A California federal court recently dismissed the majority of the counterclaims asserted by the Writers Guild of America (the Guild) against William Morris Endeavor Entertainment, Creative Artists Agency, and United Talent Agency (the Agencies) in a highly publicized suit over the Agencies’ right to receive “packaging” fees.
The case arose from the Guild’s decision last year to prohibit talent agents from earning packaging fees on film and television projects. For decades, it was common practice for studios to pay talent agents “packaging” fees for acquiring and pooling talent (e.g., assembling writers, actors, and directors, as talent agencies have a substantial roster of such talent) for a given project. These fees frequently consist of a combination of license fees paid by studios for a project and a percentage of the project’s gross receipts. The Guild banned this practice last year, claiming that packaging fees create conflicts of interest between talent agents and the writers they represent. In the Guild’s view, enabling talent agents to participate in the profits of a film or television project through packaging (1) lowers production budgets (thereby reducing writer compensation) and (2) lowers the agents’ incentive to increase their writer-clients’ compensation. The Guild favors a commission-based system, where a talent agent takes a percentage of their clients’ earnings, which it believes better incentivizes talent agents to maximize their writer-clients’ compensation. Following the Guild’s ban, the Agencies filed suit, alleging the packaging prohibition amounts to an illegal group boycott in violation of the Sherman Act.
The Guild countersued, alleging that the practice of charging packaging fees violates state and federal antitrust laws (governing price-fixing and unlawful group boycotts) and amounts to racketeering activity in violation of RICO laws, a breach of fiduciary duties, constructive fraud, and unfair competition.
In an April 27, 2020 ruling, a Central District of California court dismissed a majority of the Guild’s counterclaims. The court dismissed three out of four of the Guild’s antitrust claims, its breach of fiduciary duty and constructive fraud claims, and all four of its RICO claims. The Guild’s claim for price-fixing under the Sherman Act and its RICO claims were dismissed without leave to amend. The Guild’s claims for price-fixing under California’s Cartwright Act and a corresponding declaratory relief claim that the Agencies violated the Cartwright Act survived dismissal.
In dismissing the price-fixing claim under the Sherman Act, the court zeroed in on the requirement that an injured party in a price-fixing lawsuit must be a participant “in the same market” as the alleged wrongdoer. See Glen Holly Entmt., Inc. v. Tektronix, Inc., 343 F.3d 1000, 1008 (9th Cir. 2003). The Court found that the studios – not the Guild or its members – participate in the market for packages. Order at 8. Any anti-competitive injuries suffered by the Guild or its members are, in the court’s view, “entirely derivative” of the injuries suffered by the studios. Id. In contrast, the court allowed the Guild’s state-law price fixing claim under Cartwright Act to stand, as it does not similarly require that the Guild participate in the “same market” for packages.
The Guild’s failure to allege a “horizontal agreement among direct competitors” led to the dismissal of its group boycott claims under the Sherman Act and California law. See Sambreel Holdings LLC v. Facebook, Inc., 906 F. Supp. 2d 1070, 1076 (S.D. Cal. 2012). At most, the Agencies’ alleged conduct in disputing the Guild’s packaging fee ban amounted to disapproval of the Guild’s tactics and not a coordinated agreement among competitors to boycott the Guild. Order at 11-12.
In addition, the racketeering claims failed to survive the Agencies’ pleading challenge because the Guild failed to make the required showing that prohibiting studios from paying packaging fees to the agencies prevents corruption. Order at 13. As the Guild, not its writer-members, chooses which talent agencies may represent writers in their negotiations with the studio, the court found there is no potential for corruption or illegal kickbacks. Id.
The Guild’s inability to allege standing led to the dismissal of its breach of fiduciary duty, constructive fraud, and unfair competition claims. An organization has standing to bring suit on behalf of its members where the claim asserted does not require the participation of individual members in the lawsuit. See Hunt v. Wash. State Apply Advert. Comm’n, 432 U.S. 333, 343 (1977). The court determined that “a litany of individualized assessments” would be needed to determine whether the Agencies breached their fiduciary duties or committed fraud. Order at 15. Similarly, the Court found that only writer-members, and not the Guild itself, alleged personalized injuries to confer Article III standing to state a claim for unfair competition. Order at 18-19.
We will keep watching, and there is more to come.