute” labor law abuses,⁴⁶ especially as there was an increasing “disparity between California’s large labor force” and the “finite” resources of California’s enforcement agencies.⁴⁷ The statute essentially deputizes private citizens to “step into the shoes” of the state and prosecute employers’ statutory labor violations.⁴⁸ In allowing private citizens to act as “attorneys general,” PAGA enables these private citizens to “recover civil penalties for Labor Code violations” committed against them, with the official enforcement agencies retaining “primacy” over the private enforcement efforts.⁴⁹ PAGA has been successful in recovering the stolen wages of employees, collecting “more than $88 million from lawbreaking corporations in 2019.”⁵⁰

Despite PAGA’s achievements and enforcement measures against lawbreaking corporations, PAGA has a large shortcoming: it only allows employees who have experienced or are experiencing the alleged Labor Code violation to bring the action. Aggrieved employees must bring actions “on behalf of the employee and other current or former employees.”⁵¹ Although PAGA permits employees to bring suit on behalf of other employees and form a class action–like group of employees as plaintiffs,⁵² many of these cases have been called “unmanageable” by courts when there are “a large number of allegedly aggrieved individuals who would require a multitude of individual assessments to prove liability.”⁵³ To proceed on the case following an “unmanageability” ruling by the court, the plaintiff must demonstrate liability of thousands of individually aggrieved employees,⁵⁴ which poses an immense obstacle for plaintiffs.

In addition to the barriers employees face when attempting to file PAGA suits, there may also be employees who are eligible to file a PAGA suit but simply do not do so. To commence an action, an aggrieved employee must give notice of the alleged violation to the California Division of Occupational Safety and Health, stating the provisions that they allege their employer violated and “the facts and theories support[ing] the alleged violation.”⁵⁵ This lengthy process may exclude employees who are both unfamiliar with the administrative process and with the law. Furthermore, not all employees who are “aggrieved” may be aware that their employer is violating a law or willing to file a suit through PAGA.

While PAGA has expanded the accessibility of enforcement remedies to aggrieved employees, some localities have also arranged for deputization of community organizations to enter work sites and perform outreach to inform workers of their rights. For example, the Santa Clara County Office of Labor Standards Enforcement (“OLSE”) has partnered with the Fair Workplace Collaborative (“FWC”), a coalition of dedicated community organizations and advocates who directly engage with employees through flyering, training, and legal services.⁵⁶ The FWC is made up of several community-based organizations, including the Pilipino Association of Workers & Immigrants,⁵⁷ the Vietnamese American Roundtable,⁵⁸ and the Day Worker Center of Mountain View,⁵⁹ among other organizations.⁶⁰ According to Ruth Silver-Taube, a member of Santa Clara County’s FWC and Supervising Attorney of Santa Clara County’s OLSE Legal Advice Line, as of December 2023, the FWC is made up of about twenty-five people, three of whom are attorneys; the others work through the organizations that compose the FWC.⁶¹ Since 2018, the FWC has formed yearly contracts with the Santa Clara County OLSE that authorize FWC members to enter work sites and perform outreach, advising employees of their rights.⁶² Bearing a Santa Clara County badge, the FWC members go into work sites and speak with employees to assess whether they have experienced wage theft.⁶³ The contracts also set out deliverables the FWC must achieve, and require the FWC to provide monthly updates and regularly check in with the OLSE regarding its progress on the deliverables.⁶⁴

The authority that the FWC gains through deputization comes from Santa Clara County’s Food Permit Enforcement Program.⁶⁵ The Program enforces wage theft judgments against employers by suspending food facility permits from businesses who have “outstanding wage theft judgments” from the state.⁶⁶ Each year, the FWC is provided a list of Santa Clara County food vendor employers (employers who require health permits) and the FWC enters those work sites and speaks with its employees.⁶⁷ The FWC speaks with employees to assess whether they may have experienced wage theft or whether they may be facing abuse in the workplace—asking them whether they have received paychecks, whether they have been compensated for overtime, and whether there is violence in their workplace.⁶⁸ But the outreach efforts of the FWC are not limited just to food vendor employers; they can and have entered workplaces and spoken with employees outside of the food industry.⁶⁹

In addition to checking on worksites and speaking with employees, the contract between FWC and Santa Clara County also requires FWC to perform outreach efforts. As a result, the FWC organizes and presents training programs, during which it educates workers on their rights in the workplace.⁷⁰ Silver-Taube, who leads these trainings, hosts at least one training a month, each tailored to the different organizations making up the FWC.⁷¹ In total, her training efforts have reached more than one hundred workers in one year, as she has hosted trainings in conjunction with the Pilipino Association of Workers & Immigrants, the Vietnamese American Roundtable, and the Day Worker Center.⁷²

Silver-Taube also supervises the Santa Clara County’s OLSE Legal Advice Line, another outreach effort that has emerged from the partnership between FWC and Santa Clara County OLSE.⁷³ Offered in six different languages, the advice line helps workers who have questions about their rights or are seeking legal advice.⁷⁴ Silver-Taube estimates that, in about 90% of the calls, workers identify some actionable violation that their employer committed.⁷⁵ The three FWC lawyers can file claims on behalf of employees who suffer an actionable violation or can, alternatively, refer these employees to other attorneys to pursue their claims.⁷⁶

Deputization under the Santa Clara OLSE and FWC partnership benefits employees, but the work that the partnership is authorized to perform is limited. The partnership’s members may speak with employees but cannot access employer records or more thoroughly investigate wage theft. In Los Angeles, deputization is even more constrained, as no program similar to the Santa Clara OLSE and FWC partnership currently exists. Initiating deputization in Los Angeles as well as expanding the deputized functions so that private individuals can perform enforcement actions like inspecting employer records could broadly bolster wage theft enforcement.

The enormity of the wage theft problem in Los Angeles City could be addressed by deputizing private citizens to enter work sites and inform workers of their rights as well as inspect employer records to determine whether wage theft has occurred. Deputization is effective and important for several reasons. First, deputization expands the quantity of people authorized to perform an important government function. State enforcers have said that having a “million eyes on the ground” in the form of private citizens has been especially successful in deterring unlawful action.⁷⁷ Additionally, deputizing private citizens to enter work sites and investigate wage theft violations would increase the number of people actively working to disincentivize employers’ illegal actions, increasing the likelihood that victims of wage theft could become more knowledgeable of their rights and learn how to seek redress.

B. Who Would Deputize?

1. California Bureau of Field Enforcement

As an investigator of minimum wage and overtime claims and a subsection of California’s Labor Commissioner’s Office, California’s Bureau of Field Enforcement (“BOFE”) could deputize private citizens to perform investigations of wage theft.⁷⁸ The BOFE investigates and enforces statutes covering minimum wage, overtime, “workers’ compensation insurance, child labor, cash pay, unlicensed contractors, [and] Industrial Welfare Commission orders.”⁷⁹ The BOFE investigates “on behalf of all affected workers,” meaning that when workers file a complaint, the BOFE performs site-wide investigations and accordingly issues citations for violations it discovers.⁸⁰ When a violation is discovered, the BOFE collects and distributes unpaid wages to affected workers, but keeps the remaining penalties and fines to account for the costs incurred while performing the investigation.⁸¹

Although the BOFE has not deputized people to perform labor investigations, it has formed partnerships with workers’ rights advocacy groups, including worker centers.⁸² Formed in 2016, the California Strategic Enforcement Partnership “is a collaboration between the Labor Commissioner’s Office, the National Employment Law Project, and 14 workers’ rights and legal advocacy organizations.”⁸³ The partnership was formed to boost California’s efforts against wage theft, and partnering with worker organizations was meant to encourage a culture of compliance with labor law.⁸⁴

The BOFE “investigates reports of widespread labor law violations by interviewing workers, inspecting workplaces, issuing citations for violations, and collecting unpaid wages for distribution to workers.”⁸⁵ In the 2015–2016 fiscal year, the BOFE conducted 2,424 inspections and assessed over $81 million in wages and penalties. The BOFE engages with worker organizations through the California Strategic Enforcement Partnership by (1) meeting regularly in teams to share knowledge, identify and address wage theft, and discuss emerging complaints, (2) convening annually to build skills and relationships throughout the partnership, and (3) facilitating monthly conference meetings to share strategies and cross-train on tools for labor law enforcement.⁸⁶ Worker centers support workers throughout “every step of the investigation process”⁸⁷ and can convince “groups of workers to testify in an investigation.”⁸⁸

The California Strategic Enforcement Partnership recognizes the importance of worker centers and labor organizations in the fight against wage theft. However, there may be untapped potential behind these worker organizations because they have not been deputized such that they can act with the same authority as the BOFE when it comes to enforcement of wage theft. According to a BOFE 2020–2021 fiscal year report, the department collected around $29 million across wages, penalties, and interest from employers who committed violations.⁸⁹ Although this number indicates that the BOFE has made strong enforcement progress, it still has a long way to go. This number encompasses several violation categories that the BOFE is responsible for (including wage theft categories like overtime and misclassification, but also adding up outside categories like workers’ compensation and child labor).⁹⁰ However, California’s Legislative Analyst’s Office found that, in 2017, workers alleged a total of $320 million in unpaid wages alone, revealing a massive disparity.⁹¹ Expanding the BOFE’s partnership with worker centers such that worker centers are deputized with legal authority to investigate wage theft—entering work sites, inspecting employer records, interviewing employees, and ultimately identifying wage theft—could increase the BOFE’s capability to discover and address wage theft violations.

Los Angeles Office of Wage Standards

The Los Angeles Office of Wage Standards (“OWS”) is also well-positioned to deputize private citizens to combat wage theft within the city of Los Angeles. The OWS is a city government agency within the Bureau of Contract Administration of the Department of Public Works.⁹² The agency “enforces minimum wage, paid sick leave (PSL), and ban-the-box requirements for all employees who perform work in the City of Los Angeles.”⁹³ In the city of Los Angeles, the OWS is authorized to investigate violations of wage and hour laws.⁹⁴ Pursuant to the Los Angeles Municipal Code (“LAMC”), the OWS is statutorily authorized to enforce and implement several ordinances governing employment law in Los Angeles, including the Minimum Wage Ordinance (“MWO”),⁹⁵ the Fair Work Week Ordinance,⁹⁶ and the Hotel Worker Ordinance⁹⁷ (among others).

The OWS exists within the broader context of federal and state law. The federal government established standards for minimum wage, overtime pay, and employment standards for employees in the enactment of the FLSA in 1938.⁹⁸ The FLSA sets many wage and hour standards for employees, including restricting the employment of minors,⁹⁹ and establishing recordkeeping mandates that require employers to display an official poster outlining the requirements of the FLSA¹⁰⁰ and to keep employee time and pay records for at least three years.¹⁰¹ In addition, the FLSA offers overtime protection; the statute mandates that covered, nonexempt employees receive overtime pay for hours worked over forty per workweek at a rate of least one and one-half times the regular rate of pay.¹⁰²

The FLSA also governs the federal minimum wage, which promises employees a baseline pay for hours worked.¹⁰³ However, the federal minimum wage has remained $7.25 since 2007,¹⁰⁴ which, as inflation increases, is becoming less of a livable wage for earners. Many states have filled this gap by raising their state minimum wage well above the federal minimum wage. Effective January 1, 2025, California’s minimum wage was set at $16.50 per hour for all employers.¹⁰⁵ Within California, the city of Los Angeles updates its minimum wage annually based on the Consumer Price Index (“CPI”) for Urban Wage Earners and Clerical Workers (“CPI-W”) for the Los Angeles metropolitan area, which is published by the Bureau of Labor Statistics.¹⁰⁶ As of July 1, 2024, the minimum wage in the city of Los Angeles for all employers is $17.28 per hour¹⁰⁷ The Los Angeles Minimum Wage Ordinance, codified in Article 7 of Chapter XVIII of the Los Angeles Municipal Code, establishes that the City will pay higher than the California-mandated minimum wage and provide sick time benefits to employees.¹⁰⁸ The OWS is tasked with bearing administrative responsibilities under the MWO.¹⁰⁹

As of December 2023, the OWS has one Division Head and thirty employees.¹¹⁰ It is comprised of three sections: Outreach and Information (eight employees), Investigation and Compliance (sixteen employees), and Fair Work Week (six employees).¹¹¹ The first two sections (Outreach and Information and Investigation and Compliance) are, collectively, tasked with effectively implementing and enforcing the MWO.¹¹² The Investigation and Compliance Section “investigates complaints of wage underpayment” and sick time violations to assess where penalties may be applicable.¹¹³ The Information and Outreach Section informs businesses and employees about legal minimum wage and paid sick leave requirements, while helping with community outreach.¹¹⁴ On the outreach side, the OWS has attended outreach events, hosted training sessions for government staff, and made over 241 million media impressions since 2016.¹¹⁵

Within its investigation wing, from July 2016 to September 2023, the OWS received 1,084 complaints and closed 785 of them, collecting $540,600 in total penalties.¹¹⁶ The OWS’s investigation process generally follows five steps: (1) the complaint is vetted to ensure it falls within the OWS’s “jurisdiction and employee requirements are met”; (2) “the case is assigned to an investigator and additional information is obtained”; (3) “the employer is notified of the investigation and relevant records are requested”; (4) “the records are analyzed to determine whether the employer is complying with the MWO requirements”; and (5) “the case is then submitted to management for an evaluation of the investigative findings and recommendations.”¹¹⁷

In addition to the MWO, the third section of the OWS bears administrative responsibilities for the Fair Work Week Ordinance (“FWWO”), which provides a more predictable work schedule for retail workers.¹¹⁸ The FWWO requires that employers provide work schedules to employees before they begin employment.¹¹⁹ The FWWO also establishes “Predictability Pay,” which requires that employers compensate employees “with one additional hour of pay” for each change to a scheduled date, time, or location that either “does not result in loss of time to the” employee or “results in additional work time exceeding fifteen minutes.”¹²⁰ There are some exceptions to this predictability pay requirement, such as if the employee initiates the work schedule change or if the employer’s operations are compromised due to force majeure.¹²¹ However, in general, the FWWO aims to establish a more predictable work schedule with which retail employees can more accurately predict the sizes of their paychecks.

Furthermore, the LAMC’s Los Angeles Office of Wage Standards Ordinance, which was effective as of April 1, 2023, explicitly sets forth the OWS’s authority to enforce violations of wage theft and sick time benefits under the Los Angeles MWO and to enforce the rights and benefits provided to retail employees by the FWWO.¹²² The Los Angeles Office of Wage Standards Ordinance requires employers to retain employee records for at least four years and allows the OWS to access these records to monitor compliance with the MWO.¹²³ The Los Angeles Office of Wage Standards Ordinance also gives the OWS authority to investigate employers for possible violations of the Los Angeles MWO, Sick Time Benefits, and FWWO.¹²⁴

Given the vast amount of authority provided to the OWS to enforce wage and hour laws in Los Angeles, deputized private entities through this division could expand the OWS’s ability to investigate and enforce LAMC ordinances. Sharing the OWS’s investigative power with private individuals would enable them to broaden their capabilities, allowing them not only to identify more instances of illegal employer action, but also to seek remedies for employees who have been victims of wage theft.

The OWS serves as a robust starting point to analyze the potential of deputization within the City of Los Angeles. Because it exists within a defined statutory framework, the OWS’s legal structure can be examined to determine the possibility of deputization. Furthermore, because the OWS governs a city, it can pave the way for potential future applications to the BOFE and evaluations of deputization on a broader, statewide level.

C. Who Would Be Deputized?

There have not been any legal restrictions placed on who can be “deputized,” and previous examples of deputization in the law have provided for both private individuals (as in PAGA)¹²⁵ and nonprofit organizations (as in the worker centers in Santa Clara County’s FWC)¹²⁶ to be deputized. Since one of the benefits of deputization towards wage theft is to expand enforcement and ensure that more workers know about their rights and can seek redress when they have experienced wage theft, deputizing an organization would be more helpful than deputizing an individual. Organizations, which are generally equipped with more resources, can train their members to provide outreach and education to workers and can also gain rapport with workers so that workers have a resource to turn to.

Unions are organizations that have traditionally been thought of as advocates for workers’ rights, but they have seen “a significant decline in membership” in recent years.¹²⁷ The union membership rate was 10.0% in 2023.¹²⁸ The 2023 rate was very similar to the 10.1% rate in 2022, which was “down from 10.3% in 2021” and was the lowest union membership rate since 1983, the earliest year with comparable data on record.¹²⁹ Since the low union membership rate indicates that fewer workers can seek workplace protection through a union, a different source of workplace protection is needed. To meet this growing need, worker centers have become one of the most important means through which change is sought within the workplace.¹³⁰

Worker centers are nonprofit, community-led organizations aimed especially at supporting low-wage and immigrant workers.¹³¹ There are hundreds of worker centers throughout the United States, and California has forty-seven worker centers—more than any other state.¹³² Worker centers’ advocacy work ranges from lobbying and community organizing to direct engagement and research.¹³³ Some key characteristics define worker centers: (1) they mainly focus on low-income immigrant workers from a particular occupation or industry or from a particular ethnic group; (2) they place special focus on “organizing and leadership development” among their members; (3) they “provide a case management system for their members that focuses on labor violations,” including wage and hour claims; and (4) they lead “workshops on health and safety issues.”¹³⁴

The deputization of worker centers also carries many benefits because worker centers have distinct characteristics that enable them to serve the community. Worker centers have existed since the 1920s but grew enormously in the early 2000s.¹³⁵ Although worker centers have changed in scope and objectives throughout their history, they still maintain a focus on being community-led.¹³⁶ The members of worker centers are workers themselves—employees who are also seeking an improved workplace.¹³⁷ Furthermore, the cornerstone of worker centers is that they are made up of a “strong base of workers at the local level” who frequently play key roles in the “organizational decision-making” of their employers.¹³⁸

Worker centers use a combination of approaches, including: (1) “[s]ervice delivery, including legal representation to recover unpaid wages, English classes, worker rights education, and access to health clinics”; (2) advocacy, including researching employment conditions in low-wage industries and improving monitoring and grievance processes; and (3) organizing, including engaging in “leadership development.”¹³⁹ Because worker centers offer services, advocacy, and organizing, they provide unique services to help “low-wage immigrants navigate the world of work in the United States.”¹⁴⁰ Unlike labor unions, worker centers do not typically operate a dues-paying system;¹⁴¹ instead, they usually require people to become involved in the work or take courses on workers’ rights in order to join.¹⁴² Worker centers also engage in direct community outreach and educational workshops that can benefit people who are not members of the worker centers, making their services accessible to many.¹⁴³

Since worker centers provide a broad range of services and are accessible to workers, they are well-positioned to handle the authority that would come with deputization by a government agent. The efforts that worker centers engage in are wide-ranging; thus, they could absorb the responsibilities of being deputized by a government agent to enforce wage theft. Moreover, the deputization of Santa Clara County’s FWC is an example of successful deputization of worker centers. Most of the organizations that make up the FWC are worker centers that consist of members of the community and whose purpose is to serve a specific subset of marginalized workers.¹⁴⁴ The deputization of worker centers has seen success in Santa Clara County, and worker centers’ deputization to educate workers and investigate wage theft would also be impactful within the city of Los Angeles.

II. Deputization to Perform Outreach

Deputization of private citizens to assist in reducing the wage theft problem in Los Angeles can come in many forms, but two specific areas could benefit from deputization: outreach and investigation. Outreach is already contemplated through the LAMC. Under the LAMC, the OWS is given express statutory authority to develop an outreach program and inform employers and employees of minimum wage laws.¹⁴⁵ Section 188.12 of the LAMC states:

The Division shall establish a community-based outreach program to conduct education and outreach to Employers and Employees. In partnership with organizations involved in the community-based outreach program, the Division shall create outreach materials that are designed for Employers and Employees in particular industries.¹⁴⁶

Although the outreach program that the OWS has been charged with creating and implementing is not detailed in the statute, the OWS has taken several actions as part of its outreach efforts. As noted in its September 2023 Milestone Report, the OWS’s outreach included: (1) notifying businesses registered with the Office of Finance through mailed business tax statements, online renewals, and direct emails to business owners; (2) providing content for chambers of commerce & business associations, business improvement districts, and the Department of Neighborhood Empowerment to include in member newsletters; (3) holding training sessions and delivering information materials to staff from the “Mayor’s Office, [c]ouncil [d]istricts, [p]ublic [l]ibraries, [a]nimal [s]helters, BusinessSource Centers, and WorkSource Centers”; (4) attending outreach events; (5) establishing a toll-free hotline, email, and website to field inquiries and provide information; and (6) issuing requests for quotes and establishing an on-call list of contractors who will “provide community outreach and other support services.”¹⁴⁷

Its mention of “partnership with organizations” and “community-based outreach” indicates that the authority extended to the OWS includes partnership with organizations like worker centers. Thus, express deputization of worker centers to perform outreach could be framed within LAMC section 188.12, allowing private parties to communicate directly with workers to educate them about their rights under the law.

III. Deputization to Investigate

In addition to outreach, the LAMC also gives the OWS authority to investigate violations of Los Angeles ordinances relating to wages:

The [OWS] shall be responsible for investigating possible violations of the Los Angeles Minimum Wage, Sick Time Benefits, Fair Work Week Ordinance, and this article by an Employer or other person. The Employer shall cooperate fully in any investigation by the Division. The Division shall have access to all business sites and places of labor subject to the Minimum Wage and Fair Work Week Ordinances during business hours to inspect and request copies of books and records, interview employees and any other relevant witnesses, investigate such matters necessary or appropriate and request the Board of Public Works to issue a subpoena for books, papers, records, or other items relevant to the enforcement of this article. The Employer is required to provide to the Division its legal name, address, and telephone number in writing.¹⁴⁸

Employees can submit complaints regarding violations of the MWO directly to the OWS.¹⁴⁹ Employees also have the option of filing separate or additional complaints through the State Labor Commissioner’s office.¹⁵⁰ According to its September 2023 milestone report, the OWS received 1,084 complaints and closed 785 of them (202 with violations) since July 2016, thus handling complaints at a rate of 72%.¹⁵¹ But even as the OWS addresses complaints submitted to it, data indicates that the complaints received encompass only a small proportion of Angelenos who have experienced wage theft. For example, Los Angeles Worker Center Network’s 2023 concept paper called Los Angeles the “wage theft capital of the nation”¹⁵² after a UCLA survey revealed that 88.5% of low-wage Los Angeles County workers in the sample experienced at least one type of pay-related workplace violation in the week of work before the survey.¹⁵³ According to 2023 Census Bureau data, 66.5% of Los Angeles City’s population of 3,820,914 were in the civilian labor force from 2019–2023.¹⁵⁴ These numbers indicate that over two and a half million working Angelenos are at risk of wage violations per year. Thus, even though the city provides a method for reporting complaints relating to wage violations through the OWS, many violations appear to be slipping through the cracks.¹⁵⁵

Given the magnitude of the wage theft problem in Los Angeles, deputizing private citizens through the OWS could identify more employees who are experiencing wage theft and, in doing so, disincentivize employers from stealing wages. Deputization to investigate would enable worker centers to access employer records to identify wage theft victims, speak directly with employees, and encourage them to file complaints to seek redress.

Currently, the enforcement power given to the OWS is explicitly limited to only designated OWS officials. The Los Angeles Office of Wage Standards Ordinance provides the OWS with the following investigative authority:

The head of the [OWS] or their designee shall have access to all business sites and places of labor subject to the Minimum Wage Ordinance, the Fair Work Week Ordinance, and [the Los Angeles Office of Wage Standards Ordinance] during business hours to inspect books and records, interview employees and any other relevant witnesses, and investigate such matters necessary or appropriate to determine whether an Employer has violated any provisions of the Minimum Wage Ordinance, the Fair Work Week Ordinance, or [the Los Angeles Office of Wage Standards Ordinance].¹⁵⁶

The OWS Ordinance grants broad discretion to the OWS and allows it to perform an extensive range of investigative functions, subject to several separate ordinances. Rules and regulations implementing the FWWO even extend this authority, allowing the OWS to “conduct inquiries and investigations into areas outside of the FWWO to determine compliance with the FWWO.”¹⁵⁷

Although the OWS’s powers are wide-ranging, the determination of who can exercise these powers has not been clearly defined. The OWS Ordinance expressly grants access and authority to the OWS’s head and the head’s designee. The “head” of the OWS can likely be straightforwardly pinpointed to the OWS’s “Division Manager,” who leads the Office.¹⁵⁸ However, the determination of who can be categorized a “designee” is not so clear. Although there are defined terms under both the FWWO section authorizing the OWS¹⁵⁹ and under the FWWO’s rules and regulations,¹⁶⁰ neither provide a definition for whom exactly a “designee” may be. This lack of clarity leaves open the possibility that the designee may not necessarily be a government entity employed with the OWS and may instead be a third party. Thus, private citizens could be deputized to investigate with authorization as a “designee” by the head of the OWS. However, whether the Division head of the OWS may grant such authority to the private citizens of a worker center is circumscribed by the California Constitution and relevant case law.

A. The Municipal Nondelegation Doctrine

The California Constitution restricts private persons from performing certain governmental functions. Los Angeles is a charter city, meaning the basic law of the city’s government is found in the City Charter, rather than in general law.¹⁶¹ While a general law city organizes itself with “local government provisions in the state constitution and state statutes,” a charter city like Los Angeles can design its own government, developing some “political and governmental autonomy.”¹⁶² The Los Angeles City Charter is the fundamental document of the city,¹⁶³ giving the city control over its own “municipal affairs.”¹⁶⁴ The California Constitution authorizes charter cities the ability to exercise plenary authority over municipal affairs, subject only to constitutional limitations.¹⁶⁵ The city charter “identifies the main governing bodies of the city, along with their powers and duties.”¹⁶⁶ No changes to the charter can be made “without a vote of the people.”¹⁶⁷

Still, all cities must comply with the state constitution; the California Constitution governs both county and city government within California.¹⁶⁸ Of particular relevance, the California Constitution includes a nondelegation doctrine in article XI, section 11: “The Legislature may not delegate to a private person or body power to make, control, appropriate, supervise, or interfere with county or municipal corporation improvements, money, or property, or to levy taxes or assessments, or perform municipal functions.”¹⁶⁹

This prohibition against legislative delegations of power to private entities was initially enacted as article XI, section 13 of the California Constitution on May 7, 1879.¹⁷⁰ On June 1970, California voters passed Proposition 2, a ballot measure aimed at revising the substance and language of the California Constitution.¹⁷¹ As part of this revision, Section 13 was redesignated as Section 11, and the section was amended to its current language.¹⁷² The provision went into effect on November 23, 1970.¹⁷³

Although the restriction against delegating municipal functions is a narrower subsection of the nondelegation doctrine, laws against delegating governmental power exist on a broader level. The nondelegation doctrine has been examined both within federal law¹⁷⁴ and state law. Under state law, the doctrine is applied in many different circumstances, spanning a wide range of applications such as “delegations to private parties, other state governments, and nearly all types of interbranch delegations.”¹⁷⁵ Yet, although state courts apply the nondelegation doctrine in more contexts than federal courts, scholarship on state nondelegation doctrine is scarce; only two to three studies about the state nondelegation doctrines have been published throughout the past few decades.¹⁷⁶ Furthermore, states frequently apply the nondelegation doctrine in many different contexts, resulting in little coherence.¹⁷⁷

The two most recently published treatments of state nondelegation doctrines both categorize California as a state with a more lenient nondelegation doctrine.¹⁷⁸ The first study is Gary Greco’s article, published in 1994, which grouped states into three categories. Eighteen states were categorized as “strict” nondelegation states, meaning these states require the legislature to “provide definite and clear standards with the delegation” of power in a statute.¹⁷⁹ Twenty-four states were categorized as a “loose standards” state, meaning that standards or safeguards must be provided by either the legislature or administrative agency, and the administrative agency is required to adopt “procedural safeguards” to follow when making a decision.¹⁸⁰ Greco’s final category, containing six states, was “procedural safeguards” states, which do not require even minimal statutory standards to uphold a delegation, leaving legislatures with less effect on policy.¹⁸¹ Greco categorized California as a procedural safeguards state.¹⁸²

The second, more recent study is Jim Rossi’s, published in 1999, which also places states into three separate categories to “update and refine” Greco’s summary of the state doctrines.¹⁸³ Rossi grouped twenty states into the “strong” nondelegation category, meaning these states have statutes which are “periodically struck on non-delegation grounds.”¹⁸⁴ Twenty-three states were categorized in Rossi’s “moderate” category, which “do not always require specific standards,” but can vary the standards necessary depending on the statute.¹⁸⁵ Rossi categorized seven states in the “weak” category; these states uphold delegations as long as the agency has “adequate procedural safeguards.”¹⁸⁶ California was grouped into Rossi’s “weak” category.¹⁸⁷ Although these studies and groupings are imperfect,¹⁸⁸ they provide a general framework to understand how California’s nondelegation doctrine compares to other states: California’s nondelegation doctrine is more lenient than several other states’ nondelegation doctrines.

California is not alone in restricting delegation of legislative power to municipal functions; more than a dozen states forbid their legislatures from delegating powers, including their municipal powers.¹⁸⁹ Colorado and Wyoming each forbid their state legislatures from delegating “any municipal function whatever” to private parties.¹⁹⁰ Similarly, Utah prohibits legislative delegations from “perform[ing] any municipal functions.”¹⁹¹

Importantly, this provision of the California Constitution does not preclude all delegation of the legislature’s power. Instead, the prohibition on delegation is cabined such that the legislature may not delegate the power to “perform municipal functions.” As a result, case law regarding the municipal nondelegation doctrine involves determining what constitutes a nondelegable activity, who the delegated party can be, and whether the delegation was proper.

Legislative Actions

Since California “prohibit[s] delegation of legislative power,”¹⁹² case law interpreting the nondelegation doctrine addresses the preliminary question of whether a legislative action was taken. In Kugler v. Yocum, Alhambra city residents contested a proposed ordinance by their city council which would set Los Angeles wage rates as the minimum for Alhambra firefighters’ salaries.¹⁹³ The court found that this proposed ordinance was a legislative action by the city council because wage rates were expressly provided for as a council power in the city charter; the city council was therefore acting in its “legislative” capacity.¹⁹⁴ Decisions about wage rates are an explicit authority of the council in Alhambra, making it a legislative action.¹⁹⁵

Like the wage rates of firefighters in Kugler, the investigative powers for wage theft are expressly left to the OWS under the Los Angeles City Charter. The Los Angeles City Charter states that all legislative power of the City is “vested in the Council and shall be exercised by ordinance.”¹⁹⁶ The LAMC is the ordinance granting authority to the OWS;¹⁹⁷ under the LAMC, the OWS is given specific duties under the MWO¹⁹⁸ and FWWO.¹⁹⁹ Thus, the passage of this local legislation is likely a legislative function. As a result, any delegations of these powers would likely be a legislative action subject to the nondelegation doctrine of the California Constitution.

Municipal Actions

In addition, California’s municipal nondelegation doctrine prohibits delegation of municipal functions. The determination of what constitutes a “municipal function” such that it cannot be delegated to private persons within the constraints of the California Constitution is a fact-specific inquiry. Courts must “decide, under the facts of each case, whether the subject matter under discussion is . . . municipal.”²⁰⁰ Article XI of the California Constitution, which sets forth the nondelegation doctrine, does not define “municipal functions.” To define this term, courts have looked to other provisions of the California Constitution to determine the responsibilities that the governing body is assigned.²⁰¹

The question of what constitutes a “municipal affair” has been addressed by courts when it comes to several different provisions of the California Constitution.²⁰² Within these contexts, courts generally view municipal functions as “problems which exhibit exclusively local characteristics at certain times in the life of a community.”²⁰³ Acknowledging that this view encompasses ever-changing characteristics, the California Supreme Court has said, “It is . . . settled that the constitutional concept of municipal affairs is not a fixed or static quantity. It changes with the changing conditions upon which it is to operate.”²⁰⁴ The subject matter of cases addressing the municipal nondelegation doctrine are diverse, but courts generally hold that municipal matters relate to “local function”—functions so limited in scope to a particular region that they can be “adequately handled by the municipal authorities of a single town.”²⁰⁵

In People ex rel. Younger v. County of El Dorado, the Tahoe Regional Planning Compact was created to plan for the future and preservation of Lake Tahoe.²⁰⁶ The Compact created an internal agency that made “plans for land use, transportation, conservation, recreation, and public services and facilities” throughout the entire Lake Tahoe region, which spanned California and Nevada.²⁰⁷ The Compact’s authority was challenged as an unconstitutional delegation of municipal power.²⁰⁸ The California Supreme Court held the Compact was constitutional because the delegation of power was not for municipal functions; the Compact was enacted to serve regional purposes, not just local purposes.²⁰⁹ The Compact did not have the authority to perform municipal functions such as building “local parks”; instead, it operated on a larger regional basis.²¹⁰ Because it served a regional and not a municipal function, the Compact did not violate the California Constitution.²¹¹

Applying that reasoning here, the deputization of worker centers by the OWS is likely a municipal function because it is limited in scope and region—affecting only workers in the city of Los Angeles. Since this deputization would likely be seen as both a legislative action and a municipal action, it would likely trigger application of the municipal nondelegation doctrine.

Private Parties

Legislatures may be prohibited from delegating municipal matters when such delegation lands in the hands of private parties. In Howard Jarvis Taxpayers’ Assn. v. Fresno Metropolitan Projects Authority, the Fresno legislature created the Fresno Metropolitan Projects Authority and gave it the ability to tax. The California Court of Appeal found that levying taxes was a legislative function because the California Constitution has explicitly identified the imposition of taxes as a function of local government.²¹² In addition, eleven of the Authority’s thirteen board members were individuals from private organizations with no “governmental subservience”; thus, they were private parties.²¹³ The court therefore found that the Authority was a private body to whom the legislature could not delegate its taxing power, a legislative function.

Simi Valley Recreation & Park, in which the legislature passed a statute that delegated decisions regarding undeveloped land to a local agency formation commission, serves as a contrast.²¹⁴ In this case, the California Court of Appeal found this delegation did not violate article XI, section 11 of the California Constitution because local agency formation commissions are government agencies, not “a private person or body” under the language of the constitution.²¹⁵ The court also noted that, prior to its amendment and while it was categorized as section 13, California’s nondelegation doctrine expressly precluded delegation to a “special commission.”²¹⁶ However, this language was repealed in the section 11 amendment in 1970.²¹⁷ Courts no longer apply the former section 13 language, and special commissions are no longer an indication of an unconstitutional delegation.²¹⁸

Worker centers are not government-affiliated and are thus private parties. Since this deputization structure would be a delegation of legislative power to a private party, it must meet the standards courts require for a proper delegation to avoid being banned under the municipal nondelegation doctrine. But this private aspect of worker centers is, in this context, actually a virtue. After all, one of the values of deputization is its separateness from resource-strapped government entities.

Standard for Delegation

Even when a legislature allows a private party to commit an action which is found to be legislative and municipal, such delegation may still be acceptable if a sufficient standard for delegation exists. In Kugler v. Yocum, the California Supreme Court set out the standard for determining whether legislative power is validly delegated.²¹⁹ The court stated that legislative power can be delegated if it is “channeled by a sufficient standard”; after the Legislature creates a policy and sets the standards for it, it may leave the “power to fill up the details” to executive or administrative officers by giving these officers the ability to prescribe rules and regulations that will effectuate the law.²²⁰ In addition, “[w]hile the legislative body cannot delegate its power to make a law, it can make a law to delegate a power to determine some fact or state of things upon which the law makes or intends to make its own action depend.”²²¹

In Kugler, the court rejected the residents’ argument that a new ordinance tying Alhambra city firemen’s salaries to the Los Angeles salaries would be an unlawful delegation of legislative power to those parties who establish salaries for Los Angeles firemen.²²² Instead, the court concluded that the legislature’s decision to adopt the ordinance itself would “constitute the legislative body’s resolution of the ‘fundamental issue,’ ” and any subsequent steps taken to fill in the application and execution of policy is not legislative delegation.²²³

More recently, California courts have determined whether a sufficient standard for delegation exists by looking at whether the legislature is stripped of its ability to make final decisions.²²⁴ The California Court of Appeal stated: “The constitutionality of [a statute’s] factfinding provisions turns on whether the provisions divest the County of its final decision-making authority.”²²⁵ The California Supreme Court has not addressed whether final decision-making authority meets a sufficient standard for delegation. However, lower courts have relied on this principle, finding that a municipal function has not been improperly delegated when the Legislature leaves the task of achieving their goals to some other body—whether public or private—so long as it is the Legislature who makes the “fundamental policy decisions.”²²⁶ In general, California courts have been relatively generous in finding that an agency did not improperly delegate power so long as a county or city has not been divested of its authority to make final decisions.²²⁷ Courts are also deferential to the legislature, noting, “If there is any doubt as to the Legislature’s power to act in any given case, the doubt should be resolved in favor of the Legislature’s action.”²²⁸

The municipal nondelegation doctrine was not violated in California Renters Legal Advocacy & Education Fund v. City of San Mateo. In that case, the legislature added a provision to its Housing Accountability Act (“HAA”) allowing a reasonable person standard to determine compliance with a housing project.²²⁹ When a renters group’s residential project was denied by the City of San Mateo, it argued that this denial violated the HAA.²³⁰ The City of San Mateo challenged the HAA provision as unconstitutional, arguing it would allow a private person to place evidence into the record that a project is compliant with objective standards.²³¹ The City argued this was a violation of the nondelegation doctrine because a private person could force a local agency to approve the project, stripping the legislature of its decision-making function.²³² However, the court of appeal found this provision did not violate the municipal nondelegation doctrine. The court of appeal stated:

[The] city’s governing body retains broad authority, subject to judicial review, to exercise decisionmaking authority: to determine whether there is substantial evidence from which a reasonable person could conclude the project is consistent with the city’s applicable objective requirements; to deny or reduce the density of a project that does not meet such standards or that causes an unavoidable adverse impact on public health or safety; and to impose conditions of approval that do not reduce the project’s density where applicable objective standards are met.”²³³

In contrast, the municipal nondelegation doctrine was violated in County of Riverside v. Superior Court when a sheriff’s association ordered the county to binding arbitration to resolve economic issues arising from negotiations with unions representing firefighters or law enforcement officers.²³⁴ Analysis of nondelegation was triggered: the compensation of these individuals was a municipal function expressly provided to the legislature in the California Constitution,²³⁵ and the arbitrators of the issues were private entities, not public officials.²³⁶ The court ultimately held the statute unconstitutional because the arbitration it required, from which the results would be binding on the public agency,²³⁷ deprived the public agency of the ultimate power to make its own decisions.²³⁸

In sum, although deputization by the OWS to worker centers is a delegation of a municipal function by a legislative body to a private party, the municipal nondelegation doctrine is still likely not violated. As long as the OWS retains final decision-making authority, extending the authority granted to the Los Angeles OWS to private citizens within worker centers is likely permissible and not in violation of the municipal nondelegation doctrine. Entering worksites to perform investigations on employer wage practices and inspecting employer records does not bind the public agency of the OWS to any final decision. On the other hand, a worker center’s ability to take actions such as filing wage claims or arbitrating with employers would likely be characterized as final decisions. As to these binding choices, a worker center’s authority should be thoroughly constrained; the decision of whether or not to take these steps must belong to the OWS. However, when it comes to non-binding decisions, the deputization of worker centers under the LAMC is likely permissible under the California Constitution.

To further strengthen the constitutionality of this deputization, the reservation of this final decision-making authority should be made explicit in contracts between deputized entities and the OWS. In particular, all contracts between the OWS and the worker centers should precisely note that the deputized entities may not file suit, begin employment action, or make any final decisions without prior written approval of the OWS. Contracts should state expressly that the work product of deputized worker centers are subject to the approval of and final decisions are to be made by the OWS. This clarity and explicitness would bolster the legitimacy of the deputization relationship between the OWS and private citizens, preventing the relationship from being barred by the California Constitution’s municipal nondelegation doctrine.

Conclusion

The enormity of the wage theft problem affecting millions of American employees requires a solution beyond the underenforced laws currently in place. Located in the “wage theft capital of the nation,”²³⁹ the city of Los Angeles is particularly affected by this issue.

The deputization of private citizens by Los Angeles’s Office of Wage Standards offers a path through which the city government can more effectively enforce wage laws and hold employers accountable. Deputization could not only endow workers with knowledge about their rights through outreach, but would also enable private citizens to inspect employer records to identify victims of wage theft. Deputizing private citizens would broaden the enforcement powers available to the OWS and encourage workers to file complaints while discouraging employers from violating the law. Although deputization through the OWS would still result in some limitations on Los Angeles City’s enforcement abilities, its successes and drawbacks should be

studied to assess the potential of statewide deputization through a larger entity such as the BOFE.

Deputization of worker centers to perform worker outreach and investigate wage theft within work sites could provide greater enforcement of wage laws. However, such deputization is vulnerable to attack under the California Constitution’s municipal nondelegation doctrine. Deputization of worker centers would be a delegation of municipal action by the Los Angeles legislature to worker centers, a private party. Although these factors make the municipal nondelegation doctrine applicable, a clear standard for delegation would likely allow deputization to survive. In particular, unambiguous language that the OWS would retain ultimate control over any decision-making would help strengthen the legality of this deputization and prevent it from violating the California Constitution’s municipal nondelegation doctrine. This explicit language could be found in formal documentation of a deputization relationship, or in rules and regulations from the LAMC regarding the OWS.

Overall, with the proper boundaries and constraints, the deputization of worker centers by the OWS to perform outreach to employees and to investigate wage theft is likely permissible and constitutional. Taking advantage of the community ties and expertise of worker centers could enable the OWS to better serve the workers of Los Angeles while discouraging wage theft by employers. Deputization of worker centers offers a powerful avenue to combat Los Angeles’s enormous and persistent wage theft problem.

98 S. Cal. L. Rev. 725

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Kalysa To*

* Executive Senior Editor, Southern California Law Review, Volume 98; J.D. Candidate 2025, University of Southern California Gould School of Law; B.A. English & Psychology 2021, University of California, Los Angeles. My sincere gratitude to Professor Clare Pastore, Yvonne Medrano, Victor Narro, and Ruth Silver-Taube for providing their valuable insight. Thank you also to the editors of the Southern California Law Review for their work, and to my family for their support.

“Fake Drake”: Vindicating Copyright Ownership in the Advent of Generative AI Music

April 2025April 2025Melissa Schneider*

INTRODUCTION

In April 2023, “Heart on My Sleeve” almost instantly went viral on TikTok, grabbing the attention of millions of viewers who were intrigued by what seemed to be an unreleased collaboration between Drake and The Weeknd.¹ The song not only sounded extremely similar to its alleged vocalists and their music styles, but the lyrics also reflected events and people relevant to their lives, resulting in a very convincing piece of music. But it quickly became clear that this song was not, in fact, created nor sung by Drake and The Weeknd; instead, it was the product of artificial intelligence (“AI”) music-generating programs used by Ghostwriter977, the poster of the video.² After amassing millions of views across various platforms in just a few days, streaming services pulled the song,³ and those searching for it on YouTube were met with a message stating the video was “no longer available due to a copyright claim by Universal Music Group.”⁴

While concerns about this particular song seem to have been adequately addressed by streaming services quickly pulling it from their platforms, the impact of Ghostwriter977’s video was profound and widespread. While generative AI had already aroused questions and concerns generally, ⁵ “Heart on My Sleeve” directed the world’s attention to the music context. While this is not the first instance of a controversial AI-generated musical work,⁶ the nature and quality of the song revealed just how advanced generative AI technology has become, sparking strong responses ranging from excited curiosity to extreme outrage.⁷

The key question that the world is now more intently wondering, as artists, labels, and music representatives wave the flag of “copyright infringement,” is whether U.S. copyright law, as it stands today, can be a source of recourse for artists to take legal action in response to AI-generated music. Due to the novelty of the technology and the nuances of copyright law in the music context, we are without the legal precedent one would usually look at to find a more definitive answer. Because copyright holders’ concerns are pressing and nothing suggests that copyright law will soon be amended to address them, analogizing to similar cases and drawing on the fundamental principles of, and rationales for, copyright protection is necessary to develop predictions as to how courts will rule in a copyright case of Artist v. AI User.

Copyright is concerned with protecting the rights of creators and encouraging innovation, meaning that there remains an additional concern about being overly restrictive and inhibiting creativity and progress. In the context of AI-generated music and copyright infringement, we are placed at what some deem a crossroads,⁸ left to decide whether we value human artists’ creativity and resulting work more or less than we value technological innovation and its potential for important advancements. On one side of this policy debate is the music industry, which generated $15.9 billion in revenue in 2022 in the United States alone,⁹ and represents an art form that has brought humans together since the beginning of time. There is a high barrier to achieving conventional success in the music industry, which some interpret to mean that only the very best succeed as a result of their hard work and dedication. But the other side of the debate takes these same ideas to highlight how innovative generative AI music should be encouraged. Unlike the music industry, which is extremely difficult to break into, there is a very low barrier to entry for generative AI use, as it is largely accessible and there are many tools one can use to learn how to harness the technology.¹⁰ Some see this as an opportunity to diversify music and the people making it, which has many benefits. There are strong opinions on both sides, placing this debate squarely within the realm of what legislators anticipated would be a subject of copyright controversy—how can we balance protecting existing creations and encouraging future innovations? ¹¹

Absent both a clear answer to this question and any indications that existing copyright law will soon be amended to specifically address the issue of potential copyright infringement by generative AI music outputs, we must look to the interpretation of current copyright law in similar situations. This Note will use case law to shed light on how courts might treat copyright infringement suits involving AI-generated music. To illustrate how current copyright law will apply to real AI-generated music, two hypothetical songs will be used as examples, both based on songs that could be created using existing generative AI music systems.¹²

Sample Song A is a rap song created by User A using Uberduck.ai (“Uberduck”). Sample Song A was created using a generic punk rap beat provided by Uberduck. The voice used to create Sample Song A is an option specifically labeled as Kanye West in the era of Yeezus, West’s provocative 2013 album. The lyrics are generated by Uberduck, using the prompt “rebellion, slavery, superiority, unapologetic, perseverance, individuality, and power,” all of which are words that have been used to describe West’s reputation, as well as the themes of Yeezus and particularly, the hit song “Black Skinhead.”¹³ The resulting rap sounds nearly identical to West, with lyrics closely tied to themes he has focused on. The unsuspecting listener may very likely mistake the song for a new release by West himself. While the song sounds like it would fit in with West’s discography, the actual music and lyrics are completely different from any of his prior releases.

Sample Song B is an emotional ballad, and User B created the musical composition using MuseNet. In creating Sample Song B, they selected Adele as the vocal style for the song, and the selected instrument was limited to piano. The introduction to Sample Song B uses the well-known piano phrase that functions as a melodic hook throughout Adele’s “Someone Like You,” an option provided by MuseNet. This piano segment is arguably the most distinctive musical feature of “Someone Like You,” and is known as an arpeggio, which melodizes chords.¹⁴ The exact piano chords and resulting melody are used—just slightly sped up—but after the introduction, the chords begin to differ. However, the song returns to the piano phrase after the chorus, resulting in a song that is musically similar to “Someone Like You.” User B added lyrics using an outside platform after MuseNet finalized the composition. Sample Song B’s lyrics were written to evoke feelings of both love and despair, and the words themselves speak to a failed relationship, regret, and a longing for love; thus, the song, both lyrically and musically, bears a notable resemblance to “Someone Like You” and Adele’s music generally.¹⁵ The lyrics are sung in a feminine, mezzo-soprano voice, but unlike Sample Song A, the voice does not directly imitate its style inspiration.

Before applying copyright law to the sample songs, this Note provides relevant background information. Part I introduces generative AI, providing an overview of how the technology works and details on how the systems used to make the sample songs produce musical works. Additionally, the U.S. Copyright Office’s statements about AI are discussed. Part II focuses on current copyright law—what it requires, what it protects, and how infringement actions work. Music occupies a unique area of copyright law because of the separation between the composition and the sound recording, so limitations and exclusions are discussed in detail. Because courts have not specifically addressed AI on many occasions, analogizing to other cases involving technology helps anticipate the judicial response to this novel technology. Part III applies copyright law to the sample songs and predicts likely outcomes. This includes an analysis of how the songs may fare in all steps of an infringement action, from defenses to statutorily imposed limitations on what can be the basis of a lawsuit. This analysis reveals how copyright law might help artists and how it may hurt them. While artists may potentially find support in trademark law or the right of publicity, this Note will focus solely on copyright law as a vehicle for attempting to vindicate their rights. Finally, Part IV discusses policy implications associated with trying to fit AI-generated music into our developed system of copyright law, highlights the key concerns for artists, and points to gray areas that warrant clarification. The conclusion of this Note summarizes anticipated outcomes and the complicated nature of fitting new technology into the current framework of copyright law.

I. BACKGROUND: GENERATIVE ARTIFICIAL INTELLIGENCE

A. How the Technology Works

AI is “a science and a set of computational techniques that are inspired by the way in which human beings use their nervous system and their body to feel, learn, reason, and act.”¹⁶ More simply, AI can be thought of as “a man-made object with thinking power.”¹⁷ At the foundation of any program is data input, a starting point akin to the intaking of information that constitutes the first step of the human learning process; the difference between AI and human learning in this respect, however, is that AI systems require massive amounts of data to be effective.¹⁸ How exactly systems use data and produce desired results depends on the learning approach. The most prominent systems are machine learning (“ML”) and deep learning (“DL”).

ML is the “most promising and most relevant domain” to apply AI.¹⁹ ML is a way of learning from big data, and its algorithm is self-adaptive, meaning that through experience, it can get new patterns and improve “perception, knowledge, decisions, or actions.”²⁰ The key feature that distinguishes ML is that the goal is for the algorithm to learn to find its own solutions, as opposed to learning to follow human-defined rules.²¹ DL uses “large multi-layer (artificial) neural networks”²² (“ANNs”) to carry out tasks. ²³ DL algorithms “filter[] the input through many layers,” resulting in the ability to “classify and predict the data.”²⁴ “Computational nodes” are created and trained, and ultimately make decisions through a filtering process that is similar to the human brain.²⁵

This Note will focus specifically on generative AI applications, which are created using generative modeling.²⁶ Generative AI models have a “machine learning architecture” and use learned patterns to generate new data samples.²⁷ There are various generative AI systems, each tailored to a desired output goal; for example, ChatGPT is a generative AI system that generates text and is based on an “X-to-text” model.²⁸ Because generative AI is a subset of ML, the training process requires substantial amounts of data. How models are trained can vary greatly, so this Note will focus on the training used for the specific systems that generate music.

B. Generative AI in the Music Context

There are important nuances to note when discussing generative AI systems that create music as opposed to other output domains. Systems that generate music have attracted a lot of attention purely because the output is something we have long considered to be an “innate pursuit of human beings,” as music is viewed as a human expression that encompasses both “creativity” and “collaboration.”²⁹ While many people remain very opposed to generative AI music,³⁰ it is undeniable that the technology has advanced rapidly in ways that have vastly improved the output quality; many generative AI music systems are now able to account for the subtle but important nuances in recorded music and generate output accordingly.³¹

Most music-generating systems involve combinations of ML, DL, and ANNs. The sample songs guiding this Note’s application of copyright law to AI-generated music used the following two noteworthy systems: Uberduck.ai and MuseNet, both of which exist on different ends of the technology spectrum. While these systems are different in relevant ways that will be discussed, it is important to note a key similarity is that they are trained on existing music, so it is almost guaranteed that at least some of the input includes copyrighted songs that train the model to invoke a sound or style.

Uberduck, used for Sample Song A, is a speech synthesis system powered by DL that generates “high-quality and expressive voice output.”³² Uberduck utilizes several models for speech synthesis, including SO-VITS-SVC, HiFi-GAN, and other text-to-speech models.³³ SO-VITS-SVC is a DL model, trained using audio files to convert recordings into singing voices.³⁴ SO-VITS-SVC references “SoftVC,” “[c]onditional [v]ariational [a]utoencoder with [a]dversarial [l]earning,” and “singing voice conversion.”³⁵ Using a source audio, SoftVC, or “soft voice conversion” separates a singer’s voice into “frequency bands,” which are encoded to analyze “distinct characteristics” of a voice.³⁶ A conditional variational autoencoder with adversarial learning uses adversarial training aimed at enabling text-to-speech models to handle more varied data.³⁷ Lastly, singing voice conversion, which can be thought of like a voice cloner, converts one singing voice into another while maintaining features like pitch, rhythm, and notes from the original input.³⁸ Uberduck also uses HiFi-GAN, which is a specialized variant of the generative model Generative Adversarial Network (“GAN”).³⁹ GANs use generators and discriminators, which work together in a repeated feedback process to help the generator produce results that pass the discriminator’s authenticity test.⁴⁰ The discriminator is trained to determine whether an audio sample is real or fake, which aids the generator in “better approximat[ing] the distribution of real data,” resulting in more realistic-sounding outputs.⁴¹ Through its “loss function,” the generator improves its output by incorporating feedback from the error in results, which is the difference between actual and predicted outputs.⁴² This process is illustrated in Figure 1 below. The difference with HiFi-GAN, specifically, is that it is tailored to “transform recorded speech to sound as though it had been recorded in a studio.”⁴³ The use of HiFi-GAN is an important component of making the resulting song sound believable. Together, these technologies and the other text-to-speech models work to mimic the voice of an input audio and make it sound as authentic as possible.

Figure 1. The HiFi-GAN Process

While both systems use DL, MuseNet, used for Sample Song B, is not a text-to-speech system, and is instead a music composition generator that uses a transformer model, which is illustrated in Figure 2 below. MuseNet uses MIDI files encompassing a wide variety of musical styles as its training data.⁴⁴ In training the system, sequential data is provided in the form of sets of notes, and it is asked to predict what the next note will be.⁴⁵ Data is encoded in a way that “combines expressivity with conciseness.”⁴⁶ Similar to the adversarial elements of Uberduck, MuseNet has an “inner critic” during training which asks the model if a sample was generated by the model or from the dataset.⁴⁷ Additionally, MuseNet created composer and instrumentation tokens which are used during training to teach the model to utilize such information when making predictions; the result is that the model can be conditioned to generate output in a certain style using prompts.⁴⁸ Essentially, MuseNet uses the music styles and MIDI files it has been trained on to generate note sequences that sound realistic, as if human-generated.⁴⁹

Figure 2. Transformer Model Training

With the internal side of the technology having been established, the next component is the user side. When using Uberduck—specifically the “AI Generated Rap” feature used to create Sample Song A—the user is able to select a beat from a list of premade generic beats.⁵⁰ After that is chosen, users have a choice to input custom lyrics or utilize Uberduck’s AI lyric generator, which requires entering a detailed “description of what you want your rap to be about.”⁵¹ Finally, the user selects an artist from a list of “[r]appers” to be the voice of their song.⁵² The end result is a complete rap song. As for MuseNet, the initial prompts include style, introduction, instruments, and number of tokens.⁵³ Style options range from Mozart to Lady Gaga to Disney.⁵⁴ Similarly, the introduction options cover a wide range, including the intro from “Someone Like You” by Adele, which is used in Sample Song B.⁵⁵ The number of tokens used corresponds to the length of the song. The end product is a musical composition, to which lyrics can be added outside the platform.⁵⁶

C. Copyright Office on AI

In August 2023, the U.S. Copyright Office (“Office”) published a notice of inquiry on copyright and AI, which followed the March 2023 launch of the Office’s AI Initiative.⁵⁷ This inquiry specifically focused on policy issues relating to copyrighted works being used to train models, the copyrightability of AI-generated works, potential liability for AI-generated work that infringes on a copyright, and how to treat AI-generated works that imitate artists.⁵⁸ In July 2024, the Office published Part 1 of the Report on Copyright and Artificial Intelligence (“Report”), which addresses the topic of digital replicas.⁵⁹ Specifically referencing “Heart on My Sleeve,” the Office ultimately concluded that it believes the time has come for a new federal law to address unauthorized digital replicas.⁶⁰ With respect to copyright law specifically, the Office broadly indicated that a victim of a digital replica in the form of a musical work may have a claim for infringement of the copyrighted work, but clarified that a replica of one’s voice alone does not seem to constitute copyright infringement.⁶¹ Because Part 1 of the Report provides little insight with respect to the potential vitality of such copyright claims and primarily focuses on legislative suggestions, the Office’s previous statements and approaches in similar technology-related contexts remain potentially revelatory.

While this inquiry is the Office’s most comprehensive look into AI, it is not the first time it has addressed AI. The Office addressed concerns about technology-generated works in 1965, especially after receiving an application for registration of a “musical composition created by a computer.”⁶² Although the issues posed by AI today are, in many respects, far more complex given the vast technological advancements in recent years, the general questions about how non-human-generated works fit or do not fit into copyright have been pondered for nearly six decades. The Office, in operating a copyright registration system, necessarily adjusts its practices according to shifts in technology.⁶³ In deciding whether to register a claim, a “registration specialist” is tasked with determining whether a work qualifies as copyrightable subject matter and satisfies the formal and legal requirements of the copyright statutes and the Office’s practices.⁶⁴ As such, the Office’s practices regarding what is registered generally reflect contemporary understandings of the scope of copyright law in light of modern developments.

The question of copyright protection for AI-generated works has notably been addressed in three recent situations. The first situation, which ripened into litigation, involved the Office’s denial of registration for “A Recent Entrance to Paradise,” an artwork created by an AI system, the “Creativity Machine,” which was listed as the author. The Office cited the lack of human authorship as its basis for denial, a requirement that derives from the statutory criteria that protection is extended only to “original works of authorship.”⁶⁵ While “original work of authorship” is not defined statutorily, courts have uniformly interpreted it to limit protection to human authors,⁶⁶ and the Office has adhered to that.⁶⁷ The Office also rejected the argument that AI can be an author under a “work-for-hire” theory.⁶⁸ The user challenged the denial as an “arbitrary, capricious, . . . abuse of discretion . . . not in accordance with the law, . . . and in excess of [the Office’s] statutory authority.”⁶⁹ The court upheld the denial, stating the lack of human involvement pointed to the “clear and straightforward answer” that it does not give rise to copyright.⁷⁰ This situation differs from a second scenario in which the Office registered “Zarya of the Dawn,” a comic book created using an AI system known as Midjourney.⁷¹ The images in the book were created by Midjourney in response to the user’s text prompts, but the user did not control the creation process; as such, the images themselves were not protectable based on the human authorship requirement, so copyright extended only to the text she wrote herself and the selection and arrangement of the elements of the book, including the images.⁷² The third situation involved the denial of copyright registration for an AI-generated artwork entitled “Théâtre D’opéra Spatial” based on the Office’s conclusion that it contained “more than a de minimis amount of content generated by [AI].”⁷³ The Office offered to register the work if the user would exclude AI-generated features, as there were some elements of human creation, but he refused and challenged that requirement; nonetheless, the Office stood by the requirement of disclosing AI-generation.⁷⁴

Due to situations like these,⁷⁵ the Office clarified how AI-generated works are examined and registered in a recent statement.⁷⁶ In the statement, the Office explains that in making registration decisions about works created using AI, the first question is whether the work is “basically one of human authorship, with the computer [or other device] merely being an assisting instrument,” or if a machine conceived and executed the traditional elements of human authorship.⁷⁷ The Office notes that when AI systems receive prompts from humans that enable the generation of “complex . . . musical works,” the author is the technology, not the prompt-writing human, so it would not be registered.⁷⁸ The Office states that there are cases in which AI is used in conjunction with sufficient human effort to permit registration. In such situations, copyright protects only human-authored elements.⁷⁹ While AI adds nuance to registration inquiries, an important takeaway is that the Office stands firmly behind the human authorship requirement.

II. LEGAL BACKGROUND: COPYRIGHT LAW

Codified in Title 17 of the United States Code, the Copyright Act of 1976 (“Copyright Act”), including its subsequent amendments, is the governing source of copyright law.⁸⁰ Congressional authority to enact such legislation arises from the “Copyright Clause” in the U.S. Constitution, which vests in Congress the 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.”⁸¹ In the time since the enactment of the Copyright Act, there have been many amendments, resulting in a large body of law that simultaneously outlines rules and requirements with specificity and leaves considerable room for judicial interpretation.

A. Requirements for Protection

Under the Copyright Act, copyright “subsists . . . in original works of authorship fixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.”⁸² Copyright does not extend to underlying ideas.⁸³ The Copyright Act explicitly includes “musical works, including any accompanying words” and “sound recordings.”⁸⁴ Generally, the requirements for copyright protection break down into four separate but interrelated requirements: (1) work of authorship, (2) tangible fixation, (3) originality, and (4) creativity.

Legislative history indicates that the phrase “work of authorship” is intended to provide flexibility.⁸⁵ The broad categories of works of authorship in § 102 of the Copyright Act are illustrative, not exclusive.⁸⁶ As mentioned, this requirement has been interpreted to require human authorship, but the Office’s recent statement suggests technology can be involved in the “authorship,” so long as there is sufficient human involvement.⁸⁷ A work satisfies the fixation requirement if it is fixed in a “tangible medium of expression” that is “sufficiently permanent or stable.”⁸⁸ Congress has indicated that fixation form does not matter.⁸⁹ A fixed composition may be written sheet music, while a fixed sound recording may be a recording saved onto a compact disc.⁹⁰

Fixed works of authorship must also satisfy the requirements of originality and creativity,⁹¹ which require “independent creation plus a modicum of creativity.”⁹² Therefore, so long as the work is independently created, a lack of novelty does not preclude copyright protection.⁹³ The “modicum of creativity” standard is a relatively low threshold, requiring only that the work goes beyond independent effort⁹⁴ and bears a “spark of distinctiveness in copyrightable expression.”⁹⁵

There are unique considerations with regard to these requirements in the context of musical works because determining the requisite creativity in music can be contentious.⁹⁶ Creativity is said to inhere in one of three key elements of a musical work—harmony, melody, or rhythm.⁹⁷ While the typical source of protection for compositions is melody, courts vary in this regard, with sufficient creativity being found and denied on each basis.⁹⁸ Protection for musical works includes “accompanying words” or lyrics;⁹⁹ when lyrics and musical elements are integrated into one work, they are protected together and on their own.¹⁰⁰ Lyrics must also satisfy the requirements for protection, and whether lyrics qualify for protection is very situation-dependent.¹⁰¹

B. Rights Conferred by Copyright Ownership

Section 106 of the Copyright Act outlines the exclusive rights of a copyright holder, which broadly include reproduction, distribution, adaptation, performance, and display rights.¹⁰² Actionable copying may pertain to infringement of any of these exclusive rights but must include infringement of at least one.¹⁰³ AI-generated music is most likely to implicate the reproduction, adaptation, and distribution rights.

Reproduction Right

The first exclusive right relevant to AI music is the right to “reproduce the copyrighted work in copies or phonorecords.”¹⁰⁴ In the music context, a USB with a sound recording would qualify as a phonorecord, while a written composition of the song, like sheet music, would be considered a copy.¹⁰⁵ To infringe on the reproduction right, the subsequent work must be a tangible, material, fixed object. An important music-specific caveat in 17 U.S.C. § 114 (“section 114”) is that the reproduction right in recordings is “limited to the right to duplicate the sound recording in . . . phonorecords or copies that directly or indirectly recapture the actual sounds fixed in the recording.”¹⁰⁶ This means that phonorecords with sounds that merely imitate the original sound, as opposed to actually recapturing the original sounds, do not infringe on the reproduction right, “even though such sounds imitate or simulate those in the copyrighted sound recording.”¹⁰⁷ This has been interpreted as precluding liability for substantially similar imitations of a recording absent any exact copying; this is important in the context of music sampling, as it requires proof of exact duplication.¹⁰⁸

Adaptation Right

Copyright owners also have the exclusive right to “prepare derivative works based upon the copyrighted work,” as well as to authorize others to do so.¹⁰⁹ A derivative work is one that must be “based upon one or more pre-existing works,” which is interpreted to mean that a latter work incorporates a sufficient amount of the original work to go beyond mere inspiration.¹¹⁰ The adaptation right is closely tied to the other exclusive rights, namely the reproduction and performance rights. When a work is deemed to be a derivative, there is a necessary implication that the reproduction or performance right was also infringed because the second work is substantially similar.¹¹¹ With respect to sound recordings, the right to produce derivative works is limited to those in which “actual sounds fixed in the sound recording are rearranged, remixed, or otherwise altered in sequence or quality.”¹¹² The independent fixation exclusion to the reproduction right also applies to the adaptation right.¹¹³ As with the reproduction right, this limitation finds notable importance in the realm of music sampling and licensing.¹¹⁴

Distribution Right

The third exclusive right relevant to music is the right to “distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership.”¹¹⁵ To violate the distribution right, there must be a tangible product, whether a phonorecord or a copy. The distribution right in the music context involves the right to sell copies, like sheet music, and phonorecords, such as CDs, of the musical work to the public. In the context of Internet platforms, specifically music platforms for sharing sound recordings, there are questions as to whether making copyrighted works available to the public constitutes a violation of this right. Although courts have not unanimously agreed on the answer, it seems clear that making sound recordings available for download by the public on file sharing networks is likely sufficient to demonstrate infringement.¹¹⁶ Unlike the reproduction and adaptation rights, section 114 does not explicitly name the distribution right in limiting exclusive rights in a recording to exact copies; however, this is likely immaterial because a mere imitation of sounds in the original would seemingly fall outside the definition of the right as applying to distributing copies or phonorecords of the original work.¹¹⁷

C. Additional Music-Specific Considerations

1. Musical Composition Versus Sound Recordings

One unique aspect of music copyright is that there are two sources of protection in a song: the musical composition and the sound recording.¹¹⁸ These are considered distinct elements of a musical work, with each being independently copyrightable.¹¹⁹ While both elements are subject to the same requirements for protection, it is important to distinguish between the two, as the law applies differently to each in certain respects. This distinction plays an overall significant role in infringement actions, from whether something is actionable to what royalties are owed for a use.

While some cases have blurred the line between the composition and recording,¹²⁰ others reflect the importance of keeping them separate, as it is clear that determining applicable case law and potential arguments depends on whether the claim is based on recording or composition. Cases are also revelatory of how outcomes differ based on which element is allegedly infringed.¹²¹ Pertinent to this Note’s discussion, it is both possible and not necessarily uncommon for a work to infringe on the rights of ownership of the composition, but not the recording. Because infringement of the recording has been read to require actual duplication of sounds, a work that recreates but does not directly sample a guitar solo can infringe on the composition but give rise to no cause of action for infringement of the sound recording. Thus, this Note will continue to emphasize the line between these two elements, and how AI-generated music may or may not infringe on each.

