Creator Economy Law – Issue #25

YouTubers sued, SEC charges for endorsements, FTC investigating platforms, AI Copyright boundaries pushed, Epic announces Creator Economy 2.0, and more!

This is Creator Economy Law, a newsletter dedicated to exploring and analyzing the legal issues surrounding the creator economy, creators, and internet platforms. If you enjoy what you’re reading, share with friends, and invite them to subscribe using the button above and share using #CreatorEconomyLaw.

Did you see the photo of Donald Trump’s arrest on Wednesday in New York? The “photo”, as well as numerous others, went viral on social media. Eliot Higgins used Midjourney to create the images but has now apparently been banned from the service.

Here’s what’s been happening in the world of Creator Economy Law.

What You Should Know

YouTubers hit with class action lawsuit for promoting FTX investments

A slew of YouTubers have been named in a new class action lawsuit filed in Florida on March 15th. The YouTubers include: Kevin Paffrath (@MeetKevin), Graham Stephan (@GrahamStephan), Andrei Jikh (@AndreiJikh), Jaspreet Singh (@MinorityMindset), Brian Jung (@Jungernaut), Jeremy Lefebvre (@FinancialEducation), Tom Nash (@TomNashTV), Ben Armstrong (@BitBoyCryptoChannel), and Erika Kullberg (@Erika2). Plus, the lawsuit names Creators Agency.

The lawsuit alleges that the influencers who shared financial advice also actively promoted FTX and its yield-bearing accounts. The complaint says the YouTubers were paid “handsomely” to run the promotions, but they failed to properly disclose the relationship to FTX and failed to perform due diligence before accepting the endorsement deals.

The lawsuit brings four counts under Florida law: (1) The Florida Securities and Investor Protection Act; (2) Florida Deceptive and Unfair Trade Practices Act; (3) Civil conspiracy; (4) a request for a declaratory judgment under Florida’s Declaratory Judgment Act.

Edwin Garrison filed a class action against Sam Bankman-Fried and numerous celebrity endorsers back in November 2022 that compared the operation to that of a Ponzi scheme.

📖 Read:

📺 Watch:

Kevin Paffrath’s response video.

FTC orders social media and video platforms to talk about advertising

The Federal Trade Commission (FTC) has issued orders to MetaInstagramYouTubeTikTokSnap Inc.Pinterest, and Twitch requesting details about how they scrutinize and restrict paid commercial advertising that is deceptive and expose consumers to fraudulent products and services.

The FTC says that in 2022 consumers reported over $1.2 billion in losses to fraud that started on social media. The focus is now on social media and video streaming platforms that allow user-generated content (UGC) which can simultaneously be commercial advertising and promoted on the platforms through paid post boosting and ads.

The FTC is looking for ways that platforms:

👀 combat deceptive advertisers and messages; and

👀 clearly disclose commercial advertising on their platform to end users; and

👀 allow influencers and advertisers to identify content as advertising or a sponsored commercial message.

The FTC is asking for platforms to share from 2019 to 2023:

📄 policies and processes for paid advertising programs;

📄 human and AI automated review and ad generation processes;

📄 ad revenue, data on ad reach/views, and any other related data; and

📄 how English- and Spanish-language ads are treated, if differently.

📖 Read: “FTC Issues Orders to Social Media and Video Streaming Platforms Regarding Efforts to Address Surge in Advertising for Fraudulent Products and Scams” via FTC Press Release

SEC charges celebrities and influencers for pumping cryptocurrency

The Securities and Exchange Commission (SEC) announced charges against crypto asset entrepreneur Justin Sun and three of his wholly-owned companies, Tron Foundation Limited, BitTorrent Foundation Ltd., and Rainberry Inc. (formerly BitTorrent), for the unregistered offer and sale of crypto asset securities Tronix (TRX) and BitTorrent (BTT).

The SEC also charged Sun and his companies with fraudulently manipulating the secondary market for TRX through extensive wash trading, which involves the simultaneous or near-simultaneous purchase and sale of a security to make it appear actively traded without an actual change in beneficial ownership, and for orchestrating a scheme to pay celebrities to tout TRX and BTT without disclosing their compensation.

The SEC simultaneously charged the following eight celebrities for illegally touting TRX and/or BTT without disclosing that they were compensated for doing so and the amount of their compensation.

  1. Lindsay Lohan
  2. Jake Paul
  3. DeAndre Cortez Way (Soulja Boy)
  4. Austin Mahone
  5. Michele Mason (Kendra Lust)
  6. Miles Parks McCollum (Lil Yachty)
  7. Shaffer Smith (Ne-Yo)
  8. Aliaune Thiam (Akon)

With the exception of Cortez Way and Mahone, the celebrities charged agreed to pay a total of more than $400,000 in disgorgement, interest, and penalties to settle the charges, without admitting or denying the SEC’s findings.

📖 Read: “SEC Charges Crypto Entrepreneur Justin Sun and his Companies for Fraud and Other Securities Law Violations” via SEC Press Release

Adobe opens beta for Firefly

Adobe is officially entering the generative AI game. The company released a public beta of Firefly, its new generative AI set of tools. Two tools that are currently available include a text-to-image generator and a tool that applies styles or textures to text based on a user’s text prompt.

