MPAA Affirms VFX Soldier: Digital Products Are Goods

Last year many of you helped crowd fund a legal study done by a Washington DC-based law firm I met two years ago. The goal of the study was to suggest a path for the VFX industry to mitigate the effects of the subsidy race that was putting so many facilities out of business and causing so many jobs to be lost.

That study, released in 2013 led by David Yocis and the legal team of Picard, Kentz, & Rowe, was the centerpiece of a big story by national journalist David Sirota explaining why this could be a huge game changer:

Pando has also learned that the visual effects workers have just been handed a powerful new legal and political weapon, one with the potential to fundamentally change the economic dynamics throughout the entertainment and tech industries.

And here’s the twist: It is a weapon the MPAA itself created in its own desperate attempt to prevent Internet piracy.

What the legal study suggested was that we use the same anti-subsidy duty laws for imported goods on internationally subsidized VFX which would help us effectively discipline the subsidy race  The study also pointed out some potentially big legal hurdles:

  1. This has never been done before for electronically transmitted digital products.
  2. MPAA would argue that VFX is a service and and not a good since the anti-subsidy duties only applies to goods.

MPAA Affirms VFX Soldier

About three weeks before the March in March protest, I woke up to an email sent by David Yocis with blockbuster news. The MPAA submitted a 14 page consultation with the US Court of International trade that affirmed our position on the issue:

Electronically transmitted digital products are no different than imported tangible goods.

I was stunned. One of our biggest anticipated battles with the MPAA was conceded by them without even filing our case yet, and funny enough it was a case that had to do with friggen dental retainers! Of course the reason why the MPAA, Samsung, and Google responded to the court’s question was because it was a potential precedent-setting battleground for anti-piracy law enforcement.

After David Sirota’s piece came out last Tuesday, social media and the internet went on fire. The VFX industry, which has been beaten down by the US studios since its inception, had a chance to use the MPAA own words against them and potentially place duties on subsidized imported VFX.

Uranium: VFX’s Most Powerful Weapon Against The MPAA

The MPAA responded three times to media questions about our effort. While they reiterated their position that digital products like films are goods, they argued that VFX is a “service” and therefore the anti-subsidy duty laws do not apply. Unfortunately for the MPAA the force was quite strong with Master Jedi David Yocis and the Jedi Knights of PKR as they anticipated the Empire’s attack in our legal study.

Last year when Mr. Yocis was anticipating the “service” argument and doing research for the legal study, he pointed me out to a landmark trade case that made it to the US Supreme Court concerning uranium. Essentially US energy producers were sending US mined uranium to heavily subsidized French facilities for enrichment.

US enrichment facilities which were being injured, submitted a case to have duties levied against the uranium imports. The US energy producers made the same argument the MPAA is making: While uranium is a good, the enrichment of the good was a service and therefore duty laws did not apply. In one of the rarest instances, the trade case made it to the US Supreme Court which ruled that the duty laws could be applied as the enrichment was for a final product that is a good.

Given all this, you can see why there was such a strong turnout of almost 600 people in support of our legal effort. Now obviously opponents of our effort in the VFX industry are going to comment below after attaining their JD in international trade law from GoogledIt School of Law but let’s leave the legal analysis to the trade law experts at PKR shall we?

Those same people may also argue that while we may be successful, the studios will find a way to weasel around the law. They better be careful. Any attempt to weasel around that will be frowned upon by the federal judges of the court and may open gaping loopholes for Google and others to exploit to prevent piracy enforcement. Furthermore, circumvention of duties is a federal crime and can lead to huge penalties.

So big thanks to PKR and those of you who helped fund the legal study. That path to victory has never been clearer!

Soldier On.

27 Responses to MPAA Affirms VFX Soldier: Digital Products Are Goods

  1. Nitant says:

    By opening up a small branch in the subsidizing countries would the studios be able to weasel out of the duty; claiming they are multinational corporation? Just a thought I had during the rally but never got a chance to ask you. Looking foward to what will happen next.

    • VFX Soldier says:

      No. Duties are routinely applied to imported goods from countries and companies that have no offices here and even multinational companies.

      Also, it doesn’t matter if you even have a business interest either. As I was talking to my Canadian friend today, he informed me that if he tries to bring more than 3 bottles of liquor from the US to Canada just to give away to friends, he still has to pay a duty.

      Read my post linked above on circumvention.

      >

  2. SoWhat? says:

    If it was that easy why would it have ever worked?