Licensing and Sampling

Licensing and sampling are unique considerations in the music context. Licensing, whether it is compulsory and imposed by the Copyright Act or voluntarily negotiated,¹²² functions as a means of ensuring that owners are compensated for the use of their work. How licenses are obtained and what they allow a licensee to do depends on what aspect of the musical work is involved and who is seeking to license it. Central to the discussion in this Note, however, is the royalty aspect of licensing. Because the hypothetical uses analyzed in this Note did not involve licensing the songs, the artists did not receive compensation in royalty payments for these uses.

A very common practice in the music industry that potentially implicates the need for obtaining a license is sampling. “Sampling” refers to the practice of incorporating short segments of sound recordings into new recordings.¹²³ Typically, when the word sampling is used, it means there is a literal duplication of some portion of the original work, not merely an imitation.¹²⁴ Because sampling involves using a clip in an identical sounding way or with limited alterations, the issues presented by sampling usually fall under the substantial similarity inquiry.¹²⁵ Courts are divided on how to approach sampling, particularly with regard to whether applying the de minimis doctrine is appropriate. On one end of the spectrum, the Sixth Circuit in Bridgeport Music, Inc. v. Dimension Films held that sound recording owners have exclusive rights to sample their own recordings, which led to the strong recommendation to “[g]et a license or do not sample.”¹²⁶ This indicated a bright-line rule that any unauthorized use of the recording constitutes infringement, dispensing of the substantial similarity requirement as it pertains to sound recordings.¹²⁷ This view has been sharply criticized by many courts on the other end of the spectrum. Rejecting the Bridgeport view, the Ninth Circuit in VMG Salsoul, LLC v. Ciccone held that the de minimis doctrine extends to sound recordings, thereby necessitating the usual substantial similarity inquiry.¹²⁸ As such, the assessment of sampling in AI-generated music will differ based upon whether the court applies a sampling friendly or unfriendly approach.

D. Copyright Infringement Actions

To establish an actionable copyright infringement claim, the owner must prove the following: (1) they own a valid copyright and (2) there has been copying of the original expression contained therein.¹²⁹

Ownership of a Valid Copyright

As to the first requirement, valid copyright exists when an original work falls within the protectable subject matter of copyright law and adheres to statutory formalities, including fixation, duration, and national origin.¹³⁰ Additionally, registration of the work with the Office is typically a prerequisite for an infringement claim and serves as prima facie evidence of both a valid copyright and ownership thereof.¹³¹ The second prong, ownership, is a legal conclusion based on relevant facts;¹³² ownership is particularly important in the music context given the separation of the composition and recording. Once this is established, one can draw a conclusion as to which exclusive rights the owner has, which then form the basis of an infringement claim.

Copying

Despite extensive similarity, there can be no infringement without copying. Actionable copying must relate to protectable elements of the original work.¹³³ This requirement is best understood as consisting of two elements: factual copying and legal copying.¹³⁴ Factual copying poses a purely factual question: did the defendant know of the protected work, have access to it, and use it in some way in the production of their work?¹³⁵ To establish that the defendant actually copied the original, direct or indirect evidence may be used.¹³⁶ Absent direct proof, copying can be established circumstantially if the plaintiff can show the defendant “had access to the copyrighted material,”¹³⁷ and similarities exist between the works that are “probative of copying.”¹³⁸

Legal copying is often referred to as “improper appropriation” or “substantial similarity.”¹³⁹ Copying does not require verbatim replication of the original work, rather it requires that copying result in the production of a substantially similar work.¹⁴⁰ Experts describe the question of when similarity rises to the level of “substantial” as one of the toughest questions in copyright law.¹⁴¹ Similarity exists on a spectrum, spanning from the most trivial similarities, which are not actionable, to absolute, literal similarity that renders a second work identical. One approach to similarity divides it into two types: “comprehensive nonliteral similarity” and “fragmented literal similarity.”¹⁴² Comprehensive nonliteral similarity speaks to similarity in the “fundamental essence or structure” of a work. Fragmented literal similarity refers to duplication of literal elements of an original, but only in a fragmented manner, such as the exact duplication of only three lines of text. Fragmented literal similarity is often described as a de minimis doctrine, as the question gets at whether a use is de minimis or not.¹⁴³

Regardless of the type of similarity involved, courts imposed one additional barrier for copying of protected elements to be actionable: the copying must not be de minimis.¹⁴⁴ In the context of copyright, “de minimis copying” can be understood as the opposite of substantial similarity.¹⁴⁵ While the idea of de minimis copying sounds simple, its application is not necessarily straightforward because it is highly fact dependent. A de minimis determination pertains both to the quantity and quality of the use, therefore a “simple word count” is not alone enough to determine infringement.¹⁴⁶ In the music context, whether uses are deemed de minimis can vary greatly; in one instance, a six-second segment of a four-and-a-half-minute song was deemed a de minimis use,¹⁴⁷ but in another, a three-second orchestra sequence was not.¹⁴⁸

Courts have developed a wide variety of approaches to determine when similarity rises to the level of substantial in these types of cases. The three test categories that are most commonly used in similar music-related cases are the extrinsic-intrinsic, ordinary observer, and fragmented literal similarity tests.¹⁴⁹ While they each take slightly different approaches to determining the presence of substantial similarity, they are all ultimately rooted in the foundational question of whether there is similarity in those elements to which copyright protection would extend.

Fair Use Defense

Section 107 carves out a limitation on exclusive rights, commonly known as the fair use defense. Four factors are considered in determining whether a use is a fair use:

(1) [T]he purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work.¹⁵⁰

While the Copyright Act dictates that these four factors “shall” be considered, how they have actually factored in has developed over time through judicial interpretation. The seminal case that guides all applications of the fair use defense is Campbell v. Acuff-Rose Music, Inc., a 1994 Supreme Court case that addressed a musical parody.¹⁵¹ The Court cautioned against simplifying the analysis to bright-line rules, emphasizing that fair use determinations must be done on a case-by-case basis, weighing each factor together.¹⁵² While the general principles from Campbell remain, the Supreme Court recently addressed fair use again in Andy Warhol Foundation for the Visual Arts, Inc. v. Goldsmith, in which the Court limited the fair use defense with regard to the first factor’s transformation inquiry.¹⁵³ This will likely have particular salience in infringement cases involving AI because AI is inherently transformative; however, this type of transformation may not hold as much weight under the new understanding of the first factor post-Goldsmith.

While fair use is regularly litigated in many copyright cases generally, musicians tend to avoid it.¹⁵⁴ This initially seems odd given that the seminal case for fair use, Campbell, involves music; but Campbell is really a parody case. Outside the context of parody,¹⁵⁵ Estate of Smith v. Cash Money Records, Inc., is the only federal case recognizing a songwriter’s fair use in copying another song.¹⁵⁶ While artist-defendants have pled fair use in their answers to infringement cases, they typically defend their work on other grounds.¹⁵⁷ A 2018 empirical study revealed that, up to that point, no defendant had successfully established a non-parody fair use of another work’s musical notes.¹⁵⁸ Therefore, how fair use will operate in this context will be somewhat speculative.

III. APPLICATION AND ANALYSIS

A. Sample Song A

Sample Song A is highly similar to “Heart on My Sleeve” by “Fake Drake.” While it sounds deceptively like Kanye West, both in the voice and in that it employs lyrics that intentionally evoke similar themes to his recent works, these similarities are highly unlikely to be cognizable under copyright law for several reasons. Rather than being copyright infringement, this Kanye-inspired song is almost certain to be considered what the courts have called a “soundalike.” But because songs like this have already been the source of contention regarding music and copyright, it is helpful to understand the basis for why this is unlikely to be a successful claim.

For the purposes of this application, it is assumed that there are valid copyrights for the songs from Yeezus that were used in creating Sample Song A, including “Black Skinhead.” It is also assumed that West owns the valid copyrights for both the sound recordings and underlying compositions.¹⁵⁹ Thus, the first requirement of a copyright infringement claim, ownership of a valid copyright, is presumed to be satisfied. This means that West is entitled to the exclusive rights outlined in the Copyright Act. Infringement of one of these rights must be the basis of his claim against User A, which presents just one of many road bumps in an attempted lawsuit based on this type of activity: copying as it relates to his voice or style can pertain only to the sound recording. As such, he is limited to claiming infringement on his right to reproduce, adapt, distribute, and perform the sound recording.¹⁶⁰

Factual Copying

Whether or not there is any possibility of an actionable claim will depend on the second requirement of copying, which is divided into two prongs: factual copying and legal copying. West’s claim would most likely have to rest on an infringement of a right associated with “Black Skinhead” specifically because satisfying the copying requirements for an entire album comprised of a variety of types of songs seems very unlikely. Turning first to factual copying, this prong asks the question of whether the defendant knew of, had access to, and in some way used the protected work in the production of their work. This requirement would seemingly be satisfied by the AI system’s owner, as the question could be answered by looking at the songs the system is trained on to produce work that sounds like West. However, it is likely more complicated when the infringer is merely the user who is not responsible for or involved with inputting data. While the prompt used by User A strongly suggests their desire and intent to use Yeezus and “Black Skinhead” in some way, it is not obvious whether this satisfies the factual copying requirement. This inquiry raises two key questions: can the use by Uberduck be imputed onto User A or can indirect evidence be used to sufficiently prove factual copying by User A themselves?

While it can arguably be assumed that Uberduck is trained on Yeezus and “Black Skinhead” given its option of West’s voice in the style of Yeezus, it cannot be verified for certain absent an admission from Uberduck’s programmer. However, this is not detrimental to a claim by West because factual copying can be proven using indirect evidence, which requires only demonstrating that defendant had access to the copyrighted work and that there are substantial similarities between the works that are “probative of copying.”¹⁶¹ While access cannot be demonstrated by showing a bare possibility that the defendant accessed it, a reasonable possibility of access can.¹⁶² Where these two key questions diverge is on how that possibility of access is demonstrated, whether it be access by the system imputed onto User A or access by User A themselves. Starting with the system, the offering of a Yeezus-style voice suggests a reasonable possibility of access to “Black Skinhead” for a few reasons. First, from a technological perspective, Uberduck utilizes DL, which alone requires significant amounts of data input for the system to learn; for a model to be able to replicate West’s voice from a specific album, it can be inferred that the whole album would have been used to provide as much learning material as possible to create the most authentic results. So-VITS-SVC, the specific DL model Uberduck uses to make songs that sound like West, involves a process of using relevant source audios of West to separate out his voice, which is then encoded to analyze and use the distinctive characteristics of his voice from those songs. Additionally, the HiFi-GAN model that Uberduck uses helps to train the generator to recognize authentic versus fake West samples until it can produce highly realistic-sounding speech.

Asserting that the voice can sound specifically like West in Yeezus, together with the technological understanding that this would require as much relevant training data as possible, it seems fair to conclude it is reasonably possible that the system had access to “Black Skinhead,” which is one of only ten songs on the album. Even considering the unlikely possibility that not all ten songs were used to create a Yeezus-inspired voice, it seems very reasonable to conclude that “Black Skinhead” would be used because it was the first single released from the album,¹⁶³ it has since been certified platinum in the United States three times, and West performed it repeatedly,¹⁶⁴ all of which arguably make it a hallmark of the Yeezus era.¹⁶⁵ It is difficult to imagine a Yeezus-style voice could be trained without the use of this song. Technology aside, access can also be shown through a theory of widespread dissemination,¹⁶⁶ and, for the reasons just stated, “Black Skinhead” was clearly widely disseminated. However, this theory of access is likely not applicable to the system itself outside the context of liability for input.

Having established a relatively strong claim of reasonably likely access, the next question turns on whether that access could be imputed onto User A. Courts have held that there was a reasonable possibility of access by the defendant in certain circumstances in which such access is inferred based on an “intermediary.”¹⁶⁷ One iteration of this theory of access is that access can be inferred if the intermediary or third party is connected to the copyright owner and the infringer.¹⁶⁸ Courts that have entertained this argument have varied on the relationship the intermediary must have with both parties, but a key characterization appears to be that it is a “close relationship,” which might be found when the intermediary contributes creative ideas to the infringer, supervises the infringer’s work, or has worked together in the same department as the infringer.¹⁶⁹ There are two wrinkles in trying to apply this argument here. First, most cases involve the intermediary being given the copyrighted work by the owner.¹⁷⁰ This is potentially less damaging because it still seems relevant whether the third party heard the song, as this also factors into the conclusions in addition to whether the intermediary was given a copy.¹⁷¹ Second, the relevant cases involving inferences based on intermediary access have involved a human intermediary.¹⁷² This may be particularly problematic for a plaintiff in a situation like West because it is hard to apply a framework of a close human relationship to the relationship between a computer program, a user, and input data. However, given the novelty of generative AI technology and the unique issues presented by generative AI music, there is a chance courts will not deem this fatal.

One reason to think courts may be flexible here is because of the expanded willingness to hold Internet intermediary sites vicariously or contributorily liable for failing to monitor infringing material available on or through the use of the Internet’s system.¹⁷³ While this speaks more to potential liability of the system as the sole infringer, it may still help convince a court to accept arguments based on non-traditional assistance in infringement, which is required here to first find the technology to have been an intermediary, and then impute liability onto a user. An indication that courts may be less likely to consider an AI system to be an intermediary turns on the assessment of AI in Thaler v. Perlmutter. As discussed, the court in Thaler emphasized the importance of human authorship for copyright protection.¹⁷⁴ The court rejected the plaintiff’s “work-for-hire” argument, which he used to suggest that he had hired the AI system to create the painting for him; the court rejected the argument for several reasons, but most importantly noted that such provisions of the Copyright Act clearly only contemplated the involvement of humans as employees and the contractual relationship outlined in the provision required a meeting of the minds that cannot occur with a non-human entity.¹⁷⁵ While again, this speaks to a different type of imputation onto technology, it nonetheless reflects a hesitancy to treat technology itself like a human. This provides good reason to question whether a court would find an AI system to be a sufficient intermediary to justify an inference of access.

Given that courts have at times expressed the need to be careful in imposing liability when infringement is not done directly,¹⁷⁶ it is worth considering the possibility that a court assessing generative AI may have trepidations about holding a user liable for infringement that may technically be executed through the complex algorithm of an AI system without any input from the user besides a brief prompt.¹⁷⁷ However, case law has consistently indicated that a finding of infringement is not dependent upon finding that the defendant intended to infringe.¹⁷⁸ As such, it seems unlikely that an individual could escape potential imputation of access by simply arguing they intended to use the system to create a new song, not to infringe on the copyright of another.

Assuming the inference of access could not be imputed onto User A by way of an intermediary theory, there remains the question of whether factual copying by User A can be proven through the same indirect evidence approach without any imputation or involvement of the AI system. As mentioned earlier, one avenue for demonstrating a reasonable probability of access is by pointing to widespread dissemination of the song, which certainly seems like an available option here.¹⁷⁹ This assertion is likely bolstered by the fact that User A clearly knew of Yeezus, as they selected the Yeezus style, and had to have been familiar with the album generally because of the themes in their prompt. These facts, in addition to the widespread dissemination of the song and selection of a rap beat and lyrical themes so similar to “Black Skinhead” form a strong basis for concluding there is a reasonable likelihood of access to the song by User A. The potential issue that could arise is that User A may argue that they were not involved in the creation aside from the prompt and the few general selections. They may try to argue that, even if they had heard the song, this would not matter because their awareness was not involved in the actual creation of the song or what it sounds like. Ultimately, this would likely come down to a determination of whether the selections and prompt constitute sufficient involvement in the creation, but it seems possible that it would be enough because User A did in fact direct Uberduck in a very pointed direction, even if they did so through simple or general means. Additionally, this is unlikely to be where West’s case completely crumbles, and User A has stronger, more important arguments in other areas.

Even if access is proven, the factual copying prong remains unsatisfied until West can demonstrate probative similarity. The probative similarity prong is likely much more straightforward in this case than the access prong. The idea behind probative similarity is that, combined with a reasonable probability of access, a level of similarity will give rise to a reasonable inference that the copyrighted work served as the source for the allegedly infringing work.¹⁸⁰ Determining the presence of probative similarity requires an examination of the two works as wholes to assess whether similarities are those which would not be expected to arise independently.¹⁸¹ An important difference between this inquiry and the legal inquiry of substantial similarity is that probative similarity is not limited to protectable elements, meaning the inquiry takes a holistic approach focused on drawing a historical conclusion as to whether the copyrighted work was the basis in some way for the second work.¹⁸² This could give West a small glimmer of hope because the songs may sound sufficiently similar when compared side-by-side, especially given that unprotectable elements of his style and voice can technically be considered. Because the song sounds like West and expresses themes common to “Black Skinhead” and Yeezus more generally, a jury looking holistically at the two songs may find the similarity to be probative of copying. The level of similarity required to satisfy this requirement is lower than that of substantial similarity, as West must show only that Sample Song A overall is similar to “Black Skinhead” in a way that would be unexpected had User A not had access to the original.¹⁸³ But this is an uncertain outcome because it ultimately comes down to the jury’s assessment of how the songs actually sound and is not dependent upon any legal criteria aside from the general rule of what probative similarity is. Although there is a chance West might prevail on factual copying by demonstrating access and probative similarity, it is likely short-lived because the legal copying inquiry remains.

Legal Copying

The end of the road for those like West who seek to vindicate their exclusive rights by legally challenging soundalikes almost certainly comes at the legal copying phase, if the claim even reaches that point. The substantial similarity prong of the copying requirement raises questions that a song like Sample Song A cannot satisfactorily answer. The chief problem here is that we are assuming the only real similarity is that it sounds like West’s voice or is sung in his distinctive style, neither of which are copyrightable elements of his work. The exclusion of voice and style from the scope of copyright protection was confirmed solidly in the well-known case Midler v. Ford Motor Co., in which Bette Midler lost on a claim of infringement based on a soundalike song that mimicked her voice almost exactly; the infringement claim relied solely on her voice, as the user had obtained rights to the song itself.¹⁸⁴ The Ninth Circuit stated bluntly that “voice[s] [are] not copyrightable,” as they are not fixed works of authorship as required by the Copyright Act.¹⁸⁵ While West may try to point to the similar themes, copyright extends only to expression and not ideas. Regardless of what test is used, when a work is substantially similar only in regard to separate, unprotectable elements, there can be no infringement. There are instances in which unprotectable elements together can form the basis of substantial similarity, but that would not be possible when two songs do not sound alike aside from the voice and general genre or theme. Absent some concrete similarity, such as instrumental interludes, phrases, or even lyrics, there can be no actionable substantial similarity. Section 114 of the Copyright Act likely blocks this type of claim, as it states that the reproduction and adaptation rights do not extend to independent fixations, even if the recording imitates a copyrighted recording.¹⁸⁶ Therefore, Sample Song A would not qualify as a derivative work because, as a mere imitation, it cannot infringe on the adaptation right.

While all signs point to dismissal, there are two potential unique considerations that may be worth discussing. First, there is the question of whether Sample Song A should be considered a reproduction and adaptation, even though it is not the exact same, because the exact song was used to train the outputs of the generative AI system. Technically, AI is trained to the point that it can create its own patterns, but ultimately those are still developed using the copyrighted work. In the case of Sample Song A and Uberduck, So-VITS-SVC isolates the artist’s voice, uses that voice to create and encode frequency bands that correspond to the distinctive characteristics of the voice in that audio, and then learns to make audio that uses those frequencies. There is potentially an argument that this is a literal reproduction of sounds in a way that should be separated from the intangible concept of a voice or style, and instead look at it like a remixed sample of audio of West’s voice.¹⁸⁷ Under this theory, not only could the use be an infringement of the reproduction and distribution right, but Sample Song A would also potentially qualify as a derivative work, as it is a new song based on parts of West’s recording in “Black Skinhead.”¹⁸⁸ If this were to be considered a sample, under the Bridgeport view, this would qualify as infringement without even delving into the substantial similarity inquiry.¹⁸⁹ However, this is far from the only approach to sampling. Likely, the question of substantial similarity will remain central to determining whether this use of sampling constitutes infringement. As already discussed, Sample Song A and “Black Skinhead” cannot be substantially similar because their chief “similarity,” West’s voice and style, is not a protectable element of the song, so it would not be able to serve as the sole basis for infringement under any of the judicial tests. The use of West’s vocal frequency bands would likely be deemed a de minimis use, which is a use in which “the average audience would not recognize the appropriation.”¹⁹⁰ It seems very unlikely that the average audience would recognize Sample Song A’s use of vocal frequency bands extracted from “Black Skinhead” and West’s other music, even though they might recognize that the voice generally sounds alike. This is certainly more complicated than an ordinary sampling inquiry because the use involves very small fragments used in very different ways; nonetheless, because the statutory language prohibits only that which is actually duplicated, the substantial similarity inquiry and de minimis interpretation would have to be based solely on those exact duplications of frequency bands. As such, if this is considered sampling, it would nonetheless likely be dismissed as a de minimis use.

However, even if the use is considered sampling, fair use will likely be an issue for West, whether or not the legal copying issue is addressed with a substantial similarity inquiry. If the sets of sounds from the source audio were actually sampled to make Sample Song A, they are fundamentally different because the frequencies inherently change when forming sounds that say different words. Therefore, if that could be considered an exact reproduction and adaptation of those sounds, it seems likely that a court would find that to be a fair use. While Goldsmith instructed the transformation inquiry to be reined in, this type of use is undeniably transformative in a way similar to the code transformed in Google LLC v. Oracle America, Inc.¹⁹¹ While the basis for the sound of West’s voice, the frequencies, were used, they were manipulated and restructured to such a significant degree, as evidenced by the creation of an entirely new set of lyrics rapped. This is comparable to the reverse engineering of object code in Sega Enterprises Ltd. v. Accolade, Inc., in which the Ninth Circuit found reverse engineering in order to transform code into something entirely new to be a fair use.¹⁹² In Sega, the court rejected the argument that a use in order to create competing products precludes a fair use finding, and emphasized the need to focus on several factors, including but not limited to commercial purposes; there, the use of copyrighted code was to understand the program’s mechanisms and then create something entirely new that would be compatible with the program, which outweighed its purpose of creating an ultimately commercial product.¹⁹³ Here, the decoding of songs into frequency bands could be understood as an attempt to understand why West’s voice sounds the way it does, and the subsequent use of such frequency bands to say new words and make an entirely new song is a transformative purpose sufficient to count toward a fair use. While User A likely hoped their song would achieve commercial success, that does not negate the transformative purpose behind their use of frequency bands from West’s music. Thus, the first fair use factor leans strongly in favor of the user.

As to the second factor, the nature of the work, West’s music is inherently creative, which tends to count against fair use.¹⁹⁴ However, this is often not the most significant factor, and courts have not refused to find a fair use in situations involving creative works.¹⁹⁵ The third factor, amount and substantiality used, counts very strongly in favor of fair use. Vocal frequency bands constitute a very small amount of everything that goes into a song. Considering that all other elements, including instrumentals and lyrics, are entirely different, the use of frequency bands is a minor taking from the original, although West may try to argue that whole songs, presumably including “Black Skinhead,” were encoded. In Sega, in which the entire program was encoded, the court noted that while that fact counts against fair use, the factor is of little weight when the actual use of that information is so limited.¹⁹⁶ Here, certainly not all of that which is encoded is used. What was encoded was a sufficient amount of frequency bands to analyze and understand vocal characteristics for future imitations;¹⁹⁷ while this may have involved a large number of frequency bands, that was what was required to serve the ultimately transformative purpose of creating a high-quality song that did not itself utilize all that was encoded for training purposes.¹⁹⁸ Because the third fair use factor asks about substantiality as well, there is an opening for West to try to argue that, even if frequency bands are one small part of a song, they are nonetheless substantial in relation to the whole work because they are responsible for creating his distinctive voice. This argument would face a few barriers, the first being that it is completely acceptable to make a song that simply sounds like someone else. Additionally, he may have a more compelling argument if those vocal frequencies were placed together and used to rap lyrics from one of his songs. But the frequency bands themselves, isolated from the other bands that together create his voice, are hardly the “heart” of his original work, especially with how they have been changed in Sample Song A.¹⁹⁹

The fourth fair use factor, the effect on the market, has received limited attention in the context of music. However, in Frisby v. Sony Music Entertainment, the court noted that two songs in the similar genres of rap and hip-hop were marketplace competitors.²⁰⁰ As competitors, one copying the other could reasonably be expected to diminish the value and sales of the original.²⁰¹ Here, Sample Song A and “Black Skinhead” are certainly in the same genre, so they may properly be considered competitors in the music market. Following the line of reasoning in Frisby, this means it can be assumed that Sample Song A would have a negative impact on the value of “Black Skinhead” and, further, would harm the market for derivatives because it was used without a license.²⁰² Because sampling is so prevalent in the rap and hip-hop genres, this is particularly relevant here; West may argue that finding this a fair use would set the precedent that following proper sampling procedures is unnecessary. However, the facts here separate this case from that of Frisby because the potential sampling that occurred could have easily gone unnoticed absent the knowledge that it was created using an AI system that had encoded these vocal frequencies. To suggest that this use of “Black Skinhead” would have such a chilling effect on licensing in the industry seems to be taking Frisby’s presumptions too far.

Taking all four factors together, it seems that the highly transformative purpose and minimal amount used may be enough to weigh in favor of finding this to be a fair use, especially in light of the highly speculative arguments about market harm given that this does not involve sampling in the traditional sense. However, because the fourth factor is “undoubtedly the single most important element of fair use,”²⁰³ it is possible that if a court adopts the view that sampling without a license has such an impact on the market for future derivatives, the fourth factor could be enough to compel the finding that this is not fair use. Of course, this would be a judicial determination, so it is not impossible that a court would accept these arguments, but it does not seem overly promising at this point. Given how courts have viewed voice and style thus far, it seems like a stretch to imagine the argument that vocals are really just compilations of protectable sounds would suddenly work because of the technology involved.

The second consideration is that some may believe Williams v. Gaye opened the opportunity to argue style infringement. While the dissenting opinion in Gaye criticized the majority’s conclusion as endorsing the idea of copyright protection for a musical style,²⁰⁴ the bases for infringement included elements like signature phrases, hooks, and structural similarities.²⁰⁵ These were similarities that, although alone may not have been protected, together led to substantial enough similarity that a jury concluded rights had been infringed. While these elements could be considered aspects of the plaintiff-artist’s style, they clearly went beyond sounding like a voice. Additionally, Gaye focused on the composition, whereas Sample Song A’s mimicking of West’s voice could only speak to infringement of the recording because the alleged similarities relate only to what the vocals sound like, which is not fixed on a page like the phrases in Gaye. Putting aside the differences between Sample Song A and the infringing song in Gaye, a key weakness in West’s style argument and whether Gaye made that argument an option is that this idea has not been embraced by other courts. While some courts have embraced a “total concept and feel” test for substantial similarity, both on its own and as part of an “intrinsic” test,²⁰⁶ that test requires at least a claim based on original arrangement of unprotected elements.²⁰⁷ Without some protectable element, whether it be lyrics or a drum beat,²⁰⁸ a similar “feeling” song will not pass a substantial similarity test.²⁰⁹ Here, even if a lay person has an initial reaction that the songs sound similar because the voice mimics West, that, again, is not copyrightable. Given that there are no elements of the instrumental track or lyrics to be the basis of this claim because these are original lyrics and a generic rap beat unlike “Black Skinhead,” the mimicking of his voice is the only thing West could point to and that cannot pass the test. Therefore, even if Gaye introduced a way to litigate style infringement, which is debatable given other courts’ avoidance of such a conclusion, it appears that there must be some sort of protectable expression in that style to base one’s claim on. While West’s voice may evoke a certain aesthetic style and certainly speaks to his creative expression, there is nothing in that expression that can be the source of a successful claim here.

None of this discussion is intended to denigrate the frustration on the part of West and similarly situated artists who understandably want to fight back against AI-generated songs that intentionally mimic their voices and do so in a way that misleads listeners. This certainly reflects Drake’s perspective in response to “Heart on My Sleeve,” which nearly duped the world.²¹⁰ However, these valid concerns do not bear a clear or logical connection to copyright law and its subject matter. Instead, these concerns likely find more coherence in the protections afforded by the laws relating to trademark, unfair competition, and state rights of publicity, which are tailored to protect against the unauthorized use of one’s identity.²¹¹ This is not to suggest that such claims are certain to be successful, or even actionable, but the aims of those laws, which includes protecting identity, are likely more amenable to the concerns of West and others.²¹²

B. Sample Song B

Unlike Sample Song A, Sample Song B presents questions of infringement that, on their face, seem more likely to be answerable with copyright law. While Sample Song B also seems to generally mimic Adele’s style in “Someone Like You,” it importantly incorporates more than that, particularly by way of a nearly identical melodic hook. As with Sample Song A, it is assumed that Adele owns a valid copyright in both the sound recording and the musical composition of “Someone Like You.”²¹³ Accordingly, Adele would have a potential claim for infringement upon her rights of reproduction, adaptation, distribution, and performance. With valid ownership established, the inquiry begins with the copying requirement as it pertains to the composition.

Factual Copying

The trajectory for proving factual copying is much clearer for Sample Song B. On MuseNet, User B specifically selected the introduction from “Someone Like You” by Adele, and that introduction, though slightly modified, is present from the starting note of Sample Song B. If admitted or witnessed, this would constitute direct evidence of factual copying. However, direct proof is often unavailable because “[p]lagiarists rarely work in the open.”²¹⁴ Nonetheless, it seems very likely that indirect evidence would satisfy this requirement. Regarding access, the theory of widespread dissemination would operate well here. When dealing with songs that have gained notable popularity, plaintiffs have tended to invoke a variety of data points to support theories of widespread dissemination including references to airplay frequency and locations, billboard charts, certifications, record sales, nominations and awards, and royalty revenues.²¹⁵ Here, Adele will be able to construct a very convincing claim of widespread dissemination because she can invoke all of these data points with regard to “Someone Like You”: the song has been streamed over two billion times on Spotify alone;²¹⁶ won several awards, including a Grammy;²¹⁷ was certified platinum five times in the United States;²¹⁸ and is the twenty-fifth-best-selling song of all time in the United Kingdom.²¹⁹ Occasionally, widespread dissemination arguments are accompanied by theories of subconscious copying, which speak to the fact that copyright infringement does not have a scienter requirement.²²⁰ User B did, in fact, see on MuseNet that the intro was “Someone Like You,” suggesting this was not subconscious copying. However, the leeway to argue that the use did not need to be with full knowledge of the circumstances may be help Adele’s case; at a minimum, if User B does not admit selecting the intro, they cannot invoke a willful blindness-type argument. Therefore, an attempt to rebut the argument of widespread dissemination is unlikely to be persuasive.

As discussed with Sample Song A, substantial probability of access usually needs to be accompanied by probative similarity to successfully prove factual copying with indirect evidence. However, there are instances in which the probative similarity is convincing enough that it alone can satisfy the copying requirement. This is often referred to as “striking similarity,” and it arises when the similarity is so extensive that it is “effectively impossible for one to have arisen independently of the other.”²²¹ In analyzing striking similarity in music, it has been held that degree of similarity cannot pertain only to the quantity of identical notes, but must also look to the uniqueness and intricateness of the similar aspects and the places in which the two are dissimilar.²²² Oftentimes, because of how high the bar is set for striking similarity, expert testimony is needed when the subject matter is as highly technical as music. Here, while the melodic hook created by the use of an arpeggio is very recognizable and may seem unique to “Someone Like You,” the use of arpeggios generally is common.²²³ While there seems to be a possibility that, with the help of an expert, Sample Song B could be found strikingly similar to “Someone Like You,” the high bar for such a determination, coupled with the infrequency of successful arguments for striking similarity, makes it reasonable to assume that the normal requirements of access and probative similarity will need to be met; this is not damaging for Adele’s claim, as those are almost certainly provable.

Assuming striking similarity is not found, the indirect evidence just needs to show probative similarity. Comparing the two works side-by-side, protected and unprotected elements alike, a factfinder could certainly conclude that “Someone Like You” was the basis, at least in part, for Sample Song B. This holistic comparison would likely highlight the nearly identical melodic hook, which consists of arpeggiated chords and underlies the distinctive harmony, along with the general similarities in terms of the theme and vocal range. While the use of an arpeggio is not itself uncommon and could occur absent copying, the distinctive chord progression, melody, and harmony created in Sample Song B is similar in all the ways that make the instrumental portion of “Someone Like You,” so memorable and impactful. While remaining careful about maintaining the distinction between probative and substantial similarity, there is likely enough similarity to be probative of copying; whether that similarity is substantial in a legal sense remains to be addressed.

Legal Copying

Substantial similarity is thought of as existing on a spectrum, thereby requiring close examination to attempt to identify the line between trivial similarities and actionable improper appropriation. Here, Adele’s infringement action would allege both comprehensive nonliteral and fragmented literal similarity. The most obvious claim is that of literal similarity with regard to the piano phrase, which functions as a melodic hook, because it is reproduced nearly identically in Sample Song B. A potentially important note is that an arpeggio would appear on the sheet music for a composition because it is notated to guide the playing of chord progressions.²²⁴ Further, the use of an arpeggio is key here because it melodizes the chords being used, which tends to then be an important aspect of the resulting harmony; thus, it is potentially very significant to the substantial similarity analysis because arpeggios may take harmony into the protectable range of copyright law.²²⁵ As for nonliteral similarity, this is a situation in which the nonliteral similarity may be characterized as comprehensive; both songs are played in common time, have a somber, emotional sound, and nearly identical lyrical themes, although they are different on a word-for-word basis. As noted, courts use different tests for determining substantial similarity. While these tests are similar in many ways and may yield similar results, the most thorough prediction of how a song like Sample Song B will fare against infringement allegations must consider the nuances of each. Expert testimony is almost always used to help guide complex questions of infringement in music, so any conclusions are subject to elaboration or criticism by a technical expert.

Before applying any of the tests, it is an appropriate moment to address the doctrine of de minimis copying. Because a determination that a use is de minimis negates the need for a full substantial similarity inquiry, courts often address this “defense”²²⁶ at the outset. De minimis copying essentially means there is a lack of substantial similarity, so the conclusion that a use is de minimis generally arises when “the average audience would not recognize the appropriation.”²²⁷ It is important to keep this concept separate from that of characterizing an element as de minimis itself, such as saying that one note is de minimis and not protectable. As the inverse of substantial similarity, the de minimis inquiry similarly must consider the quantitative and qualitative importance of a use because both get at what an ordinary listener would find substantial. Essentially, the inquiry here would follow the same steps as the fragmented literal similarity test, as that test is viewed as a de minimis doctrine.²²⁸ Because the details of those steps will be discussed in detail in applying the fragmented literal similarity test,²²⁹ they need not be laid out here, largely because it seems unlikely that a court would deem the copying here to be de minimis. The focus of this inquiry is on how much of the original was used or copied; the piano phrase is repeated throughout most of “Someone Like You,” so it seems highly likely an audience would recognize the appropriation. Given that the phrase constitutes a quantitatively large part of the original and arguably has significant qualitative importance because the piano is intentionally the only instrument to create a particular feeling, the phrase opens the song instrumentally, and it may be seen as the song’s backbone, a determination that this use is de minimis copying seems unlikely. Thus, it is appropriate to analyze potential outcomes under each of the substantial similarity tests.

i. Extrinsic-Intrinsic Test

The extrinsic-intrinsic test is a two-prong test. The extrinsic prong is the objective prong and requires identifying concrete elements of expression that are similar.²³⁰ Because this test is part of a substantial similarity inquiry, the dissection of elements involves identifying those that are and are not protected by copyright. Music often presents a more complicated case for analysis because, unlike books and films, it cannot easily be classified into a few protectable and unprotectable elements;²³¹ thus, courts applying the extrinsic prong have looked to a wide variety of elements, including title hooks, lyrics, melodies, chord progression, pitch, instrumentation, accents, and basslines.²³² The combination of these expressive elements can be protected by copyright and often form the basis of claims involving instrumental phrases.²³³ Therefore, it can be helpful to think of the first question as relating to separating protectable elements or compilations of elements, and the second question as analyzing those elements to determine whether they are objectively substantially similar. In Skidmore v. Led Zeppelin, the district court concluded on a summary judgment motion that there was sufficient extrinsic similarity for the issue to go to the jury; the basis for such similarity focused on a “repeated A-minor descending chromatic bass lines lasting [thirteen] seconds” that appeared within the first two minutes of both songs and was arguably the “most recognizable and important segments of the respective works.”²³⁴ Additionally, the “harmonic setting” of the sections used the same chords.²³⁵ The court concluded that even though a “descending chromatic four-chord progression” is common, the placement in the song, pitch, and recognizability make it appropriate for analysis under the extrinsic test.²³⁶ Ultimately, however, the jury concluded that, despite the combination of objective similarities, the songs were not extrinsically similar. The jury reached a different conclusion in Three Boys Music Corp. v. Bolton, in which the jury found substantial extrinsic similarity in the compilation of five unprotectable elements.²³⁷

Here, Adele could likely make an argument similar to that of the plaintiffs in both Skidmore and Three Boys Music, arguing that although arpeggiating chords to achieve certain melodic or harmonic goals is not uncommon, the very same chord progression starts both songs without lyrical accompaniment, is repeated several times in both songs at the same pitch, and is “arguably the most recognizable and important”²³⁸ part of each work; invoking the device that made the Three Boys Music plaintiffs successful, Adele would want to emphasize that it is the compilation of expressive elements that form the basis of actionable extrinsic similarity. While the knowledge that MuseNet took the actual intro from “Someone Like You,” and used generative AI to make “predictions” for the rest of the song according to prompts suggests objective similarity of these elements, expert testimony would still be helpful and needed to confirm which elements are really present in Sample Song B; for example, there may be subtle note differences that do not necessarily make the song sound different, but are objective differences, nonetheless.²³⁹ This conclusion is ultimately a question of fact requiring technical breakdown by an expert to evaluate the compilation of expressive elements, including those that are part of the melodic hook, for originality. Based on this analysis, a jury can make an informed determination as to whether these elements are sufficiently original to be protected, and if so, whether Sample Song B is substantially similar with regard to that protected expression. Assuming an expert can corroborate the objective similarity that appears to exist, there seems to be a strong case against User B as it pertains to the extrinsic prong. This is especially true in light of cases in which experts found extrinsic similarity in hooks and signature phrases,²⁴⁰ as well as those that emphasized compilations as sufficient for extrinsic similarity.²⁴¹ Within this framework, the copied melodical hook—consisting of the same or at least similar chord progressions, use of arpeggio, pitch, and harmony—coupled with the prominence and similar repetition in both songs, sets up a strong claim for extrinsic similarity.

Importantly in the context of AI-generated music, Adele may want to point to the fact that the song is “in her style” and that the voice sounds very similar to hers. As discussed with Sample Song A, however, courts have been very reluctant to recognize copyright in a style or someone’s voice. Especially in the case of Sample Song B—which is even closer to what has been identified as a soundalike in past cases, as Adele’s voice is not being used at all—it is at most an imitation of her voice type, and thus it seems unlikely that this part of the similarity between the songs could be actionable itself.²⁴² However, this similarity may work to Adele’s benefit under the intrinsic test.

If satisfied, the extrinsic test must be followed by an intrinsic test, which is the subjective prong that puts aside analytical dissection in favor of taking the approach of a reasonable listener. The intrinsic test asks whether ordinary listeners would find the “total concept and feel of the works to be substantially similar.”²⁴³ A jury may find substantial similarity from an overall view, even when individual similarities alone seem trivial.²⁴⁴ This may be important for Adele’s case because the similarity technically boils down to a few chords and how they are played. However, the impact of the arrangement resulted in an internationally recognized piano phrase, as well as a melody and harmony that have been highly successful in conveying a message. In both songs, the phrase starts at the first second, plays without lyrics initially, and repeats after the chorus. While there are some differences in instrumental content and lyrics, a jury could subjectively find that the repeated phrase is substantial. The ordinary listener would likely also find subjective similarity in the combination of those instrumental choices and thematically similar lyrics, suggesting that the songs genuinely evoke similar meanings. In a subjective analysis of the total concept and feel, the similar-sounding vocals may potentially factor in, particularly because both songs are sung by mezzo-sopranos. However, this is unlikely to be the most salient reason for finding intrinsic similarity because mezzo-soprano is the most common female singing voice, and the intrinsic test assumes an untrained ear who would likely attribute the similarity to the unremarkable fact that both vocalists sound feminine, rather than recognizing the specific vocal range.²⁴⁵ Nonetheless, it seems reasonable to conclude that the songs are substantially similar overall. But because the ordinary listener is supposed to truly reflect an ordinary person with no music expertise, it could also go the other way. While the hook phrase is distinctive and impactful, a jury could conclude that in Sample Song B, because of the variation in the accompaniment aside from the phrase, it is not as salient, therefore finding that the works holistically lack the requisite similarity. This ultimately speaks to the challenging nature of anticipating intrinsic analysis results, as the conclusions depend on unknown variables and subjective judgments. Courts consistently reiterate that they will not question the jury’s intrinsic conclusions, therefore there is less to rely on by way of case law because it is not judges who engage in this inquiry.²⁴⁶

The extrinsic-intrinsic test has been criticized for lack of clarity as to both prongs. As will also be discussed with aspects of the following tests, the “total concept and feel” approach seems to conflict with copyright law’s very specific intent to protect original expressions rather than ideas or commonplace expressions of ideas.²⁴⁷ Assuming this test remains in use, however, it may be the approach applied in the litigation of User B. Without knowing the quality of potential expert testimony, it is hard to predict with certainty the outcome. However, case law does suggest that the type of elements that were copied could, if framed as a compilation, satisfy the extrinsic test because there are clearly musical elements that are objectively the same. As for the intrinsic test, the subjective conclusions of the factfinder will ultimately determine the outcome; however, the prominence of the copied phrase, as well as the concept and feel of the emotional ballads, suggest that a jury could potentially find the songs to be substantially similar.

ii. Ordinary Observer Test

The ordinary observer test asks “whether defendant took from plaintiff’s works so much of what is pleasing to the ears of lay listeners, who comprise the audience for whom such popular music is composed, that defendant wrongfully appropriated something which belongs to the plaintiff.”²⁴⁸ Here, because there are similarities between protectable and unprotectable elements, the test will probably be more discerning. In conducting the more discerning inquiry, courts are to try to extract the unprotectable elements and ask whether the remaining protectable elements are substantially similar.²⁴⁹ Protectable elements may either be completely original or original contributions by way of selection, coordination, or arrangement.²⁵⁰ For Adele, this would likely mean focusing on the original selection, coordination, and arrangement of the piano phrase itself and its function in the song through repetition. Once those elements are identified, the factfinder will look to the total concept and feel, focusing on whether the defendant misappropriated the original aspects of the copyright owner’s work. While the original formulation of the ordinary observer test in Arnstein v. Porter references the intended audience, that factor has not typically played a large role and is usually understood to mean the lay listener.²⁵¹ Because the emphasis is almost entirely on total concept and feel, whether MuseNet made minor, audibly imperceptible changes to the phrase may be less important than in the extrinsic inquiry of the extrinsic-intrinsic test.²⁵²

The analysis of Sample Song B under an ordinary observer test will likely resemble the analysis in New Old Music Group, Inc. v. Gottwald.²⁵³ In New Old Music, the infringement claim was based on a drum part consisting of a single measure, which was repeated throughout the allegedly infringing work, ultimately accounting for eighty-three percent of the original work.²⁵⁴ The defendant argued that the individual elements were not sufficiently original to be protected, but the court held that the totality of the drum part could suffice as copyrightable based on its original selection, coordination, and arrangement.²⁵⁵ A reasonable juror in New Old Music could have concluded that the use of the drum part, which could be seen as the original song’s “backbone,” took so much of “what is pleasing to the ears of lay listeners, . . . that [the] defendant wrongfully appropriated something” from the plaintiff.²⁵⁶ Here, the repeated piano phrase could be described as the backbone of “Someone Like You,” and be protected as a unique and original arrangement despite the unoriginality of any individual note. Analyzing the total concept and feel of both songs, a reasonable jury could likely conclude User B substantially misappropriated Adele’s original compilations and thereby infringed on her copyright.

Because this test relies on subjective judgments, the outcome could go the other way. A jury could conclude that the piano phrase and its arrangement were not original,²⁵⁷ or that it is a de minimis aspect of the work²⁵⁸ and therefore the similarity does not pertain to what lay listeners deem pleasing in “Someone Like You.” This was the case in Velez v. Sony Discos, in which the combination of eight-measure phrases was a structure widely used and therefore not original to the plaintiff’s song, and also constituted de minimis aspects of the original song.²⁵⁹ Sample Song B differs from the allegedly infringing song in Velez in that, aside from that structure of phrases, the song was not otherwise similar to the original in melody, harmony, or lyrics;²⁶⁰ Sample Song B, on the other hand, can be alleged to infringe on the arrangement of piano phrases, as well as the resulting melody and harmony that is affected by other expressive choices like arpeggiating the chords. Because of these similarities, it seems likely that a jury could find for Adele under the ordinary observer test, assuming expert testimony does not exclude the possibility of originality.

A key reason the ordinary observer test, discerning or traditional, comes under criticism is that it asks a factfinder to simultaneously separate protectable elements for careful examination and determine substantial similarity based solely on the total concept and feel.²⁶¹ Additionally, ordinary listeners’ impressions regarding whether copying has occurred do not necessarily prove that a violation of the Copyright Act has taken place. These shortcomings could affect Adele’s case against User B in two opposing ways. On one hand, the meticulous separation of protectable elements before conducting a net effect-type of analysis might lead the jury to conclude that what they are merely dealing with individual phrases. Focusing too closely on the individual phrases, as opposed to the whole arrangement, might cause this similarity to be overlooked in a total concept and feel inquiry. If, however, the jury recognizes the arrangement as the “backbone” of the song, this could lessen the issue. Further, in focusing on the total concept and feel, a jury might unintentionally be overinclusive when the vibe of the songs is as similar as “Someone Like You” and Sample Song B. If anything, this emphasizes the importance of expert testimony regarding the originality, or lack thereof, of the elements—whether on their own or as a compilation—to guide the jury before their total concept and feel analysis.

iii. Fragmented Literal Similarity Test

The last test is the fragmented literal similarity test, which has less applicable case law. This test focuses on “localized” similarity based on the idea that identifiable fragments of identical or nearly identical expression should be the basis for an infringement action.²⁶² As such, the substantial similarity question under this test turns on whether the copying involves trivial or substantial elements of the original work, which is determined by quantitative and qualitative assessments.²⁶³ Most cases specifically addressing fragmented literal similarity involve lyrics, so the qualitative significance of instrumental phrases is less explored. However, when considering the qualitative importance of instrumental phrases outside the context of fragmented literal similarity, it has been recognized that small sections can have great qualitative import, such as the four-note opening melody in Beethoven’s Fifth Symphony.²⁶⁴ Here, the specific piano phrase appears at the first second of “Someone Like You,” initially without lyrics for about fourteen seconds; the same phrase continues through nearly three and a half minutes of the song, although there are some additional notes played and volume changes.²⁶⁵ Quantitatively, this is clearly significant. In TufAmerica, Inc. v. Diamond, the court determined that a “distinctive orchestra sequence” from the original song that was about three seconds and consisted of “a series of five punchy ascending chords” was quantitatively significant given that it was repeated seventeen times to ultimately constitute about fifteen percent of the song.²⁶⁶ While a musical expert would need to confirm the actual length of time the phrase appears in original form in “Someone Like You,” it certainly seems to exceed that threshold. The qualitative importance also seems convincing given that the piano is the only instrument, the phrase opens the song instrumentally, making it very recognizable, and the phrase continues with only slight alterations, thereby functioning as a common thread through the whole work. Under this test, it seems highly likely Adele would prevail.

However, this test seems least likely to apply. First, it is not as commonly used as the other tests. Second, there is much more at issue than just fragmented literal similarity, especially considering that the desire to legally target Sample Song B likely has as much to do with the fact that User B used AI to create a song that intentionally sounds like Adele as it has to do with the use of the phrase; “local” and “global” similarity are expected concerns for artists whose works are pirated by AI. Third, the fact that the phrase is slightly sped up and may contain slight differences due to how it was generated suggests the other tests may be better suited for this case.

User B’s final opportunity to argue that their conduct falls within the bounds of the Copyright Act without constituting infringement is by asserting the fair use defense. Because the same analysis likely applies to User B’s use of the recording as well, the fair use discussion below addresses both components of the song together.

The Sound Recording

The analysis thus far has focused on the composition. Infringement of the sound recording of “Someone Like You” requires a literal duplication of the recording.²⁶⁷ Based on the language of the Copyright Act, whether the rights in the recording have been infringed depends entirely on how MuseNet creates music using introductions from existing songs:

(a) The exclusive rights of the owner of copyright in a sound recording are limited to the rights specified by [the] clauses [pertaining to the reproduction, adaptation, distribution, and the public performance by digital audio transmission rights] . . . . (b) The exclusive right of the owner of copyright in a sound recording under [the reproduction right] is limited to the right to duplicate the sound recording in the form of phonorecords or copies that directly or indirectly recapture the actual sounds fixed in the recording. The exclusive right of the owner of copyright in a sound recording under [the adaptation right] is limited to the right to prepare a derivative work in which the actual sounds fixed in the sound recording are rearranged, remixed, or otherwise altered in sequence or quality.²⁶⁸

MuseNet trains on MIDI files, which capture data that can be seen as a “symbolic representation of music.”²⁶⁹ Essentially, a MIDI file records data about the notes in a song, including pitch, volume, and time nodes, which can then instruct the reproduction of musical compositions.²⁷⁰ Importantly, MIDI files are not audio recordings and cannot transmit audio.²⁷¹ This means that, unlike Uberduck, MuseNet technically never even “hears” the sound recording; it only trains on the computer language that indicates how the composition is played. Therefore, a MIDI file of “Someone Like You” could not possibly result in exact duplication of the protected recording being used in Sample Song B because the recording itself is not transmitted. This information alone suggests that User B cannot be liable for infringement of the sound recording of “Someone Like You,” and Adele would have to rely on allegations of infringement of the composition as discussed earlier.

While the literal language of the statute suggests that copying using a MIDI file is not an actionable infringement of the recording, a more in-depth inquiry as to whether this is so black-and-white is warranted considering that many AI music generators train on MIDI files. The starting point for this inquiry is legislative intent. The Digital Performance Right in Sound Recordings Act of 1995 (“DPRA”) created an exclusive performance right for sound recordings, specifically granting the right to perform by “means of a digital audio transmission.”²⁷² In doing so, section 114 was also amended to add the relevant limitations on the performance right. The House Report accompanying the DPRA explicitly states that the right applies only to digital audio transmissions, which is consistent with the language of section 114 concerning reproduction and adaptation rights.²⁷³ Additionally, it specifies that a “digital phonorecord delivery” refers to the delivery of a recording by digital transmission.²⁷⁴ From this, it is clear that while the rights associated with sound recordings were expanded to adapt to technological developments, they were not explicitly extended beyond the transmission of the actual recording. However, the House Report does note that because the bill does not “precisely anticipate particular technological changes,” they intend that the rights, exemptions, and limitations created should be interpreted to “achieve their intended purposes.”²⁷⁵ This is at least suggestive of the understanding that the language may not be precise enough to cover all technologies and potential infringements. In 2018, Congress passed the Musical Works Modernization Act with the intent of updating copyright law to increase fairness for creators regarding statutory licensing.²⁷⁶ While this points to an ongoing concern about protecting artists in the advent of technological innovation, it does not change how digital transmission is defined. Legislative intent seems to indicate that Congress’s focus is to protect the actual sound recording. However, the concern about the future evolution of technology nonetheless remains relevant.

The Office has also provided some perspective on MIDI files and the sound recording requirement. As of 2021, the Office “does not consider standard [MIDI] files to be phonorecords and will not register a copyright claim in a sound recording contained in a standard [MIDI] file.”²⁷⁷ The Office elaborates that, because MIDI files do not capture sounds and only capture the underlying score, they are insufficiently fixed to be copyrighted as sound recordings, though they may suffice for musical works.²⁷⁸ While this does not directly address MIDI files in the context of infringement, this is clear evidence that the Office is aware of how MIDI files operate in the music context and continues to view them as fundamentally different from sound recordings. If the Office does not consider MIDI files to be fixations of the recording itself, it is a difficult argument to suggest it should constitute a sound recording for the purposes of infringement.

Case law does not seem to have addressed this issue directly. However, there is a wealth of judicial interpretation of section 114 and what is meant by the requirement that sound recordings be duplicated to qualify as infringement.²⁷⁹ This conclusion aligns with the language of the statute and its intended purpose. Therefore, even if Sample Song B sounds like it was sampled, current interpretations of the Copyright Act would instruct a court to conclude that Sample Song B did not infringe on Adele’s exclusive rights in the sound recording of “Someone Like You.” Undeniably this would be incredibly frustrating for an artist in Adele’s shoes; changing one fact—how the song was duplicated—could open the door to receiving royalties for sampling. This bears similarity to the frustration artists feel in cases involving songs like Sample Song A in which they justifiably feel that their hard work has been “appropriated,” yet that appropriation is simply not cognizable under current copyright law.

However, given that this case presents new issues that have not yet been addressed directly, it is possible that using the original in this specific way could be considered an exact duplication. Based on the DPRA and Congress’s intent to protect the ability to earn royalty revenues in the digital age, it may be a fair extension to consider the extraction and use of exact portions of a song using MIDI technology to be within what was meant by an actual duplication. There is no human involvement in using MIDI files to recreate the exact instrumentals; they are fed to the AI system to learn, train on, and reproduce with predictions. By possessing the MIDI file, the system autonomously makes an exact replica of the song. In fact, the point of MIDI files is to enable the creation of exact replicas, as it is a type of file that can direct notes and instruments to be played. While that seems to sound like a process akin to a person who uses their own instrument to recreate a song, which is acceptable under the Copyright Act, the lack of human involvement may persuade a court to conclude that this process falls outside the scope of what Congress intended to allow without obtaining a license.

If this is considered to be sampling, there are several potential rights for Adele to argue infringement upon; by its very nature, sampling may infringe on the reproduction and distribution rights, and courts have found that sampling infringes on the adaptation right by harming the market for future derivatives.²⁸⁰ In determining whether this sample infringed on those rights, courts would likely apply the same requirements for a successful infringement action. The only instance in which the fact of sampling alone would be sufficient is if a court strictly adheres to the holding and reasoning from Bridgeport. Because this would be considered an exact duplication, the factual copying prong would easily be satisfied. As to the legal prong, it seems that Sample Song B would likely be found to be substantially similar to “Someone Like You” for the same reasons as discussed regarding the musical composition. Further, the fair use inquiry would be important in determining whether User B is liable for infringing Adele’s copyright.

Absent such a change in interpretation or amendment of the Copyright Act, it seems unlikely that Adele would succeed on a claim of infringement on the sound recording. Given that AI systems often train on MIDI data, this is something that may be addressed in the Office’s future reports. While arguments about style pirating by generative AI systems seem unlikely to influence changes in copyright protections, arguments about near-duplication by MIDI files align more with adjusting copyright law to address technological changes. Ongoing concerns about royalties and protecting rights in ownership of a sound recording may demand attention to this MIDI “loophole.” Because this situation presents a good opportunity to reconsider what exactly is meant by exact duplications, it is worth considering how Adele’s infringement action would proceed if User B’s use of MIDI files does qualify as sampling. Since the required elements of an infringement cause of action are likely satisfied, the outcome for the recording probably depends on fair use, as that is User B’s last opportunity to attempt to show that their conduct is not prohibited by the Copyright Act.

Fair Use Defense

Regarding both the musical composition and the sound recording, User B will likely at least plead fair use in their answer to a suit alleging infringement by Adele. Nevertheless, like other music copyright cases, it is not guaranteed that this defense will be litigated. In asserting a fair use defense, User B will have the burden of justifying their use of the original phrase, including its intact melody, harmony, and rhythm. If successful, they will be relieved from liability because fair use is an affirmative defense.²⁸¹ Because there are only a handful of fair use music cases that involve non-parody uses, with a notable absence of case law addressing the use of instrumental sections, the following analysis largely relies on analogies to other applications of the defense.

The first factor is the “purpose and character” of the use.²⁸² The key question is one of transformation. Post-Goldsmith, this inquiry is more demanding and requires looking beyond whether the use adds something new. When the use is essentially the same as the original, as is the case here, a compelling justification is required.²⁸³ There is certainly an argument that the use here is transformative, simply based on the nature of MuseNet and the resulting composition. The intro to “Someone Like You” served as the basis for Song B, but then the AI system used predictive technology to construct much of the remaining composition, revisiting the original phrase only occasionally. In a literal sense, User B, via MuseNet, transformed the phrase by pairing it with new instrumental phrases. While this fits the definition of literal transformation, a more compelling argument would exist if the song retained less of the original in its essentially unchanged form. Since most uses incorporate some addition, the inquiry must also consider the extent to which the purpose differs.²⁸⁴ Sample Song B does not fit into any of the criteria from the preamble of § 107,²⁸⁵ but that does not preclude a sufficiently different purpose. In Estate of Smith, the court found that the use of lyrics to discuss music generally served a “sharply different” purpose than the lyric’s original purpose or goal of commenting on the “primacy of jazz music.”²⁸⁶ Whether this conclusion would be accepted under Goldsmith, which was decided later, is questionable because the Court held that transformation cannot be based on the “stated or perceived intent of the artist.”²⁸⁷

Regardless, while there are changes in the instrumental phrasing and added lyrics, the lyrics reflect very similar themes, and the music serves the same purpose of setting a somber tone. While more specifics about the lyrics and the message of Sample Song B are needed to confirm this conclusion, the available information suggests that the purpose of using the piano phrase is not even as different as that of the use in Estate of Smith, which also arguably lacked significant differences. Because of the exact portions of piano used, along with several other nonliteral similarities, it seems unlikely that User B could sufficiently demonstrate a compelling justification or a distinct purpose. The Goldsmith Court noted that Campbell cannot be read to say that any use that adds something new counts in favor of fair use because, if it did, a “commercial remix of Prince’s ‘Purple Rain’” would weigh in favor of fair use purely because it added some new expression to the song.²⁸⁸ Thus, Sample Song B is arguably just a remix of the instrumentals in “Someone Like You,” which fails to serve any significant unique purpose because it uses the phrasing to evoke the same theme and musical vibe. Therefore, it seems unlikely that a court would find the first factor to favor fair use here.

The second factor is “the nature of the copyrighted work.”²⁸⁹ This factor examines whether the work is creative or expressive.²⁹⁰ This factor weighs strongly against fair use because the copyrighted work is an original, creative musical work. Because this is somewhat uncharted territory, User B could argue that the creative nature of the original song is less relevant because what was used can be broken down into a chord progression, and there are only so many combinations of such progressions; User B may then argue that courts should look at these chords more like facts or nonfiction works. This argument is not particularly persuasive given that Sample Song B uses the same arrangement of the chord progressions, maintaining the original melody and harmony, which clearly speaks to the creative choices made in “Someone Like You.” Nonetheless, this factor is rarely significant in a final fair use determination.²⁹¹

The third factor pertains to the “amount and substantiality of the portion used in relation to the copyrighted work as a whole.”²⁹² User B will certainly argue that they used only what was required for the generative AI system to create predictions and compose a new song in accordance with those predictions. While User B is not required to use only the minimum amount needed for the system to function,²⁹³ the significant amount used, coupled with the lack of obvious transformation in the resulting song, will likely work against them. This factor is less likely to favor fair use when there is extensive copying or when the use encompasses “the most important parts of the original.”²⁹⁴ While in Oracle, the amount of code used was reasonable in proportion to the transformative use,²⁹⁵ the use of exact news segments in Fox News Network, LLC v. TVEyes, Inc. was extensive and included all of the important parts of the original news segments, thereby failing to qualify as fair use.²⁹⁶ User B’s use of the piano phrase likely falls between these two cases, as it does not use the entire composition, but still uses so much of what is important from it. As with the other two factors, this factor would likely count against fair use here.

The final factor, often deemed the most important, asks about the “effect of the use upon the potential market for or value of the copyrighted work.”²⁹⁷ This factor requires looking beyond the immediate situation to consider whether widespread conduct of this kind “[might] adversely affect the potential market for the copyrighted work.”²⁹⁸ As noted earlier, this factor’s application in the music context is unclear, as it has received little judicial attention. Since the use is unlikely to be deemed transformative, Song B is more likely to pose a risk of market substitution. However, this conclusion is based on an approach that is not typically applied to music cases like this one. User B will certainly argue that listening preferences are subjective and the use of the piano phrase to create a similarly emotional ballad may not clearly harm the market for the original the way the complete replication of news segments and distribution of clips would render paying for the original largely unnecessary.²⁹⁹ However, a California court, addressing an allegedly infringing song in Frisby, held that two songs within similar genres were competitors; as such, the court concluded that when a latter song copies important elements of the original, the value and sales of the original are expected to be diminished because “the copy supersedes the objects of the original creation thereby supplanting [it].”³⁰⁰ Sample Song B is clearly within the same genre as “Someone Like You,” so a court may deem them to be market competitors. Assuming these two songs qualify as market competitors, the subsequent question becomes whether Sample Song B copies an important element of “Someone Like You,” thereby supplanting the original. For the reasons discussed throughout this Note, the copied piano phrase is clearly a critical part of “Someone Like You,” as it is recognizable and serves as the instrumental accompaniment for most of the song. If a court agrees with this determination of importance, it will likely count against fair use.

The court in Frisby further explained the importance of considering the market for derivative works that may be affected by a later use; in that case, the court found that if the sample were considered fair use, it would “destroy the market for derivative works based on [the original song].”³⁰¹ While that conclusion was linked to the existence of a “flourishing market” for derivatives of the original song,³⁰² the premise that such a decision would result in future users not bothering to pay licensing fees would still apply here, even if there is no such flourishing market for “Someone Like You.” Fair use cases pertaining to all types of work often consider the potential chilling effects on the market. Finding Sample Song B’s use to be fair use could certainly undermine the efficacy and profitability of an established system of licensing.³⁰³ By referencing sound recordings, the DPRA reflects congressional concern about the livelihoods of artists and individuals who rely on licensing revenue. Allowing this substantial amount of copying to be fair use would likely lead many future users to forgo obtaining a license. Further, the court in Sony Music Entertainment v. Vital Pharmaceuticals, Inc. held that when a user “completely ignore[d] the market for music licensing,” the burden shifts to the user to demonstrate that their use is not likely to harm the market for the original.³⁰⁴ Therefore, because User B did not obtain a license to use any part of “Someone Like You,” they would be responsible for producing evidence that Sample Song B did not negatively affect the market for the original. Adele’s unrealized royalties in this case would be limited to licensing revenues for “traditional, reasonable, or likely to be developed markets.”³⁰⁵ However, based on statutory requirements and industry practices, music licensing qualifies as a developed market. Therefore, this limitation is unlikely to have a significant impact in the music context.

Even if the use of MIDI files renders the use a mere imitation rather than a duplication infringing upon Adele’s rights in the recording, the result may be the same for this fourth factor, as a finding of fair use would necessarily imply that the MIDI loophole provides an acceptable way to avert infringement. This is problematic for the sampling and licensing market because those who would normally obtain a license to sample “Someone Like You” and other songs may instead copy the songs via MIDI technology. While such an approach would be unwise, considering that it does not remove potential liability for infringement of the musical composition, it would nonetheless provide a way to avoid paying licensing fees, which some AI users would likely exploit. Therefore, the chilling effect is likely to occur regardless of whether the use is characterized as sampling or a literal duplication. Further, the piano phrase is an important part of “Someone Like You,” both in the actual recording and in the composition, which is copied exactly. Therefore, Sample Song B may supplant the composition and thereby harm the sales and value of “Someone Like You.”

While predictions about fair use are necessarily speculative given the unique factors here, the application of analogous precedent suggests that, at a minimum, User B does not have a very compelling fair use defense. Future application of fair use in music by courts will be instructive, as will opinions addressing generative AI more specifically. A particularly important question to be answered will be how generative AI works that use predictive models will hold up against a transformation inquiry, as that factor typically seeps into the other three as well. Until courts provide such insight on how fair use and infringement apply to generative AI songs, Adele seems to have a decent case for infringement of the composition, so long as the subjective assessment leans in her favor. Infringement of the rights in the sound recording copyright, however, seems to present a less promising case under current interpretations of the Copyright Act.

IV. POLICY IMPLICATIONS

The analyses of Sample Songs A and B clearly suggest that current copyright law does not provide obvious answers to several questions that arise in the context of generative AI music and, more generally, AI technology. While certain provisions of the Copyright Act are intentionally broad to allow for changes, and amendments have addressed specific deficiencies identified by Congress, a fundamental deficiency arises from the fact that they did not design the Act with this advanced of technology in mind. For example, the limitation of rights in a sound recording to exact duplications was not promulgated with the expectation that machine learning algorithms would eventually train on data and duplicate it exactly through what technically qualifies as an independent fixation under the statute. Whether these deficiencies are addressed through amendments, judicial decisions, or administrative policies, a determination stands to be made as to whether specific new rules or exceptions are needed, or if the broad language of the Act should remain, with adjusted, AI-specific or AI-sensitive interpretations.³⁰⁶

Specific rules aside, the contentious situations created by generative AI music highlights the continuing struggle to balance protection for creators with the benefits of rapidly advancing technology. As the Court noted in Twentieth Century Music Corporation v. Aiken, the Copyright Act and its provisions are intended to reflect “a balance of competing claims upon the public interest.”³⁰⁷ On one side of the spectrum, it is important to recognize the societal value of music and properly appreciate the talent it takes to release authentic, moving pieces of work.³⁰⁸ If we want musically talented individuals to continue to pursue these creative aims and provide us with entertainment, their creative expression must continue to enjoy protection. This is a particularly salient concern given the sensitivity of the creation involved, as one artist is a vulnerable human, baring their soul, and the other “artist” is an inherently non-creative and non-vulnerable trained machine.

On the other end of the spectrum is the necessary recognition of the importance of encouraging technological advancement and pursuing a more efficient society. If the use of generative AI is aggressively cabined by the risk of copyright infringement litigation, the world may miss out on valuable works. While the protection of artists is undeniably important, it cannot be forgotten that protections are limited because the ultimate goal is to promote creativity for the public good.³⁰⁹ Further, this could have a chilling effect beyond the music industry, impacting industries in which the use and advancement of this technology could change the world or save lives. Even within the music industry, if we limit the usage of AI by non-owners, how might that precedent impact the use of AI by owners themselves? Currently, similar technology is used in recording studios to make original songs and, particularly, to improve songs before they are released.³¹⁰ Artists would agree that this use is not the aim of cracking down on copyright infringement, but it would potentially be difficult to keep these uses separate and may result in frivolous and undesired suits between disgruntled artists and producers. Further, we need to determine the weight that the creative input of the user has on what uses are more permissible because not all AI systems dominate the creation without meaningful human input. Determining how and where to draw this line is far from simple and will necessarily depend on an increased understanding of the technology, assessment of policy priorities, and, to some degree, value judgments regarding what aims our society deems most important.

CONCLUSION

Generative AI music presents a whole host of new questions, considerations, and potential implications for how copyright holders vindicate their ownership. While the application of current copyright law and precedents to these situations involving AI-generated music does not provide fully satisfying answers as to what will happen when songs like these land on court dockets, it does direct attention to the chief policy concerns and areas in which artists are vulnerable. With regard to “Fake Drake,” the analysis of Sample Song A suggests that an infringement suit based on AI-generated soundalikes is unlikely to be successful. While a better understanding of the technology involved in AI-generated music may lead to stronger sampling claims, addressing “Fake Drake” is likely a matter better suited for trademark law and the right of publicity. Sample Song B presents slightly brighter prospects for artists to litigate AI-generated songs they believe infringe on their existing, copyrighted work. But these results are somewhat tentative, pending a better understanding of the technology and, ideally, insight from the Office.

What can be said for certain is that our understanding and expectation of how these cases will unfold are crucially informed by our understanding of the generative technology that ultimately creates the works. From the amount of user input to training data, there are many more considerations for actionable infringement than in a case of one person consciously copying the lyrics of a song by copying and pasting them onto new sheet music. As more is understood about how this technology actually uses existing songs to create new ones, the more we can apply the principles of copyright law and identify the gray areas that need clarification. To call these situations and concerns complicated would be a vast understatement. But if copyright law is to achieve its aims of “promot[ing] the Progress of Science and useful Arts,”³¹¹ while also continuing to provide adequate protection for “original works of authorship,”³¹² even in the face of alluring technological developments, work must be done to decipher between these considerations and identify those that are legally cognizable. While Drake likely cannot

vindicate his copyright ownership rights by taking Fake Drake to court, future artists similarly affected might face a different trajectory thanks to “Heart on My Sleeve,” and how it turned the country’s attention to the question of how copyright law interacts with generative AI music.

98 S. Cal. L. Rev. 663

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Melissa Schneider*

* Executive Senior Editor, Southern California Law Review, Volume 98; J.D. Candidate 2025, University of Southern California Gould School of Law; B.A. 2022, University of Arizona, W.A. Franke Honors College. Thank you to Professor Barnett for his support and guidance, and to the members of the Southern California Law Review for their thoughtful suggestions.

Transforming Special Education Litigation: The Milestone of Perez v. Sturgis Public Schools

April 2025April 2025Isabelle Yuan*

In March 2023, the Supreme Court issued a landmark decision in Perez v. Sturgis Public Schools, which held that individuals seeking compensatory damages under federal anti-discrimination laws, like the Americans with Disabilities Act, no longer need to satisfy the administrative exhaustion requirement in the Individuals with Disabilities Act (“IDEA”). Under IDEA, all students with disabilities are entitled to a free appropriate public education, which means that students with disabilities are entitled to individualized education services that meet their needs. In Perez, the plaintiff, Miguel Luna Perez, was a deaf student who alleged that the Sturgis Public Schools discriminated against him by not providing proper accommodations, such as a qualified sign language interpreter in his classes. The district court and the Sixth Circuit dismissed the plaintiff’s claims because of an IDEA provision that requires the plaintiff exhaust all administrative procedures before seeking relief in court. The Supreme Court reversed the Sixth Circuit decision, reasoning that the exhaustion requirement did not apply to Perez as he sought compensatory damages, which are unavailable under IDEA. This ruling means that families can now directly hold schools financially accountable for IDEA violations. This Note discusses Perez’s profound impact on the special education landscape. The greater accessibility for families to litigate will ideally lead to greater accountability and IDEA compliance as schools strategize to avoid litigation and paying costly compensatory damages. Although this decision is a victory for students with disabilities, a major downside of Perez is that paying compensatory damages increases schools’ financial strain and may hinder their abilities to address systemic issues in their special education framework. To ensure that school districts can properly address structural issues and adequately support students with disabilities post-Perez, this Note argues for clearer IDEA guidelines and robust monitoring systems. There are many uncertainties that follow in the wake of Perez, but the decision has the potential to encourage much-needed progress in special education services nationwide.

INTRODUCTION

In March 2023, the United States Supreme Court delivered a landmark decision for students with disabilities. The Court unanimously ruled in Perez v. Sturgis Public Schools that a student with a disability is not required to exhaust the administrative due process procedures under the Individuals with Disabilities Education Act (“IDEA”) before seeking monetary damages under the Americans with Disabilities Act of 1990 (“ADA”) or other federal antidiscrimination laws.¹ Under IDEA, students with disabilities are required to receive a “free and appropriate public education,” but money damages are not available as relief.²

IDEA mandates that students with disabilities receive a free appropriate public education (“FAPE”), which includes providing special education and related services from preschool through secondary school that meet state educational agency standards and conform with the student’s individualized education program (“IEP”).³ An IEP is a written statement developed by a local educational agency, like a school district. It is a collaboration between a child’s parents and school personnel to identify a student’s needs and to develop a plan to achieve educational goals.⁴ Parents are intended to play “a significant role” in the IEP process.⁵ IEPs also prescribe the types of supplementary services the student will receive, along with an explanation of whether the child is able to participate in regular classes with nondisabled children.⁶

Three main federal laws exist to protect children with disabilities: IDEA,⁷ the ADA,⁸ and section 504 of the Rehabilitation Act of 1973 (“section 504”).⁹ Both IDEA and section 504 confer a right to FAPE, though the two have distinct conceptions of the meaning.¹⁰ Though the ADA does not contain a FAPE obligation, its regulations are mandated to be consistent with all section 504 regulations, so it does not undermine section 504’s FAPE obligation.¹¹ The ADA was enacted twenty-five years after IDEA to “provide a clear and comprehensive national mandate” to address pervasive discrimination against individuals with disabilities in areas such as “employment, housing, public accommodations, [and] education . . . .”¹² The ADA mandates that employers and public entities make reasonable modifications to their policies or facilities to accommodate individuals with disabilities. Section 504 is an antidiscrimination statute that also protects individuals with disabilities from being denied benefits or excluded from participation in any program receiving federal funding, including public schools.¹³

IDEA, the ADA, and section 504 all define “disability” differently, although there are overlaps among them. In this Note, “students with disabilities” refers to students who qualify under IDEA. IDEA defines a student with a disability as a child, aged between three to twenty-one, “with intellectual disabilities, hearing impairments (including deafness), speech or language impairments, visual impairments (including blindness), serious emotional disturbance, . . . orthopedic impairments, autism, traumatic brain injury, other health impairments, or specific learning disabilities” who thereby “needs special education and related services.”¹⁴ The ADA’s definition for “disability” is more stringent, as an individual must have “a physical or mental impairment that substantially limits one or more major life activities” and a record of the impairment.¹⁵ Section 504 incorporates part of the ADA definition, but requires that an individual with a disability have a physical or mental impairment that “results in a substantial impediment to employment” and can benefit from vocational rehabilitation services.¹⁶ The ADA and section 504 operate similarly to prohibit discrimination on the basis of disability in programs that receive federal funding.¹⁷ So, although IDEA and ADA both provide relief for individuals with disabilities, they function differently; the ADA addresses broader discrimination in major areas of public life like employment and public accommodations, while IDEA is focused only on special education services in public education.¹⁸ Importantly, the different “disability” definitions mean that a person who receives special education services under IDEA does not necessarily have a disability recognized under the ADA and section 504.¹⁹

In Perez v. Sturgis Public Schools, Miguel Luna Perez, a deaf student in Michigan, faced significant challenges in his education. Perez attended schools in the Sturgis Public School District (“SPSD”) and was entitled to a sign language interpreter during class.²⁰ Although the school provided him with a classroom aide, Perez’s assigned aide was unqualified to teach sign language.²¹ As Perez neared high school graduation, the school informed his parents that he did not fulfill his diploma requirements and would not graduate, which prompted Perez to file a complaint with the Michigan Department of Education.²² Perez alleged that SPSD denied him an adequate education in violation of IDEA, the ADA, section 504, and two other disability laws.²³ SPSD and Perez agreed to a settlement that included post-secondary compensatory education and sign language instruction for Perez.²⁴ Perez subsequently sued SPSD in federal district court.²⁵ The Western District of Michigan dismissed Perez’s ADA claim, citing his failure to exhaust administrative proceedings because he had settled his IDEA claim—a decision the Sixth Circuit affirmed.²⁶

The central question before the Supreme Court in this case was whether IDEA and the ADA required a student to exhaust administrative proceedings against the school district, even when such proceedings would not provide the relief sought.²⁷ The Court’s unanimous opinion held that an ADA lawsuit seeking compensatory damages could proceed without exhausting the administrative processes of IDEA because the remedy sought under the ADA was not one provided by IDEA.²⁸ Perez is important because it changes the landscape of special education law, opening the door for families to seek compensatory damages without undergoing an extensive exhaustion process. Rather than being forced to participate in due process hearings, families can readily hold school districts financially accountable for IDEA noncompliance.

This ruling will have significant implications for the rights of children with disabilities and how school districts handle future litigation. One implication is that the process for seeking compensatory damages from school districts became more streamlined, since families may bypass IDEA’s exhaustion requirement. Previously, the burden of exhausting IDEA’s administrative procedures was a deterrent for families seeking remedies under federal statutes like the ADA and section 504. Another implication is that the rights of students with disabilities are enhanced, as families have more leverage when negotiating settlements with school districts. Families may feel more empowered by the possibility of receiving monetary damages that will offset their litigation costs and propel school districts to address their inadequate special education programs. The availability of compensatory damages will likely lead to an increase in the number of cases brought against school districts.

However, there may be unforeseen negative consequences of increased family advocacy: prolonged legal battles and compensatory damage payouts may strain school districts’ resources and divert attention away from students. School districts that are already struggling financially might experience a further breakdown in their special education services as reduced funding and resources prevent them from addressing the educational needs of students. It may be that some families will receive rightful compensation while other students with disabilities struggle against systemic issues in the administration of special education programs exacerbated by the effects of the Perez decision.

This Note proposes that the Supreme Court’s decision in Perez will have far-reaching consequences for the families of students with disabilities and school districts’ approaches to litigation, as well as policy implications for educational agencies in the implementation of special education services under IDEA. Part I of this Note offers an overview of IDEA’s history, the statute’s requirements and procedural framework, and an explanation of IDEA’s exhaustion requirement that is central to the discussion in Perez. Also, Part I offers a brief explanation of the ADA and section 504 in relation to IDEA and the standards for receiving compensatory damages through these laws. Part II discusses a few important Supreme Court cases that litigated standards and definitions under IDEA. To fully understand the importance of the Perez decision, it is important to contextualize Perez alongside other IDEA cases heard by the Supreme Court. Part III explores the background and discussion of Perez and its implications for future special education litigation. Finally, Part IV explores potential consequences of the Perez decision and offers policy recommendations on how educational agencies can better meet IDEA requirements and address the needs of students with disabilities.

I. FOUNDATIONS OF SPECIAL EDUCATION LAW

This Part provides background information about the creation of IDEA and a detailed explanation of the statute’s intentions, procedural framework, and enforcement through state educational agencies. This Part also briefly explains IDEA’s exhaustion requirement, which is central to Perez. The final Section of this Part describes the process and standards for a party bringing a discrimination claim for money damages under the ADA and section 504, since compensatory damages are unavailable under IDEA.

A. History of IDEA

Beginning with the Civil Rights Movement, advocates for students with disabilities argued that the exclusion of students with disabilities from schools was a denial of equal educational opportunities analogous to racial segregation in schools.²⁹ Advocacy organizations and parents sued states, alleging that inappropriate educational services violated the Constitution.³⁰ Congress responded by enacting the Elementary and Secondary Education Act of 1965, in which the federal government provided funding to educate students below the poverty line and improve the education of students with disabilities in public schools.³¹ In 1970, the Education of the Handicapped Act (“EHA”) was passed and provided grant funding for higher education institutions to develop special education teacher training programs.³² Two 1972 cases, Pennsylvania Ass’n for Retarded Children (PARC) v. Pennsylvania and Mills v. District of Columbia, are considered to be the most notable cases in special education and foundational to the ideas in IDEA.³³ In PARC, the district court approved an amended consent agreement that obligated the state of Pennsylvania to place every child with a disability “in a free, public program of education and training appropriate to the child’s capacity.”³⁴ In Mills, the district court held that the District of Columbia public school system must utilize their financial resources so “that no child is entirely excluded from a publicly supported education consistent with [their] needs and ability to benefit therefrom,” especially for students with disabilities.³⁵ Though PARC and Mills are most frequently referenced, there were more than thirty federal cases during this period in which courts upheld the same principles outlined in PARC and Mills.³⁶

In the early 1970s, only 3.9 million of the 8 million children with documented disabilities in the United States had access to an adequate education.³⁷ In 1975, President Gerald Ford signed into law an amendment to the EHA, the Education for All Handicapped Children Act (“EAHCA”).³⁸ The EAHCA’s purpose was to ensure that students with disabilities received a FAPE, to protect the rights of students and parents, and to assist states and school districts in providing services.³⁹ The EAHCA’s enactment was significant because it marked the first time that a FAPE was memorialized in the law.⁴⁰

In 1990, amendments were passed to the EAHCA, and the law was renamed as the Individuals with Disabilities Education Act, as it is known today.⁴¹ IDEA’s purpose is to ensure that every child with a disability received a FAPE.⁴² Importantly, IDEA provides funding to states and school districts that comply with its mandates.⁴³ The combination of IDEA’s function and purpose make it both an educational grant program and a civil rights statute, rendering it a unique piece of legislation. In 1997, amendments restructured IDEA into four parts: (1) general provisions; (2) assistance for all children with disabilities; (3) infants and toddlers with disabilities; and (4) national activities to improve the education of students with disabilities.⁴⁴

B. Inside IDEA

1. IDEA Requirements and Procedural Framework

IDEA contains an administrative framework that was intended to ensure that parents of students with disabilities have enforceable opportunities to participate in all aspects of their children’s education.⁴⁵ The Supreme Court has made it clear that IDEA guarantees a substantively adequate program to all eligible students with disabilities, which is satisfied when a child’s IEP sets out an educational program that reasonably allows the child to receive educational benefits and advance from grade to grade.⁴⁶ IDEA is centered around the provision of a FAPE, which must be made in conformity with the IEP.⁴⁷ IDEA does this by guaranteeing a FAPE in the least restrictive environment (“LRE”) for all students with disabilities and through the creation and implementation of IEPs.⁴⁸ A FAPE in conformity with an IEP must be specially designed to meet the unique needs of a child with a disability and include any related services that would benefit the child.⁴⁹ All states covered by IDEA must provide a child with a disability with special education and related services as prescribed by his IEP.⁵⁰ IDEA defines “special education” as specially designed instruction to meet the unique needs of a child with a disability, and “related services” as the support services required to assist a child to benefit from that instruction.⁵¹ These services can include speech-language pathology, interpreters, occupational therapy, and counseling services.⁵²

A FAPE must “have been provided at public expense, under public supervision and direction, and without charge” at an appropriate level of education that meets state standards.⁵³ The LRE means that, to the “maximum extent appropriate,” children with disabilities are to be educated with children who are not disabled in a regular classroom setting, and that removal of children with disabilities from the regular classroom environment occurs only in cases of severe disability or when supplementary services “cannot be achieved satisfactorily.”⁵⁴

IDEA requires school districts to develop an IEP for each child with a disability.⁵⁵ Parental concerns regarding their child’s education must be considered by the team.⁵⁶ States are required to oversee this process and ensure that parents of a child with a disability are involved in the IEP discussion and any decisions about the educational placement of their child.⁵⁷ A student’s IEP must state the special education and related services that will be provided so that the child may advance toward achieving the annual goals set in their IEP.⁵⁸ An IEP must also state the child’s current levels of academic achievement and functional performance, while explaining how the child’s progress toward achieving their annual goals will be measured.⁵⁹ Based on these goals, an IEP will prescribe the special education and related services that will be provided.⁶⁰

IDEA has a comprehensive enforcement scheme that requires states to establish and maintain procedural safeguards to ensure that students with disabilities are receiving their basic right to education—a FAPE.⁶¹ State and local compliance with IDEA is monitored by federal review.⁶² Procedural safeguards are in place to “guarantee parents both an opportunity for meaningful input into all decisions affecting their child’s education and the right to seek review of any decisions they think inappropriate.”⁶³ For example, states are mandated to provide an opportunity for parents to examine all relevant school records.⁶⁴ Whenever parents have complaints about the adequacy of their child’s education, like in the development of their IEP, the involved state must provide an opportunity for the party to present a complaint “with respect to any matter relating to the identification, evaluation, or educational placement of the child, or the provision of a free appropriate public education to such child.”⁶⁵

Once a party presents a complaint, a review process begins, in which the parents of the child with a disability discuss their complaint with the local educational agency in a preliminary meeting and the parties work to reach a resolution.⁶⁶ If the agency fails to resolve the complaint to the parent’s satisfaction within thirty days, the party may request an impartial due process hearing, which can be conducted by either the local educational agency or the state educational agency.⁶⁷ A due process hearing is overseen by an impartial hearing officer who considers sworn testimony and evidence to make a decision.⁶⁸ The hearing officer’s decision must be made on substantive grounds based on a determination of whether the child received a FAPE.⁶⁹ For a hearing officer to be “impartial,” they must not be an employee of the state educational agency or the child’s school district.⁷⁰ The officer may find a violation of a FAPE only if the procedural inadequacies “impeded the child’s right to a free appropriate public education,” “significantly impeded the parents’ opportunity to participate in the decisionmaking process,” or deprived the child of educational benefits.⁷¹ Notably, decisions made in due process hearings are binding on both parties, though parties may appeal a decision of the local educational agency to the state educational agency.⁷² Once the state educational agency reaches a decision, the aggrieved party may bring an action in state or federal district court.⁷³ The court will then review the administrative record, with supplementary evidence submitted at the request of a party, before granting “such relief as the court determines is appropriate” to the prevailing party.⁷⁴

IDEA does not grant compensatory damages, but it does provide for discretionary attorneys’ fees.⁷⁵ Most IDEA remedies have been equitable remedies, such as tuition reimbursement or injunctive relief.⁷⁶ Courts have also been given broad discretion in providing equitable relief that it finds appropriate and consistent with the purposes of IDEA, ADA, and section 504.⁷⁷ A court or hearing officer may require an educational agency to reimburse the parents of a child with a disability for the cost of private school enrollment if the school district cannot adequately provide a FAPE.⁷⁸

Once a state accepts IDEA’s financial assistance, an eligible child under the statute has a substantive right to a FAPE.⁷⁹ IDEA has six categories of mandates that states must meet to receive funding: (1) educational agencies must provide services to all qualified students with disabilities, regardless of the severity of their disabilities; (2) educational agencies must evaluate each student with a disability that requests a FAPE; (3) all students with disabilities aged between three and twenty-one who need special education and related services must receive a FAPE; (4) students with disabilities must be educated in the general classroom or the LRE as much as possible; (5) several procedural safeguards must be followed to guarantee a FAPE; and (6) parents must be involved at every stage of the process.⁸⁰

2. State Responsibilities Under IDEA

In the United States, Congress does not have constitutional authority over education, so it exerts pressure on states using its spending powers,⁸¹ particularly by offering federal funding to state and local agencies that meet IDEA conditions.⁸² This funding allows the federal government to oversee state educational authorities, such as state departments of education. State educational authorities then oversee local educational authorities, which are responsible for the implementation of IDEA mandates in schools.⁸³ But IDEA serves only as a floor for student rights, and many states have established their own statutes to further expand upon federal mandates in the special education context. These state laws play a critical role in shaping the law for students with disabilities, so the landscape of disability-rights law can vary significantly from one jurisdiction to another. For example, what a student must do to exhaust IDEA administrative requirements before bringing a lawsuit depends on each state’s rules. IDEA allows states to choose between a one- or two-tiered system for administrative review. In a one-tiered system, a state educational agency decides a student’s case.⁸⁴ In a two-tiered system, a local educational agency decides the case before a party can appeal for an impartial hearing conducted by the state educational agency; all of which must happen before a civil action may be brought in a state or federal district court.⁸⁵

Under IDEA, state and local departments of education receive federal financial assistance if they provide a FAPE for children with disabilities.⁸⁶ A state may provide educational benefits that exceed those required by IDEA, with the state standards being equally enforceable through IDEA.⁸⁷ A state must certify to the Secretary of Education that it has policies and procedures that will meet IDEA’s conditions, especially IDEA’s principal obligation to provide a FAPE to all eligible students with disabilities.⁸⁸ A local educational agency or school district is eligible to receive a share of the state’s federal funding if it has policies and programs that are consistent with the state’s policies.⁸⁹ Thus, a school district’s obligations under IDEA are dependent on the state’s formal procedures and obligations, which must align with IDEA.

3. Section 1415(l): IDEA Exhaustion Requirement

In § 1415(l) of IDEA (“section 1415(l)”), the statute requires that parties first exhaust administrative remedies before filing a complaint in state or federal court regarding the denial of a FAPE.⁹⁰ As the Supreme Court explained in Weinberger v. Salfi,

Exhaustion is generally required as a matter of preventing premature interference with agency processes, so that the agency may function efficiently and so that it may have an opportunity to correct its own errors, to afford the parties and the courts the benefit of its experience and expertise, and to compile a record which is adequate for judicial review.⁹¹

The exhaustion doctrine is also premised on the idea “that [educational] agencies, not the courts, ought to have primary responsibility for the programs that Congress has charged them to administer.”⁹² Although courts have discretion in their decision to rule on exceptions to the exhaustion requirement, the “[a]pplication of the doctrine to specific cases requires an understanding of its purposes and of the particular administrative scheme involved.”⁹³

In analyzing whether an exception to the rule should be granted, courts previously considered whether the purposes of exhaustion would be served by requiring plaintiffs to exhaust administrative remedies.⁹⁴ Congress’s aim was to allow educational agencies and parents to work together in developing a child’s IEP.⁹⁵ Requiring the exhaustion of administrative processes allows for an exploration of the educational issues at hand, a complete consideration of the factual record, and the opportunity for educational agencies to correct the problems in their special education programs.⁹⁶

There have been exceptions to the exhaustion requirement in certain situations, though the accepted exceptions differ across circuits.⁹⁷ Before the Perez decision, courts recognized that there were instances in which the exhaustion requirement did not further the goals of IDEA and excused exhaustion, but only “in cases of futility and inadequacy.”⁹⁸

C. The ADA and Section 504 of the Rehabilitation Act

The ADA and section 504 of the Rehabilitation Act of 1973 are federal statutes focused on preventing discrimination against individuals with disabilities.⁹⁹ Section 504 applies to all organizations that receive federal funding, which includes public schools.¹⁰⁰ Prior to section 504, neither federal, state, nor local law protected people with disabilities from discrimination in schools.¹⁰¹ The ADA extends to secular private schools that do not receive federal funding.¹⁰² The ADA was enacted twenty-five years after IDEA “to provide a clear and comprehensive national mandate for the elimination of discrimination against individuals with disabilities.”¹⁰³ The ADA covers a broader range of areas than IDEA since it focuses on all types of discrimination individuals face in areas such as employment, housing, and health services, in addition to education.¹⁰⁴ Title II of the ADA forbids any public entity, including schools, from discriminating based on disability,¹⁰⁵ and section 504 applies the same prohibition to any federally funded program.¹⁰⁶ The Supreme Court has interpreted section 504 as “demanding certain ‘reasonable’ modifications to existing practices in order to ‘accommodate’ persons with disabilities.”¹⁰⁷

Unlike IDEA, both the ADA and section 504 authorize individuals to seek redress for violations of their rights by bringing suits for money damages.¹⁰⁸ The available remedies under section 203 of the ADA are the same remedies available under section 504 of the Rehabilitation Act, which are also the same remedies available under Title VI of the Civil Rights Act of 1964.¹⁰⁹ Based on that statutory language, the Supreme Court has found that “the remedies for violations of § 202 of the ADA and § 504 of the Rehabilitation Act are coextensive with the remedies available in a private cause of action brought under Title VI of the Civil Rights Act of 1964.”¹¹⁰

Although the ADA is intended to protect individuals with disabilities, many people have been refused coverage.¹¹¹ Many courts have ruled that plaintiffs were not covered under the ADA’s definition of “disability,” as they did not fulfill any of the ADA’s three requirements of having “a physical or mental impairment that substantially limits one or more major life activities,” having “a record of such an impairment,” or “being regarded as having such an impairment.”¹¹² The narrow interpretation of the definition has shrunk the number of people in this protected class.¹¹³

The standard for obtaining compensatory damages under the ADA or section 504 is substantial. Different circuits have adopted similar requirements to establish a discrimination case under either the ADA or section 504.¹¹⁴ To establish a disability discrimination claim under the ADA or section 504, a plaintiff must demonstrate that a student is a “qualified individual with a disability”; “was excluded from participation in,” or otherwise discriminated against by “a public entity’s services, programs or activities”; and that exclusion or discrimination was the result of the student’s disability.¹¹⁵ Claims for compensatory damages under the ADA require a finding of intentional discrimination or an intentional denial of benefits, such as deliberate indifference from a school district.¹¹⁶ For example, in the Ninth Circuit, to prevail on a section 504 claim, a plaintiff must establish that (1) they have a disability; (2) they were otherwise qualified to receive a benefit; (3) they were denied the benefit solely because of their disability; and (4) the program receives federal financial assistance.¹¹⁷ To receive compensatory damages, a plaintiff must additionally prove intentional discrimination, such as showing deliberate indifference.¹¹⁸

II. JUDICIAL MILESTONES IN SPECIAL EDUCATION

This Part gives a brief overview of a few important IDEA cases in which the Supreme Court has decided individual disputes between children and their schools. It also aims to contextualize the Supreme Court’s decision in Perez by highlighting the Court’s role in clarifying IDEA provisions and its consistent deference to parents advocating for their children’s educational rights. Finally, this Part explains Fry v. Napoleon Community Schools, which is the last IDEA case the Supreme Court heard before Perez and addresses related questions about IDEA’s exhaustion requirement.

In Board of Education v. Rowley, the Supreme Court interpreted the term “appropriate” in IDEA’s statutory construct pertaining to FAPE.¹¹⁹ The Court rejected lower court decisions that required educational achievement to a child’s “full potential,” instead concluding that one of the main functions of IDEA was to create “access to specialized instruction and related services which are individually designed to provide educational benefit to” a child with disabilities.¹²⁰ The Court interpreted “appropriate” to establish a “basic floor of opportunity” that required school districts to provide disabled children with an “educational benefit.”¹²¹ This case has been extremely important in clarifying the level of service school districts are required to provide to students.

Amy Rowley, a deaf student, attended public school and received services under the then EAHCA.¹²² When Rowley’s parents requested that the school provide her with a sign language interpreter, school officials refused, maintaining that the services she had already received were sufficient for her needs.¹²³ Rowley received speech and language therapy and had an audio amplification system, which the school argued was sufficient due to Rowley’s passing grades.¹²⁴ Rowley’s parents filed an administrative complaint based on the school’s refusal to provide her with a sign language interpreter, which resulted in a favorable decision for the school district. The federal district court then ruled in the parents’ favor, which was affirmed by the Second Circuit.¹²⁵ The school district appealed to the Supreme Court, which discussed two central questions: “What is meant by the [EAHCA’s] requirement of a ‘free appropriate public education’? And what is the role of state and federal courts in exercising the review granted by [EAHCA]?”¹²⁶

The Court’s majority opinion looked at the Congressional intent of the EAHCA, which focused on remedying the exclusion of children with disabilities from normal school environments. Justice Rehnquist wrote that “the intent of the Act was more to open the door of public education to handicapped children on appropriate terms than to guarantee any particular level of education once inside.”¹²⁷ The Court explained that a school’s obligation was satisfied by providing the basic floor of services rather than the maximum needed for a child to succeed, since that would go farther than what the Court believed Congress intended.¹²⁸ Notably, the Court also declared that a court had the authority to grant whatever relief it deemed appropriate under the EAHCA where a school failed to satisfy procedural obligations, but emphasized that this authority was limited to procedural compliance rather than imposing substantive educational standards.¹²⁹ The Court’s decision in Rowley had practical implications for district courts, as many were guided by the two questions the Rowley Court posited: “First, has the State complied with the procedures set forth in the [EAHCA]? And second, is the individualized educational program developed through the [EAHCA’s] procedures reasonably calculated to enable the child to receive educational benefits?”¹³⁰ Courts have used these two questions to determine whether school districts have done enough for students, and maintain that they may not substitute any preferred policies over the school’s discretion.¹³¹ The Rowley Court also recognized that states have the primary responsibility for developing and executing educational programs and determining educational policies since “courts lack the ‘specialized knowledge and experience’ necessary to resolve ‘persistent and difficult questions of educational policy.’ ”¹³²

In Endrew F. v. Douglas County School District RE-1, the Supreme Court clarified its position on IDEA’s FAPE provision, finding that an IEP must be “reasonably calculated to enable a child to make progress appropriate in light of the child’s circumstances.”¹³³ A child with disabilities should still have the opportunity to be educated in a regular classroom that will “ ‘enable the child to achieve passing marks and advance from grade to grade.’ ”¹³⁴ In Endrew, the parents of a fifth-grade student with autism sought reimbursement of tuition costs for placement in a private school.¹³⁵ His parents were dissatisfied with his progress in public school because his IEP goals carried over year-to-year and he failed to make progress in his learning.¹³⁶ Endrew’s parents filed a complaint with the Colorado Department of Education seeking reimbursement, which required them to demonstrate that the school district had not provided Endrew with a FAPE.¹³⁷ The district court felt that modifications to Endrew’s IEP each year were “sufficient to show a pattern of, at the least, minimal progress.”¹³⁸ The district court explained that minimal progress was all that the Rowley standard required of a school district.¹³⁹ The Tenth Circuit affirmed the lower court’s decision, agreeing that special education services only need to allow a student with disabilities to make “some progress.”¹⁴⁰

The Supreme Court stated that, “To meet its substantive obligation under IDEA, a school must offer an IEP reasonably calculated to enable a child to make progress appropriate in light of the child’s circumstances.”¹⁴¹ The Court felt that an IEP was designed to create a plan for “pursuing academic and functional advancement,” which connected with IDEA’s purpose to help prevent the exclusion of children with disabilities in classrooms.¹⁴² Thus, a student offered an education that merely allowed some progress “can hardly be said to have been offered an education at all.”¹⁴³ The Court refrained from creating a bright-line test for determining what “appropriate progress” meant, reasoning that it should be determined depending on each unique child.¹⁴⁴

Parents of students with disabilities “often do not feel they are empowered when the [IDEA] system fails them,” as litigation is not an accessible avenue for everyone.¹⁴⁵ In Endrew, Endrew’s parents first paid for private specialized schooling before filing a complaint seeking reimbursement from the state,¹⁴⁶ requiring them to pay for expert witnesses and an attorney.¹⁴⁷ IDEA litigation is a lengthy process with a difficult standard for many families to meet. Endrew had to prove that the school district did not allow him to make appropriate progress on his IEP. To meet that standard, he needed professional experts who could attest to the progress he was capable of making and what services he needed to make that amount of progress beyond what the school district provided. Without the means for litigation costs and private education, Endrew would not have been able to present evidence of his progress. His case illustrates how difficult IDEA due process procedures are for parents who lack the means, agency, or understanding to navigate the process.

In Fry v. Napoleon Community Schools, the Supreme Court clarified the procedure that applies when a plaintiff files a complaint under a statute other than IDEA, finding that IDEA’s exhaustion requirement is “not necessary when the gravamen of the plaintiff’s suit is something other than the denial of IDEA’s core guarantee” of a FAPE.¹⁴⁸ There was confusion in lower courts about how to determine whether a complaint qualified as a claim under IDEA or under the ADA, section 504, or other federal laws.¹⁴⁹ In Fry, the parents of a kindergartener with cerebral palsy sought permission to let their daughter bring her service dog to school.¹⁵⁰ The school district denied the request because she already received similar services and a service dog would be “superfluous.”¹⁵¹ The parents first filed a complaint with the U.S. Department of Education’s Office for Civil Rights, alleging ADA and section 504 violations, which resulted in a favorable decision for the parents.¹⁵² The parents then brought these actions against the school district, seeking monetary and declaratory relief due to the school’s denial of their daughter’s right to equal access.¹⁵³ The district court dismissed their action pursuant to section 1415(l) of IDEA because the parents failed to exhaust their administrative remedies under IDEA.¹⁵⁴ The Sixth Circuit affirmed the district court’s decision because, when the injuries alleged relate to the child’s education and there is a remedy available through IDEA, “waiving the exhaustion requirement would prevent state and local educational agencies from addressing problems they specialize in addressing . . . .”¹⁵⁵

The Supreme Court examined section 1415(l)’s exhaustion requirement, finding that it “hinges on whether a lawsuit seeks relief for the denial of a FAPE.”¹⁵⁶ If a lawsuit alleges a denial of a FAPE, then it cannot circumvent section 1415(l), even if the plaintiff sues under a different federal law.¹⁵⁷ However, the Court did specify that if a lawsuit is brought under a different federal law and “the remedy sought is not for the denial of a FAPE, then exhaustion of IDEA’s procedures is not required.”¹⁵⁸ This is because an administrative hearing under IDEA could not provide any relief, even if the claim originates from the mistreatment of a child with disabilities.¹⁵⁹

While Fry clarified certain aspects of the exhaustion requirement, the issue of monetary damages under IDEA remained unsettled, as circuit courts were divided on whether courts could excuse exhaustion.¹⁶⁰ Congress had crafted IDEA “exhaustion requirement to be flexible so that meritorious cases would get a judicial hearing, [but] many courts have applied the rule rigidly, barring cases even when the plaintiffs present persuasive reasons for excusing exhaustion.”¹⁶¹ Fry left an unresolved issue regarding IDEA’s exhaustion requirement, meaning that the plaintiffs continued to be barred when trying to seek compensatory damages under the ADA or section 504 when they failed to first exhaust their options. Had the Court answered the question then, school district responses likely would have handled IDEA complaints with more care and screened them for potential ADA and section 504 violations.

III. PEREZ V. STURGIS PUBLIC SCHOOLS: A TURNING POINT IN DISABILITY RIGHTS ADVOCACY

Part III delves into Perez, explaining how the petitioner, Miguel Luna Perez, faced educational neglect and misrepresentation from his school district before pursuing an ADA claim for emotional distress. Perez establishes a precedent for families to pursue claims under federal laws like the ADA and section 504 without exhausting IDEA procedures, offering new legal avenues for students with disabilities. This Part argues that this decision will have significant repercussions for special education litigation, as it enhances families’ leverage in legal disputes and places financial strain on school districts’ budgets and abilities to provide special education services.

A. Discussion of Perez v. Sturgis Public Schools

Petitioner Miguel Luna Perez was a deaf student who attended schools in Michigan’s Sturgis Public School District from ages nine to twenty.¹⁶² Perez was an individual who qualified as having a disability under IDEA and the ADA because he had a physical and mental impairment that substantially limited multiple major life activities, like hearing and speaking.¹⁶³ Perez claimed that SPSD was required to provide an aide to translate classroom instruction and that his aides were unqualified sign language interpreters.¹⁶⁴ SPSD made multiple misrepresentations to Perez and his parents, including his academic achievements by inflating his grades, that his aides knew sign language, and that he had access to the same educational services as his peers.¹⁶⁵ Perez claimed that, in March 2016, just months before his high school graduation, SPSD informed him and his parents that he would not receive a high school diploma and instead would receive a “certificate of completion.”¹⁶⁶

This prompted Perez and his family to file an administrative due process claim with the Michigan Department of Education.¹⁶⁷ Perez and SPSD reached a settlement that included payment for additional schooling at the Michigan School for the Deaf, sign language instruction for Perez and his family, and payment of the family’s attorneys’ fees.¹⁶⁸ The settlement gave Perez what he was entitled to under IDEA, but there was another legal problem—SPSD also violated Perez’s rights under the ADA.

Perez subsequently sued in the Western District Court of Michigan, seeking compensatory damages for emotional distress under the ADA.¹⁶⁹ SPSD moved to dismiss, claiming that under section 1415(l) of IDEA, Perez was barred from bringing his ADA claim until he exhausted IDEA’s administrative procedures.¹⁷⁰ The district court agreed with SPSD’s argument and dismissed the suit, which the Sixth Circuit affirmed due to circuit precedent that previously addressed the issue.¹⁷¹ The Sixth Circuit opinion stated that, because Perez settled his IDEA claim, he was “barred from bringing a similar case against the school in court—even under a different federal law.”¹⁷² The Sixth Circuit found that federal law requires families to first exhaust IDEA’s administrative procedures as if the action was brought under IDEA, even if they were suing under another statute.¹⁷³ Because Perez’s core complaint was that SPSD denied him a FAPE, his suit sought relief that was available under IDEA, meaning he had to complete IDEA’s exhaustion requirements even if he wanted to bring a separate ADA claim.¹⁷⁴

The case was then brought before the Supreme Court, and the central question concerned “the extent to which children with disabilities must exhaust the[] administrative procedures under IDEA before seeking relief under other federal antidiscrimination statutes, such as the [ADA].”¹⁷⁵ There had been circuit splits on the interpretation of section 1415(l), so the Court finally decided to address this issue.¹⁷⁶ Previously, the Court declined to address this issue in Fry, articulating that “we leave for another day a further question about the meaning of § 1415(l): Is exhaustion required when the plaintiff complains of the denial of a FAPE, but the specific remedy she requests—here, money damages for emotional distress—is not one that an IDEA hearing officer may award?”¹⁷⁷

Here, the Court examined two features in section 1415(l): first, that IDEA is not meant to restrict an individual’s ability to seek remedies under the ADA or “ ‘other Federal laws protecting the rights of children with disabilities,’ ”¹⁷⁸ and second, that a qualification in the statute prohibits certain lawsuits with the language, “except that before the filing of a civil action under such laws seeking relief that is also available under [section 1415(l)], the procedures under subsections (f) and (g) shall be exhausted . . . .”¹⁷⁹ The preceding subsections (f) and (g) discuss children’s rights to due process hearings and the ability to appeal decisions to state educational agencies.¹⁸⁰

Perez interpreted the statute to require exhaustion of the administrative processes discussed in subsections (f) and (g) only to the extent he pursued a suit for remedies IDEA provided.¹⁸¹ Perez argued that this reading would not “foreclose[] his . . . claim because his ADA complaint [sought] only compensatory damages, a remedy everyone before [the Court] agree[d] IDEA cannot supply.”¹⁸² In contrast, SPSD interpreted the statute “as requiring a plaintiff to exhaust subsections (f) and (g) before [they] may pursue a suit under another federal law if that suit seeks relief for the same underlying harm IDEA exists to address.”¹⁸³ This reading would have prevented Perez from bringing his ADA suit because it stemmed from a FAPE violation, which is a harm IDEA addressed.¹⁸⁴ And Perez had already settled his administrative complaint instead of exhausting the administrative processes in subsections (f) and (g), so he would have been foreclosed from his ADA suit.¹⁸⁵

The Court found Perez’s interpretation comported more consistently with IDEA, particularly with section 1415(l)’s use of “remedies,” which treated it synonymously with “relief.”¹⁸⁶ The first clause discusses remedies, the dictionary definition of which is an enforcement of rights like money damages or an injunction.¹⁸⁷ The statute reads that “[n]othing in this chapter shall be construed to restrict or limit the rights, procedures, and remedies available under the Constitution, the Americans with Disabilities Act of 1990, title V of the Rehabilitation Act of 1973, or other Federal laws protecting the rights of children with disabilities,” so it should be construed that IDEA does not restrict or limit the availability of remedies like money damages under federal statutes, including the ADA.¹⁸⁸ The Court noted that there is an exception to this rule, which prevents individuals from seeking redress under other federal laws unless they exhaust the administrative procedures.¹⁸⁹ But the exception “does not apply to all suits seeking relief that other federal laws provide.”¹⁹⁰ The statute requires the exhaustion of administrative processes to apply only to lawsuits that seek relief that is also available under IDEA.¹⁹¹ Thus, the Court concluded that the exception did not bar Perez from his ADA suit, because he sought compensatory damages—a form of relief that IDEA does not provide.¹⁹² This interpretation required the Court to treat “remedies” and “relief” synonymously, which the Court found IDEA did in various places.¹⁹³ For example, the second clause in section 1415(l) refers to “seeking relief,” which complements how a plaintiff’s complaint includes “a demand for the relief sought.”¹⁹⁴

SPSD then responded by raising Fry as precedent.¹⁹⁵ However, Fry “went out of its way to reserve rather than decide [the] question” brought up in Perez, so it did not advance the school district’s argument.¹⁹⁶ In Fry, the Court held that IDEA’s exhaustion requirement does not apply unless a plaintiff seeks relief for a denial of a FAPE, since that is the only relief available from IDEA.¹⁹⁷ The Court found that Perez presented an analogous situation but ultimately asked a different question about whether a plaintiff needs to exhaust the administrative remedies when they are seeking a remedy that IDEA does not provide.¹⁹⁸ Similar to the Court’s answer in Fry, a plaintiff does not need to exhaust administrative processes under IDEA in this situation.¹⁹⁹ SPSD argued that Congress had practical reasons for requiring exhaustion, no matter the plaintiff’s preferred remedy, because exhaustion enables agencies to exercise their “special expertise” and promotes efficiency.²⁰⁰ The Court found SPSD’s argument “unclear” and that it was a “mistake[] to assume . . . that any interpretation of a law” that better serves its presumed objectives “must be the law,” as laws are the result of “compromise[s],” and no law relentlessly pursues its purposes.²⁰¹ Moreover, the Court reasoned that Congress might have aimed to ease the demand for administrative exhaustion when a plaintiff seeks a remedy available under IDEA but allow an exemption from exhaustion when a plaintiff seeks a remedy that IDEA cannot provide.²⁰² The Court found Perez’s argument more persuasive, reversed the decision of the Sixth Circuit, and remanded the case so Perez could proceed with his ADA lawsuit in district court.²⁰³

B. Perez’s Impact on Special Education Litigation

The Perez decision will impact how school districts and other educational agencies approach and settle IDEA complaints in the future. Families now have more leverage against school districts because they are not barred from seeking compensatory damages for failure to exhaust administrative procedures. School districts will likely approach settlement discussions differently, knowing that families now have an opportunity to be awarded compensatory damages. Although families may have more leverage during negotiations, a potential consequence could be that the Perez decision may lead to greater financial strain on school districts, which would prevent other students with disabilities from receiving their basic educational rights. School districts should anticipate an increase in the number of cases litigated because students can now “bypass [the] often slow-moving administrative proceedings under IDEA when their chief claim is for damages under other federal laws . . . .”²⁰⁴

It is worth noting that, due to systemic issues within school districts and state departments of education, even when families are awarded compensatory remedies, educational agencies may not disburse payments promptly or at all. For example, in New York City, parents of children with disabilities have sought the enforcement of orders from impartial hearings entered pursuant to IDEA, which the state department of education has failed to execute due to limited resources.²⁰⁵ In LV v. New York City Department of Education, parents sued the New York City Department of Education (“NYC DOE”) for failure to implement orders, such as funding tuition programs.²⁰⁶ The parents alleged that the NYC DOE had a “systemic problem” due to its failure to maintain a dedicated system for the timely enforcement of the orders, which deprived the plaintiffs of their right to a FAPE.²⁰⁷ In 2008, a settlement agreement between the parents and the NYC DOE was approved.²⁰⁸ Under the settlement, the NYC DOE was required to implement all impartial hearing orders within the time frame stipulated in the order or thirty-five calendar days after the order date if no time limit was specified.²⁰⁹ However, the NYC DOE failed to comply with the settlement terms for more than a decade. A Special Master was appointed in 2021 to investigate the NYC DOE’s delays in the implementation of the orders. In March 2023, the Special Master issued a report after conducting interviews with the plaintiffs, families, school staff, and NYC DOE staff.²¹⁰

The report highlighted that impartial hearings and orders have reached an all-time high in New York City, with the increased volume of requests attributable to the COVID-19 pandemic.²¹¹ It was recommended that the NYC DOE address its staffing crises in the short term and then digitalize its orders for better organization.²¹² One reason the NYC DOE provided for its inability to implement orders was due to NYC DOE staffing shortages.²¹³ The Special Master report was extremely detailed and included many short- and long-term action steps for the NYC DOE, including forty-one required steps that the NYC DOE had to take within a year. There were suggestions for the hiring, training, and retention of staff in the Implementation Unit, which oversees implementing decisions from impartial hearings, while other changes included creating a structure for parents to contact the NYC DOE when their orders are not implemented, providing a support hotline, and building better technology systems to implement orders.²¹⁴

Although this is a victory for families of students with disabilities in New York City, it comes after a decade of inaction by the NYC DOE. This was due to systemic failures on multiple levels, which is not uncommon in school districts and state educational agencies around the country. This is just one example of how structural issues in a system and a consistently underfunded agency will lead to ineffective educational opportunities. LV v. New York City Department of Education is an example of the persistent challenges in ensuring the effective implementation of special education remedies, even when the law provides for a favorable solution. Students legally entitled to reimbursements or tuition assistance from a school district remained in complex litigation for years to accomplish their goals. The tuition some of the plaintiffs requested was only a few thousand dollars, but the NYC DOE was so ill-equipped at executing orders that it remained noncompliant for years. Unfortunately, there is no simple solution for the NYC DOE’s structural issues. Rather, the NYC DOE faces a complex undertaking as it will need to upgrade its infrastructure and rehaul its staff to better respond to the influx of settlements that have piled up and the new hearings that are coming down the horizon.

This case is illustrative of how receiving monetary compensation is important and helpful for students with disabilities to receive a FAPE under IDEA, but a compensatory remedy might not yield anything substantial. The NYC DOE was bound by court orders, but the plaintiffs in LV still waited more than a decade for compensation. And it is unclear whether the recent judicial order will actually result in greater implementation of orders for other students with disabilities. It seems likely that students with disabilities will continue to endure neglect in the system if the state and educational agencies do not have proper mechanisms in place to provide students with their remedies. The NYC DOE manages the largest public school system in the nation, with a 2023–2024 school year budget of $37.5 billion.²¹⁵ Even as the NYC DOE likely has more resources than other school districts, it still struggles with the volume of orders and order implementation. As more decisions ordering monetary remedies are made post-Perez, school districts and state education departments will need to upgrade their infrastructure to deal with outstanding orders and future settlements. Another concern is whether there is funding and leadership dedicated to making those changes. At schools that struggle with leadership turnover among superintendents or principals, this can lead to inconsistency with vision and changing priorities affecting staff effectiveness and cohesiveness and making it even more difficult to train staff and support teachers in developing strong relationships with students.²¹⁶ Educational agencies should take the Perez decision seriously and take LV as a precautionary tale for judicial orders that compel major changes to address structural issues in regard to special education programs and the rights of students with disabilities.

In recent cases decided in the months following the Perez decision, courts have put together IDEA statute and the precedents from Fry and Perez to evaluate suits against public schools for alleged violations of IDEA, the ADA, or other antidiscrimination statutes. In Dale v. Suffern Central School District, the Southern District of New York found that the plaintiffs were not required to exhaust administrative remedies because the plaintiffs sought “a form of relief that IDEA cannot provide—specifically, compensatory damages,” and because exhaustion was not required in the circumstances because of the ruling precedent of Perez.²¹⁷ In Roe v. Healey, a First Circuit case decided in August 2023, the district court below found that plaintiffs were required to exhaust all their FAPE-related claims first, which included claims under IDEA, associated Massachusetts regulations, section 504 of the Rehabilitation Act, the ADA, and the Fourteenth Amendment (enforced through § 1983).²¹⁸ The Fifth Circuit now looks at whether a complaint concerns a denial of a FAPE.²¹⁹ If it does not concern the denial of a FAPE, then administrative exhaustion is not necessary.²²⁰ If the complaint concerns a denial of a FAPE, the court then looks to the relief sought, and if IDEA cannot provide the relief sought, like compensatory damages, the plaintiff does not need to exhaust IDEA’s administrative requirements.²²¹ Courts appear to be applying Perez consistently and are not barring plaintiffs from seeking relief for a FAPE violation that is not provided by IDEA, even if they have not exhausted the administrative procedures pursuant to section 1415(l).²²² At the very least, Perez clarified a confusing question for district and circuit courts left previously unanswered in Fry, so there is greater clarity for families seeking relief under IDEA or other antidiscrimination statutes.

IV. BEYOND PEREZ: IMPLICATIONS AND CHALLENGES IN SPECIAL EDUCATION POLICY

This Part explores the policy implications of the Perez decision, including whether this decision may cause more harm than benefit. It examines the advantages of allowing compensatory damages for families of children with disabilities, while also weighing the significant financial burdens such damages could impose on school districts. This Part also underscores the need for more explicit and accessible IDEA guidelines, so school districts can better understand and fulfill their obligations under IDEA.

A. Implications of the Perez Decision

IDEA’s exhaustion requirement applies to suits alleging violations under IDEA and to “civil action[s] under [other] laws seeking relief that is also available under [chapter 33].”²²³ Prior to the Perez decision, plaintiffs alleging a denial of a FAPE and requesting a remedy that IDEA did not provide still had to exhaust administrative remedies under IDEA.²²⁴ However, now the Perez Court has opened up the possibilities for families of children with disabilities by allowing them to pursue money damages under different federal laws, even when they are seeking a denial of a FAPE. Following this decision, district courts and courts of appeal have issued decisions citing and applying Perez, acknowledging that exhaustion is required only if the plaintiff seeks relief that is available under IDEA.²²⁵ However, plaintiffs attempting to argue that the exhaustion requirements are no longer relevant in IDEA suits will likely still be unsuccessful, since Perez applies only to plaintiffs who bring suits under a separate federal law besides IDEA and for compensatory damages that IDEA does not provide.²²⁶ Various circuit courts have remanded matters to district courts so they can apply the Perez ruling.²²⁷

While it appears beneficial for families of children with disabilities to receive compensatory damages for inadequate educational opportunities under IDEA, the traditional remedies offered for IDEA noncompliance may be more appropriate for various reasons. For example, when a school district fails to comply with IDEA, restructuring the education system to provide adequate services for its students in the future seems more reasonable than offering a sum of money. Although there is an argument that financial penalties can motivate substantial changes from educational agencies, this approach overlooks the systemic problems within a school district and potential oversight from the state educational agency. In addition, the increased focus on litigation now that parents can bypass administrative procedures, will divert resources from addressing structural issues in school districts’ special education programs, especially given the potential for increased non-meritorious litigation to seek money damages after the Perez decision. The aggregate effect of school districts paying compensatory damages and dedicating more time toward lawsuits could detract attention from students, leaving school districts unable to enhance their special education services and at risk of providing reduced educational quality with reduced financial resources at their disposal.

The NYC DOE published data that showed that 37% of preschoolers with disabilities did not receive their mandated special education services in the 2021–2022 school year.²²⁸ More than 6,500 preschoolers who needed speech therapy did not have one session in the entire school year.²²⁹ Advocates for Children of New York, a non-profit dedicated to helping at-risk students receive a high-quality education, recommends New York City invest $50 million into the city’s upcoming budget to increase preschool special education services.²³⁰ That investment would go into hiring more teachers, increasing pay, and providing services similar to those recommended by the Special Master in LV.²³¹ With thousands of students struggling in school districts to access their services, and even more students potentially not being identified as needing services, it is concerning that, following Perez, more money might be paid out to plaintiffs, while less money goes toward special education services.

Another avenue school districts should turn toward is the Office of Special Education and Rehabilitative Services’ Office of Special Education Programs (“OSEP”), which provides discretionary grant awards.²³² In the 2023 fiscal year, OSEP provided over $110 million under IDEA to fund new programs to help educate children with disabilities.²³³ This includes hiring and training special education staff, early intervention services, and technical assistance to help states meet IDEA data collection.²³⁴ Investment in infrastructure and staffing will help school districts avoid lawsuits in the first place and avoid violating IDEA by providing inadequate special education services or failing to identify and track students with disabilities.

Another effect the Perez decision may have on educational agencies is in their assessment and implementation of IEPs and other accommodations for students with disabilities. School districts and states must account for the possibility of being sued under the ADA and other federal laws regarding equal access. Student requests should be addressed not just through IDEA’s lens but also through the lenses of the ADA and section 504. Failure to do so will leave educational agencies open to greater liability now that the remedy of money damages is accessible to students and families. School districts that are most vulnerable to increased lawsuits are clearly those with longstanding violations of students’ FAPE. For school districts that are diligent about abiding by IDEA’s requirements and providing proper FAPE to their students who require accommodations, the implications of Perez will not be as intense.

The Perez decision allows students with disabilities to bring discrimination claims under the ADA to receive compensatory damages, but plaintiffs will need to prove their discrimination claims. While this presents an enormous opportunity for students like Perez to have their day in court, plaintiffs still need to prove intentional discrimination to receive monetary claims under the ADA.²³⁵ The bar to receive monetary damages under either the ADA or section 504 remains high²³⁶ because proving intentional discrimination is difficult.²³⁷ Plaintiffs have to demonstrate that school districts were “deliberately indifferent to [a] student’s rights, exercised gross misjudgment, or acted in bad faith.”²³⁸ So, although it seems like there will be an uptick in lawsuits against educational agencies post-Perez, that does not mean that plaintiffs will prevail and actually receive monetary damages.

It is more likely that families can leverage this change into receiving larger settlement payouts from school districts, since they can threaten to escalate their claims from negotiations to court.²³⁹ Perry A. Zirkel, a special education law expert and law professor, expressed that the special education field remains “entirely unaffected” because the chances of courts awarding money damages for ADA or section 504 lawsuits “remain very strongly against the parents.”²⁴⁰ Zirkel does acknowledge, however, that after Perez, there will likely be more litigation that increases court congestion and parents’ leverage during settlement negotiations.²⁴¹ Another reason Perez strengthens families’ positions is that attorneys for school districts view litigating IDEA claims as overly cumbersome and in need of major reform.²⁴² Even when school districts prevail, they must pay substantial attorney’s fees for trial preparations and attending hearings, while special education teachers must spend time attending additional IEP meetings, interviewing with attorneys, and preparing to testify—all of which takes them away from their normal classroom responsibilities.²⁴³ Even if a parent’s complaint is frivolous, school districts sometimes agree to parental demands simply because a school district’s own attorney’s fees would likely be greater to litigate than the requested changes to IEPs or compensatory education.²⁴⁴

On the other hand, the ADA could help alleviate financial difficulties with litigation, as judges could award monetary remedies along with discretionary attorney’s fees.²⁴⁵ This potential source of funding could change lawyers’ strategies to bring ADA claims against school districts simultaneously with a due process hearing over IDEA complaints. Special education lawyers could also work on a contingency fee basis now that monetary damages are available. The decision to litigate in court is a personal one, however, and even with monetary damages, families may be reluctant to pursue that avenue.

Another critical factor to consider is the financial constraints and pressure on school districts Perez may cause. There is a strong possibility that allowing compensatory damages and having school districts pay out monetary awards to families will affect school districts’ ability to provide adequate special education services. School districts often operate under tight budgets, with funds allocated across various departments and needs. Because more parents have begun requesting services from school districts under the ADA and section 504, aggregate costs for accommodations like special transportation, testing accommodations, and publicly provided education at private schools have compounded.²⁴⁶ With budget constraints and added costs from litigation and monetary damages, fulfilling all IDEA requirements following Perez could overwhelm school budgets.²⁴⁷ This could lead to the trimming of other operational expenses or essential educational services, like school psychologists, speech pathologists, and extracurricular teachers. Diverting funds from valuable programs for children is a concern, especially because districts in lower-income areas will likely be affected at disproportionate rates. School districts primarily rely on local property taxes, state funding, and federal assistance for their budgets, so the financial ability to comply with IDEA procedures might not be feasible for school districts, even those that want to eradicate the educational inequities that students with disabilities experience. Another possibility is that school districts might be able to wield their insurance coverage effectively, depending on their coverage, to cover or defend against an ADA claim.²⁴⁸ This could reduce litigation costs and help offset higher settlement payouts to plaintiffs for school districts, but it depends on the insurance coverage plan and whether premiums might increase with more claims submitted.

B. Challenges in Policy Implementation and Compliance

School districts should not use an unclear statute as an excuse for their failure to provide adequate learning, however. The long-term harm caused to Perez by SPSD could have been mitigated if SPSD simply provided a certified sign language interpreter from the beginning. Even if IDEA standards are confusing, SPSD should have informed Perez’s family about his actual performance and not given inflated grades. There was a serious violation of Perez’s basic education for twelve years, and such egregiousness in school districts must be prevented. The lack of following basic standards of practice for deaf students in Perez is unacceptable considering there is usually guidance available from each state’s department of education.²⁴⁹ For example, SPSD could have reached out to the Michigan Department of Education Low Incidence Outreach to receive resources about serving students with hearing or visual disabilities.²⁵⁰

Even though there may be financial strain on school districts, it is still essential for school districts to strengthen their special education staff, services, and administration, not merely to avoid lawsuits and financial penalties following Perez, but to genuinely meet the needs of students with disabilities. To reduce the risk of litigation and ensure effective compliance, there is a pressing need for clear, specific guidelines detailing the standards school districts must meet under applicable statutes. That is an imperative issue that Congress should address in the near future, now that Perez has been decided. The National Council on Disability (“NCD”), an independent federal agency, was created to provide recommendations that promote disability policies, programs, and procedures that enhance the lives of individuals with disabilities.²⁵¹ Congress should rely more on the NCD’s recommendations and have the NCD host forums and publish more reports about how to improve IDEA implementation for school districts. Clarifying these compliance standards would provide much-needed direction for school districts, helping them fulfill their legal obligations to students with disabilities and reducing the likelihood of costly legal battles.

Although there is potential for Perez to compel school districts that do not currently meet IDEA requirements to reform their special education programs, the statute’s broad and not-well-defined framework presents additional challenges to effectively complying with IDEA.²⁵² The statute’s ambiguity can lead to varied interpretations of what it requires, which is especially challenging for school districts with limited resources that already struggle to determine what services need to be rendered from convoluted state and IDEA legislation. School districts also need well-trained, qualified professionals available to provide services to students with disabilities, another challenge for districts with limited budgets, as it is difficult to attract and retain talent with low salaries. Training and professional development for the latest requirements in special education law specific to a school district’s city or state is also costly. For successful IEP implementation, there needs to be continuous monitoring and evaluation of students with disabilities in their regular classrooms and during their services. Overworked special education teachers may struggle to manage observations and oversee regular IEP meetings. Limited resources can easily result in poor infrastructure and ineffective tracking of student performance and students with disabilities.

Increased advocacy for state and federal funding to address IDEA noncompliance and ease the burden of responding to an influx of complaints could ease the pressure on school districts. There should also be clearer guidelines and frameworks for districts to better understand and implement IDEA requirements. Establishing a state-level advisory body, for example, can offer guidance and assistance for the state-specific rules, in addition to IDEA procedures. Congress may also choose to address this situation through amendments to IDEA or when IDEA is reauthorized.²⁵³

Race and socioeconomic status are also important considerations for the impact of Perez on students with disabilities. Students of color are generally overrepresented in special education settings, in which they are “disproportionately labeled in ‘soft’ disability categories such as emotionally disturbed, [and] ADHD . . . .”²⁵⁴ Once labeled in those categories, those children often “receive differential access to high-quality education, are not tracked toward college, experience higher rates of suspension and expulsion, and are disproportionately represented in juvenile justice prisons.”²⁵⁵ In 1997, a reauthorization and amendment to IDEA acknowledged the problem of overrepresentation of minority students in special education classes, specifically that “[s]tudies have found that schools with predominately White students and teachers have placed disproportionately high numbers of their minority students into special education.”²⁵⁶ A major weakness in the due process model is that parents who have little agency in the process, like those with limited sophistication in educational advocacy and access to legal representation, struggle to advocate on behalf of their children.²⁵⁷

Additionally, even though families have the option to sue, it is expensive to hire a private attorney to sue a school district, and a family’s socioeconomic means often influences the outcome.²⁵⁸ In Endrew, Endrew’s parents paid for expert witnesses in addition to their lawyer and initially funded a private, specialized education before pursuing reimbursement.²⁵⁹ Endrew had to demonstrate that the school district prevented him from making the necessary progress toward his IEP. If Endrew’s family did not have the funds to cover the fees of the lawsuit and private schooling, he would not have been able to demonstrate his progress. Low-income parents can hardly be expected to undergo this financial burden without a guarantee, since money damages might not offset the cost of expensive litigation. Not to mention, their child might continue to fall further behind while the legal proceedings unfold. As an overwhelming percentage of children with disabilities who qualify for IDEA services are low-income, it is unclear whether more parents will go through with litigation, even with the potential for compensatory damages, simply due to a lack of legal sophistication or limited resources.²⁶⁰

C. Strategic Approaches and Systemic Changes in Special Education

In July 2023, the U.S. Department of Education released guidance to help states address and better understand IDEA requirements, focused on providing students with a FAPE.²⁶¹ “With this guidance, States will have the information necessary to exercise their general supervision responsibilities under IDEA and ensure appropriate monitoring, technical assistance . . . , and enforcement regarding local programs.”²⁶² The guidance is thorough in identifying noncompliance, while outlining the timeline for correcting noncompliance, the enforcement actions a state must take if a program does not meet IDEA requirements, and the proper way to monitor local educational agency programs.²⁶³ States bear the primary responsibility of ensuring that districts are adequately serving students under IDEA through “general supervision,” so better state oversight of local school districts is critical to ensuring that schools meet their obligations to students with disabilities.²⁶⁴

The federal guidance recommends that each state set up a robust monitoring system that “swiftly identifies and corrects noncompliance; increases accountability through the collection of timely and accurate data; and ensures the full implementation of IDEA to improve functional outcomes.”²⁶⁵ This guidance came out after OSEP identified a failure of multiple states to comply with IDEA, so OSEP is providing “accessible and actionable information” for states to exercise their duties to help protect the rights of students with disabilities.²⁶⁶ Between 2014 and 2023, on average, only seven states received the “meets requirements” determination in accordance with IDEA statute for Part B responsibilities regarding providing a FAPE.²⁶⁷ OSEP released this guidance to increase accountability by strengthening states’ general supervision programs to improve compliance. Ideally, this new guidance will take the onus off parents filing formal complaints as more states bolster their oversight mechanisms.

This guidance is another step in the right direction, especially after Perez, because it forces states to take more aggressive actions against noncompliant school districts. Notably, the guidance notes that allegations about IDEA violations can come from media reports, feedback sessions, and other areas beyond the normal formal-complaint setting.²⁶⁸ Now, a school district cannot be found in compliance with IDEA until they have completely resolved the issue that was raised, and school districts must address noncompliance as soon as possible and no later than a year after it is flagged.²⁶⁹ Monitoring ensures that school districts are following IDEA requirements, but OSEP will need to take action beyond issuing guidance for school districts to truly start remedying their IDEA noncompliance.

School districts now face the challenge of adapting to a new legal environment, in which IDEA’s due process procedures may no longer serve as an efficient and exclusive avenue to address the needs of students with disabilities, but as a potential battleground for financial claims. As more complaints and cases are heard in district courts, the Perez decision will likely be a reckoning for school districts with a history of neglecting students with disabilities. This will hopefully provide enough financial incentive for those school districts and state education departments to shore up their management and oversight of special education services. Like the NYC DOE’s new plan, other educational agencies should consider evaluating areas for improvement in their own special education services to avoid litigation and provide an inclusive classroom environment for students with disabilities that IDEA was created to address. Educational agencies are also likely to place greater care in crafting settlements to comprehensively address all issues that families are alleging, so there is greater potential for children with disabilities to access a broader range of remedies and legal protections. There is great potential for the Perez decision to initiate comprehensive and thoughtful change for the treatment and schooling of students with disabilities in classrooms, as educational agencies elect to avoid costly litigation and expensive compensatory damages in favor of addressing systemic issues within their schools.

CONCLUSION

As Justice Gorsuch stated, the Perez decision “holds consequences not just for Mr. Perez but for a great many children with disabilities and their parents.”²⁷⁰ Perez’s heartbreaking story about attending SPSD for over a decade with unqualified interpreters, leaving him unable to understand material or even learn sign language properly, is unfortunately just one of the many stories of students with disabilities who have been failed by their school systems. The Court’s unanimous decision removes unnecessary burdens and clarifies the requirements and remedies that are available for children with disabilities and their families when they pursue litigation against school districts.²⁷¹ The Court explained that a student with a disability need not first exhaust the administrative requirements of IDEA before filing a lawsuit seeking compensatory damages under the ADA or other federal antidiscrimination laws, since IDEA cannot provide those remedies. Though the lasting effects of this decision are yet to be seen, there are practical implications for school districts effective immediately, including a greater urgency to be responsive to parent concerns and student needs, abide by IDEA procedures, and implement student IEPs effectively. At the very least, the special education world can feel cautiously optimistic that Perez will help more students be made whole by the legal system and by educators who ensure that students with disabilities’ unique needs are met. After all, there were approximately 7.6 million children receiving services under IDEA in the 2022–2023 school year, so Perez has far-reaching implications.²⁷²

While this decision empowers families by holding school districts financially accountable, school districts’ ability to provide adequate special education services may be hindered if schools spend more time battling litigation and paying money damages. Nonetheless, this unanimous decision preserves IDEA’s clear purpose of allowing students with disabilities to receive a FAPE as soon as possible and to preserve their legal rights under other federal statutes.²⁷³ Perez is momentous because, as Justice Kagan acknowledged, oftentimes, it is “the parents [of students with disabilities] that have the greater incentive to get the education fixed for their child[ren],” and this decision allows students with disabilities to receive everything they are entitled to under IDEA and also receive compensatory damages under the ADA.²⁷⁴ The decision underscores the need for school districts to address structural problems that prevent students with disabilities from access to their rightful educational opportunities. As school districts grapple with Perez, we will surely see whether the Court’s holding delivers financial redress to children with disabilities who are discriminated against, suffer harm from, and have claims under both IDEA and the ADA, and how the future landscape of special education is transformed as a result.