Currently, Adobe has disclosed that the models powering the tools were trained on Adobe Stock content, “along with openly licensed work and public domain content where copyright has expired.” I still have questions about how Adobe’s larger content analysis activity (which powers its Adobe Sensei tools) fits into this generative move.

One issue I immediately jump to with AI-generated text: Is it infringing to use a generative AI tool to achieve a particular typeface output that doesn’t actually rely on the copyrighted software to produce the font? Would it be considered fair use of the typeface name (assuming it is a registered mark)?

It’s already established under copyright law that typeface designs are not copyrightable, which is what an ML model would most likely be trained on, as opposed to the actual font software file itself (which is copyrightable for purposes of preventing the installation of the font across devices, or web fonts that load from a server).

“The Office cannot register a claim to copyright in typeface or mere variations of typographic ornamentation or lettering, regardless of whether the typeface is commonly used or unique.” See Circular 33. It’s so interesting how an AI/ML tool like what Adobe has launched (and likely others to follow) that focuses on getting text characters correctly output could decimate font foundries and typeface designers.

Don't Miss

Epic’s Creator Economy 2.0Epic Games announced the Unreal Editor for Fortnite (EUFN) and its “Creator Economy 2.0” program that promises to share 40% of net revenues with creators. “Engagement payouts proportionally distribute 40% of the net revenue from Fortnite’s Item Shop and most real-money Fortnite purchases to all island publishers on a monthly basis,” they announced in the press release. “Payouts are based on what players enjoy in Fortnite and account for things like island popularity, engagement, and attracting new players.” The program will be separate from the existing Support-a-Creator program.

WGA to take a stance on use of AI. The Writer’s Guild of America is working on a proposal that would allow the use of artificial intelligence technologies in connection with the writing process for its members. “[T]he proposal would allow a writer to use ChatGPT to help write a script without having to share writing credit or divide residuals,” Variety reports. “Or, a studio executive could hand the writer an AI-generated script to rewrite or polish and the writer would still be considered the first writer on the project.”

It’s interesting to see the Guild wrestling with the concepts of “credit” and legal “ownership” while the ownership question remains in limbo. I also find it interesting the article acknowledges the range of human authorship, such as simply polishing a nearly finalized script or working alongside a tool like ChatGPT. I’m curious about whether the proposal addresses a duty to disclose any uses of AI tools. Otherwise, it could cause issues with registration and potentially other downstream concerns (such as infringement).

The Guild responded to the Variety report in a series of tweets, noting AI-generated content “has no role in guild-covered work, nor in the chain of title in the intellectual property.”

Copyright Office AI Updates. The U.S. Copyright Office launched a new initiative to examine the copyright law and policy issues raised by artificial intelligence (AI), including the scope of copyright in works generated using AI tools and the use of copyrighted materials in AI training. After convening public listening sessions in the first half of 2023 to gather information about current technologies and their impact, the Office will publish a notice of inquiry in the Federal Register.

Meanwhile, Kris Kashtanova continues in their effort to push the boundaries of what can be registered with the USCO. “I used a drawing that I did by hand and a text prompt as input (using Stable Diffusion and ControlNet) and believe it’s copyrightable,” Kashtanova posted on LinkedIn along with a link to download the letter that accompanies their latest registration. “I’ll keep you updated on the progress.” Kashtanova is represented by Morrison Foerster‘s Heather M. Whitney and Joe Gratz. (Two fantastic attorneys that I’m excited to see as a part of Kris’s journey!)

TikTok on the clock. Today (Thursday) is when TikTok‘s CEO Shou Zi Chew appears before the U.S. Congress. He told the Wall Street Journal in an interview, “The U.S. hasn’t been able to prove with evidence that TikTok threatens U.S. national security.” He noted that Project Texas would prohibit any access to U.S. user data.

A potential ban has TikTok users and creators worried about what will come of the platform. The Wall Street Journal interviewed several creators about their plans in a post-TikTok income world. Meanwhile, TikTok is helping a group of creators show up in Washington, D.C., in support of their businesses that are powered, in whole or in part, by the platform. Jacob Seitz reports for Passionfruit that many creators are also angry at Meta’s lobbying efforts and alleging the company has helped bankroll the push behind a TikTok ban.

TikTok is trying to Spark Good in their latest content push that aims to show how much of an impact the platform is having on the creator economy. As Tubefilter reports, the 60-second clips are part of a larger propaganda effort in the midst of heavy national security and regulatory scrutiny. Tubefilter also reports on CapCut, another app by ByteDance that just hit 200 million daily active users. Wonder if it will also be banned?

The DOJ and FBI have launched an investigation into Bytedance and an alleged spy program focused on journalists, as first reported by Forbes and confirmed by other outlets.

Twitch Layoffs ComingAmazon‘s next round of layoffs are going to hit its live streaming platform Twitch, according to a post by CEO Andy Jassy. He writes that they are going to happen “In the next few weeks” and notes “the uncertain economy” as one of the reasons.

Copyright Protection for Codes. Senators Coons, