trends

2008 and Beyond

Gregory A. Piccionelli
2007 was a banner year for legal news affecting the adult entertainment business. There was good news, like the striking down of the Child Online Protection Act (COPA) and the first-ever appearance by a bona fide U.S. presidential candidate at an industry function. There was even great news last year, such as ICANN's rejection of a .XXX top-level domain and, of course, the extraordinary ruling by the 6th U.S. Circuit Court of Appeals striking down the infamous federal recordkeeping and labeling statute 18 U.S.C. §2257.

And then, unfortunately, there was also some pretty bad news, like the conviction of two long-time industry webmasters for violation of federal money laundering and obscenity laws in association with their violation of the CAN-SPAM Act, Utah's victory in the industry's attempt to enjoin its outrageous and punitive "do not email list" and a first-in-a- generation obscenity prosecution in ultra-permissive California containing the first-ever indictment charging violations of the 2257 regulations.

But perhaps the most impressive thing about the legal news last year is the sheer amount of it. From the release of proposed new administrative regulations for 2257 compliance by the Justice Department; to multi-million-dollar copyright infringement awards; to the acts and deeds of plaintiffs and defendants, cops and attorneys, courts and legislatures — all of this kept the industry boards and blogs ablaze throughout the year.

As you might expect, the unusual amount of legal news last year has caused some in the industry to go into "legal news overload."

Many, who in years past had diligently kept up with all the legal happenings now are struggling just to understand what exactly they are expected to do to comply with the law. And the questions, reflecting their uncertainties, are becoming alarming. For example, with increasing frequency I am asked "is 2257 dead?", "I don't have to keep records anymore, right?", "Do I have to use condoms in scenes shot in California?", "now that COPA is dead, there's no laws prohibiting the distribution of content to minors on the web, right?", "a company can initiate an adult version of YouTube without any potential intellectual property liability, right?", etc.

If you don't already know that the answers to all the questions above are all emphatically "NO," you may have been affected by another consequence of the deluge of legal information last year. Not only was there a quantitative aspect to the activity by the courts and government regulators in 2007, there was an important qualitative component of their actions that introduced substantial additional legal ambiguity into the complex area of adult entertainment regulation, particularly regarding the 2257 regulations. Add to this the well-intentioned but sometimes incorrect "advice" available in the industry blogosphere and it is clearly understandable why many adult entertainment entrepreneurs are having a hard time sorting through all the legal news and rumors.

I deeply sympathize with those who are trying their best to comply with the law but are consistently frustrated by the ever-moving target that Congress, the administration and the courts have intentionally made of adult entertainment laws. I truly wish that I had a magic legal bullet solution that would instantly clear up all the legal ambiguity that plagues the industry. Unfortunately, the current administration has seen to it that no such remedy exists and we are all forced to wait while the cases work their way though the courts and a new set of legislatures less preoccupied with the priorities of the religious right takes office in 2009.

In the meantime, it is obviously unrealistic to expect that any appreciable number of adult business operators can, let alone will, follow every legal news story that might apply to them this year. There were scores of such stories in 2007 and likely to be even more in the run up to the fall election. Clearly the issue of family values — already a part of the political rhetoric — is likely to be a launching pad by many politicians for attacks on the adult entertainment industry, claiming that it is largely responsible for what conservatives are fond of calling our "oversexed and overly-permissive culture."

So what can a busy adult entertainment entrepreneur do to keep informed of all the important changes in the law affecting his or her business? Here are some suggestions:

  • Regularly read at least one of the hard-copy trades such as XBIZ World.

  • Set your browser's default homepage to XBIZ.com or the Free Speech Coalition website (FreeSpeechCoalition.com). Virtually all of the industry's important legal news can be monitored on these sites.

  • Generate a list of the types of laws and legal issues that pertain to your business model and use the list as a guide to help you focus on the legal stories reported in the trades that are relevant to what you do. If you have an adult entertainment attorney, you should enlist his or her help to generate the list. If you cannot afford to retain competent adult business counsel on an ongoing basis I suggest that you consider hiring a known industry attorney to at least analyze your business model, evaluate your current compliance with the law and help you generate a list of legal news areas to monitor in the trades. Many firms, including ours, will consent to such a limited engagement of services.

  • Never put all your faith in what you read on the boards or at a blog site unless it is written by a recognized legal authority in the field of adult entertainment law.

Additionally, regardless of what part of the industry your business is in, I strongly suggest that you keep your eyes open for developments in the following areas as their legal impact will likely affect virtually every adult industry participant.

2257 REGULATIONS
18 U.S.C. §2257, §2257A and 28 CFR 75: The Justice Department will likely publish a new set of revised regulations that will go into effect this year. This is a matter of utmost importance to virtually everyone in the industry as reports of the demise of 2257 in the wake of the 6th Circuit's invalidation of the law last October have been greatly exaggerated. While the appeals court ruling striking down 2257 was an unprecedented victory for the industry, the law is, unfortunately, technically alive and well — and enforceable in all but four states: Michigan, Ohio, Kentucky and Tennessee.

And worse, the law might even be resurrected in those states by subsequent appellate litigation or other moves that might be initiated by the government. (To read about what might be next in the 2257 Wars, see my previous XBIZ article "Could It Be the End of 18 U.S.C. §2257?") It will also be critically important to follow the next steps that are taken by the Free Speech Coalition legal team challenging the 2257 regulations. We are hopeful that our challenge to the 2257 regulations may be able to deliver a knockout blow to this insidious law in the not too distant future. Court decisions in 2008 may well determine whether or not that will be the case.