98 S. Cal. L. Rev. 473

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Isabelle Yuan*

* Executive Senior Editor, Southern California Law Review, Volume 98; J.D. Candidate 2025, University of Southern California Gould School of Law; B.A. History 2020, Wellesley College. Many thanks to the editors of the Southern California Law Review for their thoughtful feedback. Thank you also to Maia Lee and William Wang for their invaluable guidance and support. All mistakes are my own.

Getting a Bad “Wrap”: An Analysis of Online Contract Cases in California After Step-Saver and ProCD

April 2025April 2025Sophie Lee*

Consumers routinely enter contracts when engaging in online commerce. Such “contracts of adhesion” are created by sellers and provide no opportunity to negotiate. By surveying California state and federal court cases, this Note explores how California courts evaluate notice. Courts recognize four types of online contracts: clickwrap, browsewrap, scrollwrap, and sign-in-wrap. This Note also draws on the seminal cases Step-Saver Data Systems v. Wyse and ProCD, Inc. v. Zeidenberg to discuss and compare the standards of notice used by courts. Overall, a uniform standard of notice has not yet emerged in California, and Step-Saver and ProCD remain relevant as courts primarily rely on fact-specific notice analysis. The utility of the four types of “wrap” categories may be diminishing as the online landscape evolves and changes.

INTRODUCTION

Imagine that you are purchasing something online, as you have likely done in the past. You enter the seller’s website and pick out the product you want to buy—say, a pair of socks—then start the payment process by entering your personal information. As you are about to click “Complete Purchase,” you see a notice pop up on the screen: “By completing your purchase, you agree to our Terms and Conditions.” You pause for a moment, wondering whether you should review the terms, but that would involve opening another webpage and parsing through pages of dense legal language. You have purchased socks online before—what is the worst that can happen? Instead, you agree and complete your purchase. When you think back to the transaction, perhaps you will remember seeing the pop-up notice, or perhaps you will not. The result will likely be the same. You have assented to the seller’s terms and entered a contract.

It is a common law principle that buyers and sellers should be held accountable for the contracts that they create, but one-sided form contracts are sometimes regarded differently. Courts have grappled with the issue of assent to sales contracts since before the Internet became the commercial engine that it is today. “Box-top” or “shrinkwrap” contracts list the terms of the agreement on the outside of a product’s packaging. By opening the packaging, a buyer manifests their intent to be bound by the terms. In 1991, the Third Circuit Court of Appeals decided a case involving a box-top license on a software product.¹ The court ruled for the software buyer, deeming the box-top license a proposal for new terms of agreement rather than a binding contract.² In contrast, when a similar case made its way to the Seventh Circuit Court of Appeals in 1996, the court ruled in favor of a software seller.³ The seller’s shrinkwrap agreement was binding because opening a package was a valid way for a buyer to accept the seller’s offer.⁴ Step-Saver Data Systems v. Wyse (“Step-Saver”) and ProCD, Inc. v. Zeidenberg (“ProCD”), respectively, came to represent two distinct views on box-top and shrinkwrap contracts. Simply put, Step-Saver placed a greater burden on sellers by giving buyers the benefit of the doubt as to their awareness of new terms. ProCD, however, placed a greater burden on buyers to apprise themselves of a seller’s terms. Though nearly three decades old, Step-Saver and ProCD still form the foundation of how courts approach disputes over online contracts.

Today, the average consumer would struggle to avoid such “contracts of adhesion” (also called form or “boilerplate” contracts), which offer no opportunity for negotiation on the part of the buyer. These contracts are efficient for sellers; modern commerce would not be nearly as fast or profitable if it were not for these contracts. But the ubiquity of online contracting and the rapid evolution of sellers’ websites raises questions about contract law and consumer protection. How should courts balance enabling transaction efficiency while ensuring buyers are aware of sellers’ terms?

California generally categorizes online contracts by modes of assent and into four types: “clickwraps,” “browsewraps,” “scrollwraps,” and “sign-in-wraps.”⁵ Clickwrap agreements require an affirmative act of assent to become binding (e.g., clicking a button that reads “I have read and accepted the Terms and Conditions”).⁶ In contrast, browsewrap agreements do not require an affirmative act as to specific terms of the contract; “an internet user accepts a website’s terms of use merely by browsing the site” ⁷ (e.g., a text banner that reads, “Use of this website constitutes agreement to the Terms and Conditions”). Scrollwrap agreements require a user to physically scroll to the bottom of a page containing the terms before proceeding to use a website.⁸ Finally, sign-in-wrap agreements require a user to sign up for an Internet service or product, the process of which indicates assent to the seller’s terms.⁹ These four types of “wrap” create contracts of adhesion and, as their names suggest, are regarded by courts as the digital successors of shrinkwrap. Thus, when faced with a clickwrap, browsewrap, scrollwrap, or sign-in-wrap agreement, buyers are offered no opportunity to negotiate and can only “take it or leave it.”¹⁰

This Note presents a case law survey of California state and federal district court cases between the years 2014 and 2024. It discusses the validity of the four commonly recognized types of online agreements and analyzes how courts’ approaches differ depending on the type of “wrap.” Part I provides background on contract common law, Step-Saver and ProCD, and significant U.S. Court of Appeals decisions. Part II details the case law survey: Section II.A describes state court cases and Section II.B describes federal district court cases. Section II.C summarizes the results of the survey and considers its implications for the way courts categorize online agreements and for the legacy of Step-Saver and ProCD.

This Note concludes that state and federal components of the case law survey largely reached the same outcomes with similar reasoning. Courts used multiple standards to determine whether a buyer received adequate or sufficient notice of a seller’s terms, including both a “reasonable notice” and a “reasonably prudent” user standard that can be traced back to ProCD and Step-Saver. This survey shows that a predominant standard for notice has not yet emerged in California (although recent approaches set out by the Ninth Circuit may promote greater consistency going forward). Overall, courts generally remained deferential to sellers and their offers. Fact-specific inquiries into whether a buyer was given reasonable notice were common among the cases surveyed. Thus, meaningful categories of “wrap” types may be gradually losing utility. Finally, this Note briefly considers whether Step-Saver and ProCD are still relevant to current and prevalent forms of online contracts and explains that these cases establish and solidify California’s most prevalent notice standards.

I. BACKGROUND

It is a basic principle of common law that the formation of a contract requires an “offer” and “acceptance.”¹¹ Step-Saver Data Systems v. Wyse and ProCD, Inc. v. Zeidenberg are seminal cases for their applications of common law principles within the context of box-top and shrinkwrap sales agreements. The same fundamental issues and principles remain relevant among newer types of agreements for selling goods and services on the Internet, such as clickwrap and browsewrap agreements. Today, courts often defer to sellers’ proposed modes of assent while using a fact-based “adequate notice” standard to evaluate the validity of a “wrap” agreement.¹²

A. Contract Common Law: Offer and Acceptance

Because the “elemental principles of contract formation apply with equal force to contracts formed online,”¹³ the same principles of contract common law are relevant when considering the validity of an online agreement.¹⁴ For a contract to be enforceable, common law requires that the parties’ bargaining process must meet two basic requirements: (1) both parties must assent to be bound, and (2) the agreement must be “definite” enough to be enforceable.¹⁵ The first requirement incorporates the presumption that one must consent to be bound, while the second requirement emphasizes the importance of receiving what one contracted for.¹⁶ The process of assenting can be broken down into two steps: “offer” and “acceptance.”¹⁷ An offer is a “promise” conditional on an action by the offeree.¹⁸ When an offeror makes an offer to the offeree, the offeree can accept, conveying their assent to be bound by the offeror’s terms. Offers can take many forms, and the offeror has the ability and authority to set the terms of their offer and to specify a mode of acceptance.¹⁹ Disputes can arise over whether the offeree had reason to believe that an offer was intended by the offeror to constitute an offer.²⁰ As discussed further below, in the realm of online contracts, consumers are often unaware that completing a purchase or signing into an account indicates assent to the terms of a seller’s agreement or even that a contract is being formed at all.

Parties can manifest assent in writing, through spoken word, or through conduct.²¹ Doctrine on assent is split between a subjective theory of assent, which focuses on the actual intent of the parties to be bound through a “meeting of the minds,” and an objective theory of assent, which focuses on the “external . . . appearance of the parties’ intentions as manifested by their actions.”²² To avoid issues related to the negotiation process, many sellers use form contracts that set out standard, nonnegotiable terms for transactions.²³ An offeree has only two options: to proceed with the transaction and accept the terms, or to decline.²⁴ These contracts are highly efficient for offerors but can come with drawbacks for offerees. For example, under common law, it does not matter if an offeree assents carelessly or fails to consider the legal consequences of a contract. Failure to read a contract is not a defense to breach of contract.²⁵

B. From Shrinkwrap to Clickwrap

The court in Step-Saver invalidated a shrinkwrap contract and deemed it a modification of an existing contract to which the buyer did not affirmatively assent. In contrast, the court in ProCD held that a shrinkwrap license was valid because the buyer was provided notice of the terms. Courts generally examine whether a seller provided adequate notice of its terms because online modes of assent to form contracts and website checkout flows greatly vary. In California, online contracts are sorted into four categories: clickwrap, browsewrap, scrollwrap, and sign-in-wrap. Each category has its own unique implications.

1. Step-Saver and ProCD

The box-top license printed on each package in Step-Saver Data Systems v. Wyse was a form contract that stated, “Opening this package indicates your acceptance of these terms and conditions. If you do not agree with them, you should promptly return the package unopened to the person from whom you purchased it . . . .”²⁶ Step-Saver, the buyer, argued that the box-top license materially altered a contract that was previously negotiated over the phone with The Software Link, Inc. (“TSL”), the seller, and that it was not binding under Uniform Commercial Code (“UCC”) Section 2-207.²⁷ On the other hand, TSL argued that a contract came into existence when Step-Saver received the terms of the license on the package and still proceeded to open the box; thus, phone conversations were merely counteroffers and negotiations.²⁸ The court ruled for Step-Saver, deciding that the box-top license should be seen as “one more form in a battle of forms”²⁹ and that the terms were not binding because they materially altered the parties’ agreement.³⁰ Judge John Minor Wisdom emphasized the fact that based on the parties’ previous negotiations, Step-Saver would not have expected to be bound by the box-top license.³¹ In response to TSL’s argument that its offer to issue a refund protected Step-Saver enough to validate the box-top license, Judge Wisdom wrote, “[w]e see no basis in the terms of the box-top license for inferring that a reasonable offeror would understand from the refund offer that certain terms of the box-top license, such as the warranty disclaimers, were essential to TSL.”³² In his holding, he wrote that “Step-Saver [could] reasonably believe that, while TSL desires certain terms, it has agreed to do business on other terms.”³³ Thus, this decision implies that a contract should not be binding unless a buyer affirmatively assents to a form contract and the parties reasonably believe that it is binding.

Judge Wisdom also rejected the seller’s arguments that ruling in favor of Step-Saver would adversely affect the industry. He wrote:

We are not persuaded that requiring software companies to stand behind representations concerning their products will inevitably destroy the software industry. We emphasize, however, that we are following the well-established distinction between conspicuous disclaimers made available before the contract is formed and disclaimers made available only after the contract is formed.³⁴

The court also speculated that sellers who justify the use of a box-top license with an optional refund provision might be “relying on the purchaser’s investment in time and energy in reaching this point in the transaction to prevent the purchaser from returning the item,” suggesting that a refund provision is generally not an adequate safeguard for consumers who assent to a license by opening a package.³⁵ Step-Saver represents a rare victory for consumers subjected to form contracts because it held the parties accountable to only the terms that were explicitly negotiated and agreed on.

In ProCD, Inc. v. Zeidenberg, a buyer violated a software license that restricted use of the software to “noncommercial” activity only.³⁶ The buyer, Matthew Zeidenberg, claimed that the shrinkwrap license should not be valid because it did not appear on the outside of the packaging and the terms could only be viewed by opening and using the software.³⁷ However, Judge Frank Easterbrook treated the license like an ordinary contract for the sale of goods, concluding that Zeidenberg could validly assent by doing as ProCD had requested: opening and using the software.³⁸ Judge Easterbrook stated that consumers can generally assent through any means held out as a form of acceptance by the seller, with exceptions for a seller’s bad faith.³⁹ Judge Easterbrook used UCC § 2-204 to support the common law principle that a seller is the “master of the offer” who can invite and limit means of acceptance;⁴⁰ “[a] buyer may accept by performing the acts the vendor proposes to treat as acceptance.”⁴¹ Contracts can be formed in many ways and “ProCD proposed such a different way, and without protest Zeidenberg agreed.”⁴² Further, ProCD was reasonable in its proposed form of acceptance because even after the package was opened “the software splashed the license on the screen and would not let [the buyer] proceed without indicating acceptance.”⁴³ An important part of Judge Easterbrook’s decision was that the software incorporated a pop-up box containing the agreement terms, creating reasonable notice of the terms for the buyer.⁴⁴ Additionally, contrary to Judge Wisdom’s reasoning in Step-Saver, Judge Easterbrook determined that an option to return the product for a full refund added to the validity of the buyer’s assent (though interestingly, in a 2004 interview of Matthew Zeidenberg and attorney David Austin, Austin claimed that the deposition of ProCD President James Bryant had revealed that ProCD did not have an actual return policy).⁴⁵ Sellers and businesses embraced Judge Easterbrook’s decision and shrinkwrap licenses became “generally accepted” “[w]ithin six years” of the ProCD case.⁴⁶ Eric Posner wrote that Judge Easterbrook “reformulate[d] [the] offer-acceptance doctrine so as to permit enforcement of ‘terms later’ contracts, an important new business tool.”⁴⁷

In the wake of Step-Saver, ProCD came to represent a validation of the use of form contracts to conduct business. Judge Easterbrook stated that “[t]ransactions in which the exchange of money precedes the communication of detailed terms are common” and used the purchase of insurance as an example.⁴⁸ In a subsequent case, Hill v. Gateway 2000, Inc., Judge Easterbrook clarified that ProCD was not just limited to software and was about “the law of contract” in general.⁴⁹ Furthermore, “[p]ractical considerations support[ed] allowing vendors to enclose the full legal terms with their products.”⁵⁰ For example, cashiers could not “be expected to read legal documents to customers before ringing up sales.”⁵¹ Judge Easterbrook’s words feel especially relevant today given the fast-paced nature of commerce. Notably, and perhaps regrettably, ProCD did not set real standards for what sellers should actually include on packaging in order to create notice of agreement terms. The court may have declined to create bright-line requirements for notice out of fear that restrictions would interfere with a seller’s packaging.⁵² Nevertheless, since the 1990s, when Step-Saver and ProCD created a circuit split, both decisions have been highly influential in the development of online contract law.

2. Online Contracts Today

Like shrinkwrap contracts, online form contracts for the sale of goods or services require a manifestation of assent for an offeree to be bound by a seller’s nonnegotiable set of terms.⁵³ Clickwrap, browsewrap, scrollwrap, and sign-in-wrap agreements govern millions of transactions, drawing on the same common law principles as the shrinkwrap contracts in Step-Saver and ProCD. “While Internet commerce has exposed courts to many new situations, it has not fundamentally changed the requirement that ‘[m]utual manifestation of assent, whether by written or spoken word or by conduct, is the touchstone of contract.’ ”⁵⁴ Shrinkwrap agreements find a modern analogue in browsewrap agreements: neither shrinkwrap nor browsewrap requires an affirmative act of assent to specific terms to be binding. Like the buyer in Step-Saver who needed only to continue opening the package to accept the seller’s terms, a buyer subject to a browsewrap agreement need only to continue interacting with a website to accept a set of terms. There is no clear instruction to, for example, click a checkbox before making a purchase. Judge Wisdom might be skeptical of the validity of browsewrap because it might not be reasonable for a buyer to expect to be bound in such a way. Indeed, California courts are generally more inclined to rule for the validity of a clickwrap or a scrollwrap contract than a browsewrap contract because clickwrap and scrollwrap require an affirmative act, evincing that the buyer was more likely to be put on notice instead of passively clicking.⁵⁵

Because wrap agreements are contracts of adhesion that offer no opportunity for a buyer to negotiate, a buyer’s only choices are to assent and complete the transaction or to walk away. Karl Llewellyn theorized in The Common Law Tradition that “there is no assent at all” to the specific terms within a boilerplate agreement; instead, there is “a blanket assent” to all terms of the agreement.⁵⁶ In other words, buyers either assent to all the terms, or they do not. Thus, buyers accepting clickwrap contracts should not be construed as assenting to one provision or another, but rather as assenting to the seller’s entire agreement.

The “take-it-or-leave-it” nature of these contracts has potential to leave buyers stuck with terms they do not like. The court in Step-Saver considered the imbalanced nature of contracts of adhesion, reasoning that the seller may have been relying on the fact that the buyer had already invested time and energy into the transaction.⁵⁷ Some legal scholars, including Cheryl B. Preston, are skeptical about the ability of online contracts to be anything but one sided.⁵⁸ Buyers often fail to understand the terms to which they are assenting. Though it is a common law principle that whether a buyer has actually read a form contract is not dispositive of whether they will be bound, buyers who attempt to read the terms may find them inaccessible and full of legalese. A 2019 study by two law professors analyzed the sign-in-wrap contracts of 500 popular U.S. websites and found that 99% of them could be categorized as “unreadable.”⁵⁹

On the other hand, Judge Easterbrook might argue that form contracts do not leave buyers without options because the nature of a competitive market forces sellers to create favorable terms for buyers.⁶⁰ He wrote in his opinion for ProCD that “[c]ompetition among vendors, not judicial revision of a package’s contents, is how consumers are protected in a market economy.”⁶¹ Additionally, efficiency and convenience are important to online consumers, who are generally unwilling to complicate a transaction. Eric Posner uses the term “cognitive overload” to describe how buyers may be dissuaded if too much information is received up front.⁶² “If the seller conveys too much information, she will drive away buyers. If the seller conveys too little information, she will mislead buyers and possibly drive them away as well.”⁶³ Even minor setbacks in a checkout process can mean the difference between completing a purchase or not. Forbes reported that around twenty-five percent of online shoppers choose not to go through with a purchase if the website forces them to create a new account.⁶⁴ For certain customers, the risk of potential legal complications down the road is a fair substitute for simple and efficient online processes.⁶⁵

The validity of online form contracts often turns on whether the mode of acceptance created by seller-offerors adequately notifies buyers of the formation of an agreement on the seller’s terms. The theory behind notice is that it can level the playing field within the realm of online contracting. E. Allan Farnsworth notes that the “lack of equality between a person who is meticulous or who chances to have knowledge and a person who is blissfully unknowing is a patent point for dissatisfaction.”⁶⁶ Because there is always an inherent potential for unfairness when there is no real negotiation of terms, there should be an attempt to create awareness for the non-drafting party. This is a defining characteristic of clickwrap and browsewrap contracts, especially because the ubiquity of ecommerce means that they are accessible to the expert as well as the layperson. In Step-Saver, Judge Wisdom considered whether a “reasonable” buyer could expect to be notified of the seller’s priorities.⁶⁷ In ProCD, the conspicuousness of the seller’s pop-up notice box was an important factor in creating objective notice for the buyer.⁶⁸

It is challenging to synthesize a common standard for notice because clickwrap, browsewrap, scrollwrap, and sign-in-wrap can be nebulous categories. For example, courts frequently characterize contracts containing elements of both browsewrap and clickwrap as “hybridwrap.”⁶⁹ One example of hybridwrap is acknowledged by courts when “the button required to perform the action manifesting assent (e.g., signing up for an account or executing a purchase) is located directly next to a hyperlink to the terms and a notice informing the user that, by clicking the button, the user is agreeing to those terms.”⁷⁰ Hybridwrap may exist when users are reasonably notified of “the existence of the website’s terms of use” and are often guided to click a button to signify agreement.⁷¹ The case law survey in Part II shows that courts often struggle to categorize wrap agreements, and in lacking categorical rules to guide them, courts must look for adequate notice of the seller’s terms.

Additionally, as will be discussed at length in Section II.C.1, adequate notice has advantages and disadvantages as a legal standard. One advantage is that it allows room for evolution in response to the rapidly evolving digital world. Ecommerce is still growing, especially given the recent COVID-19 pandemic, during which many businesses and consumers relied on online orders. The global ecommerce market is expected to total $6.3 billion in 2024 and $7.9 trillion by 2027.⁷² Additionally, buyers today make online purchases faster and more casually than they have in the past. Consumers who make habitual and trivial purchases online may not be privy to a seller’s terms when, from the consumer’s perspective, the transaction is as inconsequential as a “pair of socks.”⁷³ Thus, not only are the means of business evolving, but the role and mindset of the consumer are changing as well. Courts have applied similar notice standards for the past three decades, but these standards can sometimes be a moving target.

C. Second and Ninth Circuit Decisions: Nguyen, Berman, and Specht

Major circuit court decisions from the past two decades show that courts often defer to sellers’ proposed modes of assent to their agreements while using a fact-based adequate notice standard to evaluate the validity of a wrap agreement.

In Nguyen v. Barnes & Noble Inc., a buyer unwittingly assented to Barnes & Noble’s terms of use through a browsewrap agreement while shopping online.⁷⁴ The disputed arbitration term could not be viewed unless the buyer clicked on a hyperlink that was placed at the bottom of the webpage.⁷⁵ Additionally, Barnes & Noble did not require any affirmative act of assent as part of the transaction.⁷⁶ The court held for the buyer and denied Barnes and Noble’s motion to compel arbitration.⁷⁷ The Nguyen court characterized online contracts as primarily coming in “two flavors”: “clickwrap” and “browsewrap.”⁷⁸ Browsewrap was defined as an agreement where “a website’s terms and conditions of use are generally posted on the website via a hyperlink at the bottom of the screen.”⁷⁹ Because browsewrap, unlike clickwrap, lacks an act of affirmative assent, the standard in Nguyen turned on “whether the user ha[d] actual or constructive knowledge.”⁸⁰ Thus, the buyer was not bound by the terms of use because he was not adequately put on notice by the design of the website and the inconspicuous and “buried” hyperlink to the terms and conditions.⁸¹ A rare bright-line rule for browsewrap emerged from this case:

[W]here a website makes its terms of use available via a conspicuous hyperlink on every page of the website but otherwise provides no notice to users nor prompts them to take any affirmative action to demonstrate assent, even close proximity of the hyperlink to relevant buttons users must click on—without more—is insufficient to give rise to constructive notice.⁸²

Few other notice-related bright-line rules have been articulated, but Nguyen represented a turning point in the world of online contracts, discouraging sellers from implementing browsewrap agreements without a buyer’s affirmative act of assent.

By 2021, scrollwrap and sign-in-wrap found their way into the lexicon of the courts, and California came to recognize four categories instead of the “two flavors” set forth in Nguyen.⁸³ The Ninth Circuit affirmed Nguyen in Berman v. Freedom Financial Network, in which a company’s terms and conditions were not conspicuous or noticeable on the website.⁸⁴ The terms were hyperlinked, but displayed in the same font and color as an adjacent sentence, not in the typical blue color a reasonable buyer would expect of a hyperlink.⁸⁵ The court held that the company did not call sufficient attention to the fact that clicking “continue” would indicate assent to the company’s terms, using a “reasonably conspicuous notice” standard to decide that the contract should be unenforceable.⁸⁶ Its fact-specific inquiry also assessed whether a “reasonably prudent Internet user” would be given notice given the webpage’s fonts, font sizes, colors, overall design, and readability of the webpage.⁸⁷ The court found that such a user would not be put on notice given that the hyperlink was not conspicuous in color or design.⁸⁸ This standard is consistent with Step-Saver, which looked to the reasonable beliefs of the parties in assessing notice.⁸⁹ Lastly, the Berman court provided a two-part framework for courts’ inquiries into notice:

Unless the website operator can show that a consumer has actual knowledge of the agreement, an enforceable contract will be found based on an inquiry notice theory only if: (1) the website provides reasonably conspicuous notice of the terms to which the consumer will be bound; and (2) the consumer takes some action, such as clicking a button or checking a box, that unambiguously manifests his or her assent to those terms.⁹⁰

Berman is a recent case, and lower courts have generally been slow to adopt this exact two-part framework. As will be discussed in Part II, courts take—and have taken—a variety of approaches to conduct similar notice inquiries. ⁹¹

In Oberstein v. Live Nation Entertainment, Inc., the Ninth Circuit considered another factor when assessing notice: the expectation of a continued relationship with a seller.⁹² A ticketing company’s website presented users with buttons that read “you agree to our Terms of Use” at three independent stages: creating an account, signing into an account, and completing a purchase.⁹³ The court considered both “the context of the transaction” and the “placement of the notice.”⁹⁴ Because the context of the transaction required full registration and implied somewhat of a “continuing relationship,” users should have been notified of the terms of that relationship.⁹⁵ Thus, the court ruled for the ticketing company and added a new dimension to the adequate notice standard.⁹⁶

Keebaugh v. Warner Bros. Entertainment Inc., a 2024 Ninth Circuit case, further clarified the standard set forth in Berman.⁹⁷ On a mobile entertainment app, users were presented with a large button that read “Play,” and small text below the button that read “By tapping ‘Play,’ I agree to the Terms of Service.”⁹⁸ Using both the Berman two-part inquiry and the “context” standard from Oberstein, the court categorized the agreement as sign-in-wrap and ruled for the entertainment company.⁹⁹ The court defined the “conspicuous” notice part of the Berman standard as “displayed in a font size and format such that the court can fairly assume that a reasonably prudent Internet user would have seen it.”¹⁰⁰ Additionally, “[s]imply underscoring words or phrases . . . will often be insufficient to alert a reasonably prudent user that a clickable link exists.”¹⁰¹ In terms of a continuing relationship between company and user, the court emphasized that the context of downloading a mobile app carries an implication of long-term use.¹⁰² Again, as demonstrated in Part II, courts in California have yet to latch onto the Berman standard. Courts have been using—and continue to use—similar, but not identical, standards.

New York law and California law often “dictate the same outcome” and draw from the same precedent.¹⁰³ The jurisdictions frequently exchange standards and reference the same lines of reasoning for cases considering the validity of an online contract. Further, other U.S. Courts of Appeal frequently apply California contract law as well.¹⁰⁴ In the 2002 Second Circuit case Specht v. Netscape Communications Corp., then-Judge Sotomayor applied California law in denying a software company’s motion to compel arbitration after a buyer was unaware of the terms of the contract.¹⁰⁵ In circumstances where consumers are “urged to download free software,” “clicking on a download button does not communicate assent to contractual terms” without adequate notice.¹⁰⁶ Judge Sotomayor used a “reasonably prudent offeree of downloadable software” standard in determining whether it would be reasonable to conclude that the buyer should have been aware of the terms.¹⁰⁷ Like Judge Wisdom in Step-Saver and the Ninth Circuit in Berman, Judge Sotomayor examined the belief of the parties in determining that a “reasonably prudent offeree in plaintiffs’ position would necessarily have known or learned of the existence of the SmartDownload license agreement.”¹⁰⁸ She held that “a reference to the existence of license terms on a submerged screen is not sufficient to place consumers on inquiry or constructive notice of those terms.”¹⁰⁹ Finally, Judge Sotomayor also distinguished the facts of Specht from the facts of ProCD, in which the buyer “was confronted with conspicuous, mandatory license terms every time he ran the software on his computer.”¹¹⁰ However, she also noted that cases such as ProCD “do not help defendants” and emphasized the necessity of reasonably conspicuous notice “if electronic bargaining is to have integrity and credibility” going forward.¹¹¹

In 2017, the Second Circuit decided Meyer v. Uber Technologies, Inc., an influential case among a slew of recent rideshare-related contract cases. The court held that a consumer unambiguously manifested assent to Uber’s terms of service because a reasonable user would have seen and known that clicking a registration button would constitute assent to terms accessible via hyperlink.¹¹² Even though the sign-in-wrap agreement served two functions—“creation of a user account and assent to the Terms of Service”—the consumer’s assent was still valid given the “physical proximity of the notice to the register button and the placement of the language in the registration flow.”¹¹³ Interestingly, the court seemed to prioritize the creation of notice over the type of wrap in dispute. The court stated that “[c]lassification of web-based contracts alone . . . does not resolve the notice inquiry.”¹¹⁴ In this case, the user was bound because they were “expressly warned . . . that by creating an Uber account, the user was agreeing to be bound by the linked terms.”¹¹⁵

In general, Nguyen, Berman, Oberstein, Keebaugh, Specht, and Meyer show that courts must consider notice standards within the reality of the Internet and recognize the necessity of electronic form contracts to conduct ecommerce. Finding a balance between a consistent standard for sufficient notice and offeror efficiency, however, has proven to be challenging. Courts have issued very few bright-line requirements for offerors and generally take an “ex ante approach by emphasizing what the drafter should have done to make the terms prominent and noticeable.”¹¹⁶ This approach might be criticized as reactive and too deferential to sellers, who are in a better position to create awareness of their terms because they can exercise more control over a buyer’s experience by designing the website.

Indeed, the common law principle that the offeror remains the “master” of the offer holds true in the realm of online form contracts. However, cases like Berman and Specht also highlight more buyer-centric common law principles, accounting for the reasonable expectations of the average “prudent” buyer. A dominant standard has not yet been established by the Ninth Circuit, and California law encompasses both the “reasonable notice” and the “reasonably prudent” user standard. Thus, this Note’s case law survey attempts to analyze and identify how California courts utilize these flexible standards of notice to analyze buyers’ acceptance of sellers’ offers.

II. CASE LAW SURVEY

This survey examines state and federal district court cases to paint a picture of California courts’ treatment of wrap agreements. Section II.A focuses on California state courts and discusses notable cases within the context of Step-Saver, ProCD, Nguyen, and Specht. It concludes that clickwrap agreements remain presumably enforceable, browsewrap agreements require a more fact-specific inquiry, and sign-in-wrap agreements are not yet fully distinguishable from browsewrap agreements. Section II.B focuses on the ways in which cases in federal district courts in California are consistent or inconsistent with cases in state courts. Section II.B concludes that district court decisions are largely in line with state court decisions, factoring in scrollwrap cases as presumptively enforceable. Finally, Section II.C further analyzes and summarizes differences between the forums and comments on the lasting influence of Step-Saver and ProCD. Overall, this case law survey shows that standards of notice from both Step-Saver and ProCD have been incorporated into California law, but a predominant standard for assessing adequate notice for wrap contracts has yet to take hold.

Twenty California state court cases and twenty U.S. District Court cases involving online form contracts for the sale of goods or services were chosen for this survey as a representative sample. This Note provides a brief quantitative analysis, then a substantive qualitative analysis of cases in each group. There were two main reasons for conducting a more comprehensive qualitative analysis: (1) the reasoning in the following cases was often fact specific, especially when the agreements in question defied easy categorization; and (2) although the chosen cases are representative of recent decisions, many similar cases exist beyond what is depicted here. It should be noted that some cases surveyed involved multiple types of wrap, or contained agreements that could have plausibly been categorized in more than one way. Importantly, the cases in this survey were sorted by the courts’ own labels and characterizations for the wrap agreements in dispute.

Additionally, as discussed in Section I.B.2, the clauses most frequently in dispute—arbitration clauses, choice-of-forum clauses, and class-action waiver clauses—are small parts of long agreements.¹¹⁷ As per Llewellyn’s theory of “blanket assent” to terms in a boilerplate contract,¹¹⁸ courts consider the validity of entire contracts rather than specific provisions. Thus, the cases in this survey generally either enforced the validity of an agreement or found the agreement to be invalid as a whole.

Figure 1. Outcomes of Cases Included in Case Law Survey

A. California State Courts

Cases were chosen based on the following criteria: (1) cases arose out of California state courts; (2) cases were decided between the years 2014 and 2024 (inclusive); (3) the relationship between the parties to the case was that of a buyer and seller (or lessee/lessor), or the agreement in dispute arose out of a transaction for goods or services; and (4) the court addressed the validity of a clickwrap, browsewrap, scrollwrap, or sign-in-wrap contract. Interestingly, there have not yet been any cases concerning the validity of a pure scrollwrap agreement in this jurisdiction. This Note will not include substantial speculation as to how state courts might treat scrollwrap agreements, but the latter half of this case law survey involving federal cases will discuss how California state law is applied to scrollwrap. Generally, scrollwrap agreements appear to be more or less unanimously enforceable.¹¹⁹

Most of the selected cases involved disputes regarding forum-selection clauses and arbitration clauses, however, the nature of the disputed terms was of secondary importance because courts only consider whether the entire agreement is valid. It should be noted that the Federal Arbitration Act (“FAA”) generally treats the enforcement of arbitration agreements favorably.¹²⁰ However, the FAA also limits the role of the courts to two related inquiries: (1) “whether a valid arbitration agreement exists,” and (2) “whether the agreement encompasses the disputes at issue.”¹²¹ Online contract cases often turn on the first issue, as the second issue is typically less disputed by the parties. Thus, the court’s inquiry was often whether a valid contract—and therefore, a valid arbitration agreement—existed.¹²²

Of the twenty cases examined, nine cases involved clickwrap agreements, eight cases involved browsewrap, and four cases involved sign-in-wrap (one case involved both a browsewrap agreement and a sign-in-wrap agreement).¹²³ Seven of nine clickwrap cases held for the seller, three of eight browsewrap cases held for the seller, and two of four sign-in-wrap cases held for the seller.¹²⁴ The numeric breakdown of the case outcomes was secondary to the reasoning of the courts. In general, the courts found clickwrap contracts largely enforceable, barring unique circumstances with extraneous issues. Browsewrap agreements were examined more closely, and the courts were more inclined to prioritize fact-based notice inquiries in such cases, echoing Berman and Specht. Cases involving sign-in-wrap were less unified by a single standard, and Sellers v. JustAnswer LLC highlighted some of the inconsistencies and issues with the various standards set forth by state and federal courts. Overall, although the reasoning of the courts closely followed Ninth and Second Circuit precedent, the standards for notice were inconsistently applied, even within wrap categories.

1. Clickwrap Agreements

As the Ninth and Second Circuits have noted, courts often presume clickwrap agreements to be enforceable because buyers must affirmatively manifest assent to the terms in question by physically clicking to proceed with an online transaction.¹²⁵ This is consistent with the Berman standard, but of the cases decided after Berman, none used the two-part framework. Overall, the courts generally presumed the validity of clickwrap and occasionally looked for adequate notice.

The cases surveyed revealed that a notice inquiry was secondary to the presumption of enforceability of pure clickwrap agreements. For example, it typically did not matter what was written on the digital button or box that users were directed to click; the action of clicking was enough of an affirmative act to bind the user. In B.D. v. Blizzard Entertainment, Inc., a buyer clicked a button marked “Continue” and was bound by a seller’s License Agreement.¹²⁶ The button was accompanied by a pop-up notice that notified buyers that continuing with the transaction would manifest assent.¹²⁷ In Pierre v. Dexcom Inc. and Jackson v. Vines, the court declared that clickwrap agreements are “generally considered enforceable.”¹²⁸

Courts were less likely to presume that clickwrap agreements were enforceable if they found elements of other wrap agreements present in a seller’s website flow. Two clickwrap cases held for buyers. The first case is Doe v. Massage Envy Franchising, LLC, in which a buyer did not assent to a seller’s terms of service on an in-store electronic tablet because the font color of the statement of notice was not conspicuous, and the terms were hyperlinked, not plainly visible.¹²⁹ The seller motioned to compel arbitration after the buyer alleged that she was sexually assaulted at the seller’s franchise location.¹³⁰ The court emphasized that the buyer was under pressure to complete the forms quickly by seller’s staff, which factored into the assessment of whether the buyer was actually aware of the terms.¹³¹

The second case in which a buyer prevailed is Herzog v. Superior Court. In Herzog, a healthcare company prompted users to assent to its terms of use before using a glucose monitoring app.¹³² The agreement appeared to be “classic ‘clickwrap,’ ” prompting a user to click a box stating: “I agree to Terms of Use.”¹³³ However, merely “categorizing the purported agreement as a clickwrap [did] not resolve the formation question.”¹³⁴ The court looked for “reasonably conspicuous notice” of the existence of terms to which users would be bound—specifically, the idea that “the content of [the app’s] ‘Legal’ screen support[ed] the inference that the user’s action on that screen—here, clicking the checkbox—constituted an unambiguous manifestation of assent to those terms.”¹³⁵ The company’s notice did not suggest assent; it read: “By ticking the boxes below you understand that your personal information, including your sensitive health information, will be collected, used and shared consistently with the Privacy Policy and Terms of Use.”¹³⁶ The court concluded that a reasonably prudent user would fail to understand the relationship between the Terms of Use, the Privacy Policy, and the company’s data collection.¹³⁷ Furthermore, users were confused by the fact that the company’s app was not necessary to use its glucose monitoring technology.¹³⁸ Herzog can be distinguished from other cases in this survey because it involved clickwrap pertaining to multiple sets of terms and services. Nevertheless, Massage Envy and Herzog both provide interesting points of contrast to the general presumption that clickwrap creates a valid agreement.

Overall, with a couple exceptions, courts viewed clickwrap agreements as largely enforceable, sometimes presumptively so.

2. Browsewrap Agreements

California State courts were generally protective of buyers confronted with browsewrap agreements but were inconsistent in their applications of standards of notice. In 2014, the Ninth Circuit wrote that it was “more willing to find the requisite notice for constructive assent where the browsewrap agreement resemble[d] a clickwrap agreement—that is, where the user is required to affirmatively acknowledge the agreement before proceeding with use of the website.”¹³⁹ Following Nguyen and Berman, pure browsewrap agreements became rare; offerors began to require more from consumers using their websites in order to indicate assent to their terms.

When confronted with hybridwrap or browsewrap agreements, courts largely adhered to the precedent set by three main decisions applying California law to facts involving browsewrap agreements: Nguyen, Specht, and Long v. Provide Commerce Inc.¹⁴⁰ In Long, a flower seller’s checkout flow did not create adequate notice that placing an order indicated a buyer’s acceptance, nor did a link sent to the buyer’s email create notice of the seller’s terms.¹⁴¹ Because browsewrap agreements require no affirmative action, “absent actual notice, ‘the validity of [a] browsewrap agreement turns on whether the website puts a reasonably prudent user on inquiry notice of the terms of the contract.’ ”¹⁴² The court examined whether the conspicuousness of the hyperlinks and design elements of the seller’s website would put a reasonably prudent user on notice.¹⁴³ In dicta, the court agreed with the Nguyen court; simply displaying a hyperlink without further notice is likely not enough to “alert a reasonably prudent Internet consumer to click the hyperlink.”¹⁴⁴

But not all courts applied these notice standards in the same way, and some courts were more concerned with buyer protections than others. Drawing from Long and Nguyen, Kellman v. Honest Co. looked for “something more” in addition to a seller’s browsewrap agreement that would put a reasonably prudent buyer on notice.¹⁴⁵ The court found that while a hyperlink and notice of the seller’s terms were not buried on the webpage, “they were in small print of a lighter color” and were “surrounded by text that did not suggest that the hyperlink was important.”¹⁴⁶ The court also emphasized the “realities of internet marketing and use,” citing Judge Sotomayor’s reasoning in Specht, and stressed that notice of a seller’s terms is essential to the “integrity and credibility” of online contracting and the ecommerce industry.¹⁴⁷ Because sellers are aware that very few buyers read terms of use, some sellers “design their websites to take advantage of consumer inattention.”¹⁴⁸ The court also cited Woodrow Hartzog who coined the phrase “malicious interface” to describe websites that deceive consumers.¹⁴⁹ It is a common law principle that parties should be bound to contracts that they enter into. But Kellman and Specht may suggest that unwitting assent is not assent at all.¹⁵⁰ These concerns are reminiscent of the Step-Saver court’s suggestion that sellers might take advantage of buyers’ reluctance to return a product if they dispute the terms of a shrinkwrap agreement.¹⁵¹

A few cases in the study attempted to provide definitions for various types of browsewrap and utilize appropriate standards of notice. Rabbani v. Tesla Motors described “pure-form browsewrap agreement[s]” as follows: “by visiting the Web site—something that the user has already done—the user agrees to the Terms of Use not listed on the site itself but available only by clicking a hyperlink.”¹⁵² Esparza v. 23andMe Inc. emphasized that an agreement is browsewrap if the offeror “assumes assent based upon the mere use of the website.”¹⁵³ “Website users are entitled to assume that important provisions—such as those that disclose the existence of proposed contractual terms—will be prominently displayed, not buried in fine print.”¹⁵⁴

Generally, when browsewrap agreements contained elements of clickwrap, they were more likely to be enforceable. This was due to the creation of “reasonable notice” through the affirmative act of clicking. Even when terms were hyperlinked or not immediately noticeable, website flows that incorporated an affirmative act on the part of the buyer were enforceable. In Collins v. Priceline, a website’s terms were only visible via a hyperlink but were enforced by the court because the buyer had adequate notice that “[b]y selecting Confirm Your Reservation [they] agree[d] to the Booking Conditions.” ¹⁵⁵ The affirmative act of clicking to move forward with the reservation resembled clickwrap enough for the court to hold the buyer to the terms.¹⁵⁶ Esparza and Collins were consistent with the Berman standard in that they emphasized the importance of an affirmative act, but Esparza did not apply the Berman framework, despite being decided in 2023.

Esparza also used a reasonably prudent user standard to determine whether a buyer had “adequate or constructive notice.” The court examined factors that the Nguyen and Long courts examined, such as “ ‘placement,’ color, and contrast of hyperlinks (i.e., ‘color-contrasting text’) and ‘the website’s general design.’ ”¹⁵⁷ The court in Rabbani v. Tesla Motors, Inc. also mentioned the reasonably prudent user standard but based its determination on the presence of “immediately visible notice,” quoting Specht.¹⁵⁸ Thus, although these cases used many similar standards of notice, they were inconsistent in their approaches to finding reasonable notice.

Overall, the courts were most protective of buyers in cases involving browsewrap agreements, unless the agreements involved an affirmative act of assent. The greater amount of inconsistency was likely due to the variation in what browsewrap agreements look like. Thus, courts looked for elements that resembled clickwrap, leaning on its presumptive enforceability. Courts also used a reasonably prudent user standard to determine whether reasonable notice was present, but there was no predominant standard among browsewrap cases.

3. Sign-In-Wrap Agreements

Sign-in-wrap resembles browsewrap in that it can cause a buyer—who believes they are merely signing up for an account or email list—to unwittingly assent to terms. But sign-in-wrap can also resemble clickwrap in that it can incorporate an affirmative act of assent into the sign-up flow. Courts generally struggled with a consistent treatment for sign-in-wrap and used several standards from browsewrap cases such as the reasonable notice and the reasonably prudent user standard.

A California appellate court was confronted with the issue of a sign-in-wrap agreement for the first time in 2021 in the case Sellers v. JustAnswer LLC.¹⁵⁹ A question-answering website prompted users with a button that read: “Start my trial” and small text below that read: “By clicking ‘Start my trial’ you indicate that you agree to the terms of service and are 13+ years old.”¹⁶⁰ Although the court noted that sign-in-wrap should be enforceable “based on the existence of essentially any textual notice that purports to inform consumers they agree to the terms by signing up for an account,” the court decided that the website’s notice was not “clear and conspicuous,” and the agreement was unenforceable.¹⁶¹ The Sellers court used a reasonableness standard to determine that the website’s notice was insufficient.¹⁶² The factors identified in Nguyen and Long (including text size, text color, text location, proximity to clickable buttons, obviousness of hyperlinks, and “clutter” on the screen) provided a baseline for the factual inquiry.¹⁶³ Additionally, the fact that the user was signing up for a free trial of a service and was not expecting to enter into an ongoing contractual relationship contributed to the lack of conspicuousness.¹⁶⁴ The court quoted Long: “California law is clear—‘an offeree, regardless of apparent manifestation of [their] consent, is not bound by inconspicuous contractual provisions of which [they were] unaware, contained in a document whose contractual nature is not obvious.’ ”¹⁶⁵ This set the stage for Oberstein, which solidified the “context” of a transaction standard that has yet to be embraced.¹⁶⁶

Sellers is also notable for its focus on how an average user or consumer behaves, echoing parts of the opinion from Step-Saver. While the defendant-seller urged the court to set bright-line rules governing sign-in-wrap agreements, the court declined to do so.¹⁶⁷ This was also the case in ProCD, in which Judge Easterbrook did not create specific requirements for sellers’ packaging out of fear of stifling business. The Sellers court commented on trends in online form contracting law, observing that courts have been inconsistent in their conceptualizations of a “typical online consumer.”¹⁶⁸ The court declared that “not all internet users are alike”;¹⁶⁹ some federal courts assume that “ ‘[a]ny reasonably-active adult consumer will almost certainly appreciate that by signing up for a particular service, he or she is accepting the terms and conditions of the provider.’ ”¹⁷⁰ Other Internet users might have “only recently, and perhaps begrudgingly, began to use cell phones, or other internet-enabled devices, for the purpose of online commerce.”¹⁷¹ Thus, federal courts have been inconsistent in their treatment, relying on “subjective criteria” as opposed to the aforementioned factors.¹⁷² An example is a court treating “conspicuousness” as the relevant question of law when it is “actually conducting . . . a fact-intensive inquiry.”¹⁷³ The Sellers court zoomed into the reasonably prudent user standard employed by many courts, setting the stage for Keebaugh.¹⁷⁴

Following the lead of Sellers, other sign-in-wrap cases in the case law survey did not establish or utilize a single standard. Instead, the cases likened sign-in-wrap agreements to browsewrap agreements and applied a broader “actual or constructive notice” standard. In Thompson v. Live Nation Entertainment, for example, the court emphasized the fact that a buyer received more than one opportunity to acknowledge a seller’s Terms of Use, and the use of a different font color for the terms created adequate notice.¹⁷⁵ On one hand, these are commonly examined factors within a notice inquiry. On the other hand, the courts’ decisions about which factors to examine were seemingly arbitrary.

The other case besides Sellers that held for a buyer was O’Connor v. Road Runner Sports, Inc., which turned on the fact that the buyer did not manifest assent because he did not use one of the modes of acceptance established by the seller.¹⁷⁶ The terms and conditions of the loyalty program provided “three ways a customer could manifest his or her assent to be bound: purchasing a membership, using a membership, or renewing a membership.”¹⁷⁷ Instead, the buyer called the seller’s toll-free phone line, so he did not agree to the seller’s terms.¹⁷⁸ As per common law, the offeror is the master of the offer, and in this case, the offeree did not undertake any of the modes of acceptance held out by the offeror.

Given the Sellers decision, California courts have not yet settled on a singular standard for determining whether a sign-in-wrap agreement is enforceable because they have taken varied approaches to assessing adequate notice. Further, Sellers casts doubt on courts’ adherence to so-called objective standards of notice. As the case law survey shows, courts have instead been using somewhat free-flowing, fact-based criteria.

In conclusion, California state courts were relatively consistent in presuming clickwrap agreements to be enforceable but were inconsistent in employing uniform standards of notice in browsewrap and sign-in-wrap cases. Part of the issue was the inability to define certain browsewrap agreements that did not fit cleanly into a single wrap category. Another issue, however, was the courts’ inconsistent application of standards, through which they examined a variety of factors to assess reasonable notice and sometimes relied on a reasonably prudent user or context of the transaction standard. These standards were somewhat selectively employed by the courts in the surveyed cases, which still showed deference to the presumptive enforceability of some agreement types over others.

B. U.S. District Courts in California

This Note examined twenty cases to provide a point of comparison to the state court case survey and to show that recent federal cases in California reach conclusions largely consistent with those of the state courts. Mirroring the state court case law survey, federal cases were chosen based on four criteria: (1) cases arose out of U.S. District Courts from districts in California; (2) cases were decided between the years 2014 and 2024 (inclusive); (3) the relationship between the parties to the case was that of a buyer and seller (or lessee/lessor), or the agreement in dispute arose out of a transaction for goods or services; and (4) the court addressed the validity of a clickwrap, browsewrap, scrollwrap, or sign-in-wrap contract. While the state court case law survey yielded no instances of scrollwrap contracts, this part of the survey will analyze four cases involving scrollwrap, finding that the courts’ conclusions were unsurprising and consistent with the former half of the case law survey. Again, the types of provisions in dispute in these cases were not relevant because the agreement was considered as a whole. Indeed, most of the selected cases involved disputes regarding forum-selection clauses and arbitration clauses.

Three cases contained discussions of the validity of clickwrap agreements, three contained scrollwrap, nine contained browsewrap, and seven contained sign-in-wrap (two browsewrap cases also contained aspects of sign-in-wrap).¹⁷⁹ In each of the cases involving clickwrap or scrollwrap, the court held for the seller. In the browsewrap cases, the court held for the seller in six out of nine instances. In the sign-in-wrap cases, the court held for the seller two out of five times. The ratio of pro-buyer and pro-seller decisions for each type of wrap were not drastically different from those in state courts (see Figure 1, supra). More important than these numbers, however, was the consistency found in the reasoning within the decisions.

The cases largely adhered to the general standards established by pre-Berman Ninth Circuit precedent. Some courts modeled their analysis on the facts of past cases. For example, in Friedman v. Guthy-Renker, the Central District Court of California closely followed the blueprint established in Nguyen in order to determine the validity of a browsewrap agreement.¹⁸⁰ In Peter v. Doordash, Inc., the court compared the actual webpage in question to the webpage in Meyer v. Uber Technologies.¹⁸¹ As was the case in state courts, it still remains to be seen whether the two-part test from Berman or the context of a transaction test will gain traction over time. Cases concerning scrollwrap agreements came out as expected; courts ruled for sellers because scrolling generally constituted an affirmative act of assent. When considering the enforceability of browsewrap or hybridwrap agreements, federal courts favored sellers slightly more than state courts. But overall, these decisions were unsurprising and largely consistent with California state courts.

1. Clickwrap Agreements

The courts followed a deferential presumption of validity when it came to pure clickwrap agreements, and referenced recent decisions in state or other federal courts. In Vanden Berge v. Masanto, the court noted that “[c]lickwrap agreements ‘have been routinely upheld by circuit and district courts.’ ”¹⁸² In Tingyu Cheng v. Paypal, Inc., the court declared that “[c]lickwrap agreements are routinely recognized by courts and are enforceable . . . .”¹⁸³ Determining that an agreement was identifiably clickwrap often ended a court’s inquiry into the agreement’s enforceability. As in state courts, notice was secondary to the presumption of validity.

Overall, there were no federal district court decisions concerning clickwrap that deviated from precedent. As was true in California state court cases, pure clickwrap agreements are still regarded as constituting an affirmative act of assent that binds a buyer.

2. Scrollwrap Agreements

The same consistency was true of cases involving scrollwrap agreements. Like pure clickwrap agreements, scrollwrap requires an affirmative act of assent through the action of physically scrolling down a webpage. However, scrollwrap arguably creates greater notice for a buyer because the entirety of the seller’s terms is built directly into the website flow. When the buyer is forced to acknowledge the entirety of the agreement, it is harder to argue that the buyer did not receive adequate notice. Generally, the discussions of the validity of pure scrollwrap agreements were not accompanied by fact-specific inquiries into the reasonableness of the notice.¹⁸⁴ Courts were simply willing to accept the reasoning found within other binding or persuasive precedent once the type of wrap was established. In 2023, the court in Flores v. Coinbase declared that “ ‘scrollwrap’ agreements are consistently found to be enforceable in California,” referencing Sellers.¹⁸⁵ In Perez v. Bath & Body Works, the court cited the Ninth Circuit in Berman, stating that there is “little doubt” as to the blanket enforceability of scrollwrap agreements because “they affirmatively show the terms to the user before obtaining assent rather than linking to a separate page containing the terms that does not need to be viewed prior to agreement.”¹⁸⁶

Though California state courts have not yet decided any scrollwrap cases, it is likely that those courts would reach similar conclusions. Of all the types of wrap, scrollwrap probably creates the greatest presumption of validity because it requires an affirmative act, and the terms are conspicuous and accessible, by definition.

3. Browsewrap Agreements

In contrast, courts were generally more skeptical of browsewrap agreements because of the passive nature of browsewrap. Some courts even expressed a presumption of invalidity for pure browsewrap agreements.¹⁸⁷ In Brooks v. IT Works Marketing, the court stated that “[i]nternet contracts fall on two ends of a spectrum; courts routinely find clickwrap agreements enforceable but are generally more reluctant to enforce browsewrap agreements.”¹⁸⁸ Moyer v. Chegg quoted Berman: “Courts are more reluctant to enforce browsewrap agreements because consumers are frequently left unaware that contractual terms were even offered, much less that continued use of the website will be deemed to manifest acceptance of those terms.”¹⁸⁹ As the court reasoned in Nguyen, a buyer is not expected to seek out the terms of an agreement and sellers should be responsible for providing notice.¹⁹⁰ Of the cases surveyed, when cases involved a pure browsewrap agreement that contained no elements of clickwrap or sign-in-wrap, the court ruled in favor of the buyer.¹⁹¹ This is consistent with the former part of the case law survey.

Courts’ inquiries became more complicated when browsewrap was combined with elements of clickwrap or sign-in-wrap. Notice of the terms of the agreement was almost always the standard, and courts again examined various factors.¹⁹² In some of the cases examined, the courts did not even deem it necessary to categorize a website as offering one of the four recognized types. Eight out of nine browsewrap cases examined involved a form of hybridwrap, and given the variation in those agreements, the courts utilized a fact-specific inquiry across the board.

Reasonable notice or reasonably prudent user standards were most common. In Friedman v. Guthy-Renker, the court looked for “browsewrap that resemble[d] a clickwrap” because such an agreement would require an affirmative act of assent, evincing notice.¹⁹³ Applying the reasonably prudent user standard adapted from Nguyen, the court held for one of the plaintiff-buyers and found that “a reasonably prudent person would not believe that the common noun ‘terms’ associated with the checkbox [were] the same terms found in the proper noun ‘Terms & Conditions’ at the bottom of the page.”¹⁹⁴ Similarly, in Chien v. Bumble, a “blocker card contain[ed] aspects of both clickwrap and browsewrap agreements” and was “comparable to a pop-up screen in that users must click ‘I accept’ before they may proceed” but needed to click a hyperlink to view the full terms.¹⁹⁵ However, the notice was “reasonably conspicuous,” and the agreement was therefore valid.¹⁹⁶

In Shultz v. TTAC Publishing, a hybrid browsewrap agreement was invalidated because the checkbox next to the statement, “I agree to the terms and conditions,” was already checked by default when a customer navigated to the checkout page; therefore, there was no affirmative act of assent.¹⁹⁷ Nevertheless, the court engaged in a factual inquiry as to whether there was sufficient notice to justify the browsewrap agreement, finding that “the webpage design [made] it exceedingly difficult to discern the significance of the hyperlink.”¹⁹⁸ As was true in state courts, federal courts in California routinely applied similar, yet not identical, standards for notice. In a way, it did not matter that each of these cases involved browsewrap because the courts did not assign much inherent meaning to the category. The importance of browsewrap as a distinct category eroded in the face of many distinct types of hybridwrap.

In one sense, these cases validate the observation of the Sellers court: federal courts have relied on “subjective criteria” as opposed to one consistent version of a reasonable notice standard.¹⁹⁹ That being said, the courts consistently drew from the same pool of examinable factors in evaluating whether adequate notice was given, including fonts, sizes, colors, and proximity to clickable buttons. Generally, like the cases surveyed in Section II.A, federal courts in California preferred to draw on multiple factors and standards used by precedent in assessing notice. A singular, objective standard of reasonable notice thus remains elusive.

4. Sign-In-Wrap Agreements

Like state court cases, federal cases involving sign-in-wrap agreements involved a fact-specific inquiry into the buyer’s experience and did not place much inherent value on the sign-in-wrap category. A fact-based inquiry was typically warranted. Serrano v. Open Road Delivery Holdings cited Sellers, stating,

[I]t is not apparent that the consumer is aware that they are agreeing to contractual terms simply by clicking some other button. Instead, the consumer’s assent is largely passive, and the existence of a contract turns on whether a reasonably prudent offeree would be on inquiry notice of the terms at issue.²⁰⁰

The webpage should have provided “conspicuous notice to permit an inference that the user had manifested assent.”²⁰¹ The court held for the consumer and found that notice was not conspicuous because of the small size of the text informing consumers that they were assenting to the terms of use by signing up.²⁰²

Courts employed a few other means of assessing notice. In addition to performing a broader factors-based inquiry, the court in Peter v. Doordash directly compared a seller’s sign-up page to the page considered by the Second Circuit in Meyer v. Uber Technologies.²⁰³ The court stated that “[t]he screens are similarly uncluttered and wholly visible, and the notice text appears even closer to the sign-up button on DoorDash’s page than on Uber’s.”²⁰⁴ In addition to using a more general standard, the court relied on a side-by-side comparison of two webpages.²⁰⁵ Lastly, the court in Regan v. Pinger declined to settle on a precise label for the sign-in-based agreement and instead looked for broadly “sufficient notice to manifest mutual assent,”²⁰⁶ as was true for some browsewrap cases as well.

Overall, sign-in-wrap cases in federal district courts also applied standards of reasonable notice in an inconsistent manner. Courts employed various techniques, including comparing the webpage in question to webpages from past cases and examining website elements, such as fonts, separately. These cases support the Sellers court’s criticism of the inconsistent application of notice standards in federal courts.

In conclusion, this case law survey reveals consistency with California state courts. Beyond the presumptions of validity for clickwrap and scrollwrap contracts, standards of notice generally became nebulous as courts utilized any combination of website factors as well as other methods such as direct comparisons to websites from previous cases. Both state and federal courts struggled to pinpoint a consistent method of assessing whether reasonable notice was present, and even the reasonably prudent user standard yielded different results depending on how the court chose to define an average user. Thus, federal courts in California were largely consistent with state courts in their treatment of clickwrap, scrollwrap, browsewrap, and sign-in-wrap cases.

C. Summary of Findings

To summarize, this case law survey shows consistency among state and federal courts in California. Courts were generally deferential to sellers and their offers if adequate notice was given to the buyer. This aligns with Judge Easterbrook’s perspective in ProCD. However, California courts also employed a reasonably prudent user standard, which can be traced back to Berman, Specht, and Step-Saver. Finally, this Note concludes by arguing that Step-Saver and ProCD remain relevant as online contracts evolve because they establish and contextualize the most commonly used standards of notice in California. Courts will likely continue to lean on their reasoning in applying common law principles as new types of contracts emerge over time.

1. Standards of Notice

In some clickwrap and scrollwrap cases, courts were willing to declare an agreement valid solely because courts have presumed clickwrap and scrollwrap to be enforceable in the past.²⁰⁷ On the other hand, some courts seemed reluctant to rely on categories at all.²⁰⁸ However, most cases in the case law survey engaged in some level of fact-specific inquiry, and a few main standards were seen most frequently. It remains to be seen whether the two-part standard from Berman or the transactional “context” standard from Oberstein will gain traction in the coming years.

The reasonable notice standard was almost always applied throughout the case law survey. Consistent with the precedent set by Nguyen, Specht, and Berman, courts examined various website design factors such as font size, font color, proximity to clickable buttons, underlining on hyperlinks, and the presence of an affirmative act of assent before completing a transaction.²⁰⁹ Though Nguyen provided some specific rules pertaining to browsewrap,²¹⁰ there is still no requirement that courts examine certain factors or website elements. Perhaps this approach is practical considering the wide variation in sellers’ website flows. However, the looseness of the standard was also a source of inconsistency throughout the survey, and courts created their own interpretations by picking and choosing certain factors to examine.²¹¹

The reasonably prudent user standard was often used with the reasonable notice standard and acted as a loose benchmark for courts analyzing the experience of a consumer engaging with a seller’s interface. Some courts treated it as an independent standard,²¹² while some courts treated is as a subset of reasonable notice.²¹³ The court in Sellers criticized some courts’ exercise of the reasonably prudent user standard as being too subjective and inconsistent.²¹⁴ In considering the potential longevity of this standard, it is difficult to imagine whether the average Internet user of the future will be more or less prudent. Perhaps the average American will be more digitally literate in twenty or fifty years than they are today. Or perhaps technology will continue to evolve, leaving some generations and users behind. Nevertheless, it is certain that sellers and their offers will continue to evolve, causing standards to continue to adapt.

A few other methods of assessing notice were seen in the case law survey. The court in Sellers also wrote that some federal courts were using adjacent, but different, standards to determine whether sufficient notice was present, such as “conspicuousness.”²¹⁵ Conspicuousness was sometimes employed as an independent test, as one of many factors of the reasonable notice standard, and as a separate prong of the Berman test.²¹⁶ Overall, courts have been inconsistent in their application and analysis of conspicuousness. Additionally, some courts decided to forgo tests and standards in favor of making comparisons to websites and agreements that have been seen in courts already. Those decisions focused on the fact that the browsewrap or sign-in-wrap agreement in question resembled a similar agreement in a previous case. For example, the court in Peter v. Doordash compared the seller’s sign-up page to the website in Meyer, stating that “DoorDash’s sign-up page looks markedly similar to the page approved by Meyer. The screens are similarly uncluttered and wholly visible, and the notice text appears even closer to the sign-up button on DoorDash’s page than on Uber’s.”²¹⁷ Comparing agreements to others that have already been “approved” by courts may be temporarily efficient. Looking forward, however, this method may not be sustainable if online agreements continue to evolve at a fast pace. Some legal scholars, including Cheryl B. Preston, are not optimistic about the potential of evolving notice standards to sufficiently protect consumers, especially given the needs of the “Internet-instant-gratification generation.”²¹⁸ Perhaps Judge Easterbrook and the Sellers court were wise in declining to create bright-line rules; standards offer greater flexibility and adaptability to the online contracts of tomorrow.

This Note will not propose what alternative, more successful standards of notice might look like.²¹⁹ However, some other jurisdictions adopt combinations of these tests. Within the last few years, for example, Maine has embraced a “two-step inquiry” in which the first step focuses on a reasonably prudent user being put on reasonable notice of the contract terms, and the second step focuses on whether the user has manifested their assent.²²⁰ Perhaps California courts embrace the Berman standard and the context of the transaction test, which seek to combine many of the standards that have been employed within the past decade. A more uniform standard for notice would create consistency and reduce the current reliance on courts to define the scope of a notice inquiry.

This case law survey shows that a singular notice standard remains to be established in California. While reasonable notice was almost universally considered important, courts created their own interpretations of this standard and applied it in many different ways.

2. The Erosion of Distinct Wrap Categories

The results of this case law survey also show that courts did not always utilize California’s four wrap categories in evaluating the validity of an agreement. While the clickwrap and scrollwrap categories carried presumptions of validity,²²¹ the browsewrap and sign-in-wrap categories lacked definite boundaries and uniform standards of notice. A concurring opinion in Berman made a bold proposition: “browsewrap agreements are unenforceable per se; sign-in wrap agreements are in a gray zone; and clickwrap and scrollwrap agreements are presumptively enforceable.”²²² While this may be true for now, the Berman court’s declaration may lose relevance as soon as wrap contracts further evolve—or devolve.

One issue is that courts were not always consistent in their categorization of wrap agreements. In state and federal courts, there was a struggle to define agreements when they incorporated elements of more than one type of wrap. Some of the decisions labelled by the courts as browsewrap or hybridwrap involved website flows that also directed users to sign-in or create accounts.²²³ Thus, going forward, the wrap categories may only be useful insofar as the courts are consistent in their categorizations. Further, sellers are constantly adapting to standards set by new case law. For example, because Nguyen discouraged the use of a pure browsewrap agreement,²²⁴ sellers have expanded the world of browsewrap to include many hybrid variations. Courts often fail to characterize these agreements in specific or useful ways. For example, the state court case Kellman v. Honest Co. adopted the language used in Long v. Provide Commerce to describe the type of agreement in dispute: browsewrap with “something more.”²²⁵ Not only was this definition of an agreement vague, but it also relied on a clear definition of browsewrap, which may no longer exist.

The fact that courts have recognized new types of wrap in the past may suggest that there is room for further types of agreements in California contract law. However, even if courts were to acknowledge new categories, such a process would likely occur gradually, moving at a speed much slower than the speed at which sellers create new website flows. As mentioned before, courts still take a reactionary, ex ante approach when assessing the validity of an online contract.²²⁶

Looking forward, advances in technology may further blur the lines. Companies today are converting customers by monetizing places that are not traditionally used as marketplaces. “Social commerce,” for example, allows users of social media platforms like Instagram and Facebook to “purchase products without ever leaving the platform.”²²⁷ “Experience commerce” is another new example, promising to put the “customer first” and remove “the product from the center of the sales solution or offering” to create an “immersive . . . experience.”²²⁸ This Note does not speculate extensively about the future of ecommerce, but as Internet users find themselves becoming buyers in new contexts, they probably run a greater risk of assenting to terms unwittingly.

Overall, as sellers continue to adapt to current standards and hybridwrap becomes more pervasive, a fact-specific inquiry tailored to the agreement in question might always be necessary—even for cases involving clickwrap or scrollwrap. Thus, it is also worth considering whether these categorizations remain useful at all. First, there were the “two flavors” of contracts, clickwrap and browsewrap, and today, California courts recognize four. Moving forward, perhaps there will be many more—or none at all. This case law survey shows that the categories are already breaking down as sellers’ websites resist simple categorization. If courts continue to prefer reasonable notice or reasonably prudent user standards, then perhaps hard-and-fast contract categories will cease to be necessary because these standards apply regardless of the wrap type. Browsewrap and sign-in-wrap have arguably already lost their efficacy as distinct categories because there is so much variation among website flows. Indeed, courts sometimes declined to categorize agreements at all and instead prioritized a notice analysis.²²⁹

It is unclear whether the deterioration of wrap categories and emergence of fact-specific inquiries will create more protection for buyers. On the one hand, a fact-specific inquiry could benefit buyers because sellers exercise the most control over their websites. As masters of their own offers, they alone have the power to set the terms of the transaction. As Judge Wisdom suggested in Step-Saver, the fact that there is often no transaction history between parties to these contracts might cause buyers to assent to agreements that they do not anticipate or expect.²³⁰ On the other hand, and as emphasized by Judge Easterbrook in ProCD, the ubiquity of ecommerce and the natural competition of the market may create enough protection,²³¹ even as website flows evolve to become more complex. Although most consumers do not read sellers’ terms, reputation matters in a saturated market and might incentivize sellers to provide more favorable terms. Whether distinct wrap categories have longevity or not, courts likely need to define the appropriate notice standard that should be applied, which could eliminate some of the inconsistency highlighted by the Sellers court.

