Copyright Issues, Intellectual Property, and Data Security in the Digital Age

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Transcript

In-House Legal: Copyright Issues, Intellectual Property, and Data Security in the Digital Age – 7/2/2015

 

Advertiser: Welcome to In-House Legal, where we cover a variety of the issues pertinent to the general counsel and in-house legal departments of small, mid-sized, and large organizations. Join host Randy Milch each month as he discusses the latest developments, trends and best practices for this very busy and often complicated area of law. You’re listening to Legal Talk Network.

 

Randy Milch: Hello, my name is Randy Milch and I’m the host of In-House Legal on the Legal Talk Network. I‘m honored and happy to have as a guest today, Michael Fricklas, executive vice-president, general counsel, and secretary of Viacom Inc. Mike has spent over twenty years as a senior lawyer and general counsel of Viacom, and has been deeply involved in the legal issues surrounding the digitization of content and, most recently, he has become involved in cyber-security issues, so I know there’s lots to learn from Mike. Mike, welcome to the show, thank you very much for being here.

 

Michael Fricklas: Thank you for having me.

 

Randy Milch: Could you just spend a minute and tell folks about Viacom? It’s a powerhouse in the digital content industry and the content industry generally. But many folks might not know of the various brands that Viacom has.

 

Michael Fricklas: Yeah, over the years we’ve been involved in a lot of different parts of the media business, including having owned CBS and a number of related businesses. Today we’re focused on the movie business where we own Paramount Pictures, which I think everybody is familiar with, and we own over 200 cable television networks around the world, which are no longer called cable television businesses, I think we call them content businesses under brands like Nickelodeon and VH1, MTV, Comedy Central, Spike, TV Land, the Paramount Channel. And even a public broadcast service for the UK called Channel 5.

 

Randy Milch: So you have a widespread swath of the digitized content industry and that’s going to raise a lot of issues for you, which we’ll get into later in the podcast. But I wanted to start off just by going through your background a little bit. Folks are always interested in how general counsels end up being general counsels. You’re actually an engineer, aren’t you, by training and undergrad?

 

Michael Fricklas: That’s right. I went to the University of Colorado, I grew up in Colorado and went to the state school where I intended to be an entrepreneur in the technology world. And along the way I got interested in the concept of patent law, I went to law school at Boston University. My first summer, I was fortunate enough to have a summer associate position at a local Boulder technology company called Storage Tech. And that summer there were two summer folks, one doing patent law and one doing the business law related to technology which was something I didn’t know existed until that summer, and it looked really intestersting. So I kind of changed my focus from being a patent lawyer to being a business lawyer with an emphasis on representing technology companies where I thought my interest and background in technology would be useful.

 

Randy Milch: So how did you parlay that interest in technology law to going to Viacom? I know it was a little bit of a route there that was centered on personal relationships as much as anything else.

 