  3. Whoa says:

    I was really hoping you would note this. I had no doubt the legal team immediately would too. It’s actually astonishing considering the presumed legal clout a studio wields, that number 1, they would go out of their way and weaken their position on this issue.

    In fact when trying to make sense of it, I came to the conclusion that they just made a decision, protecting revenue is far more profitable than securing a subsidized portion of production cost. However the backtracking nature of their response negated that train of thought while simultaneously, number 2, suggesting ignorance of the precedent already set by the enrichment case.

    I really am quite surprised. Among virtually all the similar examples listed in the feasibility study, the looming question was whether a digital import could be considered a good. Well the studios just did us one giant favor in that regard.

    • Dave Rand says:

      One of the side effects of forming an oligopoly is the one of giantism, like goliath….becoming so big you can not get out of your own way.

      One hand no longer knows what the other is going. Movement becomes less nimble, more sluggish, and innovation almost non existent.

  4. stephen.newborn says:

    Hey, you write: “That path to victory has never been clearer!” I am curious what this path might be. Is there a court decision involved or does the rule just “kick in”? I know the legal system is often times a slow business, but how long is this going to take?

    • VFX Soldier says:

      Were building a case and when we submit the case the investigation must decided after 12-18 months. That’s pretty speedy in the world of law.

      Sent from my iPhone

      >

      • Disgruntled says:

        And as soldier has mentioned before…the CVD when it kicks in is retro-active as of the filing date. So once we submit the case, during those 12-18 months of investigation, the studios are liable for their subsidized work.

        So they should take notice and immediately change their behavior in expectation/fear that the CVD will pass.

  5. Mdoz says:

    Are any of you guys company owners?

  6. contessa12 says:

    This may be an uphill climb but there is headway🙂
    Make no mistake tho, the studios legal beagles are looking for other ways around this and will continue. We must be vigilant.
    On another note, this morning I woke up to Putin threatening the EU and US that if sanctions are imposed by Russia, he will confiscate the foreign investments! Oh, I know it’s schadenfreude but I do hope he does–puts a whole other light on the VFX industry in China and any other “communist country” doing business for cheap labor, whatever the industry!

  7. Caleb says:

    My hats off to you Mr. Lay. I am so glad you came out of the shadows. I applaud your work and efforts. You have set an example for others and I for one respect and appreciate that.

    cro

  8. Conrad says:

    Out of curiosity, how would it work if the actual bits never left the US. When I worked at Sony Imageworks in Vancouver all of our computing power was in LA. We had keyboards, mice Wacoms and monitors at our desks, but the processors and data was in LA.

    Could they argue that they were never importing anything? Am I just providing a service from Vancouver and the goods are being produced in LA? What if I sent my Nuke script over to LA and it was render there? Where was that good created?

    Has your legal team defined which exact part of the process they are expecting to be covered in the duties?

    • VFX Soldier says:

      We’ve discussed how studios may try to circumvent the duties and in my non-attorney opinion it shouldn’t matter. It’s no different than a car being assembled in the US from foreign made components. Those components are heavily subsidized and injure the domestic industry and therefore must be dutied and as the uranium Supreme Court case points out: Service used for the production of a good can be dutied.

      Also it’s quite apparent that the only reason the work is done in BC is because of location subsidies where government requires the production be done there. For the MPAA to turn around and try to argue that the product is not made of any imports in front of Presidentially appointed judges would fail very badly.

      And again it’s important to remember, any loophole they take advantage of provides a loophole for other companies and individuals to exploit anti-piracy laws.

      Weakend anti-piracy laws or dutied subsidies? I think I know what choice they’ll make.

    • I think the intention of the law is clear with the service ruling. If subsidized workers in other countries are involved in any part of the service or making of the product, even remotely, and that has caused loss of jobs, then that violates the basic intention of the law.

    • VFX Soldier says:

      It’s pretty clear here that the Supreme Court in a 9-0 ruling intended the uranium case to discipline anyone trying to blur the lines on the goods and services argument.

      Justice Souter wrote the opinion with some important points:

      “A customer who comes to a laundry with cash and dirty
      shirts is clearly purchasing cleaning services, not clean
      shirts. And a customer who provides cash and sand to a
      manufacturer of generic silicon processors is clearly
      buying computer chips rather than sand enhancement
      services.