For now, this case law survey also shows that the four distinct contract categories still center in California courts’ preliminary analysis of the validity of an online contract, though hybridwrap is becoming more pervasive. Courts almost always begin their analysis of an agreement’s enforceability with an acknowledgement of the types of wrap, whether they use the categorization to presume validity or proceed to look for adequate notice by the seller. Because all wrap types can be potentially valid, courts are generally deferential to sellers and how they want to set the terms of their offers. There are still few bright-line requirements for sellers in this area of contract law, and parties are generally free to contract as they please.

3. The Relevance of Step-Saver and ProCD

The precedent set by Step-Saver and ProCD three decades ago is still applicable today. An important part of the ProCD decision was Judge Easterbrook’s adherence to the common law principle that any mode of acceptance set by an offeror—hence, any type of wrap—is valid as long as the buyer has notice. The offeror is the master of the offer and can propose specific modes of assent. The reasonable notice standard used widely in California is consistent with Judge Easterbrook’s determination that ProCD’s pop-up box gave the buyer enough notice of the seller’s agreement.²³² Many of the cases surveyed also prioritized the experience of buyers as part of an analysis of adequate notice. Relatedly, the reasonably prudent user standard can be traced to Step-Saver and Specht. It forces sellers to acknowledge the other party in designing an offer and work around the experience of the buyer or user. Perhaps this amounts to more protection for buyers. In some cases, the court went so far as to insinuate that sellers take advantage of buyers in formulating their modes of acceptance.²³³ Yet, this case law survey also shows that the ProCD and Step-Saver perspectives are not incompatible. Elements of both cases have made their way into California contract law, though Judge Easterbrook’s approach seems to be slightly more pervasive today.

Step-Saver and ProCD are often seen as cases that are pro-buyer or pro-seller. Step-Saver was largely concerned with holding businesses accountable and is an important check on sellers. In contrast, Eric Posner termed ProCD a “masterpiece of realist judging” in the “canon of contract law cases” because it encouraged sellers to continue conducting business as they had been.²³⁴ However, given the landscape of online contracting and the importance of notice, perhaps the cases should be recast as simply endorsing different standards of notice. Step-Saver is more aligned with the reasonably prudent user standard while ProCD is more aligned with reasonable notice. Online contract cases today implicitly recognize that form contracts enable the marketplace to function efficiently. Yet, because online sellers’ website flows vary to such a great degree, it is difficult to make blanket statements as to the validity of certain agreements. Thus, notice will almost certainly remain a point of discussion for courts, and these cases will remain relevant as the sources of two significant standards of notice.

The world of online contracting is quickly outpacing the factual relevance of the two cases because new means of manifesting assent are rapidly being invented. For example, the box-top licenses in Step-Saver and ProCD can be likened to browsewrap agreements today, but many sellers have already stopped creating pure browsewrap agreements after Nguyen. While form contracts will likely remain important and necessary for online contracting, current shrinkwrap-like modes of acceptance may not. Nevertheless, these cases connect the concept of notice in form contracts to essential contract common law principles. As long as online modes of contracting are held to the same requirements of offer and acceptance, the reasoning of Judge Wisdom and Judge Easterbrook should remain in contract casebooks. These two cases contributed to the development of major standards of notice.

CONCLUSION

As was true three decades ago when Step-Saver and ProCD created a circuit split, courts are still determining how to evaluate notice when considering the validity of form contracts. When courts evaluate the validity of a clickwrap or scrollwrap agreement, precedent alone may dictate a certain outcome. For cases involving browsewrap or sign-in-wrap, a fact-specific inquiry is almost always necessary. While it remains to be seen whether California’s four types of wrap will continue to be useful or important in evaluating sellers’ offers and agreements, it is likely that courts will continue to look for adequate notice. This case law survey demonstrates that there are two main standards of notice that can be traced back to ProCD and Step-Saver: a factor-based reasonable notice standard and a reasonably prudent user standard. There is presently no uniform method of applying these standards in California, but most courts nevertheless acknowledge that elements of both are important. Overall, case law is trending towards the ProCD view that contracting should not be impeded by burdensome standards for sellers. However, sellers should still be held to reasonable standards to keep consumers informed, which is consistent with Step-Saver. In conclusion, these two cases remain important as courts continue to evaluate whether buyers were sufficiently notified of sellers’ terms.

APPENDIX A. Surveyed Cases in California State Courts
	Case	Held For	Type of Contract	Disputed Terms	Summary
1	B.D. v. Blizzard Ent., Inc., 292 Cal. Rptr. 3d 47 (Ct. App. 2022)	Seller	Clickwrap	Arbitration Provision	Seller’s pop-up box gave sufficiently conspicuous notice that clicking a “Continue” button would manifest assent to the terms of a License Agreement.
2	Bowers v. Ritchie Bros., No. RG21095426., 2021 Cal. Super. LEXIS 33293 (Aug. 18, 2021)	Seller	Clickwrap	Forum-Selection Provision	Buyer assented to an agreement by clicking “I agree to the IronPlanet Buyer Terms and Conditions,” which was necessary to proceed with the transaction.
3	Doe v. Massage Envy Franchising, LLC, 303 Cal. Rptr. 3d 269 (Ct. App. 2022)	Buyer	Clickwrap	Arbitration Provision	Buyer brought an action for sexual assault, to which a seller moved to compel arbitration based on a clause in seller’s agreement. Buyer did not assent to a seller’s terms of service on an electronic tablet because the font color of the notice statement was not conspicuous, and terms were hyperlinked. Buyer was pressured to complete the forms quickly by seller’s staff.
4	Herzog v. Superior Ct., 321 Cal. Rptr. 3d 93 (Ct. App. 2024)	Buyer	Clickwrap	Arbitration Provision	Buyer assented to a healthcare company’s terms by clicking a box, but the agreement was deemed unenforceable because clicking the box also constituted authorization for the company to collect and store the personal health information; thus, there was no unambiguous assent to the terms.
5	Jackson v. Vines, No. CVRI2201731, 2023 Cal. Super. LEXIS 69073 (Jan 10, 2023)	Seller	Clickwrap	Arbitration Provision	Buyer assented to terms via a clickwrap agreement and could not use the fact that he did not recall doing so as a defense.
6	Njoku v. Airbnb, Inc., No. 21STCV34610, 2021 Cal. Super. LEXIS 84568 (Dec. 23, 2021)	Seller	Clickwrap	Arbitration Provision	Buyers were bound by an agreement because they clicked an electronic button that indicated their assent, even though the actual terms were hyperlinked and on another page.
7	Pierre v. Dexcom Inc., No. 37-2023-00014471, 2023 Cal. Super. LEXIS 56618 (July 28, 2023)	Seller	Clickwrap	Arbitration Provision	Buyer was bound by a clickwrap agreement that read “I agree” or “I accept” and was provided with a link to the readily available agreement.
8	Shaw v. U-Haul, No. 21STCV20248, 2022 Cal. Super. LEXIS 23561 (Mar. 16, 2022)	Seller	Clickwrap	Arbitration Provision	Buyer manifested assent by clicking “Accept” with respect to seller’s Arbitration Agreement.
9	Xiong v. Jeunesse Glob., LLC, No. 30-2019-01095448, 2020 Cal. Super. LEXIS 5220 (Oct. 6, 2020)	Seller	Clickwrap	Arbitration Provision	Buyer was bound by a clickwrap agreement that read “I agree,” and her inability to remember whether she clicked the box was an insufficient defense.
10	Blood v. L.T.D. Commodities LLC, No. 37-2020-00034050, 2021 Cal. Super. LEXIS 56220 (Sept. 24, 2021)	Buyer	Browsewrap	Arbitration Provision	A button on seller’s website that read “START SAVING” did not notify buyer that clicking the button would constitute assent to seller’s terms.
11	Collins v. Priceline.com, LLC, No. 20STCV10231, 2020 Cal. Super. LEXIS 5739 (Dec. 22, 2020)	Seller	Browsewrap	Arbitration Provision	Seller’s website contained an enforceable part-browsewrap, part-clickwrap agreement because buyer had to click to assent and complete a reservation.
12	Esparza v. 23andMe Inc., No. 37-2022-00051047, 2023 Cal. Super. LEXIS 54347 (July 21, 2023)	Buyer	Browsewrap	Arbitration Provision	A website’s terms of use were not binding because they were only available by clicking a hyperlink after scrolling to the bottom of the page or in the site’s chat feature.
13	Kellman v. Honest Co., No. RG16 813421, 2016 Cal. Super. LEXIS 20519 (Nov. 28, 2016)	Buyer	Browsewrap/ Hybridwrap	Arbitration Provision	Seller’s website design did not include design elements that would put a reasonably prudent buyer on notice of a browsewrap agreement.
14	Long v. Provide Com., Inc., 200 Cal. Rptr. 3d 117 (Ct. App. 2016)	Buyer	Browsewrap	Arbitration Provision	Seller’s checkout flow did not create adequate notice that placing an order indicated acceptance, nor did a link sent to buyer’s email create notice.
15	Pradmore v. J2 Glob., Inc., No. CGC-17-561916, 2018 Cal. Super. LEXIS 739 (Apr. 20, 2018)	Seller	Browsewrap/ Hybridwrap	Arbitration Provision	Seller’s agreement was enforceable because it contained elements of browsewrap but also required buyer to click a box to assent to complete a transaction.
16	Rabbani v. Tesla Motors Inc., No. 37-2021-00004478, 2021 Cal. Super. LEXIS 56460 (May 21, 2021)	Seller	Browsewrap	Arbitration Provision	Buyer was notified that placing an order would indicate assent to seller’s terms and did not click on hyperlinks that would have revealed said terms.
17	O’Connor v. Rd. Runner Sports, Inc., 299 Cal. Rptr. 3d 785 (Ct. App. 2022)	Buyer	Sign-In-Wrap	Arbitration Provision	In manifesting assent to cancel his membership to a seller’s loyalty program, buyer did not use seller’s preferred method to cancel the membership and seller’s arbitration agreement was found to be unenforceable.
18	Sellers v. JustAnswer LLC, 289 Cal. Rptr. 3d 1 (Ct. App. 2021)	Buyer	Sign-In-Wrap	Arbitration Provision	A sign-in-wrap agreement was not binding when buyer signed up for a free trial of a service because notice was not clear and conspicuous, and this was not the type of transaction that would entail an ongoing contractual relationship.
19	Skurskiy v. Neutron Holdings, Inc., No. 19STCV36846,Cal. Super. LEXIS 104325 (Cal. Super. Ct. Apr. 15, 2021)	Seller	Sign-In-Wrap	Arbitration Provision	In signing up for a seller’s service, buyer clicked an “I Agree” button where language on the page was apparent that clicking would indicate assent to seller’s user agreement.
20	Thompson v. Live Nation Ent., No. 30-2018-00976153, 2018 Cal. Super. LEXIS 42847 (May 4, 2018)	Seller	Sign-In-Wrap/Browsewrap	Arbitration Provision	Buyer was required to acknowledge seller’s terms twice in the process of creating an account and therefore assented. Key terms were set apart in a different color from other words.

APPENDIX B. Surveyed Cases in U.S. District Courts in California
	Case	Held For	Type of Contract	Disputed Terms	Summary
1	Brown v. Madison Reed, Inc., No. 21-cv-01233, 2021 U.S. Dist. LEXIS 164002 (N.D. Cal. Aug. 30, 2021)	Seller	Clickwrap	Arbitration Provision	Buyer was bound by seller’s agreement because notice of the terms was set apart in bold and in a different color. Clicking to manifest assent was required to place an order.
2	Tingyu Cheng v. Paypal, Inc., No. 21-cv-03608, 2022 U.S. Dist. LEXIS 7245 (N.D. Cal. Jan 13, 2022)	Seller	Clickwrap	Arbitration Provision	Seller’s agreement was binding on buyer because he had to check a box indicating that he had read and agreed to a User Agreement and clicked a large blue button to indicate assent to creating an account.
3	Vanden Berge v. Masanto, No. 20-cv-00509, 2020 U.S. Dist. LEXIS 261762 (S.D. Cal. Sept. 22, 2020)	Seller	Clickwrap	Arbitration Provision	Buyer was bound by seller’s terms because she affirmatively agreed to a clickwrap agreement while making a purchase.
4	Flores v. Coinbase, Inc., No. CV 22-8274, 2023 U.S. Dist. LEXIS 90926 (C.D. Cal. Apr. 6, 2023)	Seller	Scrollwrap	Arbitration Provision	Seller’s scrollwrap agreement was valid because the full text of the User Agreement was placed before buyer.
5	Perez v. Bath & Body Works, LLC, No. 21-cv-05606, 2022 U.S. Dist. LEXIS 116039 (N.D. Cal. June 30, 2022)	Seller	Scrollwrap	Arbitration Provision	Seller’s agreement was valid because buyer was physically required to scroll through the terms in order to assent.
6	Stewart v. Acer Inc., No. 22-cv-04684, 2023 U.S. Dist. LEXIS 10241 (N.D. Cal. Jan. 20, 2023)	Seller	Scrollwrap	Arbitration Provision	Seller’s agreement was enforced because the terms appeared after turning on the product (a computer) and constituted adequate notice.
7	Allen v. Shutterfly, Inc., No. 20-cv-02448, 2020 U.S. Dist. LEXIS 167910 (N.D. Cal. Sept. 14, 2020)	Seller	Browsewrap/ Hybridwrap	Arbitration Provision	Buyer was bound by a browsewrap agreement where constructive notice was present due to the conspicuousness of the terms, although they were hyperlinked.
8	Brooks v. IT Works Mktg., No. 21-cv-01341, 2022 U.S. Dist. LEXIS 103732 (E.D. Cal. June 9, 2022)	Buyer	Browsewrap	Arbitration Provision	Buyer was not bound by seller’s terms because she never saw the link to the Terms of Use as they were in a small font and an inconspicuous color.
9	Chien v. Bumble Inc., 641 F. Supp. 3d 913 (S.D. Cal. 2022)	Seller	Browsewrap/ Hybridwrap	Arbitration Provision	Buyer was bound by seller’s agreement because a pop-up blocker card containing the Terms and Conditions and a button stating “I accept” was reasonable notice.
10	Crawford v. Beachbody, LLC, No. 14cv1583, 2014 U.S. Dist. LEXIS 156658 (S.D. Cal. Nov. 5, 2014)	Seller	Browsewrap/ Hybridwrap	Forum-Selection Provision	An enforceable agreement was made because seller’s Terms and Conditions were in a conspicuous font directly below the “PLACE ORDER” button to complete the transaction.
11	DeVries v. Experian Info. Sols., Inc., No. 16-cv-02953, 2017 U.S. Dist. LEXIS 26471 (N.D. Cal. Feb. 24, 2017)	Seller	Browsewrap/ Hybridwrap	Arbitration Provision	Seller’s browsewrap agreement was valid because there was adequate notice when the phrase “Terms and Conditions” was in a different color and in close proximity to a clickable button.
12	Friedman v. Guthy-Renker LLC, No. 14-cv-06009-, 2015 U.S. Dist. LEXIS 24307 (C.D. Cal. Feb. 27, 2015)	Buyer	Browsewrap/ Hybridwrap	Arbitration Provision	Buyer was not bound by seller’s terms and conditions because the hyperlink to the terms was “buried” at the bottom of the screen and not enough notice was provided of their existence.
13	Hansen v. Ticketmaster Ent., Inc., No. 20-cv-02685, 2020 U.S. Dist. LEXIS 233538 (N.D. Cal. Dec. 11, 2020)	Seller	Browsewrap/ Sign-In-Wrap	Arbitration Provision	Seller’s browsewrap agreement was valid because assenting to terms was required before buyer had the option to purchase tickets from seller.
14	Moyer v. Chegg, Inc., No. 22-cv-09123, 2023 U.S. Dist. LEXIS 128352 (N.D. Cal. July 25, 2023)	Seller	Browsewrap/ Sign-In-Wrap	Arbitration Provision	Buyer was bound because she received conspicuous notice of the terms, which were hyperlinked right below a button that buyer needed to click to create an account.
15	Shultz v. TTAC Publ’g, LLC, No. 20-cv-04375, 2020 U.S. Dist. LEXIS 198834 (N.D. Cal. Oct. 26, 2020)	Buyer	Browsewrap/ Hybridwrap	Arbitration Provision	Buyer was not bound by seller’s browsewrap/clickwrap agreement because the checkbox next to the statement “I agree to the terms and conditions” was checked by default, requiring no act of assent by the user.
16	Colgate v. Juul Labs, Inc., 402 F. Supp. 3d 728 (N.D. Cal. 2019)	Buyer	Sign-In-Wrap	Arbitration Provision	Seller’s notice was not conspicuous enough to notify buyer because the hyperlink to the Terms and Conditions was not underlined, italicized, or visually distinct from the surrounding text.
17	Seneca v. Homeaglow, Inc., No. 23-cv-02308, 2024 U.S. Dist. LEXIS 33698 (C.D. Cal. Feb. 7, 2024)	Buyer	Sign-In-Wrap	Arbitration Provision	Seller’s sign-in-wrap agreement was not binding on buyer because buyer had already purchased services from seller when the agreement was presented, and the notice was not conspicuous.
18	Peter v. Doordash, Inc., 445 F. Supp. 3d 580 (N.D. Cal. 2020)	Seller	Sign-In-Wrap	Arbitration Provision	Seller’s agreement was notably similar to the agreement in Meyer and the notice text was conspicuous. Thus, the agreement was binding on buyer.
19	Regan v. Pinger, Inc., No. 20-CV-02221, 2021 U.S. Dist. LEXIS 33839 (N.D. Cal. Feb. 23, 2021)	Seller	Sign-In-Wrap	Arbitration Provision	Seller’s repeated notice that the creation of an account would constitute assent to the Terms of Service was enough to bind a user.
20	Serrano v. Open Rd. Delivery Holdings, Inc., 666 F. Supp. 3d 1089 (C.D. Cal. 2023)	Buyer	Sign-In-Wrap	Arbitration Provision	Seller’s webpage did not provide reasonably conspicuous notice of the terms and conditions because the notice text was small and in a light-colored font.

98 S. Cal. L. Rev. 419

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Sophie Lee*

* Executive Membership Editor, Southern California Law Review, Volume 98; J.D. Candidate 2025, University of Southern California Gould School of Law; B.A. History, Creative Writing 2022, Columbia University. Thank you to Professor Jonathan Barnett and Professor Jordan Barry for the thoughtful feedback and to my friends and family for their consideration and acceptance.

Stringing Along the Songwriter: Successes and Shortcomings of Copyright Policy in Title I of the Music Modernization Act

March 2025March 2025Tara Steinmetz*

Congress’s enactment of the Music Modernization Act (“MMA”) in 2018 introduced the most substantial revision to copyright law in two decades and represented a landmark moment for the music industry. Over the prior decade, the rise of music streaming had taken the music business to the brink of disaster, as many of artists’ most foundational rights within music copyright law proved fundamentally incongruent with a digital future. Amongst the worst hit were songwriters and composers whose royalties had so drastically declined that many throughout the industry felt it was just a matter of time before the profession ceased to exist.

The MMA—particularly its Title I—sought to revive the industry, and five years on from its passage, music industry leaders and lawmakers on Capitol Hill reopened a conversation around the law’s successes and shortcomings given the new era of technological innovation around the corner. Through the lens of music copyright law’s three policy goals—access, incentive, and reduction of transaction costs—this Note closely examines Title I’s implementation to date. It provides a new analysis of the law’s key provisions, including the accomplishments of the Mechanical Licensing Collective and the adoption of a new willing-buyer willing-seller royalty rate setting standard in the most recent Copyright Royalty Board rate proceeding. This Note ultimately argues that Title I of the MMA successfully responded to the most immediate challenges in music copyright law, effectively eliminating untenable transaction costs that left an antiquated licensing system nearly nonfunctional. However, it has achieved relatively marginal results for one of its central aspirations and one of the industry’s most looming concerns: the hollowing out of the songwriting profession, as artists can no longer afford to create for such little return. The plight of the songwriter thus remains one of the music industry’s most fundamental yet unanswered problems in the digital age.

INTRODUCTION

In June 2023, the Recording Industry Association of America, the nation’s leading trade organization for the recording industry, announced that Avicii’s 2013 hit song “Wake Me Up” had become the highest-selling dance track in the organization’s seventy-year history.¹ Just two months later, that August, the chart-topping track joined the ranks of just over forty songs ever to have reached two billion streams on Spotify.² When it was first released over ten years ago, the song quickly rose to become Spotify’s then-most streamed song of all time and Pandora’s thirteenth most streamed song of all time.³ However, in November 2014, Aloe Blacc, the now-famous artist who wrote and sang the song’s ubiquitous chorus, publicly revealed that the song had made only $12,259 in royalties off of 168 million streams on Pandora’s digital streaming platform.⁴ From there, the sum was split amongst the song’s publishers, Aloe Blacc, and his two other co-writers, leaving Blacc with less than $4,000 made off of the United States’ largest music streaming platform at the time.⁵

While Blacc once could have received consistent royalty payments from physical album and digital download sales, an antiquated copyright system controlling songwriters’ work left him and other songwriters defenseless in the new music streaming era. Blacc lamented that the digital age presented a disappointing irony that while more people than ever enjoyed widespread access to music and benefited from songwriters’ creative labor, songwriters were being paid out by streaming services at “abhorrently low rates” and struggling to make ends meet.⁶ Despite incredible demand for their craft, he said that songwriters like him had “no power” to protect the music they created, signaling to songwriters that their work was not valued.⁷

Blacc’s story was a dime a dozen in the 2010s as music streaming services rapidly became the primary mode of music consumption. Kevin Kadish, who wrote Meghan Trainor’s 2014 breakout hit “All About the Base,” told the House Judiciary Committee in a 2015 roundtable that he had made just $5,679 off of 178 million streams of the song,⁸ despite the fact that it had spent eight consecutive weeks at number one on the Billboard Hot 100—the longest of any female artist that year⁹—and was the bestselling song of the decade by any female artist.¹⁰ Kadish was just one of over a hundred testimonies at that roundtable relaying the plight of songwriters in the digital age.¹¹

While digital streaming rapidly transformed the music industry, the legal framework for music copyright fell drastically behind. Ad hoc solutions to monopoly and antitrust concerns from eras of long-dead technologies were cemented into the legal regime, saddling musical composition copyrights with an incoherent patchwork of restrictive copyright laws. Songwriters’ and composers’ most foundational rights thus reflected early twentieth-century problem-solving that was fundamentally incongruent with a digital future.

The shortcomings of the old music copyright landscape became evident throughout the 2010s’ massive decline of songwriter remuneration. Songwriters like Blacc and Kadish penned some of the most recognizable songs of the past decade and wrote hits for some of the country’s greatest pop stars. Yet still, Kadish asked members of Congress how he was to feed his family, making just $5,600 off about “as big a song as a songwriter can have in their career.”¹² Meanwhile, the majority of songwriters, accustomed to a generally middle-class life in their profession before the streaming era,¹³ would never write a song with anywhere near this level of success; for them, the situation was even more distressing.

Concurrently, music publishing companies, which often own and manage songwriters’ copyrights in whole or in part, encountered financial challenges mirroring those of the songwriters they represented. Even digital streaming providers felt the constraints of working within an outdated legal system, which made it nearly impossible to properly license songwriters’ works as required by their business model. Then-fledgling music streaming providers faced a barrage of infringement lawsuits, jeopardizing their ability to grow despite widespread public popularity.

In 2018, Congress enacted the Orrin G. Hatch–Bob Goodlatte Music Modernization Act (“Music Modernization Act” or “MMA”), a major step towards aligning the music industry with modern digital technology.¹⁴ The MMA emerged from a comprehensive negotiation amongst numerous industry players—from publishers and songwriters to record labels and recording artists to fast-growing digital music streaming services. It represented unprecedented consensus across the music industry.

The MMA amended Title 17 of the U.S. Code, also known as the Copyright Act, which, despite two decades of major technological innovation, had not seen any major revision since 1998.¹⁵ Its three titles each aimed to tackle distinct issues in the music copyright landscape. Title I, known more specifically as the Musical Works Modernization Act (“MWMA”), addressed songwriter and publisher concerns emerging from the digital age and is the focus of this Note. Specifically, it redefined the administration of the compulsory mechanical license in response to the incompatibility of interactive streaming services with the old music copyright regime.¹⁶ The remaining two Titles of the MMA addressed copyright concerns for recording artists: Title II, the Classics Protection and Access Act, fixed a gap in prior copyright law by bringing pre-1972 sound recordings under copyright protection, and Title III, the Allocation for Music Producers Act, enables music producers, mixers, and sound engineers to receive royalties on sound recordings.¹⁷

2023 marked the fifth anniversary of the Music Modernization Act, rekindling conversations around its successes and shortcomings, particularly concerning Title I. This Note will discuss the ways in which the development of Title I of the MMA embodies a classic copyright struggle between incentive, access, and transaction costs, arguing that while it aimed to better address deep transaction cost and incentive gap concerns arising from the streaming industry—and succeeds in doing so where an urgent solution was required—there remain important unresolved tensions in music copyright law for songwriters. The songwriters upon which the music industry is built still insist that their profession is dying, and early indicators suggest that the MMA did not go far enough to fully correct failures of traditional copyright policy goals. Ultimately, Title I of the MMA recalibrated messy transaction costs that became glaringly apparent in the pre-MMA regime, but policymakers have yet to strike the right balance between incentive and access that underlies copyright policy.

I. THE MUSIC COPYRIGHT LANDSCAPE

A. Mechanics of Music Copyright

1. Copyright Basics

Each song you listen to on the radio or stream on Spotify contains two separate copyrights: a copyright to the song’s sound recording, known as a master recording or a “master,” and a copyright to the underlying musical composition embodied in the sound recording.¹⁸ Thus, the performance and distribution of a song’s recordings trigger royalties payable to both the holder of the composition copyright and the sound recording copyright.¹⁹ Sound recording copyrights are held by record labels and artists, while copyrights to musical compositions are held by music publishers, songwriters, and composers.²⁰ For example, as depicted in Figure 1, SZA’s 2022 song “Kill Bill” is copyrighted as a master sound recording and as a musical composition.²¹ Use of the sound recording would require royalties to be paid to SZA’s record label, Top Dawg RCA, and SZA as the recording artist. Conversely, the song’s underlying musical composition and lyrics also have a copyright; royalties for its use would be distributed amongst the three rights-holding music publishers and three credited songwriters. While these two types of copyrights, in theory, are granted the same exclusive rights, the licensing regimes arising out of these two copyrights have diverged over time, altering how these two categories of rights holders benefit from their exclusive rights. This Note will focus on the copyright licensing regime for music compositions owned by publishers and songwriters, as Title I of the Music Modernization Act introduced a drastic alteration in this licensing landscape.

Figure 1. Two Copyrights, One Song

Sources: Adapted from Sarah Jeong, A $1.6 Billion Spotify Lawsuit Is Based on a Law Made for Player Pianos, The Verge (Mar. 14, 2018, 9:28 AM), https://www.theverge.com/2018/3/14/17117160/spotify-mechanical-license-copyright-wixen-explainer [https://perma.cc/2QHB-DTPY]. Copyright ownership data is from The MLC Public Work Search, The MLC, https://portal.themlc.com/search#work [https://perma.cc/T6LA-4Z6X] (searched under “Work Title” for the song “Kill Bill,” added writer name criteria, and searched for Rob Bisel).

Under § 106 of the Copyright Act, copyright holders gain six primary exclusive rights as a result of their copyright including (1) the right to reproduce the copyrighted work; (2) the right to prepare derivative works based upon the work; (3) the right to distribute copies of the work; (4) the right to perform the work publicly; and (5) the right to display the work publicly, a right tending to be less prevalent in music copyright beyond displaying lyrics publicly or online.²² Copyright holders thus can license these defined rights to any willing buyer.

The licensing of a musical composition can be broken down into two primary buckets. The right to perform a composition publicly, or a “public performance right,” generates what are known as performance royalties any time someone plays a composition copyright holder’s song publicly.²³ This right, therefore, is most likely to come into play when a song is played on the radio or performed live (and now, when streamed on demand).²⁴ These royalties, which will be of limited discussion in this Note, are administered through collective licensing organizations called performing rights organizations, or “PROs.” PROs are private, non-governmental entities that work on behalf of songwriters and publishers to license performance rights through “blanket licensing”—a licensing model that allows a licensee to use any works in a PRO’s catalog pursuant to the terms of a “blanket” agreement.²⁵ The second license, called a mechanical license, encompasses the right to “reproduce musical works in formats used for mechanical playback.”²⁶ Money paid to use these licenses is known as a mechanical royalty.²⁷ Typically, songwriters and composers “sell or license their composition copyrights to publishing companies, which will administer the copyright in return for 25–50% of the proceeds.”²⁸ In such arrangements, licensees pay royalties to the publishers, who take their cut and distribute the remaining funds to the songwriters they represent.²⁹ As seen in the Figure 1 example, SZA’s “Kill Bill” is co-owned by three publishing companies, each of which receives royalties based on an agreed-upon percentage share of ownership in the song. Subsequently, these publishers distribute royalties to the songwriters they represent after taking their cut from the royalty pool.³⁰

Figure 2. Basic Framework of Copyright Royalties Within a Song

Source: Adapted from Ben Lowe, What Are Music Royalties? The Difference Between Recording and Composition Royalties, Songtrust (Feb. 16, 2023), https://blog.songtrust.com/what-are-music-royalties [https://perma.cc/3E6F-UMA8].

2. Understanding the Compulsory Mechanical License

To understand the mechanical license’s original purpose, it is helpful to briefly look at its origin. In 1908, the Supreme Court decision in White-Smith Music Publishing Co. v. Apollo Co. held that piano rolls—scrolls of perforated paper used in player piano devices to mechanically operate piano keys—did not infringe upon a composition’s copyright because they did not constitute “copies within the meaning of the copyright act.”³¹ Thus, under White-Smith, only traditional copies of sheet music were deemed entitled to protection, and songwriters and composers (or the publishers that represented them) were powerless when others reproduced their music mechanically. While the Court hesitated to expand its understanding of composition copyright protection, Congress responded by establishing the mechanical license in the 1909 Copyright Act, mitigating songwriters’ and composers’ drastic loss of control over their musical compositions.³² Today, “mechanical” music production is largely gone, making the mechanical license’s name and history a cause for confusion when contemplating how such a license might map onto modern technology. Regardless, the mechanical license still refers to the distribution of a piece of music—including on vinyl, CDs, digital downloads, and distribution via streaming services.

While the establishment of a mechanical right brought great relief to music composition copyright holders at the time, it came with one catch—a compulsory licensing requirement.³³ This compulsory license, created under § 115 of the Copyright Act, was the first of its kind in copyright law.³⁴ It converts the copyright holder’s right to license into an obligation to license, allowing interested licensees to use a copyright holder’s composition without permission, provided that they pay a set mechanical royalty fee and comply with a specified list of statutory requirements.³⁵ Thus, if you wish to cover SZA’s song “Kill Bill,” you do not need to ask the “Kill Bill” songwriters or their publishers for permission, though you are obligated to pay a royalty fee and adhere to statutory requirements. Similarly, when interactive music streamers like Spotify³⁶ seek a license to stream “Kill Bill” on their platforms, these companies are not required to ask the songwriters or publishers for permission—they, too, are responsible only for the statutory fee and requirements.³⁷

Beyond imposing a compulsory license regime, the Copyright Act set royalty payments at a frozen statutory rate, which was well below market value at a mere two cents per use.³⁸ This fixed rate’s inability to adjust, even in the face of inflation over the next seventy years, led to its significant criticism as an injustice to composition copyright holders.³⁹ Eventually, the 1976 Copyright Act created a statutory rate-setting entity, the Copyright Royalty Tribunal (“CRT”), to adjust rates at five-year intervals.⁴⁰ The tribunal was the predecessor to the current rate-setting entity, the Copyright Royalty Board (“CRB”), established by Congress in 2004.⁴¹

Before the MMA’s enactment, the CRB (and previously, the CRT) was guided by four copyright policy goals defined in 17 U.S.C. § 801(b) to determine adjusted compulsory license royalty rates.⁴² These “801(b) [policy] factors,” as they came to be known, were intended to “identify the royalty amount that would reward copyright owners and disseminators commensurate to their ‘relative roles’ in providing the public with access to creative works,”⁴³ reflecting the standard utilitarian theory of copyright discussed later in this Note.⁴⁴

Despite the establishment of policy factors claiming to prioritize “fair return” to creators in consideration of “fair income under existing economic conditions,”⁴⁵ the policy-driven statutory rates nonetheless continued to depress mechanical licensing rates by “plac[ing] artificial limits on the free marketplace.”⁴⁶ Notably, one of the MMA’s main goals was to address grievances with the rate-setting process.

B. Complicating the Picture: The Rise of Streaming

For decades, lawmakers dealt with new technologies and the copyright questions they posed by bolstering a “patchwork of laws, industry conventions and private deals.”⁴⁷ Over time, the music copyright landscape has become increasingly fragmented and complex, contorting to fit each new iteration of technology.⁴⁸ This confusing legal scheme ultimately came to a head as digital streaming providers, or “DSPs,” began to dominate the music industry.⁴⁹

Imposing mechanical royalty obligations upon discrete products such as CDs or digital downloads ultimately proved relatively straightforward, despite initial backroom quarrels about which exclusive rights were implicated by these technologies.⁵⁰ For each record manufactured and distributed or each digital copy downloaded, publishers are paid a set mechanical royalty rate—currently set at twelve cents per copy.⁵¹ Because these are privately owned copies of music, each play is not a public performance, and thus, no performance royalty payment is required.

Ironing out royalty calculations for DSPs was much more complicated. When a listener streams a song aloud, is that a public performance, much like terrestrial radio? Or is it a mechanical reproduction and distribution of a song, like a digital download? Here, the traditional line between a performance and a mechanical distribution is not so clear.⁵² To help with this dilemma, DSPs are categorized into two modes of digital music delivery—noninteractive and interactive.⁵³ Noninteractive streaming services, such as Pandora’s traditional genre-based, radio-like streaming platform, “substantially limit user control” of the music they consume, as the platform makes most of the user’s listening choices.⁵⁴ Since this type of streaming was similar to radio, it was eventually determined that songwriters would only get performance royalties for noninteractive streams, mirroring what a songwriter would receive if the radio played their song on air.⁵⁵ In contrast, interactive streaming platforms, such as Spotify, Apple Music, and Amazon Music, allow listeners to stream songs on-demand (“interactively”) by selecting and immediately transmitting the music they wish to listen to.⁵⁶ These platforms fit neither a radio model nor a CD or download model, and existing law failed to provide guidance for resolving this tension. Thus, as interactive DSPs burst into the industry in the late 2000s, legal disputes broke out between publishers and DSPs to decide whether, upon deep analysis of streaming technology, such streams implicated either performance or mechanical rights.⁵⁷

Figure 3. U.S. Recorded Music Revenues by Format

Source: U.S. Music Revenue Database, Recording Indus. Ass’n of Am., https://www.riaa.com/U-S-SALES-DATABASE [https://perma.cc/2X4U-6EG4] (toggled date range from 1998 onwards and opted to adjust for inflation). It should also be noted that Figure 3 displays the source of all revenue in the industry—not just songwriter royalties—to indicate general trends in music consumption. Such revenue streams would be split among composition and sound recording copyright holders, depending on applicable copyrights and contractual agreements.

Publishing companies and songwriters vigorously fought for interactive streaming to encompass both performance and mechanical royalties.⁵⁸ Both royalties were two critical “pillars” of income that the industry had relied on for over a century,⁵⁹ and the industry worried—with good foresight⁶⁰—that music streaming would eat away at these traditional revenue sources from radio, physical sales, and digital downloads, which it so desperately depended upon for adequate income.⁶¹ DSPs inevitably pushed back, arguing that the publishers’ demands that they pay both performance and mechanical royalties for a digital transmission of a single song amounted to “double-dipping.”⁶²

Ultimately, the DSPs’ argument failed, and interactive streaming platforms were deemed to need both a public performance license—reflective of the instantaneous nature of streaming—and a mechanical license—reflective of DSPs’ distribution through streaming—to utilize a musical composition.⁶³ Thus, interactive streaming services, many of which began as small start-ups, had to invest an immense amount of time and money to properly license content from both publishing and sound recording stakeholders. This extraordinarily cumbersome licensing system posed a challenge to the growth of DSPs and, as will be discussed further in Section I.D, created a tension that significantly instigated the enactment of the MMA.⁶⁴

Unlike the simple mechanical rate for CDs and digital downloads, mechanical royalty rates for streams are determined by a complicated rate calculation formula.⁶⁵ The rates are calculated using the greater of (a) a designated percentage of a DSP’s total revenue, accounting for total earnings through both paid subscription and advertising revenue or (b) a designated percentage of the Total Content Cost (“TCC”).⁶⁶ TCC represents the total amount that a DSP spends on sound recording and music composition licensing for interactive streaming.⁶⁷ For instance, the most recent CRB rate proceeding for 2023 to 2027, Phonorecords IV, held that the DSPs’ mechanical royalty rate is the greater of 15.35% of their total revenue or 26.2% of TCC.⁶⁸ The rate measurement that is chosen is known as the “headline rate.” The amount DSPs pay for performance licenses is subtracted from the total money pool determined by the headline rate.⁶⁹ The remaining amount is then compared to a “mechanical floor” rate, calculated by multiplying each paid DSP subscriber by a “per subscriber minimum” mechanical royalty fee.⁷⁰ The final mechanical rate is determined by the greater of the original bucket of money or the mechanical floor calculation. This summary merely offers a high-level overview of a complex calculation, highlighting the music copyright system’s intricate and often inaccessible nature when applied to digital streaming.

Figure 4. Summary of a Musical Composition Copyright

Source: Adapted from Jeong, supra Figure 1.

C. The Underlying Theory: Access, Incentives, and Transaction Costs

The patchwork of laws and licenses that make up the music industry, in theory, serve to honor very fundamental policy goals that lie at the heart of all copyright law. For music, in particular, policy is triangulated around three concerns: incentive, access, and transaction costs.

1. Balancing Incentive and Access

In the American free market, intellectual property presents a rare occasion in which the state grants a monopoly—albeit a limited one—to incentivize innovation. The Constitution outlines that from the outset of the country’s establishment, the United States sought to protect creators via the “promot[ion of] the Progress of Science and useful Arts . . . securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”⁷¹

Simply put by music attorney Donald Passman, it is entirely understandable that “if you created something and everybody had the right to use it without paying you, not very many people would go through the trouble of creating anything.”⁷² However, while a monopoly over one’s creation drives an incentive to produce and innovate, it equally presents the risk that rights holders may place exorbitantly high prices on their works, blocking the public from accessing the “science and useful arts” the Constitution aimed to protect in the first place. Thus, under the predominant utilitarian theory of copyright, the story of intellectual property law is an “ ‘access versus incentives’ tradeoff”—a balancing game between maximizing incentive for creators while tempering the scope of their exclusive rights so that consumers can still access and benefit from their work.⁷³ This tension repeatedly comes to the forefront during the proliferation of new dissemination technologies—from the advent of the piano roll to digital downloads to modern streaming services. Each technological inflection point has illustrated that the balance between access and incentive—and between control held by users and creators—is in constant flux.⁷⁴

The introduction of the compulsory mechanical license marked the beginning of numerous legislative decisions in the music regulatory regime that aimed to “recalibrate the balance between creators’ financial incentives and public access to expressive works” when rights holders’ exclusive control over their copyright and ability to pursue “free market licensing” would cause a failure of the copyright equilibrium.⁷⁵ When Congress crafted the 1909 Copyright Act in response to the White-Smith decision,⁷⁶ it hesitated to restore music composition copyright holders’ full exclusive rights.⁷⁷ It feared that doing so within the new mechanical licensing regime would allow copyright holders to “monopolize the business of [music] manufacturing” and prevent the growth of the piano player, a new music distribution technology with vast potential to increase the public’s access to music.⁷⁸ Thus, the compulsory license provided a new legal solution to the incentive-access tension; in exchange for continued compensation, composition copyright holders—songwriters, composers, and music publishers—have been forced to sacrifice the control over their copyright and their right to freely negotiate prices on an open market.

This policy objectively appears to honor a balance between incentive and access; however, the strict pre-MMA rate-setting mechanisms rarely resulted in adjustments to royalty rates over time,⁷⁹ raising questions as to whether the “incentive” provided by these statutory rates was able to respond to songwriters’ and composers’ shifting real-world incentives (or lack thereof). Notably, the prevailing utilitarian theory of copyright policy does not center artists and their incentives to create but rather views supporting artists with an incentive as a means to an end, with the goal of stimulating creation and idea production.⁸⁰ However, if copyright policy ignores artists and fails to truly consider whether it grants them adequate incentives, the access-incentive equilibrium will ultimately fail.

To properly gauge the effectiveness of the access-incentive equilibrium for artists, artists’ incentives must be examined within the industry structure in which they operate. In constructing the copyright system, Congress contemplated that creators would contract with corporate intermediaries such as record labels and publishers, transferring their copyrights in exchange for commercial distribution of their work.⁸¹ Thus, copyright incentive theory generally accounts for providing incentives to both economic actors—creators and intermediaries.⁸² Incentive theory “assumes a chain of value” in which money trickles down from listeners and music distributors to intermediaries and finally to the creators.⁸³ While creators sit furthest in the chain from any source of financial remuneration, they are the source of the creative work that copyright policy hopes to incentivize. Ultimately, one will not know if this “quid pro quo” between incentive and access is working unless one “know[s] how much the creators are getting from the bargain.”⁸⁴ Therefore, even though artist incentive is not the sole purpose of copyright policy, this Note frequently homes in on the growing disincentive to create in the songwriting field, both pre- and post-MMA, which jeopardizes the songwriting profession and the basic copyright equilibrium.

2. Reducing Transaction Costs

For nearly all copyright interests in the American “free market licensing” system, “creators of . . . copyrighted works . . . are free to choose their licensees and negotiate royalties.”⁸⁵ This free-market commitment falls away in a limited number of exceptions; only five categories of compulsory licenses exist—three of which are implemented within the music copyright regime, with the most obtrusive and well-known being the compulsory mechanical license.⁸⁶ What makes music different? Given that the incentive-access trade-off underlies all areas of copyright law, it cannot be the sole explanation for singling out songwriters to be subjected to a compulsory license.

Theorists widely believe that the strongest explanation for the compulsory license is that it not only balances incentive and access but also serves to “remedy market failures related to transaction costs by allowing licensees to bypass costly or unfeasible negotiations.”⁸⁷ When the cost of a licensing regime to the parties is “substantial and logistically difficult,” transaction costs associated with licensing become prohibitively high and deter dissemination of copyrighted work.⁸⁸ This concern of prohibitively high transaction costs is specific to music due to how music is inherently accessed and consumed by the public; unlike other forms of copyrightable works, it is comprised of numerous little pieces of content, all of which must be individually negotiated and licensed in order to be distributed as a larger catalog.⁸⁹ The compulsory license thus aims to eliminate, or at least reduce, the cost of licensing negotiations. Although transaction costs have become the predominant explanation for the persistence of the mechanical license today, some caution that this justification has also been overstated.⁹⁰ For example, on the public performance side of music composition copyright, PROs issue blanket licenses⁹¹ that similarly function to reduce transaction costs that arise from licensing each discrete piece of music.

Access, incentive, and transaction costs cannot, on their own, explain the logic of copyright policy. However, together, this triad of policy considerations is an essential framework to consider when assessing the legal landscape before the MMA’s enactment to explain its aims and determine the overall efficacy of the legislation post-MMA.

D. Framing the Issue: Where Are We Before the MMA?

The challenge underlying copyright law is finding an equilibrium at which the three competing policy goals can coexist. The Music Modernization Act emerged from a rising tension between what publishers and songwriters felt was a desperate imbalance between the incentives provided to them by the music copyright system and the public’s unprecedented and increased access to their work via modern music streaming services. If more people were listening to music than ever before thanks to the mass proliferation of DSPs, why weren’t creators and their intermediaries sharing in that success?⁹² This tension was most acutely felt by songwriters, who sit at the bottom of the copyright “chain of value” and whose livelihoods were increasingly at risk due to the diminishing return for their creative works.⁹³ Publishers, as corporate entities, suffered less financially overall than individual songwriters but were still concerned about their decline in revenue at the hands of the music streaming landscape. Publishers, represented by the National Music Publishers Association (“NMPA”), became a major lobbying force for change and ultimately were key negotiators in drafting the MMA.

Recording artists and record labels had similar grievances with DSPs, although to a lesser degree, due to less government interference and noticeably higher royalties granted to sound recording copyright holders. Further, recording artists could earn revenue through concert ticket sales to help buffer some of the DSP-era royalty losses.⁹⁴ Concerts were potentially a substantial source of income for successful artists—and a source of income not available to songwriters. Nonetheless, mounting concerns around the evolving music industry also drew in the Recording Industry Association of America (“RIAA”) as another key player in crafting the MMA.

1. Compulsory Mechanical License Causes Drastic Disincentive

Musical composition copyright holders were particularly at a detriment prior to the MMA, given the limitations imposed on their copyrights by extensive governmental regulation, including compulsory mechanical licenses and restrictive consent decrees imposed on PROs.⁹⁵ Further, DSPs and composition copyright holders alike found that the compulsory mechanical license did not sufficiently reduce transaction costs, as the mechanical licensing regime prior to the MMA proved far too cumbersome to allow for streamlined payments to rights holders. In 2015, in response to mounting dissatisfaction with the convoluted music copyright regime, the U.S. Copyright Office released a comprehensive 245-page report (hereinafter referred to as the Copyright Office Music Marketplace Report), studying the landscape and proposing changes that would “promote greater fairness, efficiency, consistency, and transparency.”⁹⁶

The Copyright Office Music Marketplace Report admitted that “[v]iewed in the abstract, it is almost hard to believe that the U.S. government sets prices for music. In today’s world, there is virtually no equivalent for this type of federal intervention.”⁹⁷ For composition copyright holders, the singling out of their works to be placed under a restrictive, involuntary licensing regime has caused deep frustration, as the mechanical compulsory license left them subject to rates far below free-market compensation. To be clear, songwriters and publishers are free to negotiate with mechanical licensees—and they often do. However, as mentioned in Section I.A, the pre-MMA statutory rates set by the Copyright Royalty Board (and its prior equivalent, the Copyright Royalty Tribunal) prevented free market rates from being achieved; even though licensees rarely paid the bare minimum statutory rate, the low statutory rate tethered negotiations to a lower price window.⁹⁸ CRB has openly acknowledged that their rates “have considerable impact on the private agreements that enable copyright users to clear the rights for reproduction and distribution of musical works.”⁹⁹

As such, publishers and songwriters were left with no real leverage when attempting to negotiate against licensees who knew that if publishers or songwriters defected from a negotiation, the licensee could just go get the license using the compulsory rate. To illustrate the extent to which the compulsory license depresses profits earned by songwriters, one can look at the overall split of Spotify revenue in 2016: for every dollar of revenue earned on Spotify, 58.5 cents went to the owner of a song’s sound recording (a record label or the artist), 29.38 cents stayed with Spotify as profit, 6.12 cents went to the composition rights holder to cover performance royalties, and 6 cents went to the composition rights holder to cover mechanical royalties.¹⁰⁰ Apple Music’s revenue distribution did not look all that different, though it paid about 6.75 cents on mechanicals and 6.75 cents on performance rights per dollar of revenue.¹⁰¹ While this is framed in terms of revenue split per dollar, each stream produces just a fraction of a cent for a songwriter, requiring approximately 1,000 streams for composition copyright holders to earn a single dollar.¹⁰² Each royalty paid for the use of a musical composition is even further divided amongst the publisher and the songwriters who worked on the composition.

Figure 5. What Happened to a Dollar of Revenue on Spotify and Apple Music (in 2016)

Source: Adapted from Manatt, Phelps & Phillips, supra note 100.

Overall, streaming represented a shift toward listening behaviors that do not “generate significant income for artists.”¹⁰³ Streaming ushered in an overall increase in performance royalties earned; however, this slight increase in revenue—at royalty rates already persistently lower than publishers or songwriters would like—was unable to make up for the significant “downward spiral of record sales and therefore artist and mechanical royalties.”¹⁰⁴ Many songwriters at the time reported “ ‘a reduction of 60 to 70% or more’ in mechanical royalties” since the introduction of streaming services onto the music market, noting that their amount of mechanical royalties only continued to decrease rapidly.¹⁰⁵

The below-market statutory rate for mechanical royalties and the shift in revenue sources gradually diminished the overall incentive for songwriters to write music in the pre-MMA market.¹⁰⁶ By the time the MMA was enacted in 2018, it had been years since songwriters felt they could make a living off songwriting as they had before the era of streaming services. In 2014, Nashville Songwriters Association International reported that Nashville, a well-known national hub for songwriters, saw an 80% decrease between 2001 and 2014 in individuals claiming songwriting as a full-time occupation, lamenting that many songwriters have been “forced out of the profession” in the wake of digital streaming.¹⁰⁷ In 2016, acclaimed music attorney Dina LaPolt told one songwriter client, who was shocked by her measly royalty check after achieving a hit song, that “unless streaming rates [] changed and the music-licensing system [was] overhauled for the digital age, the profession of songwriting was on its way to extinction.”¹⁰⁸

By applying the incentive theory of copyright to examine the music industry’s structure, one can see the creator and intermediary dynamic at play, such that even though publishers decried their diminishing incentives to administer the copyrights they held, even less remuneration trickled down to the creative mind whose work copyright policy seeks to encourage.¹⁰⁹ While publishers’ services are an essential part of the music industry, the incentive problem was exacerbated by the degree to which the publisher’s share of royalties also diminishes a songwriter’s return for their efforts, as they stand last in line for compensation.

It has often been asserted that when the compulsory license forces rights holders to give up control over otherwise exclusive intellectual property rights, the expected trade-off is, at the very least, an assurance of payment to copyright owners—this is what makes the license work within the balance of copyright policy goals.¹¹⁰ In reality, this guarantee of payment meant little in the way of incentives once DSPs became the primary mode of music consumption, and the royalty system no longer matched the predominant music technology of the day. While testifying in front of the Senate Judiciary Committee in favor of passing the MMA, Grammy-award-winning songwriter Josh Kear said of his community of songwriters in Nashville, “we have lost our entire middle class of songwriters—they’re gone.”¹¹¹ Grammy-nominated artist Will Sheff affirmed this sentiment, telling the Washington Post that “ ‘[a]round 2011, the bottom fell out,’ . . . [marking] the beginning of the end of a ‘musical middle class.’ ”¹¹²

While copyright policy does not center incentives to artists, the Supreme Court has acknowledged that, at a minimum, “[t]he rights conferred by copyright are designed to assure contributors to the store of knowledge a fair return for their labors.”¹¹³ The bounds of such a “fair return” may be debated; however, when incentive dissipated and songwriters left the profession en masse, something was surely off in the copyright access-incentive equilibrium. Ultimately, in the context of a new digital age, the pre-MMA legal regime failed to maintain an adequate incentivization system as had been a pillar of copyright law.¹¹⁴

2. Compulsory Mechanical License Overflows with Transaction Costs

In addition to songwriter grievances, the pre-MMA system also strained the growth and capabilities of DSPs. Streaming companies were immediately overwhelmed by the licensing demands of their business model as they attempted to manage a catalog of tens of millions of songs and an untenable amount of data.¹¹⁵ Further, many of the song files that record labels shared with DSPs for upload onto their services had missing songwriter identification in their metadata, meaning that DSPs often had no idea to whom they owed money on the publishing and songwriter side.¹¹⁶ Due to a simultaneous inundation of information and a lack of information, unpaid mechanical royalties began to pile up.

In the pre-MMA legal regime, section 115 of the Copyright Act allowed DSPs to file a “Notice of Intent” (“NOI”) with the Copyright Office for each song it intended to use.¹¹⁷ By declaring their intent to use a copyrighted musical composition via an NOI, DSPs were granted legal immunity from copyright infringement “until and if the songwriter or their publisher could be identified.”¹¹⁸ DSPs filed NOIs by the tens of thousands, but without the infrastructure to locate rights holders, NOIs essentially enabled DSPs to use copyrighted material without being held accountable for finding and paying rights holders. At the same time, the Copyright Office did not review notices for “legal sufficiency” or errors¹¹⁹ and was overwhelmed by the massive volume of notices submitted by DSPs.¹²⁰

Further, rights holders bore the burden of claiming their royalties yet had no way of knowing when they went missing nor an understanding of how to claim them in a convoluted and complex system.¹²¹ This burden created yet another layer of transaction costs on the rights holders’ side; not only would it take immense time and effort on the part of the rights holder to navigate an impossibly complex web of mechanical licenses, but it also required cultivating a copyright licensing expertise that many creatives in the music industry simply did not have. Very frequently, this hurt independent songwriters the most, as they had little business or legal savviness to understand how and why they needed to assert their copyright ownership.

The mechanical licensing system quickly proved inefficient, burdensome, and unaccountable to rights holders in the context of the streaming business model. As NMPA President and CEO David Israelite pointed out in the MMA’s Senate Judiciary Committee hearing, the music industry was relying on “a [licensing] system that was built for licensing individual albums—ten at a time, twelve at a time—and using it to try to empower digital companies to put up 40 million songs overnight”; he asserted bluntly, “It doesn’t work.”¹²² By 2015, an estimated $50 to $75 million dollars sat unmatched and unpaid by DSPs.¹²³ The music industry thus dubbed these unmatched royalties “black box royalties.” This problem came to a head as publishing companies began launching lawsuits against the DSPs for, in essence, operating their businesses under a model that relied on copyright infringement, even if unintentionally.¹²⁴ In interviews, Israelite estimated that for roughly twenty-five percent of all streams, composition copyright owners were not properly identified, and “as much as 25 percent of royalty payments [were] not being paid to publishers, or [were] being distributed to the wrong entities.”¹²⁵ DSPs, daunted by lawsuits and claiming they wanted to “pay every penny,” began calling on the industry to work with them to develop a transparent and accountable way to manage publishing rights.¹²⁶

Here, the problem pre-MMA was twofold. First, the compulsory mechanical license was no longer serving its purpose of reducing the burden of transaction costs because while licensing negotiations were feasible due to the compulsory license, the DSPs’ task of complying with licensing obligations was still near logistically impossible—DSPs simply could not figure out who to pay. Rather than prohibiting the DSPs from operating, the pre-MMA licensing regime compelled DSPs to function on an “infringement model,” which was damning to the legitimacy of music’s copyright laws. While the compulsory mechanical license may have once been an effective mechanism to constrain transaction costs, when imposed upon streaming technology, the transaction costs of mechanical licensing had shifted and were ultimately too high. Secondly, this issue further harmed the already-diminished incentive for songwriters to create because even as they produced work, it took ages to see that money return to their pockets—if it ever did.¹²⁷

Amongst the triad of copyright policy goals, it at least seemed that access to music was at an all-time high. Subscribers to DSPs only continued to increase, and Americans were listening to more music than ever. However, increased access cannot be considered without its tether to copyright’s countervailing need to incentivize creation. Rapidly decreasing songwriter incentive to create, coupled with the public’s disproportionate new-found access to music, likely signaled that the pre-MMA access-incentive trade-off was sorely out of balance.

Additionally, as publishers and songwriters fought to increase royalty rates, the DSPs had their own impending “access” problem looming over them. Since its invention in the mid-2000s, music streaming had never been profitable; even the major DSPs consistently operated at a loss since their founding.¹²⁸ Though the DSPs’ business models ushered in a new level of public access to music, it remained a concern that these tides could turn. For how long could DSPs continue providing such a high level of access if their business model did not turn a profit? This long-term concern made DSPs fearful that royalty rate increases would stifle company revenue and further challenge the DSPs’ business model.

Table 1. Pre-MMA Policy Concerns
Policy Goal	Score
Incentives	Incentive for songwriters is LOW, as attributable to a minimal statutory royalty rate, governmental restrictions on both types of songwriters’ royalties, and industry structure providing equal payout between publishers and songwriters.
Transaction Costs	Transaction costs are HIGH. While the compulsory license reduces transaction costs of licensing negotiation, matching royalties to songwriters imposes high transaction costs for DSPs and songwriters alike.
Access	Access is HIGH in the short term with concern that this variable may shift if DSPs continue operating at a deficit.

II. SHIFTS UNDER TITLE I OF THE MUSIC MODERNIZATION ACT

The MMA passed the House and Senate unanimously in 2018 and received unprecedented support from a multitude of players in the music industry. It signified the culmination of years of negotiation and bargaining between music publishers, songwriters, and DSPs, which legislators facilitated in a moment when the parties’ interests were at last relatively aligned.¹²⁹ DSPs, faced with a wave of crushing infringement lawsuits, had a major incentive to support the passage of an act that would accommodate their business model and protect them from future liability.¹³⁰ Songwriters and publishers, on the other hand, were desperate for a legal solution that would restore the value of their mechanical rights to something comparable to those before the streaming age or that, at the very least, resulted in a fairer system than the one they had been operating in for nearly a decade.¹³¹ Signed into law on October 11, 2018, the Music Modernization Act was the most substantial revision to copyright law in two decades.¹³² Title I of the MMA, known as the Musical Works Modernization Act, not only endeavored to adapt the Copyright Act’s musical composition provisions to better accommodate streaming technology, but it also tweaked aspects of the musical composition copyright in ways that bettered the position of publishers and songwriters overall to counter issues raised by the streaming model.

At a high level, Title I of the MMA implemented three primary changes to improve how songwriters received their royalties and the standard for calculating them. First, it allowed DSPs to obtain a blanket mechanical compulsory license specifically for streaming mechanicals that would cover all musical compositions held in a licensor’s catalog, much like the blanket license used for granting public performance rights.¹³³ In conjunction, Title I also established the Mechanical Licensing Collective (“MLC”), a non-governmental, non-profit entity authorized to “offer and administer blanket licenses” to DSPs, “[c]ollect and distribute royalties from digital music providers,” and maintain a “musical works database” to track information about licensing and ownership of mechanical rights.¹³⁴ These first two major changes enacted in Title I were designed to resolve “long-festering pain points” between publishers and DSPs due to the DSPs’ inability to pay out licensing obligations under the pre-MMA legal regime.¹³⁵ As discussed further in the next subsection, these two additions to music copyright law aimed to address head-on the mechanical license’s growing transaction cost problem that emerged from DSPs’ massive streaming catalogs. Lastly, Title I imposed alterations to the royalty tribunal procedures, “direct[ing] the Copyright Royalty Board (CRB) . . . to employ a ‘willing buyer, willing seller’ standard to reduce the potential for compulsory licenses to undervalue the mechanical right.”¹³⁶ Ultimately, Title I of the MMA represents an acknowledgment that the fundamental balance of interests demanded by copyright policy was no longer in check.

A. Addressing the Black Box Royalty Problem

1. The MMA’s Solution: Creating the MLC

Three years prior to the passage of the MMA, the Copyright Office Music Marketplace Report had concluded that a centralized, comprehensive database of mechanical copyright ownership “would substantially enhance transparency in the music licensing system, reduce transaction costs, and facilitate direct licensing through private negotiation in the open market.”¹³⁷ Other music licensing regimes, such as public performance licensing, successfully used the combination of a collective licensing organization and a blanket license to streamline similar transaction cost issues, providing a potential model for success.¹³⁸ Thus, throughout discussions about the MMA, the concept of a responsible collective licensing body was highly supported across the industry. The entity that was created, the MLC, serves the primary role of administering the new blanket licenses and royalties and maintaining a comprehensive database of mechanical copyright holders.

Under the MMA, DSPs also agreed to pay all costs associated with this new licensing entity.¹³⁹ Unlike any other existing licensing collective, the MLC does not take a commission from the royalty pool before distributing royalties, ensuring that composition rights holders retain one hundred percent of all royalties passed through the MLC and that their royalty money is not further diminished through the new collective licensing agency’s establishment.¹⁴⁰ In exchange, when DSPs obtain a blanket mechanical license from the MLC, they are broadly shielded from extremely costly infringement liability and burdensome statutory damages.¹⁴¹

At the outset of drafting the MMA, the growing multi-million-dollar pool of unpaid black box royalties presented one of the most pressing challenges to restoring order in the mechanical copyright system. Exorbitant transaction costs from individually licensing mass amounts of content—not to mention the ex-post transaction costs of litigating licensing failures—directly cut against the compulsory license’s original purpose and placed both copyright holders and DSP licensees in untenable positions. Thus, a blanket compulsory license under the MWMA, covering all songs under a single lump-sum royalty fee, represented a major solution to one of the most glaring problems in the pre-MMA digital copyright licensing space. It was to be administered by the newly formed MLC entity, which became officially designated to carry out the MMA’s statutory responsibilities by the Copyright Office in July 2019.¹⁴²

In January 2021, the MLC launched its full operation and began administering blanket licenses.¹⁴³ Only qualified DSPs are eligible to receive this blanket license,¹⁴⁴ and at the time the MLC became operational, it reported that over forty eligible DSP services had started using its blanket license.¹⁴⁵ DSPs now no longer have to individually license songs by the tens of thousands and, as a tradeoff for this newfound legal security, the DSP licensees must pay out the full cost of mechanical licensing fees to the newly formed MLC entity. On a monthly basis, each DSP sends the MLC data that logs all recordings used on the streaming service that month, as well as the corresponding mechanical royalties owed, which the MLC maintains in its “MLC Portal.”¹⁴⁶ It is then responsible for locating and paying out known rights holders in monthly payments,¹⁴⁷ the first one of which was completed in April 2021.¹⁴⁸ The MLC’s model ensures that DSPs regularly process and pay royalties for all licensed works—even those with missing or incomplete songwriter information—rather than allowing them to hold onto royalty money under the pretext that rights holders information was nonexistent or too hard for DSPs to track down.

After the MLC distributes royalties to known rights holders, it places all unmatched and unclaimed royalties in an interest-earning account for three years, where they await a potential match with their copyright holders.¹⁴⁹ The MLC distinguishes between royalties that may be “unmatched,” such as the black box royalties that have no known association with any musical work in the MLC database, and “unclaimed” royalties, which are matched to a song but cannot be paid out because shares of the song have not yet been claimed by their rights holders.¹⁵⁰ Both types of royalties make up the sum of money pooled into this account. If, after three years, the royalties remain unmatched or unclaimed, they are liquidated to known copyright holders—both publishers and songwriters.¹⁵¹ Ultimately, while some unclaimed royalties may never make it into the hands of their rightful owners, the MLC’s pooling measure strengthens incentives for artists in the copyright system by ensuring that the money is, at the very least, redistributed amongst the rights-holding community. Prior, DSPs financially benefited from songwriters’ failure to locate their unmatched royalties, as the unpaid money sat in their pockets and created no incentive for DSPs to seek a solution to orphaned royalties.¹⁵² This further discouraged music composition rights holders, especially songwriters, who felt DSP’s unpaid use of their work signaled just how little both DSPs and the industry at large valued their contributions to music.

While the DSPs benefited from legal clarity as a result of MLC’s creation, the legislation largely arose from a recognition that songwriters needed to be “properly protected” and that a new mechanical licensing system required creating “sufficient incentives . . . to find the people the money [from royalties] belong[ed] to.”¹⁵³ With songwriters’ concerns placed at the center of the legislation, an independent collective like the MLC primarily protects and advocates for the mechanical rights of composition copyright holders. The MLC thus aims to ensure that, eventually, as few royalties as possible will languish in the ownerless “black box” pool by creating an accessible mechanism for songwriters and publishers to claim ownership of a work.

Though DSPs still escaped the primary burden of locating and paying out rights holders, the MMA took part of this burden off the shoulders of rights holders as the MMA established the MLC to increase transparency in the mechanical licensing process and conduct outreach to artists. Title I of the MMA imbued the MLC with the responsibility of “engag[ing] in efforts to identify musical works . . . and locate the copyright owners of such musical works,” creating an obligation on the part of the MLC to seek out rights holders rather than allow black box royalties to accrue without accountability.¹⁵⁴ A central part of executing this mandate included creating a “musical works database” within the MLC Portal, known as the MLC Public Work Search.¹⁵⁵ The public can access the records in the Public Work Search, while verified “members”—payable publishers or songwriters—can use related portals to register their works or find and claim an ownership share in an already registered work.¹⁵⁶ Each MLC database entry contains comprehensive information about the listed song, including the percentage of ownership share in the work, the identity and location of the composition copyright owners, if known, and ownership information regarding the sound recording that embodies the musical work.¹⁵⁷ For example, Figure 6 shows MLC entries for two versions of SZA’s “Kill Bill.”¹⁵⁸ The entry for the song’s original release indicates that the MLC database has information for 100% of the “total known shares” of songwriter ownership, including songwriter names and publishers. In contrast, the version of “Kill Bill” featuring Doja Cat indicates that only 82.5% of the song’s ownership is accounted for in the MLC Portal, so the song’s publisher or collaborating songwriter may search the song and discover whether their share of the work remains unattributed.

Figure 6. MLC’s Comprehensive Database: The Public Work Search

Source: The MLC Public Work Search, supra note 21 (searched under “Work Title” for the song “Kill Bill,” added writer name criteria, and searched for Rob Bisel).

The MLC’s user-friendly database lowers the barrier to entry for copyright holders to assert ownership of their works, making it feasible for them to monitor their rights in licensing transactions. Additionally, by increasing assurances that songwriters will get paid correctly and reliably for what they are owed, the MLC’s Portal and Public Work Search should resolve gaps in songwriter pay and bolster the incentive for creators.

The MLC also works with another entity established in Title I of the MMA called the Digital Licensee Coordinator (“DLC”), which represents DSPs in the new post-MMA licensing system and helps the MLC carry out its mandate.¹⁵⁹ The DLC is required to “assist the [MLC] in the efforts . . . to locate and identify copyright owners of unmatched musical works” through active outreach to the songwriting community.¹⁶⁰ Together, the MLC and DLC create resources and host webinars oriented toward independent songwriters to educate them on how to assert their rights in the post-MMA copyright regime.¹⁶¹ The accessibility and transparency built into the MMA aim to further lower the transaction cost barrier for DSPs and rights holders alike to fulfill obligations that accompany the compulsory license.

Lastly, Title I of the MMA sought to make music composition copyright holders whole by capturing the millions of dollars of unpaid royalties held by the DSPs prior to the MMA’s passage, bestowing upon the MLC the responsibility of uniting historical unmatched royalties with their proper rights holders.¹⁶² In February 2021, twenty-one DSPs finally transferred over $424 million to the MLC in historical unmatched royalties and provided accompanying usage data to help determine how the money should correspond with eventual royalty payments.¹⁶³ Despite the DSPs’ continued use of songwriters’ content on their platforms over the preceding decade, this money represented the first mechanical royalty payment made for content with “unmatched” copyright owners. The MLC made its first payment of formerly unmatched royalties from the $424 million pool in June 2022.¹⁶⁴ As of June 2023, the MLC has distributed $24 million of the originally unpaid, unmatched royalties.¹⁶⁵ The MLC has not yet paid out all historical unmatched royalties; however, its success in doing so will play an essential role in restoring songwriters’ trust in the music copyright system to protect their work and provide the financial incentives promised by copyright’s underlying policy goals.

2. Unfolding Reality: The MLC in Action

As reasonably expected for the establishment of a new entity, the MLC was not operational until over two years after the MMA was passed, and only a few years have since passed for the MLC to prove its worth as a solution to the publishers’ and songwriters’ concerns.¹⁶⁶ That said, the MLC achieved a robust operation rather quickly, with over 30 million songs registered in its database as of March 2023¹⁶⁷ and having already distributed over $1.5 billion in mechanical royalties as of its recent metric announcement in October 2023.¹⁶⁸

While these metrics contextualize the growth of the MLC, they reveal less about the entity’s success in achieving its founding goals. In this regard, however, it also seems relatively successful in its early stages, though much remains to be seen.¹⁶⁹ As of March 2023, the MLC announced that it had achieved a consistent 89% match rate for all royalty payments passing through the collective,¹⁷⁰ and in October 2023, the collective achieved a just slightly higher match rate at 90%.¹⁷¹ This match rate refers to the rate at which the MLC can properly attribute royalties to an existing song in its database, not the rate at which royalties are actually claimed, which still requires a proactive assertion of ownership by the copyright holder.¹⁷² With approximately 25% of all royalties deemed missing or unmatched before 2018, matched royalties have increased by about 15% between the pre-MMA system and now due to the MLC’s database and matching system.¹⁷³ The MLC’s CEO, Kris Ahrend, suggests that the more data the MLC receives, the more it will be able to close out this gap; the MLC continues to grow its database with the participation of its publisher and songwriter members.¹⁷⁴ Most recently, the MLC has partnered with five music data matching vendors to improve its match rate, though the MLC’s greatest challenge will remain in gathering data on its most difficult songs—“those created by DIY, unsigned songwriters, many of whom are still unaware of The MLC.”¹⁷⁵

Additionally, concerning the historical unmatched royalties accrued before 2018, $200 million of the original $242 million pool paid in February 2021 has been matched with copyright holders, meaning that the MLC has almost fully accounted for the historical void of rights holder information in just under three years after its founding.¹⁷⁶ Though it has paid out only a small fraction of these royalties to date, this is due to circumstances outside the MLC’s control.¹⁷⁷

In sum, the MLC is, on paper, doing what the MMA intended—just perhaps more slowly than songwriters and publishers would like. Though more work remains, initial data suggests that the MLC has absorbed a significant amount of the existing transaction costs that complicated and cluttered the pre-MMA mechanical licensing system. DSPs can no longer get away with licensing content for free, hundreds of thousands of unverified NOIs have been eliminated, and composition rights holders can seek out their work and lay claim to what they are rightfully owed.¹⁷⁸ There are, of course, criticisms of the MLC as well. Songwriters have protested the MLC’s refusal to publicize the sum of money it holds in unmatched royalties, claiming that the MLC has an incentive to refuse transparency, as the majority of its board is comprised of publishing company representatives who disproportionately benefit if the unmatched royalty pool remains orphaned.¹⁷⁹ These grievances indicate songwriters’ ongoing scramble for remuneration at the bottom of the value chain.¹⁸⁰ Thus, even though addressing songwriter incentive was one of the MMA’s core goals, it has become likely that MLC can only do so much to remedy this concern.

B. A New Regime for Royalty Rate Setting

1. The MMA’s Solution: A Willing Buyer–Willing Seller Rate

As previously explored, one of the direst realities prior to the passage of the MMA was the rapidly disappearing songwriter profession. Statistics and widespread testimony illustrated just how much songwriters’ livelihoods had been altered by the rise of DSPs; this reality was a repeated feature of discussion at the Senate’s hearing on the MMA in 2018 and framed a sense of urgency around passing the law.¹⁸¹ While unmatched and unpaid royalties accounted for a fraction of songwriters’ diminished incentive, the bottom line remained that there was simply no longer enough money being generated by mechanical royalties in the digital age. The massive reduction in overall mechanical royalties caused by streaming’s replacement of physical albums or digital download sales and the long-depressed statutory royalty rates produced an untenable situation for songwriters. Though publishers, too, felt the strain on mechanical royalty revenue, the plight of songwriters demanded resolution by the MMA for copyright policy to achieve its stated goals.

Title I of the MMA, therefore, introduced a new standard for the CRB to use when determining mechanical royalty rates—not only for streaming but for all other mechanical royalties as well. The MMA shifted the CRB’s rate-setting standard from the highly criticized “policy-oriented” rate to a “willing buyer–willing seller” rate meant to reflect market demand. The standard, which the music industry had demanded for years, requires that the CRB “establish rates and terms that most clearly represent the rates and terms that would have been negotiated in the marketplace between a willing buyer and a willing seller.”¹⁸² As cited in another CRB rate proceeding that utilized the willing buyer–willing seller rate standard, “the Judges look to . . . a hypothetical marketplace, free of the influence of compulsory, statutory licenses.”¹⁸³

To make rate determinations under this standard, CRB judges are also to “base their decision on economic, competitive, and programming information presented by the parties,” which may include factors like the degree to which a compulsory licensee’s service interferes with or enhances a musical work copyright holder’s other revenue streams and the parties’ “relative creative contribution, technological contribution, capital investment, cost, and risk.”¹⁸⁴ Before the MMA, the CRB followed a “limited-evidence process,” and any market data was excluded from consideration when setting mechanical rates.¹⁸⁵ Thus, while the original 801(b) factors demanded that the CRB consider “fair income under existing economic conditions” as suggested by the incentive theory of copyright policy, pre-MMA rates clearly could not fully adjust for economic realities when the legal regime excluded market data from consideration.¹⁸⁶

Despite the full legislative history showing the initial access-incentive justification for the mechanical compulsory license,¹⁸⁷ in the 2015 Copyright Office Music Marketplace Report, the Office asserted that a compulsory license “should exist only when clearly needed to address a market failure.”¹⁸⁸ The report explicitly called on Congress to adopt a “uniform market-based ratesetting standard,” stating that “[t]here is no policy justification for a standard that requires music creators to subsidize those who seek profit from their works.”¹⁸⁹ In taking this position, the Copyright Office acknowledged that the supposed access-incentive reasoning behind the compulsory license overtly restrained creators’ sense of incentive by forcing them to underwrite licensees’ royalty costs at their own expense. The willing buyer–willing seller rate-setting standard had also already been implemented in most other CRB rate proceedings.¹⁹⁰ Some critics argue that shifting from a policy-oriented analysis to a willing buyer–willing seller analysis abandons copyright’s underlying policy goals;¹⁹¹ however, the failure of 801(b) factors to adequately support incentive, as shown by the Copyright Office’s findings, suggests that a willing buyer–willing seller rate could better account for some typical copyright policy considerations than the original policy factors themselves.

Additionally, songwriters and publishers advocated for this change in hopes that it would lead to higher compensation, reinforcing this provision’s goal of recalibrating the incentive-access tradeoff. Though the willing buyer–willing seller rate would not fully create free market mechanical rates, as would be possible without any compulsory license regime, theoretically, it at least mimics a free-market reality tempered by CRB review. David Israelite described these rate-setting alterations, stating that if “songwriters are to remain in a compulsory license prison,” the MMA’s rate-setting provisions “at least improve the conditions of their confinement.”¹⁹² As his tone connotes, publishers and songwriters generally would have much preferred the abolition of the compulsory license “prison” entirely, yet in the name of achieving consensus legislation, accepted the shift to the willing buyer–willing seller rate.¹⁹³ One skeptical songwriter described the songwriting community’s celebration of the willing buyer–willing seller rate as an “example of Stockholm Syndrome” in reaction to a “beautification” of the dreaded compulsory license.¹⁹⁴ Those who share this belief doubt that a willing buyer–willing seller rate regime will make any substantive difference in improving the massive incentive problem in the streaming era.

2. Unfolding Reality: Phonorecords IV Under a Willing Buyer–Willing Seller Rate

Since the MMA’s passage in 2018, only one CRB proceeding has been decided under the new rate-setting regime, and this proceeding provided only minimal foreshadowing as to whether the rate standard can bring composition copyright holders closer to fair compensation of decades past. Phonorecords IV, which set the royalty rates for musical compositions between 2023 and 2027, began in 2021.¹⁹⁵ At its outset, the key industry parties involved in the proceedings—the National Music Publishers’ Association, the Nashville Songwriters Association International, and the Digital Media Association (which represents the DSPs)—seemed poised for an extensive legal battle, as all submitted drastically disparate rate proposals to the CRB.¹⁹⁶

Phonorecords IV represented a major moment for many songwriters who eagerly anticipated the first rate proceeding to implement MMA’s new standard.¹⁹⁷ However, in a surprising turn, industry players ultimately settled in August 2022 before the CRB’s final adjudication, agreeing on a royalty headline rate of 15.35% of the DSP’s total annual revenue.¹⁹⁸ When the CRB approved the settlement and published its rate determinations in December 2022, it was rebuked by a number of songwriter groups, as they had held out hope that the new rate-setting standard would enable another needed rate increase.¹⁹⁹ Several opposition comments submitted to the CRB asserted songwriters’ concerns that the settlement “would thwart application of the willing buyer, willing seller rate setting standard,” which would have been applied for the first time in the absence of a settlement.²⁰⁰

In its final publication of the Phonorecords IV rate determination, the CRB did note that although the willing buyer–willing seller standard “was not expressly applied as it would be in a full proceeding, the operable rate standard exist[ed] as a relevant factor” when considering the validity of the settlement.²⁰¹ The settlement, thus, was not devoid of the new standard, though the extent of its impact on the CRB’s decision-making remains unclear. The CRB stated it found no “reasonable basis” to reject the settlement and its suggested reasons may allude to the influence of the new rate standard.²⁰² The CRB asserted that it found no persuasive economic argument for rejecting the settlement, particularly indicating that the rate structure was not “gratuitous.”²⁰³ Instead, the settlement included thoughtful changes to prior rates and was designed through a careful negotiation in which “complex terms in [the] commercial agreement” represented a “market [that is] itself . . . complex.”²⁰⁴ While this does not fully provide an analysis of how rates may have differed if they had been developed by the CRB under a pure willing buyer–willing seller standard, it suggests that the factors used to consider a free and competitive market do not necessarily lend themselves to as noticeably high of a rate change as many in the industry may have anticipated.

Additionally, the negotiation itself is viewed to represent prices set between a willing buyer and a willing seller, and, as a practical matter, this may forebode a stifled rate standard for future Phonorecord rate proceedings. Strong evidence suggests that regardless of settlement, the willing buyer–willing seller rate holds little weight when mechanical royalty rates have no hypothetical market of willing buyers and willing sellers—the mechanical royalty has never once been considered in the context of true market demand.²⁰⁵ In 1995, Congress enacted the Digital Performance Right in Sound Recordings Act, in which a willing buyer–willing seller standard similarly replaced 801(b) policy factors in CRB rate proceedings for noninteractive public performance royalties.²⁰⁶ In that situation, the Copyright Arbitration Royalty Panel, the predecessor to the CRB, was left with “the unenviable task of ascertaining what a willing webcaster and a willing record label would consider to be a fair deal for Internet radio royalties in the face of an almost total absence of real world evidence.”²⁰⁷ In the same vein, the willing buyer–willing seller mechanical license rate “seeks to construct or emulate [a ‘market’ that] does not exist and often has never existed.”²⁰⁸ Under this analysis, it seems possible that the NMPA, in pursuing this settlement over litigating for a desirable rate, may have filled the vacuum of market knowledge with a rate that will lay a foundation for future decisions and is less than desirable for publishers and songwriters in the long run. Notably, in past rate proceedings for a willing buyer–willing seller standard, the CRB found that “[t]here is no a priori reason to conclude that the rates set in [an] earlier proceeding failed to reflect or approximate market forces.”²⁰⁹

The Phonorecords IV settlement may suggest that, at least in the short term, the MMA’s new rate-setting standard will result in no real improvement in incentives for songwriters, as demanded to rectify the current imbalanced copyright policy. The early days of the Phonorecords IV proceeding may also provide insight into challenges posed by converting to this new rate-setting norm. Immediately after the parties to Phonorecords IV submitted their rate proposals, the CRB used the new willing buyer–willing seller standard to deny the NMPA’s request for further documentation regarding an initial lowball DSP proposal.²¹⁰ The CRB rejected their request for information from the DSPs explaining the “historical quantum” of DSP revenue to be deducted from the mechanical royalty pool under the DSPs’ rate proposal and information on the “impact” of those proposed deduction terms on mechanical royalties.²¹¹ The CRB held that such justifications for further documents may have been relevant under two of the former 801(b) standards of fairness and “disruption-avoidance,” but that such considerations of “impact,” “historical quantum” of revenue, and deduction terms no longer appeared to be appropriate when purely assessing market factors relating to the parties’ investment in their products and positions in relation to economic demand.²¹² This further suggests that though the standard may in some ways seem liberatory by providing a comparison to an open market, it may also limit composition copyright holders from making arguments about traditional copyright policy considerations, including fairness.

Despite early signs that the willing buyer–willing seller standard may not yield the rate increases publishers and songwriters sought, any overall rate increases may also raise a concern on the horizon for DSPs. Phonorecords III, which set rates for 2017 to 2022, was the last CRB proceeding conducted under the pre-MMA standard judged by 801(b) factors, and it introduced the most significant rate increase in the CRB’s history when it increased the headline rate from 10.5% of DSP’s revenue to 15.1%.²¹³ The DSPs appealed this major win for publishers and songwriters, and not long after the CRB affirmed Phonorecord III on appeal, Spotify and YouTube music raised their prices just a few days apart from each other, indicating that when incentives to copyright holders improve, the access variable, in turn, is affected as well.²¹⁴ Apple Music and Amazon Music also raised their prices the year before in 2022.²¹⁵ While this price increase occurred in the aftermath of the Phonorecords III, a proceeding that was not the product of MMA legal changes, it raises questions about the cost of the willing buyer–willing seller rate should it achieve its intended outcome of increasing copyright holder compensation. Increased royalty rates are of particular concern for Spotify, which has operated at a loss every year since its founding despite being the United States’ most popular music streaming platform.²¹⁶ As indicated by the price hikes, the burden of licensing costs is ultimately passed on to the consumer and impinges on public access to copyrighted works. Nonetheless, while this concern remains in the background, the balance between access and incentive likely still demands an increase in consumer prices to effectuate the increased incentive necessary to salvage the songwriting profession.

Table 2. Pre- and Post-MMA Policy Concerns
Policy Goal	Pre-MMA Score	Post-MMA Score
Incentives	Incentive for songwriters is LOW; attributable to a minimal statutory royalty rate, governmental restrictions on both types of songwriters’ royalties, and industry structure providing equal payout between publishers and songwriters.	MARGINALLY IMPROVED. It will require several more years to see how much the MMA altered incentives for creators. However, songwriter testimony strongly suggests that creators at the bottom of the copyright chain of value have not seen the MMA substantively move the needle on the incentive variable. This remains an urgent problem in the copyright policy triad, indicating that the equilibrium of policy goals remains unbalanced.
Access	Access is HIGH in the short term, with concern that this variable may shift if DSPs continue operating at a deficit.	HIGH, but the same problem remains as prior to the MMA. Costs will likely be pushed onto the consumer if royalty rates continue to rise in response to the unsolved incentive variable.
Transaction Costs	Transaction costs are HIGH. While the compulsory license reduces transaction costs of licensing negotiation, matching royalties to songwriters imposes high transaction costs for DSPs and songwriters alike.	VASTLY IMPROVED. The MLC has effectively begun to reduce transaction costs by mimicking the collective licensing and blanket license model of other areas of copyright law. It will take several more years to see the full efficiency of the MLC, but it has driven strong results thus far.

III. CONSIDERATIONS FOR THE FUTURE

A. Approaching the First MLC Five-Year Review

Section 102(a)(3)(B)(ii) of Title I of the MMA calls for periodic review of the MLC’s designation by the Copyright Office every five years to review the entity’s functioning and determine whether the MLC shall continue its designation as the MMA’s chosen organization to orchestrate and manage mechanical licensing.²¹⁷ January 2024 marked the beginning of this first review period, though it remains uncertain what the scope of this review will include.²¹⁸ The MMA suggests that the Copyright Office will solicit information to assess only the high-level question of continued designation rather than initiating a review with further recommendations or imperatives for the MLC’s improvement.²¹⁹ Some songwriters hoped the review would include more, having raised concerns on various alleged issues regarding songwriter representation within MLC’s Board and other critiques beyond the scope of this Note.

Currently, no known reason exists to suspect that MLC’s designation will change. The MLC attained substantial achievements thus far in a short time, establishing its infrastructure, creating a robust and growing database, building out resources, and paying out upwards of $1.5 billion in royalties.²²⁰ Its success was publicly affirmed by an array of industry players in a June 2023 House Judiciary Committee hearing on the MMA’s five-year milestone.²²¹ Even with successes, there has been insufficient time to prove the MLC’s full success or to render it ineffective so as to cause a deeper assessment of the MLC’s designation.

B. Reconsidering the Compulsory Mechanical License: Theoretical Shifts Versus Industry Realities

A handful of songwriters have used the pending five-year review as a moment to demand another, more fundamental review of the music licensing system—a review of the mechanical compulsory license.²²² The Copyright Board outright rejected this suggestion, stating that because only two and a half years have passed since the MMA’s licensing changes were implemented, it would be “premature at this time to engage in a new study of the Section 115 license.”²²³

While this demand was more of a pipe dream—and not within the MMA’s review requirements—the early success of the MLC certainly calls into question the basic necessity of a compulsory license. The mechanical compulsory license was once a fix-all solution to calibrating incentive, access, and transaction costs, but now, the MMA’s new collective licensing organization and blanket licensing system appear to pull their weight in correcting transaction costs. Even before the MMA implemented this model, it has been effective in multiple other areas of music copyright law as a solution to mass licensing numerous small, discrete pieces of content. Meanwhile, the compulsory aspect of the mechanical license continues to prevent a recalibration of the access-incentive equilibrium vis-à-vis an unprecedentedly high level of access and demand for music and an unprecedently low level of songwriter incentive to create it.

Theoretically, abolishing the mechanical compulsory license likely makes sense. In addition to being an anomaly in the American system, today, the U.S. remains the only country outside Australia to maintain compulsory licensing for mechanical rights.²²⁴ Its use has also clearly been controversial throughout its history; in 2004, at the earliest outset of streaming in the music industry, then-Register of Copyrights Marybeth Peters called on the House Judiciary Committee to eliminate the compulsory license, recognizing that it violated basic principles of copyright policy and was a deviation from music licensing norms in the rest of the world.²²⁵ Traditional economic assumptions would strongly suggest that, given the music copyright system’s intense reliance on mechanical licenses, high demand from licensees would compel licensing parties to reach a deal reflective of free market demand without obligating composition rights holders to license their work under a compulsory regime. In other areas of copyright law, the free-market forces are continually presumed to engender a successful equilibrium between incentive and access, and both here and in other licensing regimes, the blanket licensing scheme has compensated for other concerns by accounting for transaction costs.

Still, while copyright’s theoretical underpinnings may support such a change, it is widely accepted throughout the music industry that its abolition will never happen. The Copyright Office asserted that review of the compulsory licenses would be “premature” at this juncture and did not rule out the possibility somewhere down the line, should the implications of the MMA be more fully played out and the MLC prove a comprehensive alternative.²²⁶ However, throughout decades past, music industry players have voiced overpowering concerns that eliminating the compulsory license would cause “unnecessary disruptions” in the dynamics of the music industry.²²⁷ Even more critically, a vast majority of the music industry’s convoluted legal patchwork is owed to the outsized influence of vigorous and effective lobbying in Congress at the expense of copyright holders. Far too many players in the copyright landscape depend upon the compulsory mechanical license’s below-market rates, and lobbying forces at record labels, DSPs, radio stations, and beyond will likely ensure that this reality never comes to fruition.²²⁸

C. Songwriters’ Continued Plight Post-MMA

Despite the MLC’s relative successes thus far, the MMA’s fundamental flaw may be that it fixed the glaring problem of untenably burdensome transaction costs without addressing the looming, more existential incentive problem, which lies at the very core of copyright policy. In many ways, the distressing pre-MMA stories and statistics about songwriters explored in this Note have carried into the present day. As Grammy-nominated songwriter Erika Nuri Taylor told the Washington Post in 2023, “I got my real estate license [three years ago] because I thought I’m not going to be able to sustain being a creative person, a songwriter, for the next 10 to 15 years if nothing changes in the music industry.”²²⁹ Taylor, who has written for the likes of Enrique Iglesias, Janelle Monáe, and Meghan Trainor and has been a professional songwriter since 1992, says that her royalty income has been cut in half over the past five years, even after the hopeful enactment of the MMA.²³⁰ Today, she reluctantly considers herself a full-time real estate agent, holding out hope that she can still write songs on the side despite it once being her entire career. Her testimony is just one of many that have persisted after the MMA’s enactment.

Many songwriters will continue to create for the love of it, seeing their art form as a “spiritual calling” for which they have made great sacrifices.²³¹ Perhaps this indicates that despite great financial pressures, the songwriter profession may evolve to become less reliant on copyright’s promise of financial remuneration and will continue to be driven by an intrinsic desire to create. Alternative theories of copyright address this objection, arguing that perhaps copyright ownership and its accompanying “incentives” to create actually play a very minimal role in motivating creative work.²³² However, even amidst these alternative considerations and the possibility that songwriters may still create outside the bounds of adequate copyright incentives, songwriters persistently indicate the impact that low royalty rates across both mechanical and public performance royalties have on songwriting as a profession beyond its persistence as an art form.²³³ Another songwriter cites that modern-day music no longer reflects the caliber of decades past because much talent is lost when many just “can’t afford to do it anymore.”²³⁴ In practice, modern copyright regimes serve as the foundation for entire creative industries; here, the music copyright system’s success dictates the success of the music industry as a whole, making it rather alarming when copyright laws fail to sustain their promise of a “fair return” for the class of creators upon which the music industry is built, resulting in the dying of one of the industry’s most integral professions.²³⁵

Notably, there are also some critical confounding variables at play in the songwriter’s plight beyond anything the drafters of the MMA could have predicted. Given that the CRB did not finalize the DSPs’ appeal of the Phonorecords III rates for 2018 to 2022 until August 2023, the MLC could not pay out royalties for that term without established rates; this ultimately delayed the full payment of an additional $700 to 800 million in streaming royalties over the past five years.²³⁶ From the rights holders’ perspective, even while their royalties may have been increasing on paper since 2018, in reality, they have seen no such improvement in their financial circumstances, as their payments have been frozen at 2017 rates well into 2023. Many in the industry felt the arduous appeal process was disastrous for the publishing and songwriter economy, and Phonorecords IV ended in a settlement in large part because music publishers were adamant about avoiding the impossibly burdensome costs of litigation and further wreckage it could cause for songwriters and publishers.

Until composition rights holders receive full payment from Phonorecords III and routine payments on Phonorecords IV, it is hard to judge the potential adequacy of Phonorecord IV rates that arise from the MMA’s new rate standard or, more generally, how effective the financial incentives are for songwriters within the current copyright licensing system. Further, as suggested by the Copyright Office, it may take several more years for the MMA’s efficacy to come into full view, as both the MLC works toward achieving its envisioned efficiency and the willing buyer–willing seller gets tested in the Phonorecords V CRB proceeding.

CONCLUSION

In June 2023, the U.S. House of Representatives marked the MMA’s impending five-year anniversary with a House Judiciary hearing in Nashville, reopening a conversation with representatives from across the music industry about the law’s realized impact since its implementation in 2018.²³⁷ As discussion resumes on Capitol Hill, there is a renewed opportunity to reflect on the underlying objectives of a music copyright system and whether Title I has brought the current legal regime closer to those aims. Sustained conversation on these issues is more pressing than ever, as many in the music industry fear disruptive impact of artificial intelligence on a system already in slow rehabilitation from the shift to the digital age.

In taking stock of the industry’s current position, Title I of the MMA represents a major success in many ways. Its actualization was made possible by an unprecedented will within the music industry, with often opposing parties rallying behind the conviction that the music copyright system urgently needed to change. Title I of the MMA has pulled the industry from the brink of crisis, effectively eliminating untenable transaction costs that left an antiquated licensing system nearly non-functional.

In other ways, however, Title I also represents a band-aid solution to a crisis that boiled over in a fragmented legal scheme—a consequence of years of balkanized laws and decision-making heavily influenced by lobbying forces rather than fully reasoned policy. The industry’s united front may have emerged not from a desire to affirm value of the copyright system or artists’ creative works, but merely from the recognition that there was no other way out beyond a legal solution. As a result, Title I of the MMA has achieved relatively marginal results for one of its central aspirations and one of the industry’s most looming concerns—the hollowing out of the songwriting profession. The plight of the songwriter thus remains one of the music industry’s most fundamental yet unanswered problems in the digital age.

98 S. Cal. L. Rev. 205

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Tara Steinmetz*

* Articles Editor, Southern California Law Review, Volume 98; J.D. 2025, University of Southern California Gould School of Law; B.A. 2020, University of California, Los Angeles. Thank you to my advisors, Professors Jonathan Barnett and Emio Zizza, for their support and guidance, and to the members of the Southern California Law Review for their hard work and thoughtful suggestions on my Note.

Sidestepping Sovereign Trademark Territorialism: The Harmonization and Customization of the Lanham Act

March 2025March 2025Gabriella F. Franco*

Trademark territoriality—the principle that trademarks have a separate legal existence in each national jurisdiction—has been deemed a basic tenet of domestic and international trademark law; however, it is incompatible with a globalized, modern world because borders do not dictate consumer interest in products, and brands do not operate within the confines of sovereign territories. Practically, the principle no longer exists in its originally intended form due to U.S. courts’ circumvention and international treaties’ attempts at harmonization. While current international agreements provide suggested, streamlined standards, they do not establish enforceable rules. The need for an update to the international trademark system is more pressing than ever before due to the Supreme Court’s 2023 decision in Abitron Austria GmbH v. Hetronic International, Inc., which effectively eradicates the Lanham Act’s extraterritorial application. This Note traces the erosion of the territoriality principle through the seventy years of jurisprudence preceding Abitron, the Famous Marks Doctrine circuit split, and the growing practice of stealth trademark filing. The Note then advocates for a dual system that preserves the benefits of a territorial-bound trademark system—customization of trademark laws and international comity—and caters to the demands of a globalized economy in which brands transcend borders. A legally enforceable, self-executing international system would provide trademark owners with a cost-effective, efficient, and reliable approach to trademark protection. This especially benefits small to medium-sized enterprises that are entering multinational markets more easily and may not be equipped with the resources to navigate foreign intellectual property protection. Finally, the Note suggests options for the dual system modeled after the European Union Trademark, which it coins International Community Marks, as well as the Uniform Domain Name Dispute Resolution Policy, whose independent, international anti-cybersquatting framework has served as an effective alternative to traditional sovereign enforcement.

INTRODUCTION

Borders do not dictate consumer interest in products, and brands do not operate within the confines of sovereign territories. Consumers from New York to New Delhi want to purchase the newest iPhone, and brands like Louis Vuitton and Nike want to market their bags and shoes to customers across the globe. Despite the ubiquity of brand names and the dominance of international commerce, trademark law continues to operate on a geographical basis, reminiscent of a time when trade was local and burdened by transportation and information costs. The rights of a brand established in the United States start and end within the domestic borders despite the brand’s influence on consumers in foreign jurisdictions. This is not only problematic for brands, but consumers are harmed by deceivingly similar brand names and inauthentic products. Counterfeit products—$2 trillion of which are sold to Americans annually—injure consumers emotionally and physically, with inauthentic products leading to death and serious injury.¹

The Lanham Act, the predominant U.S. statute governing trademarks, does not extend beyond the territorial jurisdiction of the United States. According to the Supreme Court’s recent decision in Abitron Austria GmbH v. Hetronic International, Inc., courts should apply a “canon of statutory construction known as the presumption against extraterritoriality”² when evaluating the Lanham Act.³ This requires courts to presume that legislation does not extend beyond U.S. borders absent explicit legislative intent to the contrary. Thus, unless Congress adds a specific provision to the Lanham Act permitting its extraterritorial application, courts will continue to limit its reach to acts within U.S. borders, adhering to the territoriality principle.

However, the presumption against extraterritoriality is incongruent with the modern economy, global brand operation, and the last seventy years of U.S. jurisprudence. The rise of e-commerce marketplaces has streamlined the leap from local to international operations.⁴ Not only do they reduce the marketing costs typically associated with cross-border expansion, but they have also reduced transaction costs by working with governments to eliminate tariffs and intermediaries.⁵ As more brands enter the global market, the need for comprehensive intellectual property protection expands. In contending with this increased globalization, U.S. courts have chipped away at the territoriality principle. Thus, a principle that has historically been referred to as “basic to trademark law” no longer appears to serve such a central role.⁶

Due to differences in sovereign rulemaking and the growing global economy, the international community has taken steps to harmonize intellectual property law over the last 140 years. Harmonization occurs when “varying laws of different sovereign entities are changed to more closely reflect a common set of legal principles agreed to by those sovereign entities.”⁷ This has primarily taken the form of international treaties and registration systems, such as the Paris Convention for the Protection of Industrial Property⁸ and the Madrid Protocol.⁹ However, harmonization is not the same as international rulemaking, and it “does nothing to affect the essence of territoriality.”¹⁰ These agreements provide suggested, streamlined standards but do not establish enforceable rules. Thus, even though U.S. brands are not entirely unsupported in expanding their marks into foreign jurisdictions, current international agreements lack the force required for true international cooperation.

While enforceable harmonization appears crucial in the ever-growing international economy, there are benefits to the current territorial-bound system. The justifications for trademark law territoriality extend beyond the notions of sovereignty and international comity—“a judicial expression of one state’s respect for another state’s internal sovereignty because it prevents courts from interfering in the other state’s internal affairs”¹¹—because territoriality also provides the benefit of customization. The “separate legal existence” of trademarks in each national jurisdiction permits sovereigns to customize their trademark law in ways that may benefit trademark owners even if it is inconsistent with the international approach.¹²

This Note provides a review of the erosion of the Lanham Act’s territoriality principle in light of Abitron and presents alternatives to jurisdictional-bound trademark agreements by suggesting a new international model that balances customization with real harmonization. Part I provides a general overview of trademark law in the United States. This Part also explores the costs and benefits of the current approach to trademark territorialism. Part II illustrates the erosion of the territoriality principle. First, this Part explains the impact of Steele v. Bulova Watch Co. on trademark territoriality, the following seventy years of jurisprudence that further eroded the principle, and the Supreme Court’s recent disregard of this precedent in Abitron. Second, it describes the Famous Marks Doctrine as an exception to the territoriality principle. Finally, it discusses how the loopholes to trademark legislation, specifically stealth filing practices, that result from reconciling a global economy with a jurisdictional-bound system further erode the principle. Part III addresses the current approach to harmonization and the way brands practically operate in a territorial-bound trademark system. Part IV explores alternative approaches to U.S. trademark law that would balance the Lanham Act’s territoriality and customization with the harmonization of an international registration system. This Part considers the use of an approach modeled after the European Union Trademark, which this Note coins as International Community Marks, as well as the Uniform Domain Name Dispute Resolution Policy (“UDRP”), whose independent, international anti-cybersquatting framework has served as an effective alternative to traditional sovereign enforcement. This Part acknowledges the potential obstacles and downsides to these solutions, but ultimately concludes that they serve as a viable starting point.

I. TRADEMARK LAW BACKGROUND

Trademarks are the most common form of intellectual property, with 18.1 million trademarks filed in 2021 and only 3.4 million patents filed in the same year.¹³ A trademark consists of “any word, name, symbol, or device, or any combination thereof” used to “identify and distinguish” the source of goods and services.¹⁴ The goals of a trademark include distinguishing an owner’s goods from others, signifying the source and control of goods with a common trademark, indicating a uniform level of quality, advertising and selling the goods and services, and serving as a symbol of goodwill.¹⁵

Because a trademark serves as an indicator of source, similar marks for similar goods have the potential to generate consumer confusion. The law’s goal in granting protection to certain marks is to avoid consumer confusion¹⁶ and safeguard brand owners from misappropriation of their established goodwill.¹⁷ A trademark owner’s right to use a mark is based on priority. An owner has priority, and consequently an exclusionary trademark right, when the mark has been used prior to others. This is the idea of first in time, first in right.¹⁸ However, what constitutes “first in time” varies across sovereign jurisdictions. Thus, while trademarks serve the same purpose and mostly convey the same message across borders, protections and procedures can be unique in each country.

A. Domestic Trademark Law

Trademark law in the United States was historically rooted in common law and left to the states. This configuration lasted until the first federal trademark law was introduced in 1870; however, that law was later deemed unconstitutional.¹⁹ Subsequent laws in 1881²⁰ and 1905²¹ attempted to fill the void of national trademark legislation but still did not meet the demands of the 20th century. In 1946, the Lanham Act substantially revised federal trademark law and established a national registration system and cause of action for federal trademark holders. Since then, the Act has undergone several amendments and is codified as the Lanham Act, 15 U.S.C. §§ 1051–127.²²

The Lanham Act coexists with common law and state-level trademarks; however, federally registered marks grant additional protections to trademark owners.²³ The protections consist of inclusion in a database that provides public notice to anyone searching for similar trademarks; a “legal presumption” of ownership; a basis for filing for foreign trademark protection; an opportunity to sue in federal court; a right to use the trademark registration symbol, ®, to deter infringing use; and a recorded registration with U.S. Customs and Border Protection to stop the importation of infringing goods.²⁴ While the Lanham Act serves as the basis for an infringement claim and confers substantial substantive rights on mark holders, federal law does not create trademarks.²⁵ Instead, the United States operates on a use-based system, requiring that marks be used in commerce to create a right of exclusion. Using the mark in commerce is critical, as trademarks are not directly protected by the Constitution like patents and copyrights,²⁶ but rather by the Commerce Clause.²⁷ However, the Trademark Law Revision Act of 1988 modified the first-to-use system through the introduction of intent-to-use (“ITU”) trademark applications.²⁸ ITU applications create a first-to-file option in the United States, even though the force of an ITU registration is predicated on subsequent actual use.

Due to the Trademark Law Revision Act, there are two ways to register a trademark on the federal register: (1) a use-based filing or (2) an ITU filing. A use-based filing, under Lanham Act section 1(a),²⁹ requires that the applicant use the mark in commerce. “Use in commerce” means the mark is affixed to goods or displayed in the selling or advertising of services and then sold or transported in interstate or foreign commerce.³⁰ This use establishes the applicant as the senior user, conferring an exclusionary right of priority against subsequent junior users. Under section 1(b),³¹ an ITU filing allows an individual or company to apply for a mark’s registration before its use in commerce. ITU filings allow applicants to reserve an earlier priority date, as the date establishing exclusive use is the filing date as opposed to the date of first use in commerce. However, the mark’s registration is not official until an applicant submits proof of a bona fide use in commerce to the United States Patent and Trademark Office (“USPTO”) within six months of the original filing date.³²

United States trademark law is based on the territoriality principle, meaning trademarks have “a separate legal existence” in each sovereign territory.³³ This principle establishes a presumption against extraterritoriality, which indicates that, absent a contrary intent, Congress’s legislation “is meant to apply only within the territorial jurisdiction of the United States.”³⁴ The reasoning behind this presumption is to avoid “international discord,” as “Congress generally legislates with domestic concerns in mind.”³⁵ Therefore, U.S. courts will recognize a trademark if it is registered with the USPTO or has earned common law rights through domestic use of the mark in commerce.

However, this strict adherence to territoriality is only a function of the last century’s jurisprudence. One hundred years ago, the Supreme Court made the pivotal decision in A. Bourjois & Co. v. Katzel³⁶ to move away from the universality principle—which acknowledges trademark rights regardless of the sovereign territory in which they are registered or recognized—to the territoriality principle. The Court has since further clarified its absolute rejection of the universality principle.³⁷ Despite the stated commitment to the territoriality of U.S. trademark law, the Supreme Court has made exceptions to this rule, and lower courts have taken a more nuanced approach when dealing with the reality of global brand names and international commerce.

B. The Costs and Benefits of Territoriality

1. Territoriality’s Costs

Two principal problems arise from trademark territoriality. The first arises from infringement by a third party in a foreign jurisdiction. The second occurs when a foreign trademark is infringed in domestic territory. While these are two sides of the same coin, the problems illustrate the distinct responses required for domestic and foreign conduct.

Infringement by a third party in a foreign jurisdiction falls outside the scope of the United States’ territorial jurisdiction and is therefore governed by the foreign jurisdiction’s law. Thus, an American company’s mark could be subject to unabated infringing use if the company lacks foreign trademark protection. For example, if Starbucks, a company with a registered U.S. trademark, “STARBUCKS,”³⁸ wanted to franchise its coffee shops in Argentina, it could not rely on its U.S. trademark. Thus, if it did not have an Argentinian trademark registration and a third party had registered the mark “STARBUCKS” in Argentina, Starbucks would likely be unable to register its mark.³⁹ Without a recognized Argentinian trademark right, Starbucks could not prevent the foreign company from co-opting its goodwill. In addition to franchising, there are several reasons why a domestic trademark owner may want to protect its trademark abroad: an owner may want to license the trademark, monetize the goods or services through online sales, maintain an air of exclusivity, or protect consumers from the sale of counterfeit goods.

The second problem arises when foreign trademark owners want to protect their marks in the United States. Domestic trademarks that misappropriate a trademark owned by a third party in a foreign jurisdiction, which fall outside the scope of the United States’ jurisdiction, are not liable for infringement. For example, if Louis Vuitton, the famous French fashion house, wanted to expand its operation to the United States but did not have a U.S. registration, it would be subject to any preexisting U.S. trademark registration. Thus, if a domestic company had already been operating with the trademark “LOUIS VUITTON” on handbags, the French fashion house would be unable to stop the domestic company’s use and would likely be prohibited from registration of its established mark. This would likely be true even if the domestic company adopted the mark in bad faith and was willfully trading off the mark’s goodwill.⁴⁰ Similar reasons motivating domestic owners to seek trademark protection abroad apply to foreign owners seeking U.S. protection.

The first problem, namely the Starbucks hypothetical, is evidenced in a string of cases spanning seven decades, in which domestic trademark owners attempted to use the Lanham Act to protect them from foreign infringing activity. These cases generally established that the Lanham Act extends extraterritorially, providing owners with protection, but used various tests to determine when extraterritorial application was appropriate.⁴¹ However, a 2023 Supreme Court decision has effectively eliminated extraterritorial application of the Lanham Act, leaving owners susceptible to unabated foreign infringement.⁴² A circuit split between the Second and Ninth Circuits, which have adopted conflicting approaches to domestic recognition and protection of famous foreign marks, exhibits the second problem.⁴³ These problems, and courts’ attempts to remedy them, have eroded the Lanham Act’s territoriality principle.

2. Territoriality’s Benefits

The territoriality principle’s rationale is typically rooted in international comity and jurisdictional limitations.⁴⁴ However, territoriality also allows sovereigns to customize trademark law to their citizens’ needs and to changing economic and industry demands. Changes to a nation’s law may vary depending on its citizenry’s needs and its willingness or ability to respond to these demands. Further, adapting to modern-day needs is challenging at scale, as evidenced by the century-wide gaps in treaty amendments,⁴⁵ but more manageable at a country level. Therefore, even in a global economy, sovereign customization likely benefits trademark owners.

For example, the United States’ first-to-use system stands in contrast to other countries’ first-to-file system. Bona fide use of a mark in commerce grants protection to U.S. mark owners, even for unregistered marks. This benefits small, unsophisticated mark holders, who may not have considered registration or understood the benefits conferred by a federally registered mark. In contrast, China operates on a strict first-to-file basis, withholding protection from individuals who have used the mark in commerce but have not received a trademark registration.⁴⁶ With typical waiting periods of nine to twelve months, Chinese applicants need the foresight to apply nearly a year before any use of a mark will be protected.⁴⁷ China’s system is less desirable for first-time mark owners who may jeopardize their marks’ right to exclusivity.

Thus, national-level customization of trademark law can prove to be beneficial to trademark owners notwithstanding the challenges it presents when owners operate transnationally.

II. EROSION OF THE TERRITORIALITY PRINCIPLE

Despite the territoriality principle’s pervasiveness, it is in tension with the real-world operation of trademarks. The global economy and flow of commerce have significantly transformed since the conclusion of the Second World War, with the ratio of exports to world gross domestic product (“GDP”) increasing from 5.5% in l950 to 17.2% in 1998.⁴⁸ Further, the turn of the century assisted the rise of international trade through the widespread adoption of the internet, reduction of transport costs, and elimination of policy-related tariff and non-tariff barriers.⁴⁹ The United States International Trade Commission (“ITC”) estimates that digital trade has increased U.S. GDP by 3.4% to 4.8% and created up to 2.4 million jobs.⁵⁰ In 1994, the North American Free Trade Association (“NAFTA”) lifted tariffs and increased international trade between the United States, Mexico, and Canada from roughly $290 billion in 1993 to more than $1.1 trillion in 2016.⁵¹

As trade has become increasingly global, international travel has become more accessible, and the flow of information over the internet has become instantaneous, the world has seemingly become smaller and more interconnected than ever.⁵² Trademarks are present in the flow of international products and are adorned to goods and services in digital commerce, conveying meaning to individuals in varying sovereign states and establishing goodwill that transcends borders. Therefore, “[d]ogmatic territoriality . . . ignores basic reality because informational products cannot be located at a particular spot on the globe.”⁵³

In addition to territoriality’s incongruence with real-world trademark operation and the current economy, obedience to the principle has diminished. Courts have sidestepped the principle by carving out exceptions when its application is impractical or counter to public policy. This Part will first address the judicial weakening of the principle that began in the 1952 case Steele v. Bulova Watch Co.⁵⁴ and continued through circuit court decisions until the 2023 Supreme Court decision in Abitron Austria GmbH v. Hetronic International, Inc.⁵⁵ These cases center around the infringing use of domestic marks in foreign territories and are in the first trademark territoriality problem category—like the Starbucks hypothetical, in which the brand wants to stop infringing use in Argentina, the owners of domestic trademarks want to use the Lanham Act to prevent use of their marks abroad. Mark owners seek protection from the Lanham Act instead of foreign law governing the territory where the infringement occurred because U.S. trademark laws are often more protective, utilize broad discovery rules, and award high damages.⁵⁶ This Part then addresses the judiciary’s weakening of the territoriality principle in cases involving the presence of foreign marks in domestic courts, as evidenced by the Second and Ninth Circuit split over the Famous Marks Doctrine. This falls into the second category—like Louis Vuitton, these foreign brands either want to enter the domestic market or prevent others from using their mark in the domestic market. Finally, this Part turns to reciprocal priority, a legislative exception to territoriality, in which the United States recognizes foreign acts as the basis for domestic exclusionary trademark rights. Reciprocal priority attempts to harmonize the international trademark system, but it creates loopholes that further fracture the territoriality principle.

A. From Steele to Abitron

The Supreme Court first addressed the extraterritoriality of the Lanham Act in the 1952 case Steele v. Bulova Watch Co., in which the Court applied the Act to infringement in a foreign jurisdiction. However, the Steele decision did not establish a clear framework for extraterritorial application. In the seventy years that followed, lower courts were left to contend with an unclear set of principles used to override the presumption against extraterritoriality. This ambiguity led to a fragmented approach taken by circuit courts in addressing the issue, with seemingly every circuit developing a unique test.⁵⁷ By providing mechanisms to override the territoriality principle, most tests confirmed the incompatibility of the principle with the trademark system. However, in 2023, the Supreme Court addressed the extraterritoriality of the Lanham Act for the second time. In Abitron Austria GmbH v. Hetronic International, Inc., the Court ignored Steele’s precedent and the following seventy years of case law; instead, it developed a test that, in practice, prevents the Lanham Act’s extraterritorial application.

1. Setting the Standard

In 1952, the Supreme Court carved out an exception to the territoriality principle in the case Steele v. Bulova Watch Co.⁵⁸ Steele, a U.S. citizen, stamped “BULOVA”—a registered trademark owned by the prominent New York watch manufacturer, Bulova Watch Company—on watches he sold in Mexico. Steele strategically moved his watch operation from San Antonio to Mexico City, where the mark was not registered, to trade on the manufacturer’s international goodwill.⁵⁹ Steele purchased watch parts in the United States but assembled and sold all watches in Mexico under the trademark “BULOVA,” which he registered in Mexico. The counterfeit Mexican watches made their way into the United States, and the New York manufacturer received complaints about the Mexican watches from consumers who believed the watches to be its products. Bulova sued Steele, alleging that he violated Lanham Act section 32(1).⁶⁰ It also sued Steele in Mexico, and the Mexican Supreme Court nullified his trademark registration.⁶¹

The Supreme Court affirmed the Fifth Circuit’s injunction of Steele’s behavior in Mexico by “exercising its equity powers [to] command persons properly before it to cease or perform acts outside its territorial jurisdiction.”⁶² Due to Steele’s U.S. citizenship, the Court claimed that it was “not debarred by any rule of international law from governing the conduct of [its] own citizens . . . in foreign countries.”⁶³ Despite the watches being assembled and sold in a foreign nation and the district court’s decision to dismiss the case for lack of jurisdiction, the Court determined that the Lanham Act’s power, rooted in its ability to regulate commerce, extends to U.S. commerce in foreign jurisdictions. Additionally, Steele’s actions “were not confined within the territorial limits of a foreign nation.”⁶⁴ Thus, the Court seemed to rest its decision on three factors: (1) Steele’s U.S. citizenship, (2) the trickling of the counterfeit watches into the United States and their impact on domestic commerce, and (3) the lack of conflict with Mexican law due to the cancellation of Steele’s Mexican mark.⁶⁵

The Court’s decision in Steele contorted the rule of territoriality around the Court’s goal of enjoining the citizen’s behavior. By disregarding this traditional doctrine, the Court chose to interpret the Lanham Act in a way that is inconsistent with the deference typically given to Congress to determine the extraterritorial scope of its legislation.⁶⁶ Justice Reed’s dissent illuminates the majority’s departure from the territoriality principle. He noted that the Court’s disapproval of the citizen’s foreign actions does not warrant the application of the Lanham Act to acts outside the sovereignty of the United States.⁶⁷ Justice Reed harkened back to territoriality’s origins in international comity, respecting other nations’ sovereignty, and nations’ “capab[ility] of punishing infractions of their own laws.”⁶⁸ Despite this backlash or flawed reasoning in the Steele decision, it set the stage for the Lanham Act’s next seventy years of extraterritoriality.

Since this decision, lower courts have grappled with Steele’s lack of direction. Steele did not establish a clear test for determining the extraterritoriality of the Lanham Act; however, courts have interpreted Steele’s decision as establishing a three-part test. The test considers (1) the defendant’s nationality, (2) the conduct’s effects on domestic commerce, and (3) conflicts or potential conflicts with foreign law.⁶⁹ Circuit courts have created variations of this test, with varying degrees of leniency toward overcoming the presumption against extraterritoriality.

2. Reeling in Extraterritorial Application

Shortly after the Steele decision, the Second Circuit was tasked with determining whether section 32(1) should apply extraterritorially in Vanity Fair Mills, Inc. v. T. Eaton Co.⁷⁰ The court took a measured step in not further eroding the Act’s territoriality by limiting the circumstances in which the presumption against extraterritoriality may be overcome.⁷¹

Vanity Fair Mills, a U.S. underwear manufacturer, registered the mark “VANITY FAIR” in the United States and sold its merchandise in the United States and Canada.⁷² The following year, T. Eaton Co., a Canadian manufacturer, registered the mark “VANITY FAIR” for apparel in Canada. Vanity Fair was denied Canadian registration of its mark due to T. Eaton’s registration. Thus, Vanity Fair sued T. Eaton, seeking injunctive relief under the Lanham Act.

In determining whether the Lanham Act applied to T. Eaton’s extraterritorial conduct, the court applied the three main considerations in the Steele decision.⁷³ The court declined extraterritorial application because the first and third factors were not met: T. Eaton was a Canadian citizen, despite having U.S. employees, and it had valid Canadian trademark rights for the mark “VANITY FAIR.”⁷⁴ The court noted that the absence of one factor would not necessarily defeat extraterritorial application but that the absence of two is “certainly fatal.”⁷⁵

The Vanity Fair test also sought to tighten the three-part Steele test by altering the second factor to require a “substantial” effect on commerce.⁷⁶ Steele’s tripartite test did not “discuss a particular degree of effect that was necessary” but only required an adverse effect on U.S. commerce.⁷⁷ However, because the court did not rest its decision on the substantial effect of T. Eaton’s actions on U.S. commerce, the new element was dicta, and the court added it without guidance as to what constitutes a substantial effect.⁷⁸

3. Adapting to Extraterritoriality

While Vanity Fair attempted to limit Steele’s application, later tests generated by the Fifth, First, and Ninth Circuits did the opposite. The following cases demonstrate the way circuit courts liberally interpreted the Steele test to provide an easier path forward for the extraterritorial application of the Lanham Act, further eroding the Act’s territoriality principle.

The Fifth Circuit returned to the less strict version of Steele’s tripartite test in its 1983 case American Rice, Inc. v. Arkansas Rice Growers Cooperative Ass’n.⁷⁹ American Rice, Inc. (“ARI”) and Arkansas Rice Growers Cooperative Association (“Riceland”) were both U.S. farming cooperatives that sold rice to Saudi Arabia.⁸⁰ ARI sold under the registered U.S. trademark “ABU BINT,” which, translated from Arabic, means “of the girl” or “girl brand”; used a logo of a young girl; and used a combination of red, yellow, and black on its packaging.⁸¹ Riceland began selling rice with the trademarks “BINT AL-ARAB,” translating to “daughter of the Arabs” and “Gulf Girl.”⁸² It also used a red, yellow, and black color combination on its bags of rice.⁸³ ARI filed suit against Riceland, alleging trademark infringement under section 32(1)(a) and false designation of origin under section 43(a)(1)(A)⁸⁴ of the Lanham Act.⁸⁵

In determining the Lanham Act’s extraterritorial application, the court confirmed that the relevant factors include the defendant’s citizenship, the effect on U.S. commerce, and conflict with foreign law; however, the court noted that this is a balancing test whose factors serve a primary but nonexclusive role.⁸⁶ Thus, the court held that the Act applies extraterritorially to Riceland’s acts because it is an American citizen, its acts had a “more than an insignificant effect” on U.S. commerce, and it does not have a legal right to use its mark in Saudi Arabia.⁸⁷

The Fifth Circuit’s test returned to the more lenient approach to the commerce factor. The court’s choice to remove the Vanity Fair “substantial” requirement was because the Steele test “contains no such requirement, and that some effect may be sufficient.”⁸⁸ Thus, the court’s test allows the Lanham Act to extend more easily beyond U.S. borders—compared to the Second Circuit’s test—in conflict with the territoriality principle.

In 2005, the First Circuit reiterated that Steele “settled that the Lanham Act can, in appropriate cases, be applied extraterritorially.”⁸⁹ Nevertheless, the court crafted its own approach to determining the Act’s extraterritorial application in McBee v. Delica Co.

Delica, a Japanese corporation, began using the mark “CECIL MCBEE” to denote its children’s clothing line.⁹⁰ Delica did not ship goods into the United States but had a website for the clothing brand. Cecil McBee, a well-known American jazz singer who had toured throughout Japan but never registered a trademark there, claimed Delica’s unauthorized use created a misleading perception of endorsement. The jazz singer filed suit against the company for unfair competition under section 43(a)(1)(A) of the Lanham Act.⁹¹

The court transformed the Vanity Fair factors test by disaggregating its elements.⁹² In this new analysis, the court first looks to the defendant’s citizenship. If the defendant is a U.S. citizen, the test ends at step one and the Lanham Act extends extraterritorially.⁹³ If not, the court considers if there is

a substantial effect on U.S. commerce. If there is a substantial effect, the court may consider the effect of intentional comity, depending on the circumstances.⁹⁴

In applying this test to the facts, McBee did not overcome the presumption against extraterritoriality.⁹⁵ Delica’s lack of U.S. citizenship required the court to proceed to step two. The court determined that Delica’s use of “CECIL MCBEE” did not have a substantial effect on U.S. commerce because U.S. consumers were not exposed to Delica’s products, as they were not shipped into the country, and there was “virtually no evidence that American consumers [were] actually seeing Delica’s products” online.⁹⁶

While the court followed Vanity Fair’s stricter “substantial” effects test, it lessened the hurdles required for extraterritorial application of the Lanham Act for defendants with U.S. citizenship. In applying the McBee test to Steele, Steele’s U.S. citizenship alone would have been enough to reach his foreign conduct, and the Court would not have been required to examine his acts’ effect on U.S. commerce. Thus, the First Circuit’s test further erodes the Lanham Act’s territoriality because, unlike Steele and American Rice, a defendant’s U.S. citizenship alone is sufficient to apply the Lanham Act to acts in a foreign jurisdiction.

Finally, in 2016, the Ninth Circuit generated a rule of reason balancing test for determining the Lanham Act’s extraterritorial application.⁹⁷ Under this test, the Lanham Act applies extraterritorially if

(1) the alleged violations . . . create some effect on American foreign commerce; (2) the effect [is] sufficiently great to present a cognizable injury to the plaintiffs . . . ; and (3) the interests of and links to American foreign commerce [are] sufficiently strong in relation to those of other nations to justify an assertion of extraterritorial authority.⁹⁸

The effect on American commerce does not have to be “substantial or even significant.”⁹⁹ In fact, the court noted that reputational harm alone may constitute “ ‘some effect’ on American commerce.”¹⁰⁰ Prong three concerns international comity and weighs seven factors.¹⁰¹

In Hallatt, Michael Norman Hallatt, a U.S. Lawful Permanent Resident (“LPR”), purchased goods from Trader Joe’s, a well-known American grocery store, and drove them across the border to sell at inflated prices at his Canadian storefront, “Pirate Joe’s.”¹⁰² Hallatt designed his store with Trader Joe’s classic theme and colors and filled it with the grocery store’s products. Trader Joe’s banned Hallatt from its storefronts, but he continued to frequent the stores in disguises and hired third parties to purchase goods on his behalf.¹⁰³ Trader Joe’s sued Hallatt, alleging infringement, unfair competition, and false advertising under the Lanham Act.¹⁰⁴

Hallatt’s actions satisfied prongs one and two. He engaged in commercial activity in the United States when he sourced the grocery products from domestic stores, and his Canadian activity could harm Trader Joe’s reputation due to a lack of quality control and inflated prices.¹⁰⁵ Prong three permitted extraterritorial application because of the lack of ongoing proceedings in Canada, Hallatt’s subjugation to U.S. laws due to his status as an LPR, the ease of enforcement, domestic consumer confusion, and the intentional harm inflicted.¹⁰⁶

Hallatt’s test permits an attenuated “nexus” between the infringing activity and domestic commerce that guts the Lanham Act of its territorial principle.¹⁰⁷ The court does not stop at dismissing Vanity Fair’s “substantial” requirement; instead, it shifts the standard to the other end of the spectrum by indicating that “some” effect is sufficient.¹⁰⁸ In a global market with instantaneous online communication and advertising, nearly anything can have a nexus with domestic commerce. This is especially true when reputational harm is sufficient.

4. Disregarding Steele

On the second to last day of the Supreme Court’s 2022 term, it disregarded almost a century of trademark law precedent. While the same Court, seventy years prior, rebutted the presumption against extraterritoriality, the current Court decided to quickly “put aside” Steele in its analysis.¹⁰⁹ Instead, it relied on its recent decisions in Morrison v. National Australia Bank Ltd. and RJR Nabisco, Inc. v. European Community to reinforce the presumption.¹¹⁰

In RJR Nabisco, the Court established a two-step framework to determine whether a statute has extraterritorial reach:

At the first step, we ask whether the presumption against extraterritoriality has been rebutted—that is, whether the statute gives a clear, affirmative indication that it applies extraterritorially. We must ask this question regardless of whether the statute in question regulates conduct, affords relief, or merely confers jurisdiction. If the statute is not extraterritorial, then at the second step we determine whether the case involves a domestic application of the statute, and we do this by looking to the statute’s “focus.” If the conduct relevant to the statute’s focus occurred in the United States, then the case involves a permissible domestic application even if other conduct occurred abroad; but if the conduct relevant to the focus occurred in a foreign country, then the case involves an impermissible extraterritorial application regardless of any other conduct that occurred in U.S. territory.¹¹¹

This framework, applied initially to the Racketeer Influenced and Corrupt Organizations Act,¹¹² serves as a canon of statutory construction across legal disciplines.

In Abitron, Hetronic, a U.S. remote control manufacturer, used Abitron, a collection of foreign companies, as a licensed foreign distributor of its remote controls.¹¹³ Abitron later claimed ownership of the manufacturer’s intellectual property rights, placed Hetronic’s trademarks on its products, and sold the products in foreign jurisdictions and the United States.¹¹⁴ Hetronic alleged infringement of its trademark under sections 32(1)(a) and 43(a)(1)(A) of the Lanham Act and sought damages for Abitron’s infringing use. The Tenth Circuit, affirming the district court, awarded damages to Hetronic for the domestic and foreign infringement.¹¹⁵ The Tenth Circuit relied on Steele and RJR Nabisco’s two-step framework to determine whether the Lanham Act extended to Abitron’s foreign conduct.¹¹⁶ The court answered RJR Nabisco’s first step affirmatively by pointing to Steele’s rebuttal of the presumption against extraterritoriality as a clear indication that the Lanham Act applies extraterritorially.¹¹⁷

The Supreme Court’s application of the RJR Nabisco framework did not stop at step one, but instead focused on step two, vacating the Tenth Circuit’s decision.¹¹⁸ The Court instructs that step two does not stop at identifying the statute’s focus but must proceed to determine if the “conduct relevant to the statute’s focus” occurred domestically or internationally.¹¹⁹ According to the Court, the Lanham Act’s focus is unauthorized “use in commerce.”¹²⁰ Thus, step two’s analysis concerned the jurisdiction in which Abitron used Hetronic’s trademark in commerce.¹²¹ Because the Tenth Circuit’s decision did not adhere to this understanding of extraterritoriality—instead, it relied on Steele and seventy years of trademark jurisprudence—the Court vacated the decision and remanded the case.¹²² While the Court took careful steps to not overturn Steele and instead dismiss it as “narrow and factbound,” it appears to no longer be good law.¹²³

The Court’s decision incorrectly determined the Lanham Act’s focus and effectively ended its extraterritorial application. Rather than “put[ting] aside” precedent,¹²⁴ Justice Sotomayor’s concurrence engages with Steele and better understands the Lanham Act’s focus:

A proper application of that framework, however, leads to a result consistent with Steele: Although there is no clear indication that the Lanham Act provisions at issue rebut the presumption against extraterritoriality at step one, a domestic application of the statute can implicate foreign conduct at step two, so long as the plaintiff proves a likelihood of consumer confusion domestically.¹²⁵

The focus of sections 32(1)(a) and 43(a)(1)(A) is “consumer confusion,” not “use in commerce.”¹²⁶ While the Act prohibits infringing use in commerce, this “is ‘merely the means by which the statute achieves its end’ of protecting consumers from confusion.”¹²⁷ The Lanham Act’s “extraterritorial coverage . . . should be gauged not so much by the locus of the activity sought to be reached . . . as by the nature of its effect on that commerce which Congress may regulate.”¹²⁸ A determination that the Lanham Act’s focus is “use in commerce” represents a lack of understanding of trademark law, as “likelihood of confusion is the keystone of trademark infringement.”¹²⁹ Instead, Justice Sotomayor’s determination is in line with the government’s position, as communicated in its amicus brief;¹³⁰ the approach taken in Steele; and tests generated in Vanity Fair, American Rice, McBee, and Hallatt that all require an “effect” on U.S. commerce, not actual U.S. conduct. In applying the Lanham Act extraterritorially, the Steele Court was not forestalled by the watches’ foreign manufacturing and sale; instead, it focused on the watches’ entrance into the United States and the ensuing domestic consumer confusion. Therefore, the presumption against extraterritoriality should be rebutted if foreign trademark infringement results in domestic consumer confusion.¹³¹

While Abitron seems to contradict U.S. trademark jurisprudence, it conforms to the international prioritization of sovereignty and independent trademark laws. In reaching Abitron’s wholly foreign conduct, the Court would seemingly violate international treaty obligations that do not only bind foreign signatories. These international agreements “only work[] if all participating states respect their obligations, including the limits on their power.”¹³² Thus, in restricting its reach, the United States is preserving its right to customization.

However, the Court’s adherence to treaty obligations ignores the economic and practical implications of a strictly territorial-bound trademark system. Infringing products sold abroad can and do have an impact on American consumers. By focusing on use in commerce, the Court is “absolv[ing] from liability” the exact defendants whose actions result in the consumer confusion the Lanham Act seeks to prevent.¹³³ Further, the impact of this decision will be felt more deeply than it would have in prior generations because of omnipresent brand awareness in a shrinking international community.

In sum, the eroded territoriality principle reveals its incompatibility with an international trademark system, and the returned commitment to the principle demands a balanced international solution to adequately protect domestic trademark owners.

B. Famous Marks Doctrine Circuit Split

The Famous Marks Doctrine diminishes the Lanham Act’s territoriality by recognizing acts outside the United States as eligible to establish domestic trademark rights. In contrast to Steele, which extended U.S. trademark rights to prevent foreign infringement, the Famous Marks Doctrine extends foreign trademark rights to prevent domestic infringement. Cases involving the doctrine fall into the second trademark territoriality problem category—like the Louis Vuitton hypothetical, in which, despite a lack of registration, the brand wants to stop the infringing use in the United States. The doctrine has roots in the Paris Convention for the Protection of Industrial Property’s “Well-Known Marks” Doctrine.¹³⁴

Enacted in 1883, the Paris Convention was the first attempt to harmonize international intellectual property laws. It is the principal international trademark treaty, with over 110 signatories. While the treaty does not provide member states with a cohesive registration or enforcement system, it provides citizens of member states with equal treatment across jurisdictions and an expectation of their level of protection.¹³⁵

The treaty’s National Treatment Principle requires member states to provide the same treatment to foreigners as they provide their citizens.¹³⁶ Rather than creating a set of international trademark principles, the Convention defers to each signatory’s set of trademark laws. Thus, signatories must provide the same protections to foreign nationals and their citizens when applying laws.¹³⁷ Additionally, the Paris Convention establishes that each country of the Union will have its own trademark legal system. Article 6 specifies that the filing and registration of trademarks “shall be determined in each country of the Union by its domestic legislation” and that a registered mark “shall be regarded as independent of marks registered in the other countries of the Union.”¹³⁸ Accordingly, the Paris Convention embeds the territoriality principle throughout its guidelines and encourages each nation’s customization of the law. However, the treaty recognizes exceptions to territoriality, including the Well-Known Marks Doctrine.

The Well-Known Marks Doctrine, under article 6bis, establishes that states shall “refuse or . . . cancel the registration, and to prohibit the use, of a trademark which constitutes a reproduction, an imitation, or a translation, liable to create confusion, of a mark considered . . . to be well known in that country.”¹³⁹ Therefore, even without registration, a well-known mark from one member state will be protected in a fellow member state. For example, if Alphabet Inc. failed to register its mark “GOOGLE” for its Internet search engine in Algeria, a contracting party of the Paris Convention, the mark “GOOGLE” would still be protected in Algeria so long as the mark was sufficiently famous in the jurisdiction. Because the “GOOGLE” mark’s fame is ubiquitous, the Well-Known Marks Doctrine would likely protect it in any Paris Convention member state, including Algeria, even if Alphabet Inc. had not registered the mark there. However, the treaty does not provide a clear process for establishing what qualifies as a well-known trademark. Instead, the treaty notes that it will be determined by a “competent authority” in the member state.¹⁴⁰ Despite this ambiguity, the doctrine serves as an exception to territoriality in the Convention, as a famous mark should be recognized in a jurisdiction absent registration.¹⁴¹

The Paris Convention’s Well-Known Marks Doctrine was designed to protect famous, unregistered marks in one member state from infringement in another; however, the United States’ determination that the treaty is non-self-executing guts the doctrine of any domestic legal effect.¹⁴² A non-self-executing treaty requires the implementation of legislation for it to be judicially enforceable;¹⁴³ however, Congress has not affirmatively included the Well-Known Marks Doctrine in the Lanham Act. Thus, courts are free to decide its domestic applicability.

Despite a lack of federal guidance, the Famous Marks Doctrine—the name attributed to the U.S. doctrine—has served as the basis for trademark infringement claims for nearly a century. The Trademark Trial and Appeal Board (“TTAB”)—a USPTO board that handles trials and appeals of trademark applications and registrations¹⁴⁴—has invoked the doctrine in its decisions.¹⁴⁵ The Board acknowledged that foreign use alone does not establish priority in the United States “unless it can be shown that the foreign party’s mark was, at the time of the adoption and first use of a similar mark by the first user in the United States, a ‘famous’ mark.”¹⁴⁶ While TTAB decisions are not binding, they are “to be accorded great weight.”¹⁴⁷

New York state courts have also relied on the doctrine in common law trademark unfair competition claims.¹⁴⁸ For example, in the 1936 New York Supreme Court case Maison Prunier v. Prunier’s Restaurant & Cafe, a New York restaurant opened with the same name, tagline, and type of food as an internationally acclaimed French restaurant.¹⁴⁹ Despite using the mark in distinct jurisdictions, the New York restaurant was enjoined because of its bad faith actions. The foreign mark’s fame partially determined this bad faith exception to territoriality.¹⁵⁰ Later, in Vaudable v. Montmartre, Inc., a different New York court enjoined a New York restaurant from using a French restaurant’s name, decor, and distinctive script style because the misappropriation was of a continuously used and famous mark.¹⁵¹ Notwithstanding Congress’s failure to adopt the Famous Marks Doctrine, this circumvention of territoriality has been occurring for almost a century. The doctrine has become increasingly necessary as commerce becomes more global.

Despite the long history of domestic use of the doctrine, lack of legislation has led to a circuit split between the Ninth and Second Circuits. The Famous Marks Doctrine was adopted by the Ninth Circuit in Grupo Gigante S.A. de C.V. v. Dallo & Co.¹⁵² but rejected in the Second Circuit in ITC Ltd. v. Punchgini, Inc.¹⁵³ In 2004, the Ninth Circuit established the enforceability of the Famous Marks Doctrine in the U.S.’s largest court circuit.¹⁵⁴ The court recognized the complexity added to the principle of first-in-time, first-in-right when “one user is first in time in one place while another is first in time in a different place.”¹⁵⁵ The territorial confines of U.S. trademark law further complicate this. In Grupo Gigante, a small, Southern Californian grocery store adopted the name of a large, well-established Mexican grocery chain.¹⁵⁶ Due to the store’s proximity to the Mexican border, the geographic market consisted of many individuals familiar with the foreign chain’s mark. Despite the store’s argument for the case’s disposal under the territoriality principle, the Ninth Circuit affirmed that the territoriality principle is not absolute and contains an exception for well-known marks, for which the Mexican mark qualified.¹⁵⁷

The Ninth Circuit’s opinion recognizes the danger of strict territoriality because “consumer confusion and fraud” would be promoted without an exception to the principle.¹⁵⁸ The court justified its reliance on the doctrine by returning to the foundational goals of trademark law, which now require heightened scrutiny in a global marketplace in which both commerce and people cross borders. Thus, the Ninth Circuit ultimately grounded its decision in public policy rather than the Well-Known Marks Doctrine or the Lanham Act.

However, in 2008, the Second Circuit declined to adopt the Famous Marks Doctrine. In ITC Ltd. v. Punchgini, Inc., a U.S. restaurant opened with an identical name, “logos, decor, staff uniforms, wood-slab menus, and red-checkered customer bibs” to that of an internationally renowned foreign restaurant.¹⁵⁹ The Second Circuit permitted the restaurant’s behavior because the foreign mark’s priority did not extend into the United States, notwithstanding its accrued fame. Unlike the Ninth Circuit, which relied on a policy rationale, the Second Circuit held that the doctrine’s sound policy “is not a sufficient ground for its judicial recognition, particularly in an area regulated by statute.”¹⁶⁰ Instead, the court noted that the Paris Convention creates no substantive rights and Congress’s deliberate choice to exclude a Famous Marks Doctrine in the Lanham Act must be honored.¹⁶¹ Thus, in the Second Circuit, a foreign mark holder is unable to protect itself through federal legislation against infringement absent U.S. registration. This decision was made despite a lower court noting that the “doctrine is particularly desirable in a world where international travel is commonplace and where the Internet and other media facilitate the rapid creation of business goodwill that transcends borders.”¹⁶²

The circuit split highlights the tension between harmonizing and customizing trademark laws. The Ninth Circuit’s—as well as the TTAB and district courts’—recognition of foreign marks’ status reveals the territoriality principle’s incompatibility with the global economy. The Famous Marks Doctrine represents a practical understanding of trademarks’ modern existence. Even in 1936, a restaurant’s famous mark could transcend borders and establish goodwill in a city thousands of miles away.¹⁶³ Present-day reality enhances the ability to establish recognition and goodwill in faraway jurisdictions.¹⁶⁴ This interconnectedness exemplifies the Ninth Circuit’s practical approach to the Paris Convention’s standards and the need for greater harmonization.

However, even the Grupo Gigante court recognizes that the Famous Marks Doctrine abrogates the territoriality principle, and its extension must be limited.¹⁶⁵ In line with the Second Circuit, the Ninth Circuit acknowledges that territoriality is “basic to trademark law,” and that the United States is “arguably required by the Paris Convention . . . to preserve the territoriality principle in some form.”¹⁶⁶ Thus, the courts are not split on the value of sovereign-drafted trademark law.

Therefore, a solution to the fragmented approach to recognizing foreign marks lies not in eliminating the territoriality principle but instead in creating a dual system that recognizes international registration and enforcement of marks alongside current domestic systems.

C. Stealth Filing Tactics

Attempts to harmonize international trademark law within a strictly territorial system have diminished the strength of the territoriality principle and led to negative externalities. Particularly, reciprocal priority, a form of international cooperation granted under the Paris Convention, has been utilized by large corporations to circumvent traditional trademark protocols. Typically, a trademark owner’s exclusive right to use a mark begins on the day of filing or first use in commerce in a sovereign jurisdiction; however, actions taken in a foreign jurisdiction qualify under a reciprocal priority system.

The Paris Convention sought to incentivize international cooperation through its transferable priority filing date. Applicants who file an ITU application in one treaty country can use the priority filing date received from that application to claim a priority date in other treaty countries, so long as the application is within six months of the original ITU application.¹⁶⁷ Unlike the Well-Known Marks Doctrine, Congress codified the Paris Convention’s transferable priority date in the Lanham Act. A claim of priority based on a foreign filing falls under section 44(d) of the Lanham Act and has become increasingly popular.¹⁶⁸ Reciprocal priority benefits applicants who apply for registration in several jurisdictions and safeguards them from third parties or bad actors who apply for identical marks following news of an initial registration.

However, Congress’s attempt to harmonize foreign and domestic trademark protection contradicts the stated commitment to the Lanham Act’s territoriality. Under Abitron’s logic, foreign acts do not warrant recognition by the Lanham Act. Yet, by granting reciprocal priority, the United States recognizes and extends domestic rights to marks in which the applicant acted in a foreign jurisdiction. Not only is this in conflict with territoriality, but it also opens the door for stealth filing tactics antithetical to trademark law’s goal of limiting consumer confusion.

Stealth filing, also referred to as submarine filing,¹⁶⁹ occurs when an applicant files an ITU application in a treaty country that lacks an accessible online application database. Thus, the applicant secures a priority filing date that will be honored in other treaty countries without the public learning about the trademark. Individuals or corporations who want to secure a mark in advance of its use in commerce but do not want to reveal this planned use may employ stealth filing tactics as a workaround to avoid disclosure. Most trademark applications, such as those filed with the USPTO, are made available to the public and include the applied-for mark, a description of the mark’s intended goods or services, and the mark’s owner.¹⁷⁰ This public database system allows third parties to object to registration as well as informs future applicants of preexisting marks that are unavailable for their use.¹⁷¹ However, it also publicly reveals an individual or company’s future business plans. For example, an ITU application for the mark “APPLE WATCH” would directly reveal the company’s next product launch to Apple’s competitors, given its descriptive name and goods and services category.¹⁷² While this might not be a problem for the average trademark applicant, high-profile individuals or businesses may want to shield the public from their confidential business plans.¹⁷³ And it has become clear that businesses do want to shield the public from their plans.¹⁷⁴

Stealth filing has become increasingly popular since 2006, with filings increasing four-fold between 2006 and 2016.¹⁷⁵ In 2006, only a couple of companies were engaging in stealth filing. By 2016, that number jumped to over forty companies, as indicated in Figure 2. Despite the increased use, stealth filings remain rare compared to overall trademark filings, with stealth filings from 2006 to 2016 representing 0.03% of total applications filed.¹⁷⁶ A 2018 World Intellectual Property Organization (“WIPO”) Working Paper identified eight jurisdictions that account for most stealth filings.¹⁷⁷ While other jurisdictions provide the infrastructure needed for stealth filings, they account for a small share of overall stealth filings. The eight jurisdictions, mostly island countries with developing economies, are Honduras, Jamaica, Liechtenstein, Mauritius, Saint Lucia, Swaziland, Tonga, and Trinidad and Tobago.¹⁷⁸ The Working Paper’s Figure A-1 (Figure 1, infra) illustrates the rise of stealth filings in these jurisdictions, with the eight countries providing a venue for 1,136 stealth trademark filings over the documented ten-year period.

Figure 1. Submarine Filings by Submarine Jurisdiction

Source: Fink et al., supra note 168, app. at i fig. A-1.

Figure 2. Number of Companies Filing Submarine Trademarks

Source: Fink et al., supra note 168, app. at i fig. A-2.

Despite benefits to well-known brands, stealth filings can harm good faith trademark applicants. Applicants who file a legitimate mark and invest time and capital into their business and intellectual property can be deprived of their trademark rights. For example, company Alpha may file for a mark in Tonga on January 1, 2023. Alpha then has until July 1, 2023, to file in the United States while retaining the January 1 priority date. Thus, if company Beta files for the same mark in the United States on February 1, 2023, and Alpha files its section 44(d) application in the United States on June 1, 2023, Beta will lose its exclusionary rights to the mark. Despite Alpha’s later application date, the USPTO will honor the priority filing date of Alpha’s Tonga application. Even if Beta, in good faith, completed a thorough search of domestic and foreign registrations and pending applications, it would still be blind to the existence of Alpha’s mark.¹⁷⁹

Section 44(d) carves out an exception to the territoriality of the Lanham Act. Not only may priority, an essential aspect of securing and protecting trademark rights, be established through actions taken in a separate jurisdiction, but a section 44(d) applicant need not ever use the mark in a foreign jurisdiction. An ITU applicant can be rejected in a foreign jurisdiction and the priority date of that rejected application can still provide the basis for priority in the United States. This not only calls into question the territoriality principle’s function, but also whether section 44(d) is rooted in the reality of any jurisdiction.

Section 44(d) serves as a temporary solution to the problems generated by a global marketplace operating within the confines of territorialism; however, this attempt to broaden the jurisdiction-based structure in the name of harmonization generates negative externalities. Thus, to lessen the tension between territoriality and the global marketplace, international solutions should work alongside the territorial system, rather than trying to fit within them. International cooperation through adoption and enforcement of a legally binding international registration and enforcement system would better effectuate the Paris Convention’s goals.

III. CURRENT INTERNATIONAL TRADEMARK OPERATION

While the territoriality principle limits the effectiveness and efficiency of globally operating brands, trademark owners have not been left alone to navigate international trademark protection. In attempts to harmonize intellectual property law, the international community has adopted treaties and systems such as the Paris Convention and the Madrid Protocol.¹⁸⁰ These treaties attempt to make foreign trademark protection more predictable and accessible. However, these agreements’ focus on procedural trademark law leaves trademark owners without cohesive substantive law to effectuate their rights.

The Madrid Protocol¹⁸¹ is an international trademark registration treaty that allows applicants to register a mark in up to 130 countries via a single application.¹⁸² The registration system is administered by WIPO, an independent United Nations agency,¹⁸³ and is a cost-effective and efficient alternative to independent registration in each country.¹⁸⁴ Further, a Protocol registration is equivalent to a bundle of national registrations, which eases the burden of management. Any renewals or changes to the registration can be done through a single step rather than independently renewing or changing each registration. As a trademark owner’s global presence increases, so too can its Madrid Protocol coverage.¹⁸⁵

The Protocol’s popularity has consistently increased since its creation, with registration tripling from 20,000 in 1998 to over 60,000 in 2018.¹⁸⁶ This increase coincides with the rise of international trade and the Internet. Additionally, the need for international protection of intellectual property is no longer limited to sophisticated, prosperous trademark owners; instead, small and medium enterprises can establish an international presence, as barriers to transnational trade and communication have been lowered. The Madrid Protocol services these less sophisticated applicants, who may lack trademark counsel, by providing a user-friendly system that allows for simple, widespread application in a single language and currency.¹⁸⁷

However, the Madrid Protocol’s benefits are limited by its operation within the confines of each signatory’s territorial trademark system. An international registration granted by WIPO is still subject to each country’s examination and national laws. Thus, territoriality remains a central aspect of the Protocol because each country independently determines whether it will provide registration and legal protection.¹⁸⁸ The Protocol provides a streamlined procedure but lacks substantive solutions to discordant trademark laws. Therefore, the Protocol’s registration process delegates decision-making to sovereigns and thus allows for retained trademark law customization but side-steps proper harmonization.

IV. ALTERNATIVES & POLICY IMPLICATIONS

The inability to constrain trademarks within sovereign borders calls for a set of harmonized trademark laws with legal force; however, a sovereign state’s ability to customize its trademark law to its citizens’ needs and the ever-changing demands of commerce weigh in favor of maintaining a territorial system. Thus, the ideal outcome is a trademark scheme that allows for harmonizing and customizing of trademark law. Introducing a legally enforceable, self-executing international system that coexists alongside sovereign nations’ statutory trademark systems, rather than attempting to squeeze harmonization into a misfitting territorial-bound system, would help achieve this balance. Viable solutions include the International Community Trademark, modeled after the European Union Trademark, or a system that mirrors that of the Uniform Domain Name Dispute Resolution Policy (“UDRP”).

A. International Community Trademark

In 1993, the European Union Intellectual Property Office (“EUIPO”) established the European Union Trademark (“EUT”),¹⁸⁹ a mark that, once filed, is enforceable throughout all twenty-eight EU member states.¹⁹⁰ Like the Madrid Protocol, a single registration establishes its legal presence in all other states; however, the EUT system is unique, as registration provides automatic legal effect and is not subject to each nation’s independent determination. The mark becomes enforceable within each member state’s EU trademark court, provided it withstands any challenge. EU member states have designated courts to enforce EUTs under EU Trademark regulations. Thus, both registration and enforcement are uniform across member states. This single registration process reduces applicants’ filing costs and gives trademark owners a sense of security not provided by the Madrid Protocol. This trademark system has proven to be widely popular. In its first year of operation, more than 40,000 applications were submitted, greatly exceeding the 15,000 to 20,000 applications the Office anticipated receiving.¹⁹¹ In 2021, the number of applications reached nearly 200,000.¹⁹² While there was concern that it would be “almost impossible” to register a new EUT due to the large number of preexisting marks, only around 16% of applied for EUTs have been opposed by prior mark holders.¹⁹³ Thus, even in a cross-border trademark system, there are plenty of marks to go around.

An EUT does not replace a nation’s trademarks but coexists with them.¹⁹⁴ Each mark has equal rank. Therefore, in the case of a conflict between an EUT and national trademark, priority controls. This approach extends to the extension of rights in new EU Member States. For example, in 2004, when ten Member States joined the EU, the rights of all previous EUTs were extended into these jurisdictions, with the limiting principle that preexisting national marks in these Member States prevailed over European Union Trademarks.¹⁹⁵

The complementary system allows applicants to register the same mark at the national level, EU level, or both.¹⁹⁶ This system caters to the differing needs of applicants, as applicants’ filing choices may depend on their size, market, or geographical presence. This system is not completely unlike the way state and federal trademarks coexist in the United States.

An international system modeled after the EUT would allow for cooperation, consistency, and confidence in international trademark operation and protection. This Note refers to this system as an International Community Trademark (“ICT”). Unlike the Madrid Protocol—the only current model that allows for widespread application—an ICT’s registration would grant automatic legal effect and would not be subject to further examination by each jurisdiction’s legal system. Instead, a neutral, international administrative body, such as WIPO, would administer the application approval process.¹⁹⁷ This would mirror the way EUTs are automatically enforceable and administered by EUIPO.

In addition to community registration, the ICT system would involve enforcement via infringement prosecution. An enforcement system would provide necessary consistency, as marks would be subject to the same regulations internationally, rather than the current ad hoc approach to trademark enforcement across different jurisdictions. Further, unlike EUTs, this system would not impose the burden of enforcement on nations’ preexisting court systems. Instead, ICTs would be enforced by a nongovernmental neutral body, administering decisions in a manner similar to the TTAB’s operation in the United States or the Internet Corporation for Assigned Names and Numbers (“ICANN”) in domain name disputes, as discussed below.

Most importantly, ICTs would not replace each nation’s trademark system but would coexist with it. The dual system circumvents sovereignty issues by allowing for a continuation of territorial-bound marks, while introducing borderless marks. Thus, the ICT would serve as a balanced response to the growing international demands of trademarks by allowing for actual harmonization and continued customization.

An example helps demonstrate the practical manner in which these trademark systems would coexist. Suppose a Canadian company has trademarked “ROOTS” for outerwear clothing at the national level. Upon establishment of an ICT system, the Canadian company would have an opportunity to register an ICT for “ROOTS”; however, if the company did not register the ICT and an American company wanted to register “ROOTS” for clothing as an ICT, the Canadian mark would serve as an obstacle for protection of the new mark. In this case, the Canadian brand could prevent use of the American “ROOTS” ICT in its territory. This structure resembles the treatment of state and federal trademarks in the United States. Federal registration, like an ICT registration, does not override registration at the state level. Instead, a state mark can continue to be used within the geographical confines of that jurisdiction even after the registration of an identical third-party mark at the federal level.

However, the ICT has disadvantages inapplicable to the Madrid Protocol. The Community Mark system creates a high-risk, high-reward dynamic. An ICT modeled after the EUT would grant a “single registration covering several countries, [whereas] a Madrid registration represents a mechanism for obtaining a bundle of national trademark rights.”¹⁹⁸ Under the Madrid Protocol, a rejected application does not prevent an applicant from pursuing registration via the same application in other jurisdictions. However, rejecting an ICT would result in the refusal of registration in all member states. Applicants could receive protection at the national level under the complementary system; however, the goal of creating a consistent, efficient registration system would be frustrated.

Additionally, converging procedural and substantive rights through an ICT implicates international comity. While a neutral body would create and execute the system’s substantive law, harmonizing disparate trademark law presents a significant challenge. This challenge is not insurmountable, as evidenced by the existence of the EUT; however, bridging varying international trademark laws presents challenges beyond those involved in regional harmonization. The manner used to establish trademark rights represents a basic rift in sovereigns’ substantive laws. Would ICT rights be established on a first-to-file basis, on which the United States operates a modified version, or on a first-to-use basis, the way most sovereign jurisdictions grant priority? In considering equitable answers to these questions, it is critical to recognize that “United States law governs domestically but does not rule the world,” as is true for foreign superpowers.¹⁹⁹

Thus, an ICT has the potential to provide more efficient, comprehensive protection to trademark owners but would require heightened applicant attention and care.

B. UDRP Cybersquatting Framework

In 2000, ICANN adopted the UDRP to address the international issue of cybersquatting.²⁰⁰ Cybersquatting involves the bad faith use of a domain name. The UDRP provides four examples of bad faith use of a domain name: (1) holding the domain name for ransom from the trademark owner; (2) registering the domain name to block the trademark owner; (3) registering the domain name to disrupt the business of a competitor; and (4) registering the domain name to confuse users into coming to the website.²⁰¹ ICANN requires global top-level registrars—companies registering domain names and providing IP addresses—to include the UDRP in all domain name contracts. The policy creates a mandatory dispute resolution process for “abusive registrations,” such as cybersquatting.²⁰² Panelists, who consist of a geographically diverse set of experienced attorneys, oversee the process. These panelists serve ICANN-approved dispute resolution providers. Currently, ICANN has six approved providers, including the Asian Domain Name Dispute Resolution Centre and the Arab Center for Dispute Resolution.²⁰³ The providers have geographically diverse bases but operate worldwide with distinct specialties.

The UDRP, which “represents the first example of a truly global body of intellectual property enforcement,”²⁰⁴ has served as a successful dispute resolution system over the past twenty-three years. This system is the byproduct of “global consensus and contract, not . . . governmental enactment and coercion.”²⁰⁵ The UDRP is an effective alternative to traditional jurisdictional legal disputes, and its role in the international community continues to grow. From January 2013 to December 2020, UDRP complaints grew by 6% on average, totaling 38,349 for the entire period.²⁰⁶ Further, these disputes, from filing to decision, took, on average, forty-six days.²⁰⁷ The true expediency of UDRP disputes is revealed when considering “civil cases in the U.S. district courts have a median length of 27 months from filing to trial, and close to 10% of cases have been pending for over three years.”²⁰⁸

The UDRP’s informal approach to dispute resolution would allow for a more expedient and convenient process for international parties. With 18.1 million trademarks filed in a single year, the sheer magnitude of potential disputes requires an international system that can handle the demand.²⁰⁹ By relying on panels—free from the hierarchical and formalistic standards of courts—to make decisions, the UDRP model increases efficiency in dispute resolution. Parties to international disputes also hail from different parts of the globe. Therefore, by eliminating in-person hearings, parties would not be burdened by international travel and panelists could make quicker decisions.²¹⁰ However, panelists would still operate in a way consistent with typical legal proceedings. While the system benefits from efficiency and informal proceedings, there are high standards for the quality of decision-makers and the decision-making process itself. Per the UDRP model, panelists would be “selected on the basis of their well-established reputation for their impartiality, sound judgment and experience as decision-makers, as well as their substantive experience.”²¹¹ Additionally, these proceedings aim to achieve “a high degree of predictability and consistency . . . through consensus or precedent.”²¹² Thus, this system would more likely achieve the Paris Convention’s goal of predictability—currently accomplished via the National Treatment principle—than the current model. Rather than requiring parties to understand the changing ways sovereigns interpret and enforce trademark law, parties could look to the decision-making of a single enforcement body.

A UDRP-like enforcement system would need to work in tandem with a legally enforceable, self-executing international system. An international enforcement system is only effective if it has a uniform set of laws to enforce. Therefore, just as global consensus would be critical in the creation of an ICT, the same would be required for establishing an international dispute resolution system. The UDRP’s structure establishes a replicable framework for adjudicating a more diverse set of trademark disputes.

However, trademark infringement disputes are typically more complex than those involving cybersquatting and thus require a more nuanced decision-making process. The rapid turn-around time for UDRP disputes is a byproduct of their limited scope and lack of in-person hearings. UDRP Panels make decisions upon review of filed Complaints and Responses from the relevant parties.²¹³ This is adequate for cybersquatting cases because the UDRP has outlined a strict set of criteria that constitute an abusive registration; however, multi-jurisdictional trademark infringement cases set forth issues that are not present in cybersquatting disputes. For example, “Nike” may exist in different countries to identify shoes and athletic apparel but there can only be one nike.com. Thus, while there can only be one domain name, trademarks may coexist in different sovereign jurisdictions, presenting nuanced issues that may not be able to be settled within a forty-six-day window.

A comprehensive international trademark dispute resolution system would undoubtably involve unprecedented challenges, yet the UDRP serves as a successful, small-scale test case for what this system could look like in practice.

CONCLUSION

Territoriality has been deemed a basic tenant of domestic and international trademark law; however, it is incompatible with a globalized, modern world. Practically, the principle no longer exists in its originally intended form due to U.S. courts’ circumvention and international treaties’ attempts at harmonization. The system has needed an update for some time, yet the need is more pressing than ever before due to the Supreme Court’s recent decision to effectively eradicate the Lanham Act’s extraterritorial application. While domestic trademark owners may still effectuate their rights at the national level, through foreign registration, or through the Madrid Protocol, this siloed approach to trademark rights is inadequate. It has harmed both well-known brands, whose goodwill is traded on in bad faith, and emerging brands, whose good-faith, responsible brand establishment can be dismantled due to stealth filing. However, this Note does not advocate for a return to the universality principle. Instead, it suggests a dual system.

It is crucial that this updated system does not attempt to fit a square peg into a round hole in the way previous agreements have attempted to fit harmonization into a jurisdictional-bound system. A dual system would preserve the benefits of a territorial-bound trademark system—customization of trademark laws and international comity—and cater to the demands of a globalized economy in which brands transcend borders. A legally enforceable, self-executing international system would provide trademark owners with a cost-effective, efficient, and reliable approach to trademark protection. This especially benefits small to medium-sized enterprises that are entering multinational markets more easily and may not be equipped with the resources to navigate foreign intellectual property protection. Additionally, international enforcement reduces the unpredictability of sovereign decision-making and ensures that agreed-upon principles become a reality and are not shrugged-off as non-self-executing. The ICT and UDRP are not exhaustive solutions to the problem; rather, they provide a useful starting point to guide further discussion of the future of international trademark operation. While scaling either system presents unique challenges, both systems’ current success provides a glimmer of hope.

Finally, globalization is not going away, and the world is more interconnected than ever before. The growth of information technology and communication platforms as well as the decrease in business scaling and trade barriers have facilitated the ubiquity of trademarks in daily life.²¹⁴ While the explosive growth of global trade may slow in the coming years, the need for international trademark protection will not wane.²¹⁵ Therefore, regardless of the form of international solutions to the trademark problems, the Lanham Act must find a way to better reconcile harmonization and customization.

98 S. Cal. L. Rev. 165

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Gabriella F. Franco*

* Articles Editor, Southern California Law Review, Volume 98; J.D. Candidate, University of Southern California Gould School of Law, 2025; B.A. Philosophy, Politics, and Economics, University of Michigan, 2021. A special thank you to Professor Scott Altman and Professor Jonathan Barnett for their invaluable guidance, my friends and family for their unwavering support, and the editors of the Southern California Law Review for their hard work and thoughtful suggestions.

Poking a Sleeping Bear: Cultural Landscapes in the 1906 Antiquities Act

August 2024August 2024Robin Willscheidt*

The American Antiquities Act of 1906 permits a president to designate “objects of historic and scientific interest”—and the federal lands associated with them—as national monuments. The Act is foundational cultural heritage preservation legislation and has been used by presidents for over a century to protect everything from burial grounds to marine landscapes. Through an overview of the statute and its history, this Note argues that a proper reading of the Antiquities Act includes cultural landscapes, or networks of natural and constructed places that people interact with and add meaning to. Indigenous communities, archaeologists, and heritage professionals have long recognized cultural landscapes. I survey recent monument declarations that explicitly protect Indigenous cultural landscapes and provide for Indigenous co-management and argue that the Antiquities Act is a helpful tool for Tribes to protect culturally significant areas. One such cultural landscape is Bears Ears National Monument, located in Southeastern Utah. Bears Ears—and the Antiquities Act—is currently under fire from opponents that wish to limit the scope of the President’s declaration authority. Given over a century of use of and challenge to the Act, I argue that Bears Ears is well within the purview of the Act and authority it grants.

INTRODUCTION

In southeastern Utah, a bear’s stone ears rise from the horizon. The twin mesas crown a pristine piece of land that suggests an “earlier eon.”¹ Red sandstone spires soar to cloudless blue skies. The landscape is absent any man-made sound; at night, our galaxy illuminates near-absolute darkness. Canyons cut by the San Juan River trace the terrain. The area features distinct high desert and lowland microclimates, innumerable endemic species of flora and fauna, and some of the most robust geological and paleontological resources in North America, including one of the best “continuous rock records of the Triassic-Jurassic transition” in the world.² This is Bears Ears National Monument: an extraordinary natural landscape in every way imaginable.

Bears Ears occupies an important place in the collective consciousness of the region’s Indigenous communities. It is a landscape covered with pottery shards, rock art, burial sites, and stone dwellings built into the cliffsides, left by ancestral Puebloans, Fremont, and other “precursor societies” to—and ancestors of—the region’s Indigenous peoples and modern Tribal communities.³

However, Bears Ears holds cultural value beyond these natural features or material objects: the landscape itself is directly connected to Native history and heritage. “It is not easy to explain the meaning of Bears Ears to non-Native people,” explains Woody Lee, Executive Director of Utah Diné Bikéyah, an all-Native American nonprofit that developed a proposal to designate Bears Ears a national monument.⁴ To Indigenous communities, “Bears Ears is a ‘who,’ not a ‘what.’ ”⁵ In the languages of all people who have ancestral connections to the land, she is known as “Bears Ears”: Hoon’Naqvut, Shash Jáa, Kwiyagatu Nukavachi, and Ansh An Lashokdiwe.⁶ Bears Ears is a place where “culture, language, and religion were born.”⁷ The area includes the place the Diné (Navajo) emerged from the earth, and where “epic battles and the fate of humankind [were] determined”⁸—lofty spires that touch the sky are Diné warriors turned to stone.⁹ Cliffs scored by the San Juan River tell stories of creation and healing.¹⁰ Cultural and spiritual traditions of many distinct communities continue at Bears Ears, as they have for millennia: Native peoples continue “hunting, fishing, gathering, and wood cutting;” collect “medicinal and ceremonial plants, edible herbs, and materials for crafting items like baskets and footwear;”¹¹ and conduct ceremony.¹² Bears Ears is a landscape of living cultural heritage that continues to shape Native history, identity, and expression, and tells the stories of ancestors. She is, therefore, not only a natural landscape, but also a cultural landscape.

In the early 2000s, mining and drilling activities were on the horizon in Southeastern Utah.¹³ After the approval of a state public lands bill, Washington County disposed of previously protected lands for real estate development.¹⁴ Then, in 2009, a bombshell hit San Juan County. Sixteen residents of the small town of Blanding were arrested for looting Native objects from nearby public lands, including Bears Ears, and selling them. A raid of their homes that followed—the result of a two-year sting operation—uncovered more than 40,000 archaeological objects.¹⁵ In response, a coalition of sovereign Tribal nations, including the Navajo Nation, Hopi Tribe, Uintah and Ouray Ute Tribe, Ute Mountain Ute Tribe, and Pueblo of Zuni—the Bears Ears Inter-Tribal Coalition—joined together, petitioning President Obama and Congress to designate the landscape a national monument.¹⁶ The Inter-Tribal Coalition’s petition marked the first time that any Tribe, let alone five Tribes in a political alliance, had asked the federal government to designate a national monument.¹⁷

The concerns of environmentalists, to this day, regularly take the main stage when advocating for public lands protections, designations, and management strategies.¹⁸ Environmentalism, however, is movement historically fostered by white men who championed “untouched,” exclusionary wilderness and frequently removed Native communities from their ancestral lands.¹⁹ By contrast, Tribal concerns and the interests of Native peoples led the way for the protection of Bears Ears.

The efforts of the Bears Ears Inter-Tribal Coalition were successful. In December 2016, President Obama designated Bears Ears National Monument, exercising executive authority granted under the American Antiquities Act of 1906.²⁰ The Antiquities Act is foundational cultural heritage legislation in the United States, used 291 times by Presidents to establish, expand, and redesignate over 100 active national monuments that contain exemplary “objects of historic or scientific interest.”²¹ Unlike other legislation in the United States’ cultural heritage preservation regime, the Antiquities Act protects not only antiquities themselves, but also reserves the lands around them, including historic sites, landmarks, and landscapes. The Bears Ears National Monument designation restricted opportunities for commercial activity on and under the parcel, including future mining and drilling, and established protections for its heritage sites and objects.²² Among others, these protections provide for Tribal consultation and co-management; limit access to areas otherwise open to off-road vehicles; direct and designate foot traffic; and include funding for conservation efforts, enforcement, and visitor education.²³

Protection of Bears Ears, however, did not last. One year later, she returned to the national rostrum. Protests erupted at the Utah State Capitol against then-President Trump’s proposal to rescind the prior administration’s reservation of both Bears Ears National Monument and her sister monument, Grand Staircase-Escalante National Monument,²⁴ designated by President Clinton in 1996.²⁵ In December 2017, President Trump slashed the acreage of Bears Ears by eighty-five percent and Grand Staircase-Escalante by fifty percent.²⁶ President Trump’s cuts to the monument eliminated key cultural areas within the Bears Ears and broader Cedar Mesa region, reducing the area protected to separate, distinct, and “non-contiguous parcels.”²⁷

The Bears Ears National Monument size reduction triggered a chain of three lawsuits against the Trump Administration—led by the five Coalition Tribes, joined by environmental groups including the Natural Resources Defense Council, and supported as amici by professional archaeological organizations.²⁸ These federal lawsuits, later consolidated, challenged President Trump’s use of the Antiquities Act to reduce national monument parcel reservations and revoke national monument status.²⁹

On October 8, 2021, President Biden reestablished the Obama-era boundaries of Bears Ears and Grand Staircase-Escalante National Monuments by presidential proclamation, effectively ending the pending litigation.³⁰ This, however, was not the ultimate salvation of Bears Ears. In August 2022, the state of Utah, joined by Garfield and Kane counties, filed a lawsuit in Utah District Court, once again attempting to diminish protection of Bears Ears.³¹ Dismissed by the Utah District Court, the case is now on appeal before the Tenth Circuit and set for oral argument in September 2024.³² Unlike prior litigation, in which the primary issue was executive authority to reduce a designated monument, the state of Utah presents a more fundamental challenge in the case at bar: the scope of the 1906 Antiquities Act itself, a President’s authority to designate national monuments thereunder, and what “objects of historic and scientific interest” may be protected.³³ The state of Utah intends to undermine the Antiquities Act in its entirety, accepting Chief Justice Roberts’s recent invitation to challenge the Antiquities Act on its merits in the Supreme Court.³⁴

Much has been written about Bears Ears. The emphasis typically rests on conservation and environmental principles, separation of powers issues, and inherent executive authority.³⁵ What has been lost along the way is the purpose of the Antiquities Act—heritage preservation law. This Note proposes a more faithful interpretation of the language of the Antiquities Act: that the Act was intended to and has served to protect cultural landscapes such as Bears Ears. The Act should be characterized, as legislation intended, to encompass not only discrete objects and sites, but also the archaeological, natural, and cultural heritage landscapes that inform them. A reading of the statute in its entirety—historical context, ordinary meaning, drafting history, past practice, management obligations, and existing case law—support this interpretation and a conclusion that the scope and size of Bears Ears National Monument is proper and within the boundaries of executive authority granted by the Act. A cultural landscape-based interpretation of the Antiquities Act should be applied in the state of Utah’s lawsuit and presents a unique opportunity for Tribes to utilize existing legislation to protect and manage culturally significant lands.

Part I describes the purpose, fit, and distinct characteristics of the Antiquities Act, defining the term “cultural landscape” and discussing historical context, drafting considerations, and other heritage protection mechanisms in the United States.

Part II discusses past use of the Act and foundational, unsuccessful challenges in the more than 100 years since its enactment.

Part III applies a cultural landscape-based understanding of the Act and principles derived from the relevant case law to the state of Utah’s pending lawsuit, demonstrating that Bears Ears National Monument—a fundamental example of a cultural landscape—is well within the confines of presidential proclamation authority.

Finally, Part IV explains how a cultural landscape perspective presents the Act as an attractive, feasible heritage protection mechanism for Tribes, and recent instances in which Tribes have, fittingly, made use of it.

I. HISTORY AND PURPOSE OF THE ANTIQUITIES ACT: THE DAWN OF MODERN ARCHAEOLOGY

A. Historical Context and Drafting Considerations

The American Antiquities Act of 1906 was signed into law by President Theodore Roosevelt on June 8, 1906. In relevant part, it reads:

[T]he President of the United States is hereby authorized, in his discretion, to declare by public proclamation historic landmarks, historic and prehistoric structures, and other objects of historic or scientific interest that are situated upon the lands owned or controlled by the Government of the United States to be national monuments, and may reserve as a part thereof parcels of land, the limits of which in all cases shall be confined to the smallest area compatible with the proper care and management of the objects to be protected.³⁶

The Antiquities Act was conceived as cultural heritage legislation. It is widely known as the first United States law to provide legal protection for cultural resources on federal lands and has been described as “the nation’s first archaeological preservation law.”³⁷ The central motive for its enaction was the preservation of archaeological sites. In the late nineteenth and early twentieth centuries, movement to the Western United States and general interest in the history and archeology of the Southwest—including a growing public mythos surrounding Indigenous communities—led to substantial demand for artifacts.³⁸ A resulting increase in vandalism of archeological sites and historic structures, in addition to looting of potsherds, arrowheads, and other archeological and cultural resources, began to concern the Archaeological Institute of America (“AIA”),³⁹ along with other archaeological societies that had begun exploring and recording the American Southwest in the 1880s.⁴⁰ The AIA is the oldest professional archeological organization in North America, founded in 1879 for the purpose of “furthering and directing archeological and artistic investigation and research.”⁴¹

Archaeological practice itself underwent radical change in the late nineteenth century. “Gentlemen” tomb raiders had made way for a growing canon of archaeological practice that emphasized recording obligations, systematic scientific analysis and conclusions, and greater cultural context, including recognition of the ethics surrounding archaeological practice and its relationship with existing peoples.⁴²

In 1899, the AIA and the American Association for the Advancement of Science formed a committee, intending to draft a bill to protect archaeological and historical objects.⁴³ The impetus for this action was not simply the preservation of “isolated structures or objects,” but rather the “impacts that ‘indiscriminate digging’ and vandalism were having on the integrity of archaeological sites in the Southwest” as a whole.⁴⁴ Amateur excavators and thieves were damaging site context and disposing of items as they saw fit, which caused substantial, “irretrievable loss of scientific knowledge” about the peoples and history of the region.⁴⁵ Archaeologist T. Mitchell Prudden, in an article published shortly before the Act’s passage, said,

[I]t is now evident that to gather or exhume specimens—even though these be destined to grace a World’s Fair or a noted museum—without at the same time carefully, systematically, and completely studying the ruins from which they are derived, with full records, measurements, and photographs, is to risk the permanent loss of much valuable data and to sacrifice science for the sake of plunder.⁴⁶

Drafters of and advocates for the Act shared a desire to protect Indigenous American artefacts, sites, and the scientific information their context provides.⁴⁷ The AIA drafted several early competing iterations of the Antiquities Act, three of which were heavily debated in Congress.⁴⁸ Then-Secretary of the Interior Ethan Hitchcock was “dissatisfied with the bills as he believed them to be too narrow . . . [t]hey were either too limited in the permissible reservation area, or merely criminalized harming an aboriginal antiquity.”⁴⁹ Hitchcock and allied proponents of the Act wished for broader landscapes to be included within its purview.⁵⁰ The resulting statute was brief, but serves two key purposes that reflect the desires of the Act’s drafters. First, it gives the President authority to declare national monuments to protect “objects of historic or scientific interest.”⁵¹ Second, it allows the President to reserve “parcels of land as part of the national monuments”⁵²—the surrounding area that informs and contextualizes these objects. In other words, “under the plain text of the Act, the objects and the surrounding reserved land together comprise a monument.”⁵³

B. Context Is Crucial: Archaeological and Cultural Landscapes Defined

Both professional and avocational archaeologists recognize that preservation of both objects and the context associated with them is crucial to systematic, holistic, and scientific study of the archaeological record.⁵⁴ The archaeological significance of an object depends on careful recordkeeping and connections, including the “stratigraphic,” or soil layers, where the object rests, the broader geological context, and a network of sites, other objects, historical information, and cultural associations.⁵⁵ The phrase that describes these relationships is the “archaeological landscape,” or the bounded area of land in which human behavior and its relationship with the natural environment over space and time can be viewed and understood through the study of the interconnected networks of sites, artifacts, and natural features that exist within it.⁵⁶ “Landscape-level analysis” means that findings at discrete sites are deprived of meaning if not viewed in the context of the broader archaeological and environmental landscape. In other words,

Artistic and utilitarian objects, faunal and floral remains, architectural features, human remains, and their original contextual relationship to each other are all equally essential in achieving an optimal understanding of the past. This full body of contextualized information is a destructible, nonrenewable cultural resource. Once it is destroyed, it cannot be regained.⁵⁷

Moreover, since the professionalization of archaeology in the nineteenth century, even prior to the conception of the Antiquities Act, archaeologists working with Indigenous communities have recognized the value of “cultural landscapes,” defined as “networks of natural and constructed places perceived and made meaningful by particular human communities,” in shaping modern community identities and informing archaeological preservation and practice.⁵⁸ Cultural landscapes “are as critical to archaeological meaning as singular built structures,” discrete objects, and the adjacent findings and stratigraphic context that constitute the archaeological landscape.⁵⁹ They draw no line between the natural, tangible, and cultural resources of a place; these are inseparable.⁶⁰ Cultural landscapes are not passive, nor are they frozen in the past. They are active heritage areas—living landscapes that communities continue to interact with.

Cultural landscapes are professionally recognized by archaeologists and embraced by many Indigenous communities, including those of the Bears Ears Inter-Tribal Coalition,⁶¹ acknowledged internationally by the United Nations Educational, Scientific and Cultural Organization (“UNESCO”), a United Nations agency which is recognized as a global cultural heritage authority,⁶² and which informs the practice of United States federal agencies.⁶³ UNESCO defines cultural landscapes as “[c]ombined works of nature and humankind [that] express a long and intimate relationship between peoples and their natural environment.”⁶⁴ UNESCO has specifically designated 121 properties as cultural landscapes on its World Heritage List.⁶⁵ These properties

[O]ften reflect specific techniques of sustainable land-use, considering the characteristics and limits of the natural environment they are established in, and a specific spiritual relation to nature. Protection of cultural landscapes can contribute to modern techniques of sustainable land-use and can maintain or enhance natural values in the landscape.⁶⁶

Context and landscape have significant historic, natural, scientific, and cultural value. With this understanding in mind, the Antiquities Act is best understood as cultural heritage legislation intended to protect cultural landscapes. The Act was developed by archaeologists for the benefit of long-term archaeological practice and cultural preservation. It would have been neither drafted nor passed without the influence of American archaeological societies that helped raise awareness of the looting and destruction of American cultural heritage, especially in the Southwest, to the national stage and assisted Congress in developing the legislation. Preserving cultural landscapes, which includes preserving access for descendant communities, helps us better understand layers of human meaning and value in a specific place, today and throughout history and prehistory. With them, we can develop a historical, scientific, and cultural understanding of peoples and places that the objects alone, removed from their broader context, could not share. This is what the framers of the Antiquities Act had in mind.

C. A Perfect Fit: Characteristics of National Monuments and the Practical Impact of National Monument Status as a Federal Land Use Designation

Given the drafting context of the Antiquities Act, the Act was clearly intended to protect cultural landscapes. Indeed, it is well-tailored to do so. As discussed above, the Act intentionally protects not only objects, but also the areas of land that surround them, as necessary for the “proper care and management” of the objects.⁶⁷ Moreover, the Act’s designation criteria, including its wording, specific protections and prohibitions, and flexible management structures, demonstrate that cultural landscapes are, and have in practice been, the key purview of the Antiquities Act.

National monuments are distinct from national parks, which require Congressional authorization under the Organic Act, by contrast to sole presidential authorization.⁶⁸ National parks are areas “set apart by Congress for the use of the people of the United States generally,” typically because of an outstanding “scenic feature or natural phenomen[on].”⁶⁹ Under current National Park Service policies, parks must be “sufficiently large to yield to effective administration and broad use.”⁷⁰ Qualities considered for national park designation are the “inspirational, educational, and recreational”⁷¹ values of the area, by contrast to national monument criteria, which include “historic landmarks, historic and prehistoric structures, and other objects of historic or scientific interest.”⁷² National parks and national monuments, therefore, were intended to serve different purposes, and do so in practice.⁷³ National parks are defined as lands emphasizing educational and recreational interests; national monuments are areas set aside specifically for historic and scientific preservation.

Both the President and Congress may exercise authority to designate a national monument pursuant to the Antiquities Act.⁷⁴ Congress has rarely exercised its independent authority to designate national monuments.⁷⁵ It did so primarily in the mid-1940s to 1960s, when Presidents were abstaining from use of the Act in the wake of President Franklin D. Roosevelt’s designation of Jackson Hole National Monument and the subsequent national outcry.⁷⁶ Additionally, Congress may modify national monuments and, in some cases, has abolished them or converted them into different protective designations.⁷⁷ National monument designations under the Act apply to lands owned or controlled by the federal government.⁷⁸

The Antiquities Act does not specifically cap the size of monument designations. Language proposed to cap monument size, found in the legislative history of the Act, was removed, though it was clear that land should be reserved “only so much . . . as may be absolutely necessary,”⁷⁹ ultimately, confined to the “smallest area compatible with the proper care and management of the objects to be protected.”⁸⁰ The acceptance of a more ambiguous act that included vague definitions and did not include specific size limits suggests that Congress intended the Act to have a broad purview. The President has discretion to determine the acreage necessary to ensure protection of the objects in question, which “can be a particular archaeological site or larger features or resources.”⁸¹ The Grand Canyon, for example, initially had national monument status, protecting an area of nearly one million acres.⁸² President Theodore Roosevelt, the first executive to employ the Act, determined that this size was necessary to protect the “object” in question: the canyon itself.⁸³

Though typically managed by the National Park Service, monuments may be managed by any federal agency, including the Bureau of Land Management (“BLM”), United States Forest Service (“Forest Service”), Department of Fish and Wildlife Service, and National Oceanic and Atmospheric Administration.⁸⁴ Most monuments remain under the authority of the agency that managed the area prior to its new designation.⁸⁵ Bears Ears National Monument, for example, is jointly managed by the BLM and Forest Service.⁸⁶ Tribal guidance is provided by a Bears Ears Commission of the five Inter-Tribal Coalition Tribes; volunteers represent other stakeholders, including local and environmental interests, on the Bears Ears Monument Advisory Committee.⁸⁷ After President Biden’s redesignation of Bears Ears, the BLM, Forest Service, and five Inter-Tribal Coalition Tribes signed a first-of-its-kind Inter-Governmental Cooperative Agreement for coordinated land use planning and implementation, long-term resource management, and programmatic goal development, including Tribal outreach efforts, at Bears Ears.⁸⁸ More recently, the Bears Ears Commission collaborated with the Bureau of Land Management and Forest Service to draft a Resource Management Plan for Bears Ears, another unprecedented example of tribal participation in co-management.⁸⁹ This is one example of the flexible, sovereign-to-sovereign, and creative management authority a national monument designation can provide.

Permitted uses of lands with national park or national monument status are also distinct. Monuments managed by the National Park Service are subject to the same use limitations as national parks.⁹⁰ Permitted uses for monuments outside the park system vary, depending on both the supervising agency and management objectives specified in the proclamation.⁹¹ The overriding goal, however, is to protect the objects described in each proclamation.⁹² Existing uses of the land not specifically precluded by the proclamation may continue, but the proclamation becomes the “dominant” reservation status when lands were previously reserved for other purposes.⁹³ All national monuments prohibit new mineral leases and permanent development activities.⁹⁴ At Bears Ears, no mining and drilling is permitted, but the Department of the Interior may continue issuing cattle grazing leases.⁹⁵

The Antiquities Act is elastic—by design—to provide broad designation authority, flexible management priorities and structures, and to limit uses as necessary to steward objects in situ and the land that encompasses them, or the cultural landscape. Each new monument has distinct requirements because the objects and landscapes it protects are different.

The Antiquities Act is the only United States cultural heritage legislation that serves, in intent and in practice, the goal of protecting cultural landscapes writ large. Dominant federal statutes protecting cultural materials, themselves limited in number and authority,⁹⁶ include: (1) the National Historic Preservation Act, emphasizing protection of historic sites and landmarks and creating the National Register of Historic Places, the list of National Historic Landmarks, and State and Tribal Historic Preservation Offices, in addition to implementing a required federal review procedure, known as Section 106 review, that requires federal agencies to consider the effects of projects they “carry out, approve, or fund” on historic properties included in, or eligible to be included in, the National Register;⁹⁷ (2) the Archaeological Resources Protection Act, governing the excavation of archaeological sites on federal and Tribal lands, and the removal and disposition of objects from those sites;⁹⁸ and (3) the Native American Graves Protection and Repatriation Act, providing for the repatriation of Native American human remains, funerary objects, sacred objects, and objects of cultural patrimony from federal agencies and institutions that receive federal funds.⁹⁹ Notably, these other cultural heritage laws, younger than the Antiquities Act by more than fifty years,¹⁰⁰ intend to protect sites, buildings, objects, or their excavation, but never all of these or the context that surrounds them.

Moreover, given its goals and the ramifications of its use, including, for example, prohibitions on renewable energy development in addition to more extractive natural resource projects, the Antiquities Act is not in purpose or effect similar to environmental conservation laws or other public land designation statutes. Many of these statutes are exceptionally long, well-defined, and heavily regulated,¹⁰¹ by contrast to the brevity and ambiguous language that the Antiquities Act employs.¹⁰² The Antiquities Act is not environmental or wilderness legislation; it is cultural preservation law, allowing Presidents to tailor protection of cultural landscapes to the specific needs of each monument.

II. BROAD DISCRETION OVER A CENTURY OF USE AND CHALLENGE

From its ideation to its drafting to its results, the Antiquities Act has been understood as a cultural heritage preservation law intended to broadly encompass cultural landscapes, or distinct objects and their surrounding context. President Theodore Roosevelt was the first President to utilize the Act. Roosevelt proclaimed eighteen national monuments, including areas now part of Grand Canyon, Lassen Volcanic, Olympic, and Petrified Forest National Parks.¹⁰³ Eighteen of the twenty-one Presidents serving in office since the Act came into effect—including President Trump—have proclaimed a total of 163 monuments and utilized the Act’s grant of authority 291 times to establish, modify, and expand national monuments.¹⁰⁴

National monuments range in size from 0.34 acres (Belmont-Paul Women’s Equality National Monument)¹⁰⁵ to approximately 372 million acres (Papahānaumokuākea Marine National Monument);¹⁰⁶ the latter more than three hundred times the size of Bears Ears, where current boundaries under President Biden’s redesignation total 1.36 million acres.¹⁰⁷ While it is true that many of the larger monuments were created over the past half century, there are several examples of monument proclamations greater than one million acres in size throughout the history of the Antiquities Act, including Katmai National Monument, established in 1918 with 1.1 million acres, Glacier Bay National Monument, proclaimed in 1925 as 1.4 million acres, and Wrangell-St. Elias National Monument, designated in 1978 with 10.95 million acres.¹⁰⁸ Of the 163 national monuments designated, burial grounds, individual houses, geological features, marine and continental landscapes, forts, cave systems, and battlegrounds are represented.¹⁰⁹ Historical precedent reveals broad use of the Act to proclaim a great variety of monuments that differ in size by several volumes of magnitude, consistent with an intent to protect individual cultural landscapes, with different boundaries, that inform the monuments’ various “objects” and their management needs.

The Act has enjoyed over a century of use by nearly all Presidents, all of whom had substantially different policy objectives. When the Act has found itself in a courtroom, the President has been given latitude: broad discretion to use the Act has always been upheld. Not once has the Act’s breadth been proscribed, rather than expanded, by federal court mandate. Every test to date has been unsuccessful.

The first challenge to the Antiquities Act came shortly after President Theodore Roosevelt’s designation of Grand Canyon National Monument, nearly one million acres in size, in 1908, only two years after the Act became law. In Cameron v. United States, the plaintiff, owner of a lode mining claim that Roosevelt’s proclamation removed from the “operation of the public land laws and . . . of the mineral land law,” challenged the monument proclamation, arguing that there was “no authority for its creation” under the Antiquities Act.¹¹⁰ On appeal from the Ninth Circuit, the United States Supreme Court—whose discussion of this issue lasted no more than a short paragraph—held that the Grand Canyon itself was an “object” of unusual scientific interest.¹¹¹ In making this finding, the Court wrote that the Grand Canyon

[I]s the greatest eroded canyon in the United States, if not in the world, is over a mile in depth, has attracted wide attention among explorers and scientists, affords an unexampled field for geologic study, is regarded as one of the great natural wonders, and annually draws to its borders thousands of visitors.¹¹²

These exemplary characteristics were sufficient to defer to the President’s authority, as empowered by the Act, to define an “object of historic or scientific interest.”¹¹³ Not only was a landscape as a “container” for objects consistent with the Act, but a landscape, too, could itself be an object protected by a monument.

The Antiquities Act was next impugned in the mid-twentieth century, following President Franklin D. Roosevelt’s proclamation of Jackson Hole National Monument in Wyoming. The proclamation sparked “tremendous and bitter opposition” in Wyoming, national outcry, and vehement debate in Congress;¹¹⁴ in the resulting lawsuit, the Wyoming District Court went so far as to assert that “propaganda [had] been circulated in forums and through the press of the Nation.”¹¹⁵ Opponents characterized the proclamation as executive overreach that designated a wilderness with no historic sites, landmarks, or archaeological resources as a national monument.¹¹⁶ The plaintiff in State v. Franke, sought a construction of the Antiquities Act, under the Federal Declaratory Judgement Act, that would void Roosevelt’s proclamation, arguing that

The segregated area, by virtue of the Proclamation over which the defendant threatens management and control, is outside the scope and purpose of the Antiquities Act under which the Proclamation was issued in that such area contains no objects of an historic or scientific interest required by the Act; that the Proclamation is void and of no effect in that it is not confined to the smallest area compatible with the proper care and management of a National Monument; that by said Proclamation an attempt has been made to substitute, through the Antiquities Act, a National Monument for a National Park, the creation of which is within the sole province of the Congress, thereby becoming an evasion of the law governing the segregation of such areas . . . .¹¹⁷

The court, reluctantly, found that it had “limited jurisdiction to investigate and determine whether or not [Roosevelt’s] Proclamation [was] an arbitrary and capricious exercise of power under the Antiquities Act so as to be outside of the scope and purpose of that Act.”¹¹⁸ The plaintiff and the defendant presented conflicting evidence regarding the presence or absence of “objects of historic or scientific interest.”¹¹⁹ However, the court held, the President acted on evidence “of a substantial character” and therefore properly availed himself of the discretion duly granted to him by Congress through the Antiquities Act.¹²⁰ The court distinguished between a “bare stretch of sage-brush prairie” that could contain no objects of historic and scientific interest, in which case the presidential monument proclamation would be arbitrary and capricious, and the monument at issue, for which experts provided some “substantial” evidence of such objects, including “trails and historic spots in connection with the early trapping and hunting of animals formulating the early fur industry of the West, structures of glacial formation and peculiar mineral deposits and plant life indigenous to the particular area.”¹²¹ Though it did not agree that testimony would support the President’s claim regarding the presence of objects of historic and scientific interest in Jackson Hole under a preponderance rule, the court was bound by his exercise of discretion.¹²²

Decades passed before the Antiquities Act was contested again. In the cases that followed Franke, federal courts continued to recognize a President’s discretion and support interpretations of the Act that confirmed its substantial scope and latitude regarding both objects to be preserved and the size of parcels proclaimed. In Tulare County v. Bush, challenging President George W. Bush’s proclamation of Giant Sequoia National Monument, the D.C. Circuit Court of Appeals held that ecosystems and scenic vistas were appropriate “objects” for protection under the Act, which is “not limited to protecting only archeological sites.”¹²³ This case further cements the conclusion that biodiversity, ecosystems, and scenery are part and parcel of what the Act was intended to protect—archeological, scientific, and historic resources together with the natural and cultural context that informs them.

This trend continued in Utah Association of Counties v. Bush, an earlier challenge by the state of Utah to national monument designations within its borders.¹²⁴ This was the first time that Bears Ears’ sister monument, Grand Staircase-Escalante National Monument, was on the chopping block. The Utah District Court rejected plaintiff counties’ claims that Grand Staircase-Escalante, 1.87 million acres, exceeded the “smallest area compatible” with the protection of the objects at issue, holding that President Clinton lawfully exercised his discretion pursuant to the Antiquities Act as to both the nature of “objects” to be protected and the size of the parcel reserved.¹²⁵ The court found it significant that the proclamations discussed in detail both the monument’s natural and archaeological resources, and why the designated area was the smallest consistent with the protection of those specific resources: this “clearly indicate[d] that the President considered the principles that Congress required him to consider.”¹²⁶ Again, this exercise of discretion was not subject to judicial review.¹²⁷ The court engaged in two other notable discussions: its conclusion that the Antiquities Act was not intended to limit protection to man-made objects, which appeared so obvious to the court that it was observed only in a footnote,¹²⁸ and a constitutional nondelegation argument.¹²⁹ The court settled the latter issue, holding that

The Antiquities Act sets forth clear standards and limitations. The Act describes the types of objects that can be included in national monuments and a limitation on the size of monuments. Although the standards are general, “Congress does not violate the Constitution merely because it legislates in broad terms, leaving a certain degree of discretion to executive or judicial actors.”¹³⁰

The most recent challenge to the Antiquities Act—other than the present challenge—is Massachusetts Lobstermen’s Association v. Ross, a 2019 D.C. Circuit Court of Appeals case dismissed for failure to state a claim that contested the designation of Northeast Canyons and Seamounts Marine National Monument.¹³¹ On the fishermen’s argument that the monument was not limited to the smallest area compatible with the care and preservation of the objects at issue, the court wrote

[The Fishermen] allege only that the Monument reserves large areas of submerged land beyond the canyons and seamounts. Although those allegations “might well have been sufficient if the President had identified only [the canyons and seamounts] for protection, . . . he did not.” Instead, the Monument protects not only “the canyons and seamounts themselves,” but also “the natural resources and ecosystems in and around them.”¹³²

It was incumbent on the fishermen to allege that some part of the monument did not contain natural resources that the President sought to protect. They failed to do so.

Over nearly one hundred years of the Antiquities Act’s use, every test has come up short, despite substantive challenges to large monuments and courts that clearly expressed reluctance to uphold proclamations. Courts have not only considered the history and purpose of the Act and chosen, given this history, to interpret its brief language broadly,¹³³ but have also substantially deferred to the President’s proclamations, refused to submit them as arbitrary and capricious,¹³⁴ and declined to engage in judicial review of discretion Congress properly granted—with clear standards.¹³⁵ What followed Massachusetts Lobstermen’s, however, was plaintiffs’ petition for a writ of certiorari to the United States Supreme Court. Chief Justice Roberts’s statements in his order denying certiorari serve as the cornerstone of the state of Utah’s current lawsuit. Chief Justice Roberts invites challenges to the Antiquities Act, making it clear that his denial of certiorari is on procedural grounds alone and indicating that the Supreme Court readies itself to reconsider the scope of the Antiquities Act on its merits:

While the Executive enjoys far greater flexibility in setting aside a monument under the Antiquities Act, that flexibility, as mentioned, carries with it a unique constraint: Any land reserved under the Act must be limited to the smallest area compatible with the care and management of the objects to be protected. Somewhere along the line, however, this restriction has ceased to pose any meaningful restraint . . . [and the Presidential power granted by the Act] has been transformed into a power without any discernible limit to set aside vast and amorphous expanses of terrain above and below the sea. . . . We have never considered how a monument of these proportions . . . can be justified under the Antiquities Act . . . [and] we have not explained how the Act’s corresponding “smallest area compatible” limitation interacts with the protection of such an imprecisely demarcated concept as an ecosystem . . . . Despite these concerns, this petition does not satisfy our usual criteria for granting certiorari. . . . We may be presented with other and better opportunities to consider this issue without the artificial constraint of the pleadings in this case.¹³⁶

III. UTAH POKES THE SLEEPING BEAR: THE PRESENT CHALLENGE TO THE ANTIQUITIES ACT

One might conclude that, given this precedent, the broad purview of the Antiquities Act and its protection of objects and the natural and cultural landscapes that encompass them have been put to bed. Following Chief Justice Roberts’ invitation, however, Utah decided to poke the sleeping bear. Joined by Garfield and Kane counties and, in a companion suit, the BlueRibbon coalition,¹³⁷ the state filed suit against the Biden Administration in Utah District Court in late 2022, objecting to President Biden’s redesignation of Bears Ears National Monument. Tribes, including the Navajo Nation and Hopi Tribe, later followed by the Ute Mountain Ute Tribe and Pueblo of Zuni, quickly sought to intervene; their motions were granted.¹³⁸

In a challenge nearly identical to those that have come before, relying heavily on Chief Justice Roberts’ statement and concerns about the size of the monument, Utah argues that “[t]he Act does not authorize the president to draw boundaries around an enormous land area and then stitch together hundreds of items and features within those boundaries to try to reverse engineer a landscape-scale national monument.”¹³⁹ In their desire to exclude “landscape-scale” areas from the scope of the Antiquities Act, opponents of the Act and of Bears Ears National Monument misconstrue the term “landscape.” They miss the true meaning and intention of the Antiquities Act. A landscape is not simply an environment, microclimate, or collection of flora and fauna, but rather a collective set of sites, objects, geological features, natural elements, and the living things that interact with them. This web of understanding—this cultural landscape—is essential to historic and scientific study. It was clearly recognized by both the proponents of the Antiquities Act and by Congress, and the President is granted broad discretion to determine what objects are protected and the size of the area necessary for their care.

Bears Ears National Monument is a quintessential example of a cultural landscape given meaning by the peoples of the Colorado Plateau. Her objects epitomize relationships between ancient and modern Native peoples and the natural world: rock art from both ancestral peoples and modern Tribal communities, “[t]he remains of single family dwellings, granaries, kivas, towers, and large villages and roads linking them together[, which] reveal a complex cultural history.”¹⁴⁰ “Moki steps,” or hand and toe holds carved into the walls used to access cliff dwellings that Native people still climb today.¹⁴¹ Flora and fauna are still used for subsistence, medicinal, and religious traditions.¹⁴² Understanding her landscape itself as an object also illuminates these relationships. Ceremonial practices are conducted in situ. Seeing “cliff faces suitable for granaries and rock art, alcoves for habitation, floodplains for growing crops, etc.[] and viewsheds when such viewsheds are relevant to human subsistence (i.e., observation points along big game migration corridors)” help us understand interactions between people and place.¹⁴³ These are only some examples—of many.

President Obama’s proclamation recognized the scientific, historical, and cultural objects and values included within the original borders of Bears Ears National Monument. The second sentence of the Bears Ears proclamation describes the area as “one of the densest and most significant cultural landscapes in the United States.”¹⁴⁴ The term “landscape” appears a dozen times.¹⁴⁵ President Obama, and later President Biden, demonstrated careful research and presented “substantial” evidence in their proclamations that Bears Ears National Monument contains objects that the Act was intended to protect and that the area set aside, in its entirety, contains and informs these objects. To consider these “separate objects stitched together” is erroneous and simplistic. They are part of a whole.

BlueRibbon Coalition plaintiffs emphasize, more heavily than the state of Utah, an argument regarding the breadth of the term “object”: “The proclamation[] also designate[s] as ‘objects’ a variety of ‘imprecisely demarcated concept[s]’ scattered across those landscapes’ country-sized boundaries. These so-called ‘objects’ include entire ecosystems, habitats, and even animal species . . . .”¹⁴⁶

Setting aside the volumes of case law that defer to the President’s discretion to define “object,” determine that canyons and ecosystems themselves fit within this term, and recognize that the standards Congress provided were broad, but not impermissibly so, an interpretation of the Antiquities Act that acknowledges cultural landscapes allows for a definition of “objects” per the term’s ordinary use: antiquities. Bears Ears unquestionably includes antiquities. Every acre is the context that necessarily informs them. Though we can, we need not say an ecosystem or habitat is an object. These do, however, comprise the cultural landscape necessary for the proper care and preservation of objects.

Moreover, preserving objects and their cultural landscapes, and thereby maintaining relationships to the living peoples around them, nurtures their historic and scientific value. Relationships between Indigenous people and the environment, “as personified and enriched by the Native experience at Bears Ears . . . ha[ve] every opportunity to lead to excellent public programs and outreach as well as outstanding opportunities for scientific, historical, and philosophical research by both Native and non-Native scholars and experts.”¹⁴⁷ In other words,

The traditional . . . knowledge amassed by the Native Americans whose ancestors inhabited this region, passed down from generation to generation, offers critical insight into the historic and scientific significance of the area. Such knowledge is, itself, a resource to be protected and used in understanding and managing this landscape sustainably for generations to come.¹⁴⁸

As discussed, the objects protected are not “imprecisely demarcated concept[s]”—they are tangible. Nor is the land area set aside that encompasses the cultural landscape unbounded, infinite, or limitless. The breadth of a cultural landscape can be defined. UNESCO has done so, successfully, at 121 locations.¹⁴⁹ The Antiquities Act already limits its reach to federally-owned lands, and Presidents have demonstrated that they are loath to disturb the balance and test an open question regarding relinquishment of nonfederal lands.¹⁵⁰ Moreover, the Obama-era, and now Biden-era, boundaries of Bears Ears National Monument were deliberately limited: the Inter-Tribal Coalition had proposed a far more expansive area of 1.9 million acres, not the 1.36 million acres that were ultimately designated.¹⁵¹ This recognizes that the scope of a cultural landscape may be refined to allow for feasible care, management, and preservation activities.

Sites, landmarks, and “objects”—even if the term is understood as limited to its common meaning, despite the prior courts’ analyses—cannot be protected under the Act absent consideration and preservation of the cultural landscape in the lands that surround them. This care would be improper. It would decimate their historic and scientific value, in direct opposition to the standards Congress set forth in the Antiquities Act.

One need only examine the Trump-era demarcation of Bears Ears to witness how boundaries affect cultural landscapes and their constituent archaeological and scientific value. The Trump proclamation emphasized distinct sites, reducing Bears Ears from a complete cultural landscape to “a series of separate and disconnected objects”¹⁵² that divided the monument into “non-contiguous parcels of land.”¹⁵³ Areas removed were left open for development, motorized vehicles, and other destructive activities with the potential to significantly affect the ecosystem, sites and objects, and cultural values encompassed in the landscape.¹⁵⁴ This fundamentally altered the nature of the monument: “Maintaining some sites . . . [did] not compensate for excluding other sites and fragmenting their associated cultural landscapes,” placing them at “greater risk of damage or destruction.”¹⁵⁵ Trump’s boundaries were insufficient to be “compatible with the proper care and management” of the sites, landmarks, objects, and cultural heritage landscape that is Bears Ears.

The courts deferred to an exercise of presidential authority at Jackson Hole, a monument far less dense in archaeological and cultural history. They upheld Grand Staircase-Escalante’s larger acreage as sufficiently “small.” Bears Ears exemplifies the purpose of the Antiquities Act. She is not a replacement for a national park or solely an ecological resource. She is a distinct, definite, living cultural landscape. The Antiquities Act allows the President to proclaim areas that embody its purpose; the executive’s exercise of discretion is unreviewable.

In August 2023, the Utah District Court judge agreed: “President Biden’s judgment in drafting and issuing the Proclamations as he sees fit is not an action reviewable by a district court.”¹⁵⁶ Federal Defendants’ and Tribal Nations’ motions to dismiss were granted with prejudice.¹⁵⁷ Utah quickly expressed its intent to appeal “immediately”; as of April 2024 the case is on appeal before the Tenth Circuit and set for oral argument in September 2024. Utah Governor Spencer Cox intends to push the case to the Supreme Court, saying that the District Court’s ruling “helps us get there even sooner.”¹⁵⁸ Tribes quickly responded, emphasizing that “Bears Ears remains an essential landscape that members of Tribal Nations regularly visit to practice their spirituality and connect with their history.”¹⁵⁹

As before, courts are bound to respect the President’s discretion. Even if, however, the Act was challenged on its merits, Bears Ears is a cultural landscape the Antiquities Act foresaw over a century ago. In the words of its Tribal advocates, “[a] region more worthy of protection under the Antiquities Act is hard to imagine.”¹⁶⁰

IV. NOT SO ANTIQUE: A USEFUL, MODERN TOOL FOR TRIBES

Indigenous communities have long recognized intangible relationships between people and landscape: “Native people always have, and do now, conceive of and relate to the natural world in a different way than does the larger society.”¹⁶¹ In Bears Ears, “[w]e can still hear the songs and prayers of our ancestors on every mesa and in every canyon,” describes Malcolm Lehi of the Ute Mountain Ute.¹⁶² Other members of the Coalition Tribes describe similar connections between their contemporary experiences in Bears Ears and her relationship to their history, traditions, and cultural identities.¹⁶³ The relationship between people, objects, and place is obvious—and precisely what the Antiquities Act was designed to and serves well to protect.

The Bears Ears Inter-Tribal Coalition was the first to recognize that the Antiquities Act could serve as a vehicle to protect Tribal cultural landscapes. In their petition, the Coalition wrote,

Our discussion here is not intended to catalogue all the many ways that this area holds significant geological, paleontological, archaeological, historical, cultural, and biological “objects” within the meaning of the Antiquities Act . . . . [W]e offer this section to highlight some of the main considerations that justify monument status for Bears Ears. This includes . . . critically, the multifaceted relationship between Native American people and this landscape that has developed over the course of eons.¹⁶⁴

It is no surprise that the Inter-Tribal Coalition’s decision to petition for National Monument status—and their success—has sparked a movement of Tribes asking for national monument protections for sacred heritage landscapes.

In southern Nevada, Avi Kwa Ame, or Spirit Mountain, is the “mythical creation site for Yuman-speaking Tribes like the Fort Mojave, Cocopah, Quechan, and Hopi. Their stories place it “at the center of the universe.”¹⁶⁵ All but one of the member Tribes in the Inter-Tribal Council of Nevada, and all the Tribes of the Inter-Tribal Association of Arizona, adopted resolutions endorsing a national monument.¹⁶⁶ In March 2023, President Biden proclaimed Avi Kwa Ame National Monument.¹⁶⁷ The proclamation explicitly recognizes the significance of landscape (mentioned thirty-seven times): including, for example, place-based traditional songs that connect to landmarks and enable Tribal members to “navigate across the diverse terrain, find essential resources, and perform healing, funeral, and other rituals.”¹⁶⁸ The cultural landscape informs our understanding of the “people [that] have lived, traveled, and worked in [Avi Kwa Ame] for more than 10,000 years,” as evidenced by projectile points, pictographs, potsherds, and other tangible archaeological objects illuminating Indigenous history.¹⁶⁹

In August 2023, decades after Tribes were forcibly removed from lands that later became Grand Canyon National Park, President Biden established the Baaj Nwaavjo I’tah Kukveni—Ancestral Footprints of the Grand Canyon National Monument,¹⁷⁰ another sacred cultural landscape. This, the Grand Canyon Tribal Coalition fought to protect.¹⁷¹ Not only are features of the landscape sacred components of the origin and histories of many Tribes, but “Tribes note that their ancestors are buried here and refer to these areas as their eternal home, a place of healing, and a source of spiritual sustenance.”¹⁷² The “natural and cultural objects of the [Grand Canyon] lands” do indeed “have historic and scientific value that is unique, rich, and well-documented”¹⁷³—they were documented, and upheld, in the first major challenge to the Antiquities Act, 115 years prior.¹⁷⁴

Tribal Nations have seen success. Now, they have greater capacity to petition for monument status and more examples to draw from. Three national monuments that cover significant cultural landscapes were championed by Tribal advocates and incorporate Indigenous co-management.¹⁷⁵ Despite the ongoing challenge to Bears Ears and the fate of the Antiquities Act in limbo, and although the Antiquities Act does not reserve lands for the special or exclusive use of Tribes, it is nonetheless well-suited for one purpose: cultural heritage preservation. Tribes are choosing to utilize a law intended for cultural heritage, not environmental or recreational protection.¹⁷⁶ This is a natural and welcome outgrowth of the intent and flexibility of the Antiquities Act—areas that embody cultural and historic value are protected because of their connection to this nation’s first peoples.

Proper care and management of objects, as mandated by the Act, requires Tribal consultation and continued access to cultural landscapes. Indigenous knowledge and robust Tribal consultation—for planning and decision making—can and should be prioritized. Consider the Inter-Governmental Cooperative Agreement at Bears Ears, a vast recognition of the value of Tribal support and guidance in public lands management, especially for culturally significant landscapes.¹⁷⁷ In the words of Bears Ears Commission Co-Chair and Lieutenant Governor of Zuni Pueblo Carleton Bowekaty:

[I]nstead of being removed from a landscape to make way for a public park, we are being invited back to our ancestral homelands to help repair them and plan for a resilient future. We are being asked to apply our traditional knowledge to both the natural and human-caused ecological challenges, drought, erosion, visitation, etc. . . . What can be a better avenue of restorative justice than giving tribes the opportunity to participate in the management of lands their ancestors were removed from?¹⁷⁸

This manner of intergovernmental co-management is desirable for all parties. In addition to serving a restorative justice role, recognizing the resilience and continuing knowledge of Native communities, respecting a sovereign-to-sovereign relationship, and expiating hundreds of years of removal and genocide, it is well recognized that Indigenous traditional land management yields collective benefits in many regions of the world, including supporting biological diversity and conservation goals.¹⁷⁹

Additionally, collective stewardship of public lands, preserved for future generations and contemplated by a land use designation like national monument status, is a better cultural fit for Native communities. Indigenous perspectives are often misaligned with the concept of private property and extractive use.¹⁸⁰ For culturally significant areas important to multiple sovereign nations, national monument status and the collective management models it allows may encourage cooperation. At the least, coming together to advocate for monument status encourages political alliances between Tribal Nations and identification of key sites and priorities for an area.

Tribal use of the Antiquities Act is not without its challenges or its faults. Too often, protecting Tribal cultural heritage requires sharing information about sensitive sacred sites. This is no different. Though Presidents can strategically word proclamations to limit information disclosed, while still including sufficient detail to ensure the right areas are protected, this is a delicate balance to strike.¹⁸¹ Moreover, public lands are public lands. They are not exclusively governed by Tribal Nations. Though Tribes in management roles can work to develop strategies that reduce impacts to key sites, preserve Native access for contemporary practice, and educate visitors, national monuments encourage tourism and result in greater visitation. This involves risk; there is always the question of whether the ends justify the means. However, for cases in which using the Act to preserve a landscape is “less a choice, and more a necessity,”¹⁸² it is a feasible and effective solution.

CONCLUSION

In his denial of certiorari for Massachusetts Lobstermen’s, Chief Justice Roberts states: “The Northeast Canyons and Seamounts Marine National Monument at issue in this case demonstrates how far we have come from indigenous pottery.”¹⁸³ But in setting Indigenous pottery as the starting line, Chief Justice Roberts demonstrates a fundamental misunderstanding of the history, ends, and means of the 1906 Antiquities Act. The Act was intended by its advocates and drafters to capture not only potsherds—the status of which, Blanding’s sting operation demonstrates, is still at risk—but also to secure the land around them, or the living cultural context that informs these objects.

The Act has served its purpose well in the more than one hundred years since its enactment. Only three of twenty-one Presidents since the signature of the Act have chosen not to use it. Legal challenges to the Act consistently fail, with federal courts interpreting its language broadly. Chief Justice Roberts decries that the “objects” to be protected might include “canyons and seamounts themselves.” He fails to mention that the very first challenge to the Act, right after it was signed, held that the Grand Canyon was an “object.” Historical context, statutory purpose, and past practice all support the conclusion that the President has broad authority to use the Antiquities Act to protect cultural landscapes at large, not just “objects” in the narrowest sense of the word.

The Act is not only unique in what it protects, but is also crucial to the fragile and limited American cultural heritage management scheme. Without it, archaeological and cultural resources on our public lands could face irreparable and irreversible harm, and communities who depend on cultural heritage for their economic survival through tourism revenue might lose care, education, and access.¹⁸⁴ The Indigenous communities to whom these landscapes matter most are not to be forgotten—they would be severely impacted by the desecration of their cultural practices and connections to their ancestors.

Curiously, even large national monuments designated around the same time as Bears Ears—such as Mojave Desert, of greater acreage, also designated in 2016 by President Obama¹⁸⁵—have not faced the same wave of repeated challenges as Bears Ears. If opponents of Bears Ears can demonstrate that she does not fall within the scope of the Antiquities Act, no cultural landscape will. Bears Ears is a fundamental example of the meaning and importance of cultural landscapes. Those who target Bears Ears do so because if you can prove in this context—in the American Southwest, the cradle of and impetus for the Antiquities Act—that the Act is limited to structures and objects alone, and does not encompass cultural landscapes, you can do so anywhere.

The battle to preserve the cultural landscape that is Bears Ears National Monument continues. The Antiquities Act is not a piece of legislation that has been molded, bent out of shape, or expanded to include Hoon’Naqvut, Shash Jáa, Kwiyagatu Nukavachi, and Ansh An Lashokdiwe. It was born in this place and intended, from the beginning, to protect her.

97 S. Cal. L. Rev. 1119

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Robin Willscheidt*

* Executive Senior Editor, Southern California Law Review, Volume 97 (2023 Scribes Award Winner for Excellence in Note Writing); J.D. 2024, University of Southern California Gould School of Law; B.A. Political Science 2019, Stanford University. This Note was written on the unceded sacred and traditional lands of the Tongva (Gabrielino), the first native peoples. The Tongva are the original stewards of this land and continue in this role today. This land has been used to share knowledge for generations. I hope this publication continues the Tongva tradition of teaching respect for and connection to land and landscape. Thanks to Amber Madole for her endless support of USC Gould’s Native American Law and Law Students Association and tireless advocacy for Tribal and Native representation at Gould and in legal scholarship. Thank you to Professor Robin Craig, for serving as my mentor and advisor, to Fran Ferrance, and to my parents, for their support and pride. Finally—thanks to Dr. SB, who brainstormed titles for publication with me next to the Nafplion harbor. Though I served as a declarant for the Archaeological Institute of America in its motion to intervene in Garfield County et. al v. Biden, views expressed are my own and not those of any litigating organizations or their attorneys. Information regarding the status of the pending lawsuit and the number of national monument designations is current as of the dates specified and is subject to change.

Defining the Relationship: California’s Noncompete Laws and Exclusivity in the Acting Industry Leading Up to the 2023 SAG-AFTRA Strike

August 2024August 2024Katarina Ulich*

California is firm in its stance against post-term noncompete clauses. This Note examines early Hollywood and the historical and economic context in which talent contracts arose. It analyzes the shift in talent contracts from the harsher terms of the 1930s studio system to the modern terms which give more control to actors.

Exclusivity exists in both the film and television industry. However, the in-term and post-term treatment of exclusivity provisions and noncompetes has received conflicting treatment by California and Ninth Circuit Courts, suggesting that perhaps the California Supreme Court should weigh in on the matter as they did in 2008 with Edwards v. Arthur Andersen and articulate whether Section 16600 can apply to in-term noncompete and exclusivity provisions. While it is widely held that Section 16600 does not apply to in-term noncompetes, the holding in ITN Flix, LLC v. Hinojosa suggests that certain situations in the acting industry may trigger its application and deem an in-term noncompete invalid if unduly harsh.

Regardless, the ability of actors and unions to negotiate with studios for mutually beneficial terms has allowed common practices in entertainment contracts to shift over time without much recent legislation. This suggests that, while the applicable law will provide one side with bargaining power, negotiations and collective-bargaining agreements will largely continue to set the standards for common entertainment contract practices.

INTRODUCTION

From 2005 to 2010, American actress Katherine Heigl appeared in the hit ABC television medical drama, Grey’s Anatomy, as the supporting role of Dr. Izzie Stevens.¹ Simultaneous to her work on the television series, Heigl starred in films that would soon become classics of the 2000s, such as Knocked Up (2007), 27 Dresses (2008), and The Ugly Truth (2009).² By 2008, Heigl had been deemed the new “It Girl” of Hollywood by Vanity Fair as a result of her acting endeavors.³ Knocked Up had been a box office hit, and Heigl had taken home the 2007 Primetime Emmy Award for Outstanding Supporting Actress in a Drama Series for her television work on Grey’s Anatomy.⁴ Heigl had pursued a career in film while still appearing as a series regular on Grey’s Anatomy, rendering her a household name across the United States. Meanwhile, the lead of Grey’s Anatomy—Ellen Pompeo—had not appeared in a role outside of Dr. Meredith Grey since the series inception in 2005.⁵ While this could be attributed to personal choices, it may instead be the result of contractual differences between a series’s lead actress and a supporting actress, stemming from varying exclusivity terms. It is possible that Ellen Pompeo, as the lead role of Meredith Grey, was “contractually forbidden from acting elsewhere.”⁶ In 2018, Pompeo told The Hollywood Reporter, “I don’t get to do anything else, and that’s frustrating for me creatively. I make 24 episodes of TV a year, and as part of this deal, I cannot appear anywhere else.”⁷ While exclusivity terms can be frustrating to an actor,⁸ as demonstrated by Pompeo’s statement to The Hollywood Reporter, many studios view exclusivity as vital to production. Studios use exclusivity to coordinate production schedules and ensure talent’s availability as they invest time and money in the creation of a particular character.

In 2022, exclusivity terms could be freely negotiated in the entertainment industry when union actors were paid above an “exclusivity money break.”⁹ The exclusivity money break is a minimum salary bargained for by SAG-AFTRA,¹⁰ above which producers and talent can negotiate exclusivity freely. This would often result in producers paying substantial salaries for the exclusivity of top talent.¹¹ Meanwhile, union actors paid below the exclusivity money break (non-star talent) were restricted in their ability to grant exclusivity.¹² While these restrictions are discussed later in detail, actors in this latter non-star category who worked on a streaming show were often able to appear in feature films, as guests on other shows, and in commercials, yet they sometimes had to receive permission from studios in order to do so.¹³ Practical difficulties sometimes arose in the process of coordinating outside roles, as the actor’s main show would take scheduling precedence and restrict the actor’s ability to alter their appearance.¹⁴ This tension between actors, who often want the freedom to appear in additional roles, and studios, who face the challenges of coordinating production schedules and may have invested in an actor’s image, has led to debate in Hollywood surrounding the use of exclusivity provisions in talent contracts. Exclusivity, along with other issues concerning residuals and the use of Artificial Intelligence, contributed to SAG-AFTRA’s 2023 strike against Hollywood’s major studios, lasting 118 days from July to November of 2024 while new contract boundaries were negotiated.¹⁵ This Note will examine the contractual exclusivity terms leading up to the 2023 strike. The rise of online streaming has increased the demands placed on actors, as shorter series seasons contribute to more idle time for actors. The landscape is changing rapidly, resulting in the frequent renegotiation of terms and resulting standstills, exemplified by the 2023 SAG-AFTRA strike.

Exclusivity provisions are contractual terms that prevent an employee from working elsewhere during the term of their employment, resulting in the employee giving their undivided effort to the employer. Noncompete clauses are another set of contractual terms that also appear in talent contracts and typically restrict an employee from working for certain third-parties. Noncompetes may last for only the term of the employment, and thus be in-term restrictions, or they may last after the employee no longer works for the current employer, which is a post-term restriction.¹⁶

Arguments exist on both sides of the general debate around exclusivity provisions and noncompetes in the talent industry. Opponents argue that they hinder competition by restricting the free movement of talent and ideas.¹⁷ In the talent industry specifically, SAG-AFTRA has argued that exclusivity terms in actors’ personal service agreements are often used to “hold series regulars off the market and unable to work for unreasonably long periods of time”¹⁸ while a show is in an off period.¹⁹ SAG-AFTRA has noted that these exclusivity provisions were less burdensome when talent worked three quarters of the year on twenty episode seasons, but that the rise of online streaming platforms, year-round production cycles, and short seasons of thirteen episodes (or sometimes fewer) have left lower and mid-level actors short of work.²⁰ Some actors are “not being paid while on hold between seasons, but they’re also not allowed to accept other paying jobs. These contracts mean that actors often find themselves collecting unemployment, struggling to pay their bills and unable to build a career.”²¹ The arguments against exclusivity and noncompetes have received national attention.²² In 2021, President Biden issued an executive order attempting to limit the effect of noncompetes, authorizing the Federal Trade Commission (“FTC”) to “interpret noncompetition agreements as an unfair method of competition, and thereby declare them unlawful.”²³ SAG-AFTRA was “ ‘thrilled to see President Biden take steps to curtail the use of unfair non-compete clauses, which are a major problem for . . . actors . . . .’ ”²⁴

Conversely, proponents of exclusivity provisions and noncompetes argue that without them, employers have little incentive to invest in the development of their employees.²⁵ In the acting industry specifically, production studios have concerns regarding the coordination of “complex production schedules involving hundreds—or at times even thousands—of people [with the] talent’s availability.”²⁶ The California Chamber of Commerce argues that without exclusivity, talent contracts are far “less valuable, which will lead to a reduction in wages paid to actors.”²⁷ Charles Rivkin, Chairman and CEO of the Motion Picture Association, views exclusive employment agreements as the backbone of scheduling for film, television, and streaming productions: they “provide the certainty necessary for producers to finance, insure, plan for and complete major feature film, television and streaming projects, particularly those involving long-term story arcs. They assure writers and showrunners that characters developed in one season can be brought back for subsequent storylines.”²⁸ Further, studios note an interest in preserving the investment of “millions [of dollars] in developing and promoting a show [and its actors, and] don’t want to see the lead actor show up in another series on a rival network.”²⁹ A studio may seek to control the image of a particular actor to protect its franchise from actions which could negatively impact the performance of the franchise, and thus, the studio itself.

Section 16600 of the California Business & Professions Code (“Code”) acts as a per se ban on noncompete agreements in California, as it “does not permit non-compete clauses, even if they are reasonable in scope and purpose.”³⁰ While many states operate under reasonableness standards, enforcing noncompetes when they are reasonable in scope and duration,³¹ the California Supreme Court case Edwards v. Arthur Andersen is strong in both its language and policy rationale against the enforcement of post-term employment restrictions. Following the 2008 decision in Edwards, discussed later in this Note, any post-term employment restriction is likely to fail. Discussion around the Code has focused on Silicon Valley, where the ban on noncompetes has often allowed technology companies and start-ups to innovate rapidly as employees move from company to company. However, little attention has been paid to the application of Section 16600 in Hollywood, particularly to its recent extension by the Ninth Circuit to reach in-term agreements in the acting industry in ITN Flix, LLC v. Hinojosa.³²

This Note investigates noncompete agreements and exclusivity in the entertainment industry through the lens of Section 16600 and critically analyzes recent decisions involving the extension of Edwards to in-term noncompetes and exclusivity agreements in talent contracts. Historically, case law involving Section 16600’s ban on noncompetes has been limited to post-term employment restrictions. In the acting context, post-term noncompetes are those which restrict an actor’s employment options after they no longer work with a particular studio. However, a recent Ninth Circuit case (ITN) broadens the scope of Section 16600 to potentially invalidate in-term noncompete contracts that restrict an actor’s work, even if only for the duration of the employment contract. This Note discusses the Ninth Circuit’s decision, weighing the tension between exclusivity proponents and opponents to explore the extension of Section 16600 to in-term noncompetes and exclusivity clauses in the talent context.

Part I examines early Hollywood and the historical and economic context in which talent contracts arose. It analyzes the shift in talent contracts from the harsher terms of the 1930s studio system to the modern terms which give more control to actors. It provides a summary of common industry practices prior to the 2023 SAG-AFTRA strike. The agreements between SAG-AFTRA and major studios that led up to the strike are also explored, highlighting the prevalence of exclusivity while weighing the tension between its proponents and opponents.

Part II discusses Section 16600 and the significant 2008 California Supreme Court decision, Edwards v. Arthur Andersen, after which any post-term restriction on employment in California will likely fail.

Part III analyzes the possible extension of Edwards to in-term noncompete agreements and the changes that this extension may bring to exclusivity in the acting industry. To do so, it touches again on common exclusivity practices as well as in-term and post-term noncompete practices in the acting industry, while critically analyzing case law to explore how Section 16600’s extension to in-term noncompete and exclusivity provisions may bring unintended results. It concludes with a suggested theoretical legal standard that would consider an actor’s fame when analyzing exclusivity and noncompetes.

Part IV summarizes the case law findings and asks the California Supreme Court to weigh in on the conflicting lower court precedent, and the conclusion summarizes the findings from this Note.

I. HISTORY OF THE ENTERTAINMENT INDUSTRY

[T]he legal framework . . . in which all entertainment and media businesses operate is constantly challenged and in need of regular review and adjustment.

—Harold L. Vogel³³

A. The Economics of the 1930s Studio System

Shortly after film was introduced to the United States in the early 1900s, the major film studios realized there was immense potential for vertical integration and cost minimization in the film industry.³⁴ They quickly began to operate almost every stage of film production, from “production [and] distribution [to] exhibition.”³⁵ The West Coast (and Southern California in particular) emerged as the heart of this new and emerging studio system, as Hollywood was “far for the Trust enforcers to reach [and] . . . provide[d] low-cost nonunion labor and an advantageous climate and geography for filming.”³⁶ After the Great Depression, it was only “the companies with the most vertical integration . . . that survived,” further concentrating the control over the movie industry.³⁷ An incredibly “productive [and] efficient” synergy emerged as the major companies cooperated in “a ‘mature oligopoly’ ” with a significant share of the Hollywood market.³⁸

Vertical integration characterized this era of film production, with the major companies exerting control over large parts of the industry.³⁹ By the 1930s, this studio system led to stars signing “long-term contracts.”⁴⁰ While accompanied by cost minimization and efficiency, these contracts were often harsh and demanding, leaving little autonomy to actors.⁴¹ This early coordination of “studio operations [with] marketing strategies” brought “substantial [cost] savings [to] the studio [system.]”⁴² Exclusive contracts between stars and studios could last up to seven years, and in practice, even longer. ⁴³ Actors such as “Bette Davis and James Cagney were constantly suspended without pay by Warner Bros. for refusing roles.”⁴⁴ Actors who were suspended, such as Davis and Cagney, due to their “refus[al] to be loaned out to another studio or declin[ing of] a role . . . could be suspended without pay[, with the] length of the suspension . . . added to that of the contract,” extending contracts beyond seven years.⁴⁵

Early challenges to these contractual practices were unsuccessful, as demonstrated by Bette Davis’s 1937 lawsuit against Warner Brothers.⁴⁶ The same year as Davis’s unsuccessful lawsuit, California (home of Hollywood and longtime proponent of employee rights) enacted Section 2855 of the Code to limit the indefinite employment contracts often abused by studios.⁴⁷ Commonly referred to as the “Seven Year Rule,” Section 2855 “limits the term of personal service employment to seven years,” rendering any personal-service contract unenforceable past the seven-year mark.⁴⁸ This Section was tested in 1943, when Olivia de Havilland sued Warner Brothers.⁴⁹ The studio had refused to release De Havilland from her seven-year contract (despite the seven years lapsing) and claimed that her refusal to accept certain roles over the years had resulted in the addition of six months to her contract.⁵⁰ This practice of adding time to contracts was common in Hollywood, and these “suspension/extension” provisions (previously upheld in Bette Davis’s case) “could double the term of an actor’s contract.”⁵¹ De Havilland successfully argued that Warner Brothers was breaching its contract—as the contract was for seven years regardless of her refusal of certain roles—and violating labor law in doing so, as California had a statutory limit of seven calendar years on the enforcement of employment contracts.⁵² This marked the beginning of a new era of bargaining power for employees. This monumental decision applied “to more than just Hollywood[, as it] applied to every employee in California.”⁵³ While the extension provisions of De Havilland’s contract were deemed illegal in 1943, her concern around being held off the market is still shared by many series regulars today in the debate around exclusivity. An actor’s desire to pursue additional roles may conflict with a studio’s desire to coordinate production schedules.

Until the late 1940s, the major studios had maintained almost complete vertical integration of the film production process, evading various antitrust charges through government deals.⁵⁴ But in 1948, Paramount was found guilty of price-fixing by the Supreme Court in an antitrust lawsuit.⁵⁵ This case, widely known as the beginning of the end of Hollywood’s Golden Age, forced film studios to break up their vertically integrated practices.⁵⁶ A decree was signed by the major studios which “separated production and distribution from exhibition.”⁵⁷

This separation of exhibition from other links in the production chain played a transformative role in fundamentally shifting entertainment industry practices, replacing the long-term contracts of the 1930s with the disintegrated model of the 1950s.⁵⁸ With the collapse of the vertically integrated studio system, long-term contracts and standard seven-year exclusivity provisions were phased out and replaced by the freelance model that is still in place today.⁵⁹

Later, the emergence of television caused movie theater attendance to decline, leading studios to limit film production.⁶⁰ “[C]ontracted stars . . . became a hugely expensive overhead,” moving the industry into a freelance model as studios looked to cut costs.⁶¹ The relationship between studios and talent shifted as stars were given more freedom to choose their roles. Still, studios often incorporated exclusivity terms into deals as “series regular actors were busy working almost the entire year, with long production periods and short hiatuses that made their employment similar to other full-time jobs.”⁶² As film and series productions have grown in size and scale, studios argue that the exclusivity of actors involved in a production is essential to the coordination of various schedules and logistics. The ability to contract for the exclusivity of certain well-known actors may offer large incentives for a studio to invest in a production.⁶³

B. Modern Talent Contracts

Currently, Hollywood does not operate by the onerous long-term contracts that once existed, as modern talent contracts are no longer set at seven-year terms of exclusive work as they were in the 1930s. Instead, talent is cast specifically from project to project, often incorporating exclusivity clauses in both the film and television industry. Special contract terms, such as option contracts and pay or play contracts, raise similar issues to in-term exclusivity surrounding an actor’s ability to pursue other roles. The following paragraphs state the entertainment industry terms as they existed prior to the 2023 SAG-AFTRA strike.

1. Film

Film production begins and ends on (more or less) defined dates.⁶⁴ As a result, exclusivity terms in movie deals are common and are rarely a source of extreme debate. An actor’s film contract will often explicitly include the dates for “consecutive exclusive preproduction services, a specified number of weeks for shooting, and a maximum number of days for postproduction services.”⁶⁵ In-term exclusivity provisions tend to accompany the preproduction and production period,⁶⁶ as exclusivity is often used to coordinate scheduling among large casts and crews, and actors are left with little idle time during film rehearsals and shooting. Conversely, postproduction requests⁶⁷ are generally subject to an actor’s availability, as an actor’s work will typically be completed and any post-term restriction preventing the actor from accepting other jobs would likely be invalidated by Section 16600.⁶⁸

It may be possible, however, for talent contracts to include postproduction restrictions preventing actors from working on certain projects for a certain amount of time even after a movie has completed filming. One can imagine this being the case for actors in the Marvel Universe.⁶⁹ For example, Chris Hemsworth—popular for his role as superhero Thor in the Marvel Comics (“Marvel”) film Thor as well as The Avengers—could theoretically be unable to appear in films by Marvel’s direct competitor, DC Comics (“DC”).⁷⁰ Marvel and DC are both immensely popular comic-book publishers that have transformed their comic-book characters into big-screen franchises. If these contractual provisions exist, they may be legally vulnerable, as Section 16600 invalidates post-term restrictions on an employee’s work.

It is also possible that these terms, which (on face value) appear to be post-term, are actually in-term restrictions, and thus valid under Section 16600. The acting industry has a unique gray area between in-term and post-term restrictions when an actor is no longer actively filming but may be called back for a reshoot, or–for example–when an actor is no longer filming the first Thor movie but is still under an exclusive contract for the second movie. While this may be in-term contractually, it has post-term implications as an actor’s work is restricted while they wait for the next production cycle to begin. This area of talent contracts seems to be the most legally vulnerable, especially under the Ninth Circuit’s extension of Section 16600 in ITN to invalidate in-term noncompete provisions.

2. Series and Short Form (Television)

While not heavily debated in film contracts, exclusivity terms are a highly contentious subject of debate in television and series contracts. Television seasons may be short, and actors may find themselves wanting to solicit intermittent work, leading them to seek additional roles while still under contract with another show. Unlike films, there is not a set beginning and end date in television series production, as shows are in “a relatively constant state of production and postproduction during which there will be stretches of time when an actor’s services are not needed.”⁷¹ Exclusivity terms can vary greatly depending on the contractual terms negotiated: a series actor who wants to render outside services may either be free to do so, may need special permission from the studio, or may be prohibited from doing so.⁷²

When a television talent contract does allow an actor to pursue additional roles, there are practical limits to an actor’s ability to do so, as studios prefer their talent to be somewhat exclusive to their shows.⁷³ For example, scheduling work on a feature film is difficult, as television series production is demanding and leaves only a few days off at a time (apart from true offseasons).⁷⁴ Further, many deals preclude an actor from appearing on another television series, apart from “a limited number of guest spots, appearance in foreign commercials and services in nonidentified voice-over commercials.”⁷⁵ Standard series agreement deals (as of December 2021) allowed networks and streaming services to enter into exclusivity deals with talent for “anywhere from nine months to more than a year in some cases,” making the process of rendering outside services difficult during this period.⁷⁶

Noncompete and exclusivity terms for a series contract generally fall in the category of in-term restrictions, as they apply to the actor while they are still in a contract for their current series. They are therefore not legally vulnerable under the historical interpretation of Section 16600, which has traditionally applied only to post-term restrictions. If, however, the Ninth Circuit’s extension of Section 16600 in ITN to invalidate in-term employment restrictions is valid, then these common industry practices may be legally vulnerable.⁷⁷

3. Option Contracts

When a film or television series is part of a larger, ongoing story and multiple production periods are likely (such as classic blockbuster films like Wonder Woman and Spider-Man for which sequels can be anticipated), option contracts are often used. An option clause in a talent contract “gives the producer or studio the sole right, or ‘option,’ to extend a contract for an additional period of time [and] commits the actor to working on the subsequent television or new media season.”⁷⁸ The option period can last anywhere from months to years.⁷⁹ While option clauses ensure that characters an audience has come to know and love will be returning in the same role, they have the potential to prevent an actor from accepting additional work when paired with exclusivity terms, as options can be exercised even if no start date has been set for the next project.⁸⁰ This raises similar issues to exclusivity and noncompetes, as actors may be kept off the market for unreasonably long periods of time, yet studios have an interest in ensuring well-known characters such as Wonder Woman and Spider-Man are able to return for a sequel.

4. Pay or Play

A pay or play term in a contract guarantees that an actor will be paid for their role in a production, regardless of whether they are used or whether the production gets made.⁸¹ These terms can typically only be negotiated by top talent, as they require the studio to pay the actors their full salaries “even if they are terminated before rendering all of their services.”⁸² This compensates the talent for rejecting other “lucrative” roles with similar time lines due to the expectation of exclusivity surrounding their involvement in the pay or play production.⁸³ Pay or play terms therefore symbolize the acknowledgement by studios that exclusivity is highly valuable, and as such, studios are willing to compensate top talent highly for the opportunity cost of rejecting other roles. Since these terms are often accompanied by exclusivity terms, they may be subject to challenges if Section 16600 is extended to invalidate in-term exclusivity.

C. Industry Practices

The Screen Actors Guild (“SAG”) was founded in 1933 as a union representing actors in “film, television, and digital media.”⁸⁴ In 2012, the Screen Actors Guild merged with the American Federation of Television and Radio Artists (“AFTRA”) to form SAG-AFTRA, a powerful union representing “approximately 160,000 actors, announcers, broadcast journalists, dancers, DJs, news writers, news editors, program hosts, puppeteers, recording artists, singers, stunt performers, voiceover artists and other media professionals.”⁸⁵ The union is frequently in talks with major production studios to exercise its collective-bargaining power and achieve favorable deals for its members, going on strike in 2023 to do so.

In-term exclusivity is highly contested in the acting industry as a constant battle between studios, who view the terms as essential to production, and actors and unions, who generally oppose them. In August of 2022, SAG-AFTRA⁸⁶ reached an agreement with Netflix (“Agreement”) limiting the use of exclusivity provisions for series regulars.⁸⁷ A similar agreement was reached between SAG-AFTRA and the Alliance of Motion Picture and Television Producers (“AMPTP”)⁸⁸ limiting exclusivity in series actors’ employment agreements.⁸⁹ SAG-AFTRA’s 2023 strike ended in November of 2023 (the Writers Guild of America also went on strike on May 2, 2023 and ultimately reached a deal with AMPTP on September 27, 2023).⁹⁰ This Note will focus on the terms impacting SAG-AFTRA as they existed prior to the 2023 strike.

An important distinction exists between stars and other talent in the entertainment industry when considering the practical relevance of the prior Agreement’s minimum terms. For those paid above a minimum salary, known as the “exclusivity money break,” the minimum terms of the collective-bargaining agreement do not apply.⁹¹ This means that stars and top-tier talent paid above this amount are not bound by the terms, limiting the effect of the Agreement to non-star talent. The 2022 SAG-AFTRA and Netflix Agreement increased this exclusivity money break (above which exclusivity can be freely negotiated) from $40,000 per episode or per week in 2019 to “$65,000 for a half-hour program and $70,000 for an hour program.”⁹²

For non-star talent paid less than the exclusivity money break, “the minimum terms of the collective bargaining agreement . . . require that a series regular retain the right to do certain other work in addition to working on the series on which they are a regular.”⁹³ The Agreement grants them the ability to take on a second position as a series regular or miniseries lead and removes the condition that a guest appearance⁹⁴ may not be on a competing platform.⁹⁵ Netflix still “must approve the [guest] [a]ppearance and the series regular must confirm availability and scheduling with Netflix before accepting it.”⁹⁶ Netflix retains the ability to deny a guest appearance if the guest role is too similar to the actor’s Netflix role, and actors cannot make irreversible changes to their appearance (such as haircuts).⁹⁷ A minimum three-month “conflict free window” after each season, “during which the series regular may accept a [guest] [a]ppearance without first having to confirm availability or schedule with Netflix” has been established.⁹⁸ This conflict free window means that a series regular will not be held off the market during offseasons, even in an in-term exclusive talent contract. The guest appearance, however, must be completed during the conflict free window or all remaining work will be second to Netflix’s scheduling, reflecting the concern of studios regarding the coordination of many crew and cast member schedules.⁹⁹ Failure on Netflix’s end to provide this window would result in Netflix paying the series regular their episodic fee for the prior season during the window the actor is not able to compete.¹⁰⁰

Concessions on behalf of Netflix in the above Agreement were made in exchange for SAG-AGTRA’s withdrawal of a California bill that it had supported, AB-437, known as the Let Actors Work (LAW) Act.¹⁰¹ AB-437 would have sharply limited exclusivity in television deals in favor of allowing actors to work on competing networks “as long as ‘there is no material conflict of interest with their original employer,’ [and] . . . it [did] not conflict with the original show’s schedule.”¹⁰² At the time AB-437 was drafted, exclusivity terms in contracts often prohibited stars from appearing on competing networks, even during production breaks.¹⁰³ While “AB-437 passed the [California] Senate Judiciary Committee in a 9-1 vote,”¹⁰⁴ it was withdrawn prior to the close of the August 2022 Legislative session as a result of the SAG-AFTRA agreements with Netflix and AMPTP.¹⁰⁵

The 2022 Agreement between Netflix and SAG-AFTRA exemplifies the arguments both for and against exclusivity and the resulting tension, as concessions were made on each side of the bargaining table. As a result of the Agreement, the demands of an actor’s “exclusivity” during an offseason were reduced. If exclusivity terms for actors paid below the exclusivity money break must now allow a conflict free window during which an actor can accept other roles, these terms may—in practice—act more like noncompete agreements than exclusivity agreements, since even “exclusive” actors are able to work on other shows. This blurs the lines between exclusivity and in-term noncompete agreements. Simultaneously, the importance of ensuring talent’s availability has been acknowledged and protected with provisions granting Netflix first position rights for scheduling.

II. SECTION 16600 AND EDWARDS

A. Section 16600

Some states allow contractual noncompete agreements, provided they satisfy a certain reasonableness standard. California, however, takes a strong stance against the enforcement of noncompetes in favor of employee mobility. Section 16600 of the Code states, “Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”¹⁰⁶ Section 16600 carves out an exception for noncompetes in the sale or dissolution of corporations, partnerships, and LLCs, allowing covenants not to compete “where a person sells the goodwill of a business and where a partner agrees not to compete in anticipation of the dissolution of a partnership.”¹⁰⁷ This exception ensures that those who purchase a business do not immediately face competition from the seller.

B. Edwards v. Arthur Andersen

Prior to 2008, a small number of cases (mainly federal) allowed narrow restraints on competition in California if they passed a “reasonableness” standard.¹⁰⁸ In 2008, the California Supreme Court rejected the Ninth Circuit’s narrow restraint approach to Section 16600 and articulated a single standard for noncompetes in Edwards v. Arthur Andersen LLP.¹⁰⁹

In 1997, Raymond Edwards II was hired as an accountant by the Los Angeles office of Arthur Andersen LLP, contingent on his signing a noncompete agreement that all managers were required to sign.¹¹⁰ The noncompete prohibited Edwards from performing similar services to any clients he had worked with in the eighteen months prior to his departure for another eighteen months after his release or resignation.¹¹¹ While Edwards was subject to a non-solicitation provision, he was not prohibited from accepting employment with clients.¹¹²

In 2003, shortly after Edwards’s employment at the firm was terminated, Edwards filed a complaint alleging that Andersen’s noncompete agreement violated Section 16600 and was thus unlawful.¹¹³ The trial court held that, since the noncompete was “narrowly tailored” and “did not deprive Edwards of his right to pursue his profession,” it did not violate Section 16600.¹¹⁴

The California Court of Appeals reversed, finding that the noncompete was invalid under Section 16600.¹¹⁵ The California Supreme Court agreed and explicitly rejected the “narrow-restraint” exception to Section 16600 used by the Ninth Circuit, stating that “California courts have not embraced the Ninth Circuit’s narrow-restraint exception.”¹¹⁶ The court discussed its policy rationale in favor of protecting Californians and ensuring that “every citizen shall retain the right to pursue any lawful employment and enterprise of their choice.”¹¹⁷ This means that even a narrow restriction on employment in a specific industry will be invalid under California law.¹¹⁸ As noted in Edwards, the California Legislature did not include language to narrow the application of Section 16600 to only overbroad or unreasonable restraints on competition, thus the court will not add those limitations unless expressly indicated by the legislature.¹¹⁹

While the text and notes of the Code do not specify whether Section 16600 should apply to current as well as former employees, there are nearly a hundred years of case law interpreting the Code in the context of post-term employment restrictions—during which no California state cases have applied the Code to in-term restraints on employment such as exclusivity provisions.¹²⁰ Accordingly, exclusivity provisions are used often in the talent industry to coordinate schedules among individuals involved in production.¹²¹ However, a recent Ninth Circuit case, ITN, may extend application of Section 16600 (California’s ban on noncompetes) to exclusivity in the acting industry.

III. CASE ANALYSIS

A. Exclusivity Analyzed Through the Lens of Section 16600

Since Edwards, Section 16600 “often operates as a per se rule against noncompete clauses in contracts,” prohibiting noncompete agreements in California regardless of whether they are narrowly tailored in favor of promoting open competition and employee mobility.¹²² As noted earlier, the vast majority of cases applying Section 16600 have been restricted to the post-term noncompete context. Therefore, in-term exclusivity agreements and noncompetes will typically be allowed if narrowly and fairly drafted, as parties often use in-term exclusivity to ensure loyalty and investment in employee development. In the acting industry, in-term exclusivity may be used to coordinate production schedules, make talent contracts more valuable, and prevent actors from simultaneously appearing in rival network platforms (assuming they are paid above the exclusivity money break). For films, these exclusivity provisions include services such as “preproduction (rehearsal, costume fittings, etc.), production (i.e. principal photography), postproduction (which may include special effects work, dubbing, and reshoots), and publicity for the film.”¹²³

Nevertheless, at least one recent Ninth Circuit decision (ITN) applying California law has extended Section 16600 to invalidate in-term noncompete agreements as well. This extension impacts not only in-term noncompetes, which limit an employee from working in a certain area, but also exclusivity provisions, which restrict an actor’s ability to work in other productions entirely. As in-term noncompetes are less restrictive than exclusivity provisions, the policy reasons in support of the Code’s extension to capture in-term noncompetes may capture exclusivity as well.

B. Section 16600 Application to In-Term Provisions

Following years of consistent judicial application by California courts, Section 16600 prohibits most post-term noncompete agreements. The more difficult inquiry is whether Section 16600 does or should apply to in-term exclusivity and noncompete agreements for actors. In 2021, the court for the Southern District of California summarized the precedent set by California courts that Section 16600 applies only to bars on post-employment, not in-term employment, competition in Youngevity Int’l, Corp. v. Smith: “Section ‘16600 does not apply to restrictions on a person’s ability to engage in a lawful business while that person is employed by the company to which he or she promised loyalty. . . . Rather, § 16600 targets restrictions on post-employment activity.’ ”¹²⁴ In-term prohibitions on competition have allowed employers to rely on an employee’s loyalty and commitment while employed.¹²⁵ Further, in Techno Lite, Inc. v Emcod, LLC (2020), the California Court of Appeals notes that “[a]ppellants do not cite—and we have not found—a single case in which Section 16600 was held to invalidate an agreement not to compete with one’s current employer while employed by that employer,” rejecting an argument that Section 16600 could apply to restrictions on employees while currently employed.¹²⁶

However, in 2017, the Ninth Circuit Court of Appeals applied California state law in ITN Flix, LLC v. Hinojosa to hold that Section 16600 does in fact apply to invalidate “in-term” noncompete clauses lasting only for the term of employment set by the contract.¹²⁷ If Section 16600 is extended to prohibit in-term noncompete and exclusivity terms (as is suggested by ITN), many existing practices in the entertainment industry could be legally vulnerable. In ITN, an actor’s Master License Agreement (“MLA”) and Acting Agreement (“AA”) were found to be void as unlawful restraints on trade since they limited the actor’s right to pursue lawful employment.¹²⁸ The actor had entered into the MLA and AA contracts after starring in a film franchise built around his “vigilante character” role.¹²⁹ The contracts limited the actor’s ability to play “vigilante characters” in other films, as well as his ability to appear in similar films from 2006 to 2013 (a term of seven years brushing against the outer limit of California’s “Seven Year Rule” for personal-service contracts).¹³⁰ The film was a box office flop.¹³¹ The actor then starred in a later film as a “vigilante character,” which was a commercial success.¹³² The producer of the original film, Medina, sued for the actor’s breach of contract and argued that the MLA and AA were valid contracts not to compete, as Section 16600 “does not apply to ‘in-term’ non-compete clauses that last only for the term of employment set by the contract.”¹³³

The court disagreed and said that “[u]nder Cal. Bus. & Prof. Code [Section] 16600, both the MLA and AA are void as unlawful restraints on trade because they limit the right of [the actor] to pursue lawful employment.”¹³⁴ In rejecting Medina’s argument that Section 16600 applies only to post-term noncompetes, the court stated—in no soft terms—that “[b]oth California courts and the Ninth Circuit have rejected [that] argument,” citing two cases in support of their bold statement that Section 16600 applies to invalidate in-term noncompetes: (1) Kelton v. Stravinski (a 2006 California Court of Appeals case) and (2) Comedy Club Inc. v Improv West Associates (a 2009 Ninth Circuit case).¹³⁵ Both of these cases, however, discuss noncompete agreements in contexts outside of the employment context—first the franchise context and later in partnerships—raising the question as to whether the court in ITN was stretching to find support for its policy stance.¹³⁶ California courts have explicitly stated that the “reasoning [in certain cases] is tied to the franchise context,” meaning a case involving a franchisor and franchisee is not directly analogous to a case involving an actor and their employer.¹³⁷ Thus, the extension of Section 16600 to in-term noncompetes does not seem to be supported by existing laws or cases.

First, Kelton involved two partners who developed industrial warehouses and thus had a partnership relationship as opposed to that of an employee and employer.¹³⁸ The partners had agreed to a covenant not to compete which prohibited them from building warehouses independently.¹³⁹ After one partner allegedly breached the covenant, the California Fifth District Court of Appeals held that the covenant was invalid under Section 16600, as it did not fall under any exceptions to the Code and “[i]n the partnership context, an ongoing business relationship [between the parties] does not validate the covenant [not to compete],” or create a Section 16600 exception.¹⁴⁰ Further, the partners in Kelton limited the fiduciary duties owed to one another to only those rising out of the Partnership’s property, explicitly stating that they had no “obligation to refer to the Partnership or to the other Partner any business opportunity,” and that “each partner could ‘engage in other real estate activities, . . . competitive with the Partnership or otherwise.’ ”¹⁴¹ This is significant, as a large policy reason for enforcing in-term noncompete covenants is the expectation of loyalty that accompanies them. Here, the partners expressly limited both their fiduciary duties and any expectations of loyalty regarding real-estate developments.¹⁴² This makes the facts in Kelton distinguishable from those in ITN, and, while cited as a supporting case for the application of Section 16600 to in-term noncompetes, support for ITN from Kelton is not strong due to the factual differences between a business partner and an employee.

The second case cited in ITN supporting the ban on in-term noncompetes in the employment context is Comedy Club Inc. v. Improv West Associates.¹⁴³ Comedy Club involved two businesses that agreed to an exclusive Trademark License Agreement, which was later breached.¹⁴⁴ The Ninth Circuit Court of Appeals stated that “an in-term covenant not to compete in a franchise-like agreement will be void if it ‘foreclose[s] competition in a substantial share’ of a business, trade, or market.”¹⁴⁵ However, the MLA and AA in ITN did not resemble a franchise agreement. While Comedy Club held the franchise’s in-term noncompete was invalid, Comedy Club involved two businesses in a franchise agreement—not an employee and an employer like in ITN.¹⁴⁶ Further, the Ninth Circuit in Comedy Club refused to void the entire in-term covenant.¹⁴⁷ Instead, it weighed the interests of the plaintiff in operating its business against those of the defendant seeking to protect its trade name and goodwill, creating a compromise which allowed the plaintiff to operate in certain areas in which the defendant did not already operate.¹⁴⁸

The Comedy Club court does note that “California courts are less willing to approve in-term covenants not to compete outside a franchise context because there is not a need ‘to protect and maintain [the franchisor’s] trademark, trade name and goodwill.’ ”¹⁴⁹ This suggests that in-term exclusivity provisions may be subject to some challenges if they are not drafted with appropriate terms.

Lastly, Medina argued that Section 16600 should not be applied to the entertainment industry, as it “would be unworkable because personal services contracts are so often needed to ensure the availability of celebrities.”¹⁵⁰ While the court was not persuaded by this argument, maintaining its stance that this noncompete was illegal regardless of scheduling implications, Medina’s argument touches on some of the most important issues that would stem from an extension of Section 16600 to in-term noncompetes.¹⁵¹ Scheduling work on large productions would be more difficult, potentially raising costs and slowing the pace of production. Further, studios have an interest in ensuring their stars do not accept similar roles in the same time frame during which their films are being released, as it could lower viewership and performance. It is also important to note that exclusive personal-service contracts today are the product of a freelance entertainment industry in which actors are cast for specific roles, as well as extensive collective-bargaining negotiations in which both actors and studios are represented. Actors need protection from exploitation, and unions (such as SAG-AFTRA) will go on strike to ensure actors’ interests are adequately represented in collective-bargaining negotiations. The resulting contracts are far less demanding than those that existed in the 1930s, and interference by the courts with the established system and the agreements that have resulted from it may raise more problems than solutions. It may be best to allow unions and studios to reach their desired outcomes without judicially imposed boundaries on in-term noncompete agreements.

One way to reconcile the outcome of ITN with the overwhelming enforcement of in-term noncompetes is by treating the MLA and AA as post-term noncompete agreements. While the court said the actor’s contract was an in-term prohibition, it is possible that it actually categorized the MLA and AA as post-term noncompete contracts and treated them as such, since both restricted the actor’s work after the film was released. Thus, the contracts may have been post-term prohibitions on competition and invalid for that reason, despite the courts “in-term” language. This would allow the result in ITN to be accurate while maintaining the concept of exclusivity. Further, the importance of this distinction highlights the nuances and gray areas that exist in an actor’s contract. A contract may be “in-term” if it applies for a set number of years or seasons of a show, while also operating as “post-term” if it continues to limit the actor after filming has wrapped and an actor’s services are no longer actively needed.

Another possibility is that the Ninth Circuit in ITN simply incorrectly overapplied Section 16600 in an effort to show its recognition of California case law as distinguished from the more lenient noncompete laws of other states in the Ninth Circuit. In the past, the Ninth Circuit has issued certified questions to the California Supreme Court regarding noncompetes, as it did in Ixchel Pharma v. Biogen, asking how broad Section 16600 is in its reach.¹⁵² Further, in 2008, the California Supreme Court had explicitly rejected the “narrow-restraint” exception previously used by the Ninth Circuit.¹⁵³ The Ninth Circuit therefore may have improperly applied Section 16600 due to confusion regarding the scope of the Section or in an effort to show its recognition of California law as distinguished from other states in the Ninth Circuit.

ITN may also suggest that certain situations in the acting industry can trigger the application of Section 16600 to hold an in-term noncompete invalid if it is unduly harsh. The actor’s contracts, while technically within the seven years allowed for a personal-service contract in California, were at the outer limits as they lasted for a full seven years. Perhaps a shorter period, such as three or four years, would have led the court to reach a different conclusion.

Despite the plausible explanations above reconciling ITN with existing California case law, ITN is likely an outlier on the treatment of in-term noncompetes in California. In Edwards, the Supreme Court of California invalidated a noncompete agreement that forbade a former employee from working with certain clients and soliciting other employees for periods of twelve to eighteen months after his employment terminated.¹⁵⁴ The Supreme Court “did not address—much less invalidate—agreements by employees not to undermine their employer’s business by surreptitiously competing with it while being paid by the employer.”¹⁵⁵ This suggests that if an employee is still being paid, in-term noncompetes are entirely valid. As the California Supreme Court has not weighed in on the treatment of in-term noncompete agreements, its deferential stance in Edwards to legislative intent signals that it may be waiting for clarification from the lawmaking branches of the California government before extending Section 16600 to in-term covenants. Further, the transition away from the studio system of the 1930s (in which actors were held off the market for long periods of time) to the freelance model of talent contracts today, accompanied with the introduction of the “Seven Year Rule” in California, has put in place protections for actors that seem to absolve the need for any total ban on exclusivity or in-term noncompete agreements.

C. Section 16600 Application to Post-Term Noncompete Provisions

It is generally accepted that Section 16600 prohibits post-term noncompete provisions in California.¹⁵⁶ Post-term noncompetes prevent former employees from working for a competitor or soliciting clients for a certain amount of time.¹⁵⁷ Most cases interpreting Section 16600 under California law fall in this post-employment context, as the statute has consistently invalidated covenants not to compete that interfere with an employee’s ability to compete after they cut ties with a former employer.¹⁵⁸

Post-term noncompete clauses in the entertainment industry are not common but might include provisions forbidding an actor from working in a production associated with a rival television network or film studio, even after all work has been completed for the current role. Terms with similar effects, however, may be included in the contracts of megastars preventing them from accepting roles with competing studios.¹⁵⁹ This represents the unique gray area in talent contracts, in which it appears an actor has completed a term of their contract (as filming for the movie is done), yet the actor may have a three-picture contract bringing these terms within the scope of in-term exclusivity.

Interestingly, the LA County Superior Court seems to take the stance that post-term noncompete agreements are valid in the narrow fixed-term employment context where an employee leaves in the 2020 case Viacom v. Netflix.¹⁶⁰ This is particularly relevant in the acting industry, in which talent contracts are generally for a set term as opposed to at will. The holding of Viacom, applied to talent contracts, suggests that noncompete agreements restricting an actor’s ability to accept roles after a contract has ended could actually be valid where the actor is the party that breaches the contract. In Viacom, an executive employed by Viacom (an entertainment company) with a fixed-term employment contract left her job nineteen months prior to the end of her contract to work for Netflix.¹⁶¹ Viacom sued Netflix, seeking a permanent injunction enjoining Netflix from taking its employees in this manner, as well as damages.¹⁶² The disputed noncompete provisions from the executive’s employment agreement read

Your employment with the Company is on an exclusive and full-time basis, and while you are employed by the Company, you shall not engage in any other business activity which is in conflict with your duties and obligations (including your commitment of time) to the Company . . . .
The “Non-Competition Period” begins on the Effective Date and ends on the last day of the Contract Period, provided that:
1. If the Company terminates your employment without Cause before the end of the Contract Period, then the Non-Competition Period shall end on the earlier of (i) the end of the period in which you are receiving payments pursuant to paragraph 11(b)(i) or (ii) the effective date of your waiver in writing of any right to receive or continue to receive compensation and benefits under paragraph 11. You shall be deemed to have irrevocably provided such waiver if you accept competing employment.
2. If the Company terminates your employment for Cause or you resign, the Non-Competition Period shall end on the earlier of (i) the last day of the Contract Period or (ii) eighteen (18) months after such termination or resignation.¹⁶³

While Netflix argued that the covenant was an unlawful prohibition preventing the employee from working in similar positions for eighteen months post-employment, the court disagreed.¹⁶⁴ The court stated that there is no case law supporting the argument that fixed-term contracts not to compete are invalid given that the employee voluntarily left Viacom under assurance from Netflix that she would be indemnified and would not have to pay legal fees.¹⁶⁵ While Section 16600 would invalidate the noncompete if the employee had been terminated by Viacom, this case suggests that a noncompete provision for a set amount of time will be upheld where the employee voluntarily leaves their position.¹⁶⁶ Applied to talent contracts, actors who sign fixed-term exclusivity and noncompete contracts for the filming of their television shows or films may have agreed to valid noncompete provisions in the case that an actor quits in order to pursue a different role, regardless of whether the noncompete becomes post-term.

In Viacom, the noncompete was valid because the employee was not terminated but chose to leave to work for a competitor, thus forsaking her position and its salary voluntarily.¹⁶⁷ Had the employee instead been terminated, Section 16600 would undoubtedly be implicated.¹⁶⁸ Additionally, the court notes that at will employment contracts (as opposed to fixed term) with identical language would prove to be unlawful.¹⁶⁹ This raises an interesting question regarding option contracts.¹⁷⁰ Further, it seems as though the court wanted to hold for Netflix from a policy perspective.¹⁷¹ The court expressly stated that it believes Viacom’s fixed-term employment contracts may violate Section 16600, but that it is unable to find binding case law in support of this position.¹⁷² This is an interesting narrowing of Section 16600 in finding post-term noncompete terms legal in the situation in which an employee leaves, with particular application to the acting industry where the actor will typically be the one breaching an exclusivity provision in order to render outside work. While helpful in noting that California case law does not suggest that exclusivity in a fixed-term contract is unlawful, this is a Superior Court case and is thus not binding.¹⁷³ The court itself seems to struggle with the outcome and is perhaps expressing its struggle with existing precedent in an effort to open the door for the California Supreme Court to weigh in on the matter.

Steinberg Moorad & Dunn, Inc. v. Dunn, an unpublished 2005 Ninth Circuit case referenced in Viacom, takes the view that a post-term noncompete is invalid regardless of whether the employee left or was fired: “[w]hen an employee leaves, be it before the term of employment has ended or not, [S]ection 16600 prohibits the employer from preventing that employee from pursuing his trade.”¹⁷⁴ The Viacom court states that, while it would like to rely on Steinberg as persuasive, it is unable to do so because, as an unpublished case, it lacks the specific facts needed to analyze Viacom’s noncompete clause.¹⁷⁵ This further suggests that some direction is needed from the higher state courts in California or the legislative branch on the application of Section 16600 when an employee is the one to cut ties with the employer in a fixed-term exclusivity contract.

While Viacom represents a narrow application of Section 16600 to allow post-term noncompetes, the application is important in certain contexts such as Silicon Valley where technology companies are constantly poaching employees with key information regarding data breakthroughs such as self-driving car technology.¹⁷⁶ However, the nuanced application of the Code to the general prohibition on post-term noncompetes (allowing them where the employee leaves a fixed-term contract) may have unintended consequences by restricting the movement of talent in the acting industry.

D. Factors Unique to the Entertainment Industry

In determining whether Section 16600 should apply to noncompetes in talent contracts, perhaps talent contracts should be evaluated under a unique standard that considers the nuanced aspects of acting, such as fame. Are actors distinct from other employees whose in-term noncompetes in California are valid? As touched on in the discussion of ITN above, a gray area exists within noncompetes in which a contract may be ongoing, but an actor is no longer actively working on a project. A theoretical argument can be made that fame should play a role in the analysis. While most employees merely provide labor, actors are involved in a finished product, the value of which may turn on an actor’s reputation. This is particularly relevant when an actor is a widely recognized celebrity, known for their portrayal of certain characters or for a certain genre. For example, horror films or children’s films. Perhaps an actor is different from a typical employee in that the subsequent work of a “famous” actor could impact their image, and in turn, the value of the character created in a series or film owned by the studio. If this is the case, fame could be an important factor in the analysis of exclusivity provisions. While the actions of a little-known actor after a film or series airs will likely be inconsequential, the press surrounding a major celebrity may have a large impact on the success of a program.

This can be exemplified by the controversy surrounding Daniel Radcliffe’s involvement in Equus, a play in which Radcliffe appeared “full-frontally nude in a prolonged scene.”¹⁷⁷ Following Radcliffe’s nude appearance in the play, press speculated whether the star of the Harry Potter film franchise would be denied the role in the last two films, as the franchise was widely popular with children. One comment on a Harry Potter fan site following news of Radcliffe’s role in Equus with mature scenes read, “We as parents feel Daniel should not appear nude. Our nine-year-old son looks up to him as a role model. We are very disappointed and will avoid the future movies he makes.”¹⁷⁸

On the other hand, Daniel Radcliffe’s role in Equus did not seem to hinder the success of the final two Harry Potter movies, as “[t]he eighth and final Harry Potter movie was . . . the third-biggest movie of all time behind only Titanic . . . and Avatar,” bringing in $1.342 billion in the global box office.¹⁷⁹ If viewers do not place substantial weight on an actor and instead focus on the character portrayed, the argument that fame should be factored into the legality of post-term exclusivity terms is substantially weaker.

IV. SUMMARY OF CASE ANALYSIS

Analyzed through the lens of Section 16600, in-term noncompetes and exclusivity provisions in the acting industry seem to fall outside the scope of the Code’s prohibition of post-term noncompetes and are thus, at least in the general sense, legal. This does not mean, however, that the line is clear-cut or that all in-term noncompete and exclusivity clauses are watertight in their legality. Some in-term noncompete provisions may be prohibited if they are too broad in their restrictions or if they are not well-drafted. The Ninth Circuit’s application of California law in ITN exemplifies a court’s refusal to enforce an actor’s exclusive MLA and AA agreements even for in-term contracts, as the studio’s ban on the actor playing other “vigilante characters” for seven years was an illegal prohibition on the actor’s right to work. While this case is an outlier in an otherwise mostly unified interpretation of Section 16600’s application to post-term noncompete provisions, it indicates that in some instances, reasonableness and length of a contract may still be used to judge the legality of an in-term noncompete agreement.

Conversely, post-term exclusivity provisions are exactly what the California Code was designed to prevent and are generally illegal, except (as Viacom suggests) perhaps in the narrow situation where the employee voluntarily leaves the employer. In California, an employer cannot prohibit a former employee from working after they have left. Viacom interprets the Code, however, as allowing noncompetes in fixed-term employment contracts where the employee voluntarily leaves but prohibiting them when it comes to at will contracts with no end date. It is notable that the court in Viacom, however, believes that these contracts are perhaps illegal but is unable to hold that they are due to the lack of precedential case law on the matter. This may be a signal that it is time for the California Supreme Court to weigh in on the distinction between post-term and in-term exclusivity provisions under Section 16600 and explain that—as currently written and interpreted—it does not extend to invalidate in-term exclusivity and noncompete agreements. The California Supreme Court may also need to articulate whether post-term noncompetes are allowed in the narrow situation where an employee voluntarily leaves.

Another interesting distinction can be made between actors and nonactor employees; while actors are classified as employees, they are distinct due to their fame and their reputational value that has the potential to impact a final work product. This may support the theoretical argument that fame should be considered in analyzing exclusivity and noncompetes. However, if viewers can separate an actor from the roles they play, this may not be an issue.

The table below summarizes the standard from the majority of California cases interpreting Section 16600.

Figure 1.

Section 16600

In-Term Exclusivity

Post-Term Exclusivity

Exclusivity terms are heavily negotiated in television talent contracts, yet not heavily negotiated film talent contracts.

Typically legal if narrow in scope and well-drafted.

Often illegal if at will.

Potentially illegal if Section 16600 is extended to invalidate restrictive in-term exclusivity.

(ITN)

Potentially legal if fixed-term and the employee voluntarily leaves.

(Viacom)

CONCLUSION

California is firm in its stance against post-term noncompetes, yet an acting industry specific analysis suggests that the unique attributes of talent contracts may require a more nuanced approach. The rise of online streaming has changed the demands placed on actors, with shorter series seasons contributing to an increase in idle time. The landscape is changing rapidly, resulting in the frequent renegotiation of terms and resulting standstills, exemplified by the 2023 SAG-AFTRA strike.

The in-term and post-term treatment of exclusivity provisions and noncompetes has received conflicting treatment by California and Ninth Circuit Courts, suggesting that perhaps the California Supreme Court should weigh in on the matter as they did in 2008 with Edwards and articulate whether Section 16600 can apply to in-term noncompete and exclusivity provisions.¹⁸⁰ While it is widely held that Section 16600 does not apply to in-term noncompetes, the holding in ITN suggests that certain situations in the acting industry may trigger its application and deem an in-term noncompete invalid if unduly harsh.¹⁸¹

Viacom suggests that in certain instances where an employee breaches a fixed-term exclusivity provision, post-term noncompetes may be upheld. Regardless, the ability of actors and unions to negotiate with studios for mutually beneficial terms has allowed common practices in entertainment contracts to shift over time without much recent legislation. This suggests that, while the applicable law will provide one side with bargaining power, negotiations and collective-bargaining agreements will largely continue to set the standards for common entertainment contract practices.

97 S. Cal. L. Rev. 1087

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Katarina Ulich*

* J.D. Candidate 2024, University of Southern California Gould School of Law. To my parents, thank you for being my best friends and biggest supporters.

Introduction

I. Deputization

A. What Is Deputization?

B. Who Would Deputize?

1. California Bureau of Field Enforcement

C. Who Would Be Deputized?

II. Deputization to Perform Outreach

III. Deputization to Investigate

A. The Municipal Nondelegation Doctrine

Legislative Actions

Municipal Actions

Private Parties

Standard for Delegation

Conclusion

98 S. Cal. L. Rev. 725

INTRODUCTION

I. BACKGROUND: GENERATIVE ARTIFICIAL INTELLIGENCE

A. How the Technology Works

B. Generative AI in the Music Context

C. Copyright Office on AI

II. LEGAL BACKGROUND: COPYRIGHT LAW

A. Requirements for Protection

B. Rights Conferred by Copyright Ownership

Reproduction Right

Adaptation Right

Distribution Right

C. Additional Music-Specific Considerations

1. Musical Composition Versus Sound Recordings

Licensing and Sampling

D. Copyright Infringement Actions

Ownership of a Valid Copyright

Copying

Fair Use Defense

III. APPLICATION AND ANALYSIS

A. Sample Song A

Factual Copying

Legal Copying

B. Sample Song B

Factual Copying

i. Extrinsic-Intrinsic Test

ii. Ordinary Observer Test

iii. Fragmented Literal Similarity Test

The Sound Recording

Fair Use Defense

IV. POLICY IMPLICATIONS

CONCLUSION

98 S. Cal. L. Rev. 663

INTRODUCTION

I. FOUNDATIONS OF SPECIAL EDUCATION LAW

A. History of IDEA

B. Inside IDEA

1. IDEA Requirements and Procedural Framework

2. State Responsibilities Under IDEA

3. Section 1415(l): IDEA Exhaustion Requirement

C. The ADA and Section 504 of the Rehabilitation Act

II. JUDICIAL MILESTONES IN SPECIAL EDUCATION

III. PEREZ V. STURGIS PUBLIC SCHOOLS: A TURNING POINT IN DISABILITY RIGHTS ADVOCACY

A. Discussion of Perez v. Sturgis Public Schools

B. Perez’s Impact on Special Education Litigation

IV. BEYOND PEREZ: IMPLICATIONS AND CHALLENGES IN SPECIAL EDUCATION POLICY

A. Implications of the Perez Decision

B. Challenges in Policy Implementation and Compliance

C. Strategic Approaches and Systemic Changes in Special Education

CONCLUSION

98 S. Cal. L. Rev. 473

INTRODUCTION

I. BACKGROUND

A. Contract Common Law: Offer and Acceptance

B. From Shrinkwrap to Clickwrap

1. Step-Saver and ProCD

2. Online Contracts Today

C. Second and Ninth Circuit Decisions: Nguyen, Berman, and Specht

II. CASE LAW SURVEY

A. California State Courts

1. Clickwrap Agreements

2. Browsewrap Agreements

3. Sign-In-Wrap Agreements

B. U.S. District Courts in California

1. Clickwrap Agreements

2. Scrollwrap Agreements