Michael Fricklas: It’s true. There’s a bit of a logic to it but I think one of the things – especially for younger people starting out – is to think broadly about your career and look for the opportunities where they happen. I started out out of law school, went to the Silicon Valley. None of the firms actually interviewed at my law school, so I took a forway out to Palo Alto to meet the firms there, and they were all interested in the unique combination and understanding of technology and an interest in business law. I ended up picking a firm in Palo Alto that’s now part of a giant DLA Piper but in those days it was about 40 lawyers focused on representing technology companies. And through that firm I started working on a great diet of metro capital financing and licensing and other sorts of things. I really enjoy the small firm experience which I think gives you a lot of insight on the various parts of legal problems and through that department. And along the way, a connection with those companies that was doing metro financing and then went public and then was doing follow on financings, the opposite side of that transaction was a big New York law firm called Shearman Sterling, which had a small San Francisco office and they were expanding and we connected. And I went to go work for Shearman Sterling’s San Francisco office. In those days, San Francisco was the center of activity and then Palo Alto for most of the financing industry. So I worked for Shearman, they said there’s 9 of us here and there’s 700 in New York, so if we’ve got to make partner, we really want you to go spend a little time in New York and come back. Went to New York, my diet had not involved much merger acquisition work. On the West coast, that was something a corporate lawyer was expected to do. On the East coast, there were separate departments for all of that. So I spent time learning to do mergers and acquisitions, and around the same time – actually this was 1987 – the stock market crashed. And tech IPOs died, it was every bit as bad or worse than the 2007 crash in technology. And one thing that started going wild was the price of gold. And there were a number of old line mining companies that were taking their gold companies, doing gold company financings and taking them public, and somehow, Shearman Sterling managed to get a significant amount of that work. So I ended up doing work on gold mining companies. And then when I went to a merger group, I was doing acquisitions of gold mining companies. And along the way, a European company acquired a gold mining company in the West and offered me the opportunity to go back home to Colorado and be general counsel of their North American businesses, of which I would be employee number one, which would be to set up the company to do deals and provide a base of operations for this large multinational company. So I did that and got a little bit off track, and so instead of going back to San Francisco, I went to my hometown in Denver. And my outside counsel was a Shearman Sterling partner who I met on the M&A team, a guy named Philippe Dauman. And we worked really well together at Shearman and then I liked him enough that he was really my outside advisor when I was in-house doing big deals. About 3 years later, he decided to come in-house to Viacom. He had represented Center Red Stone, who’s the founder or acquirer, I guess, of Viacom back in the late eighties, and he had accepted a job as general counsel. And he said, “You know, I really need someone who understands technology, I really like working with you, and I’ve never been a general counsel before, you have. Would you come out and be my deputy?” And I liked the direction that Viacom was headed more than I liked the direction of the mining company. And even though Denver was home, it had started to feel small, so I accepted this opportunity to become general counsel at Viacom and that was 1993. Before my first day on the job, while I was taking a small break between jobs or hoping to take a small break between jobs, I got a phone call from Philippe saying, “Nobody on the company knows this, but we’re working on a deal and I‘d really love you to come start early so you can help us with the deal. So the first thing I ever worked on was the acquisition of Paramount Communications. At that point in time, it was the successor to Gulf and Western, one of the biggest industrial companies in the country and Viacom was working to acquire it. Two months later, Barry Diller – we closed the deal, Barry Diller signed the deal – Barry Diller’s QBC made a hostile bid for the company trying to break up our friendly deal, and we spent the next 8 months or so in one of the most intense corporate takeover battles in corporate history. So it got to be a great opportunity to work very closely with the top people in the company. And that’s how I ended up here.

 

Randy Milch: So you left what proved to be a cyclical tech world to go to the cyclical gold world, and then you ended up in contempt. But of course, purchasing Paramount – which you said was the successor to Gulf and Western – of course meant that Viacom ended up with something remarkably similar to a mining problem.

 

Michael Fricklas: Yeah. You know, there is something to learn about the fact that everything you do, no matter what it is, is going to come in handy one day. And literally at the very beginning of my job at the entertainment business, I was doing due diligence on Paramount, which has exceeded all income from Gulf and Western liabilities. And low and behold, their biggest liability, the thing they were most concerned about in spending the most money on was a mine in Colorado, where a predecessor of Gulf and Western had been the world’s largest ink company and had operated for a hundred years and was now polluting a river called Eagle River in Colorado. So I flew back to Colorado and people were impressed by the fact that I give all the right questions to ask and all the right buttons to push. And certainly nobody else in the entertainment business has any ideas how to address the issues related to a mine pollution problem.

 

Randy Milch: There was also asbestos, wasn’t there?