      But the line blurs when the facts get more complicated”

      So Souter acknowledged that there are gray areas when loopholes could be created and he continues to tighten those loopholes up with what the laws intentions are:

      “This is the very situation in which we look to an authoritative agency for a decision about the statute’s scope … and once the choice is made we ask only whether the department’s application was reasonable”

      and this was probably the most important part:

      “The restructuring would not stop with uranium,” he stated. “Contracts for imported pasta would be replaced by separate contracts for wheat and wheat processing services, sweater imports would give way to separate contracts for wool and knitting services, and antidumping duties would primarily chastise the uncreative.”

      “Chastise the uncreative” is very important. If we were to allow a strict interpretation of the law and not allow duties because of service arguments similar to what the MPAA is saying, it would put an unjust burden on service providers for goods to be injured by subsidies.

      http://www.supremecourt.gov/opinions/08pdf/07-1059.pdf
      http://www.nti.org/gsn/article/us-uranium-enrichment-firm-wins-supreme-court-ruling/

  9. when can i contribute says:

    A lot of films now use the fact that they will get X amount of subsidies to actually get a film green lit – i.e. they get additional funding based on the subsidy being made available. It occurred to me during the rally that say we get through all the cvd hurdles and are at a stage to implement them and that the studios have exhausted all friends in congress, mpaa, etc that the studios just decide to take a hit that the US market is going to cost them a bit more? What is greater financially – gaining back 40% on a US cinema ticket or getting the film green lit?

  10. when can i contribute says:

    edit:
    What is greater financially – *losing* 40% on a US cinema ticket or getting the film green lit?
    My point being that wouldn’t the Studios continue chasing the subsidies if it means the movie actually gets financed and made?

    • No. There will be some borderline films that may not be made because they calculate the potential return on investment and the margins aren’t large enough. But for most films, certainly the tentpole movies, will continue to be made because they make a lot of profit and aren’t as big of gamble as they may seem. That extra subsidy money is simply more profit for the studios. With it they can pay the CEO’s their $30 million, pay the star $20 million and destroy another 5 city blocks in the next Superman movie. I’ve seen studios waste millions. Without the subsidies they’d have to focus on being efficient and not making major changes or wasting the money. There’s plenty of fat still in most of the larger films to make them doable w/o subsidies.

      And they’re also not losing 40% on a US ticket. It will now actually cost them what it actually costs. Not a government welfare price point. They still get their profit participate band that remains the same. Make a great movie that does well and they still lake money. And it’s not a US market vs wold market. It’s all global market now. US already a minority of ticket sales.

      Hollywood complains about the lack of DVD revenue but there was a time they argued against VHS tapes. Then when DVDs came along and people were buying them the studios started using those figures and none of them looked to future or through about when that would end. No one in Hollywood actually looks ahead. Now they’ve had a good run with subsidies but that will not last forever but many of the current execs don’t remember the time when it wasn’t there and have forgotten how to do films efficiently.

      There are smaller, indie films that will have some struggle without the subsidies but the point has been for areas to put on caps and limit subsidies to homegrown talent if they actually wish to support the arts and build a local industry rather than renting it. Right now the largest users of subsidies are the major studios.

    • Dave Rand says:

      In my 20 yrs I’ve seen a definitive split between working in cyberspace vs working in human space. I’ve even run several VFX shows as CG supervisor where I required that the director be present for extended periods daily treating the VFX crew like a movie set. We did this in Hollywood. The first show we did like this came in at for far less than the lowest bidder… and that was from a highly subsidized location in Montreal. We did it with less people and in less time locally.

      To this day it is one of the best experiences everyone on that team has had in vfx. The shop is still going strong and that lowest bidder in Montreal has gone bankrupt twice and is now gone.

      This is why I consistently have the same message. Subsidies have made our work less efficient, broken down communication, and nurtured ruptured business models. Human creative space is virtually gone, cyberspace is the new norm and it is far less efficient in creative communication.

      I’m convinced that our future lies in the creation of talent centers globally that work directly with the decision makers (usually the directors)..and I’m not saying that should just be about the Americans or Hollywood. It should be about Maplewood, Kiwiwood, Englishwood, Bollywood, Chinawood, Ozwood..etc..

      ….and not under the thumb of any one area.

      This will never occur if everyone keeps renting from the Americans. No one will have equity. Subsides are the rent.

      Change is always tough but what is far worse for all of us is the stifling of real growth and innovation that results from ogopolistic economies and one rule.

      This front is not about the Americans, what we have now however, is quite clearly just that. I believe it harms Hollywood by making it lethargic, so big it can not get out of it’s own way. I believe the stifling of innovation and diversification of story telling is limiting the true power of the greatest story telling tool every created, VFX.

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