JIM SHAFFER AND JEFFREY KILBRIDE
The obscenity, CANSPAM act and money laundering convictions of Shaffer and Kilbride, the case currently on appeal, will present for adjudication by the second- highest court in the land with a number of issues of critical importance to the industry, including the question of what the appropriate "community" should be for prosecuting alleged obscenity violations when the subject content is distributed via the web. In deciding its appeal, the 9th U.S. Circuit Court of Appeals is likely to be the first federal appellate court to determine whether it is time for the use of a "national community" or an "Internet community" to replace the traditional local geographical community currently used in obscenity prosecutions when the alleged obscene content is distributed online. Given that the jurisdiction of the 9th Circuit includes the industry-important states of California, Arizona, Nevada and Washington, the ruling in the Shaffer and Kilbride appeals could have an immediate legal impact on the government's effective ability to prosecute a large number of adult entertainment companies doing business online.

THE EXTREME ASSOCIATES CASE
This case also presents many issues of first impression critical to the industry. For example, one of the most important issues the case could ultimately decide is whether the government could prosecute individual video clips, photographs and other components of a website as individual violations of the obscenity laws or whether the government will be constrained in such situations to view the content as part of a single website, allowing the charging of only a single obscenity violation (i.e., that the website must be taken "as a whole" like a hard-copy magazine). Given that a single obscenity violation count carries a potential penalty of five years in jail, no less than the issue of whether the government could send convicted webmasters to jail effectively for life — for multiple counts stemming from multiple pieces of content on a single website — is at stake in this case.

UTAH'S "DO NOT EMAIL" LAW
The outcome of this case could well determine whether senders of email advertisements for adult websites or other "adults-only" products or services will have to pay private companies in perhaps as many as all the states in the U.S. to "scrub" their email lists against "do not email" registries maintained by the states. Since these laws contemplate a payment of $.005 or more per name for each name on the sender's email list, the annual industry costs of compliance with such laws could ultimately be hundreds of millions of dollars. Additionally, Utah's law, which, if it survives our challenge will likely be the template for other states, provides for private party and governmental fines and damage awards of up to $1,000 per email per recipient for violation of the law.

AGE-RESTRICTING ONLINE HARMFUL MATTER LAWS
Now that COPA has been held to be unconstitutional by a federal judge, we can expect that Congress, in this election year, will once again try to pass new legislation "to protect the children" from online adult content. If that happens, it will be in the interest of everyone in the industry to make Congress aware that parents should do their fair share of keeping kids away from adult materials, and that parental filtering — not gross and unconstitutional censorship of lawful expression — is how that should be done. Therefore, close monitoring of stories regarding Congressional actions in this area is strongly advised.

VIACOM VS. GOOGLE
The outcome of this copyright infringement case may well determine whether the current copyright laws can protect copyright owners adequately in the digital age. It would not be an understatement to say that the fates of the music, motion picture and adult entertainment industries may all well rest on the outcome of this extremely important case if it is not settled before trial. As the adult industry recently has seemingly finally awakened to the business-crushing effects of rampant piracy of its products, the fledgling efforts of new content rights enforcement groups, such as GAPPA, will be dramatically helped or handicapped by the outcome of Viacom vs. Google.

MANDATORY CONDOM USE
It seems that there is definitely a strong desire on the part of health and safety officials in California to make some kind of required use of condoms in adult content production mandatory in the relatively near future. The potential effects of such regulations would be felt industry- wide. For example, on the downside, there will almost certainly be a substantial exodus of mainstream adult production from the U.S. On the upside, such regulations inevitably provide a quantum of legitimacy to the industry, effectively recognizing it to be another type of bona fide business that should be regulated as are other lawful enterprises.

LOOKING AHEAD
Despite the increasing frequency of criminal and civil litigation surrounding the adult industry, the overall outlook for the adult entertainment business is encouraging as we begin 2008. In fact, once the industry gets through the last part of the Bush term it may well find that after four years or more of a Democratic administration, that it never again sees the kind of governmental hostility at the federal level that it has been forced to endure under Republican administrations to date.

The reality is that even future Republican administrations may no longer be able to justify expending funds to further harass the industry in an era when the electorate — who will by then be overwhelmingly accepting of the creation and sale of erotica — will also likely be preoccupied with real problems.

Problems such as terrorists with weapons of mass destruction, global warming, potential natural pandemics, evaporating Social Security benefits and a collapsing healthcare system.

What will begin in 2008, I predict, is the long-awaited true legitimization of the adult entertainment business. It will, I hope, finally begin to be perceived by mainstream business interests as just a part of the broader global entertainment industrial complex.

As that process unfolds, business destruction of one's company due to competition — and not law enforcement — will be the overwhelming concern. The future of the industry, I believe, will be more about branding, product development and good old fashioned effective business management, and less about obscenity prosecutions and 2257 records cross-referencing. Thank God.

As the adult business goes mainstream and Hollywood goes XXX, the winning adult entrepreneurs will be those who have assembled a good business-oriented team. That being said, it is important to know that a good adult entertainment business attorney familiar with brand protection, deal making and transactions, like his or her counterpart in the motion picture and TV businesses, will become an indispensable part of the company team and an invaluable company asset.

On behalf of myself and all of us at Piccionelli & Sarno, we wish you a very happy, healthy and profitable new year.

Oh, and welcome to the future.

Adult entertainment business attorney Gregory A. Piccionelli can be reached at Piccionelli & Sarno at (310) 553-3375 or at greg@piccionellisarno.com

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