 

Michael Fricklas: That was a different one. So when we merged with CVS in 200, CVS was a renamed Westinghouse corporation. So the old Westinghouse had acquired CVS a few years before and changed its name. Westinghouse had made products that incorporated asbestos. And where the asbestos or the locations that proceeded over the years, all the companies that made asbestos were long since bankrupt. All the companies that used asbestos in their products were long since bankrupt. And a litigation that proceeded to suing companies that had some – the people would somehow grieved in a direction that might have referenced asbestos. There were duties to warn cases and other sorts of things, unless they’ve never touched asbestos, but they sold materials that were used in shipbuilding in World War II that specified that asbestos be used as an intellator in the installation. By the time we were working on that transaction, there were already over 120,000 asbestos cases pending and hundreds of thousands of more settled in billions of dollars in continental liabilities. In the law department, we thought of the merger as the merger of the Gulf and Western discontinued operations with the CVS discontinuations. But needless to say, the public relations people talking about the transaction didn’t think that was the right way to characterize.

 

Randy Milch: Of course, all the problems were left in your bailiwick. So I do want to point out one thing here and that is Philippe Dauman, who brought you in to be your deputy, is now the chief executive of Viacom, is that correct?

 

Michael Fricklas: That is true. Actually, right after the Paramount acquisition, he was named deputy chairman. That was back in 1994, I guess. And one of the two executives under Sumner Redstone who are really running the company.

 

Randy Milch: And Sumner, I just wanted to point out also, is sort of a legal superstar in and of himself, isn’t he?

 

Michael Fricklas: He is. Sumner went to Harvard Law School right after World War II after serving on the team that cracked the Japanese codes. He clerked for a 9th Circuit judge, he had a Supreme Court case that he won in the 1920’s and then gave up the law to be one of two brothers running his father’s business. That was in the drive-in movie business in Boston. And he had used his knowledge of antitrust law and his relentless approach to everything as a way to build up the largest and certainly most profitable motion picture circuit in the United States. By the time he bought Viacom, he had pretty much a lock of the Northeastern United States in terms of exhibition, which he had a strong reputation well deserved of litigating with everybody in order to get what he wanted. In fact, during the Paramount deal, within a month of my being in the company, we sued the largest cable operator in the United States, John Malone’s TCI for monopolization. And that was kind of a typical thunder approach to things, he didn’t leave a lot of room, everybody fought with everybody. It was a great experience.

 

Randy Milch: So it’s interesting, many general counsel find themselves with clients who think they’re lawyers and have to deal with them. You actually have two clients who are spectacular lawyers who run the company. What’s that like having to bring up your legal strategies, deal with your CEO and your chairman, both of whom have all the legal stripes anyone can imagine?

 

Michael Fricklas: Yeah, I really like it. I’ve worked for both for a while. Philippe left after the CVS merger and I had a guy whose background was in advertising sales and then the fellow who’s from the promotion and traders side of the business from Boston as bosses. And they both view the world from very different lenses, and there’s a lot of time spent explaining what legal – and debating – what we would all view as legal first principles. I would say none of that with Sumner and Phillipe, but I’d be at meetings with Sumner where he’d be citing cases to me and he was right. Now wasn’t so good at citing cases had it been this side of 1965, but the ones he cited were right. It keeps you on your toes, you have to be thoughtful. On the other hand, it’s great to be able to talk things through with lawyers. You have a similar world view, it’s not like we all view the world the same, there’s a broad diversity of lawyers, but we all speak the same language. And first principles don’t have to be addressed, you can proceed at a higher level. And it’s a great kind of client to have, I think.

 

Randy Milch: Well I commend you for the role of being lawyer to super lawyers, it’s an interesting problem to have. It looks like it’s time for us to take a short break. We’ll be back in a few seconds with our guest, Mike Fricklas, the general counsel of Viacom.

 

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Randy Milch: Welcome back to the second segment of In-House Legal on Legal Talk Network. My guest today is Mike Fricklas, the general counsel of Viacom. Mike, I want to change the topic here and move to a couple of issues that are very, very current for general counsels. First, I’d like to actually go into what is a critical item for Viacom and for lots of companies in the content industry, that is copyright issues. And especially copyright in the digital age. Viacom became pretty famous not too long ago because it sued the ubiquitous YouTube over clips that were on YouTube. What led Viacom to take such a significant step to sue an icon like YouTube?

 

Michael Fricklas: Well YouTube wasn’t an icon at the time, but at the end of the day, our business is built on intellectual property. Frankly, when you really get into it from a policy perspective, a major part of the US economy is built on intellectual property. As you know, we all rely everyday on trademarks, on patent protection, on copyright to keep maintaining the incentive and the reward for people who were innovative and creative. And the biggest growth in the industries in the United States are businesses in particular that are very dependant on copyright. We invest several billion dollars a year in creativing television shows and other kinds of content, investing in our brands, and movies are expensive things. And it began to develop largely out of the academic world and a world that really had little understanding of business. But out of that world, that somehow copyright was in the way of the consumer and not producing value for the consumer. In of that mix, a little company called YouTube launched. Originally, I think, not a business that was intended to be built on piracy, but a business that was intended to be a utility for people who wanted to share a video with each other, and I think that was the original concept. But within a few months, it became clear to the founders that the way people were using it was to post television shows and movies and other copyrighted material and this was enormously popular and allowed them to build their business virally and allow them to bail out at a very high price. So our industry trade associations were working with the company, the music industry was working with the company, the music industry was able to cut a deal and around that time – and literally this is less than a year after the company was formed. A big company, Google bought them, and we had conversations with Google about doing a licensed content deal, but it became clear that Google wasn’t prepared to pay a price that represented an acceptable economic arrangement with us. And we said okay, so if we’re not able to do a license deal with respect to YouTube, then it’s time for our content to come down. And instead of taking what we thought were proactive steps and we were willing to work with them on what was technical and practical – we were working with a number of other media companies at the same time – instead, their position was to try out a different way with the copyright and say, “Oh no, we don’t have to do anything and we’re not going to do anything and we’re going to let that piracy continue. And so your choice is to accept our terms or accept the fact that we have your content.” From our perspective, that was an unacceptable bargain, and frankly, they’re coming from a large company like Google as opposed to the infinite number of startups who may not have been as educated on the issues was a problem for us. And so we felt that this was a threshold that couldn’t be allowed to happen in a world of established organizations. It was unfair, it was illegal, and it was a serious damage to not just the business model, but the business model of all content creators, so it was huge.

 

Randy Milch: Did you find that there was a reputational issue? I compare it to the recording industry which we all know went through a phase of highly publicized lawsuits against individuals for piracy issues and other lawsuits. They suffered some reputational issues, did you think that the suit against YouTube and after it became part of Google, do you think that Viacom had any reputational issues? Because you took a very public role in explaining to folks why, in fact, you made this lawsuit. Was that part of a prophylactic effort against-

 

Michael Fricklas: It was several things. We never sued YouTube, we only sued after Google bought them, and that’s a misconception that even made its way into some textbooks which was kind of shocking to me. It wasn’t a big company taking on a little company, it was a company taking on a company that was much bigger than we were. I felt that the case was very compelling and we needed to talk to the press and we needed to talk to the people about why we did this. Because otherwise, the field was completely left open to lots of people, many of whom are accepting money from the opposition and from companies that are making profits on piracy that we were leaving the playing field to them. So it was partly Viacom reputational, the good news from Viacom’s perspective as to the most consumers, they focus on our brands and not on our corporate identity. But certainly there was some blowback. We just felt it was an important enough issue to take on and we felt that if people outside this little ball of copyright advocates were to understand the issues at stake, it would be very helpful in terms of making our case and I think the public matters. In almost any of these issues, rarely have you been involved in the dozens of high profile issues where – it used to be that you could just sit quietly and wait for the courts to decide an issue. When you’re dealing with things that are a public concern, people don’t hesitate to write about it and they blog about it and the conversation bubbles up in all kinds of public places. It’s influential on the legislators, it’s influential on judges, it’s influential on the press, and you either participate or you let the other side make their case without responding.

 

Randy Milch: Yeah, indeed, you and I have been in these jobs over the period of time in which the common wisdom was to stay quiet and let the court decide what it was going to do as opposed to being out there in the public. And now I agree with you, it’s a real issue to remain mute when your opponents are flooding all the new digital media with their point of view. If you’re not out there responding, you’re probably losing in some material respect.

 

Michael Fricklas: Right, and I thought – maybe I’m a little biased about this – but I thought on the YouTube cases it was pending. I wouldn’t say the press thought that we won but I would say that people kind of wrestled it to an opened mind, and there were certainly some very loud people who really hate copyright who were angry at the IRAA and became angry at us. But I think that the vast majority of people started from a premise of piracy was bad and accepted the fact that it was an important issue and a legitimate issue to proceed against. There were some issues along the way that we had to deal with. The ACLU was gotten into the act by some Google folks on the theory that we were taking down videos that weren’t, in face, copyrighted. In real time before the lawsuit got filed but literally the same day, we had conversations with them and helped them understand what our processes were and made some changes to our approach to satisfy them. We engaged in various dialogues with others. We listened and adapted our approach to try to make sure we were minimizing the damage on people who might have legitimate thieves. One of the videos that was taken down in error for reasons I still don’t know was a video of a copyright professor at Harvard Law School, I think having dinner with his family, which probably was not the best video to have taken down in error. But we got it fixed within a day and people felt that we were not some monolith big thing in the distance but that there were real people they could talk to and they know that they can pick up the phone and call. And that was really helpful in humanizing the debate.

 

Randy Milch: Let’s turn the conversation a little bit again. I want to talk about cyber. There’s been so many high-profile cyberattacks recently, including the Sony hack, which of course was all about a satirical movie. And as an entity that owns – among other content – Southpark, which at times, of course, is satirical. I guess that the Sony hack must have been quite a wakeup call for you about who your cyber opponents might be at any one minute.

 

Michael Fricklas: Yeah, it’s interesting. I think we were already focused on cyber, but it was a wakeup call for my CEO. And I get a lot more done when it’s a wakeup call for my CEO than I can do for my own chair. And so we were in the process of working through and getting more materials and we already had presentations for our audit committee on cyber security becoming an annual event. Before the Sony hack you only had to pick up the newspaper every day and see the things that are going on in other companies. And we had been targeted,we had been targeted by Anonymous back in the early days of YouTube in light of some things that have happened during discovery in the YouTube case. And from time to time, we’ve had that experience. But what press of the Sony hack did for us enabled us to get more resources, enabled us to get some things done in a much faster timeframe than they were going to happen otherwise. We were able to get the attention and organization the way that made us more effective in moving down the path. Sometimes, you know, the best projects get caught up in the slow-moving machinery of big corporates and they were no longer caught up.

 

Randy Milch: Let’s talk for a minute about one thing that’s a particular interest of to lawyers and should be to general counsels, it’s something that you and I have discussed in the past. It’s one thing to talk about all the networks and all the information that the company has, but I think that there – and you and I have discussed this – there are special responsibilities for the general counsel’s office, these would be their principal vendors outside firms. What steps have you taken along the lines of dealing with the law firms that Viacom uses to insist that their information – which of course is your information – is appropriately secured?

 

Michael Fricklas: Right. Part of it is a resource issue, not really equipped to go out to the hundreds of law firms that we work at and debate them in terms of security. So what we did is we prioritized the ones that have the most secure of our information, and then we sent them a questionnaire. We actually allied some of the questions that we asked them along the lines of questions that were being asked by the financial services firms which are much further along and much more heavily resourced than we are in this space. The financial industry has now identified some – a couple – of their large law firms to be leaders in the cybersecurity area. So we crafted on that effort and talked to them about which firms are meeting the standards. We’ve also been talking now with some of the law firms about some standard settings efforts. There’s a concept of an audit that is brewing out there which would be really helpful. I don’t think we have to push, I think the financial services industry will push law firms to where the audit standard is set to get an independent certification that they meet an objective standard, which will make all of our lives a lot easier. In the meantime, we’ve been asking people about it, we’ve been collecting these questionnaires from the largest firms and we’ve been reviewing them within our internal cybersecurity team. and really, the satisfaction is that they’re using the right tools and if they’re thinking about it the right there, that’s a scenario that they’re paying attention to. I can’t really design the computer systems for outside law firms, but it is interesting that you get the questionnaires back from firms, especially earlier. The firms that clearly had thought about it and had comprehensive answers constructed in the right way and the firms that clearly had not put the right level of emphasis or really didn’t know how to respond to the question, and that tells you a lot and was actually a guidance for business.

 

Randy Milch: And this is where the rubber meets the road, right? You have a great law firm, does great work for you, you get back their questionnaire, it’s pretty obvious they have little thought put into their own cybersecurity. Did you take steps? Did you call them up and say you better start thinking about this quick or the Viacom business is going to start being diverted to firms who know what they’re doing in this front?

 

Michael Fricklas: The answer is yes. I will say that none of the biggest firms that we use had – they were already along the way in dealing with the situation before we got involved, because all of them do work for the largest banks in the country and all of those banks were all over the firms. Partly because of the initiatives that were being forced on them by the regulators. So the good news was that at least the biggest places were already thinking about it.

 

Randy Milch: Okay, I think that is good news and I think it would be salutary for general counsels all over the country to be peppering their firms with the same sort of questionnaires. I think the only way that all the firms are going to get to the right place is through the – like with everything else – their consume is going to have to demand it.

 

Michael Fricklas: Yeah I think – and I don’t know if this has happened yet or not – but I think it’s crying out for some collaboration among law firms, because I think most of these firms are just not going to be able to implement the level of hygiene that the biggest firms are able to do without drafting on efforts by consortia. Sharing of threat information, sharing of what defenses are working, sharing of best practices.

 

Randy Milch: Right, which of course is a crucial step for the industry at large. That’s being undertaken now and hopefully there will be some legislation that will increase information sharing all over the board.

 

Michael Fricklas: Yeah, it’s interesting, there was a red herring out there that information sharing would violate antitrust laws, and some of the early cyber legislation was focused there. The justice department has come out with guidance now that they agree frankly, with the view that we’ve always held here, that that was not a real concern. I think the bigger concerns are that people don’t want to disclose their vulnerabilities for fear that they could either be exploited in a cyber crime or that regulators, law enforcement, plaintiff’s lawyers, might become aware of those vulnerabilities and exploit them in the sense of bringing civil or criminal actions. Or otherwise, being at the ready to pounce if there is a problem.

 

Randy Milch: It is true at this stage, though. The government, depending on what industrial sector you’re in, the government is both an ally and an adversary and sometimes both. Mopping up actions are not that infrequent.

 

Michael Fricklas: Right, and the government is not one thing. So there are a bunch of independent agencies, for example, that are at various stages of their knowledge about this. There are 50 states with laws or patchwork of laws that relate to different aspects of cyber security that are in some ways even inconsistent. And there’s no real establishment yet of a duty of care. So there is nobody who is not going to be hacked, that’s basically the learning. They say there are two kinds of companies, those that have been hacked and those that have been hacked and don’t know it.

 

Randy Milch: And those that have been hacked again.

 

Michael Fricklas: And so we literally get millions of incidents a month if you measure the things that are coming in to Viacom’s defenses. And I’m sure for a good company like Verizon, it’s probably millions a day. And so how to come up with a coherent scheme of responsibility for people who are reckless but not for those who are trying to keep up with the rapidly evolving environment I think is the serious issue that has to get addressed by the government.

 

Randy Milch: I agree and I think we’ll leave it on that note. Mike, I want to thank you for spending some time on In-House Legal today. It’s been a hugely informative, little over a half hour, so thank you very much.

 

Michael Fricklas: Thank you, Randy, appreciate it.

 

Randy Milch: And I would like to thank all of you who have listened to our podcast today. For all of you listeners who would like more information about what you’ve heard today, please visit www.LegalTalkNetwork.com. Or you can also follow us on iTunes, RSS, Twitter, and Facebook. That brings us to the end of our show. I’m Randy Milch, thank you for listening and please join us next time for another great episode of In-House Legal.
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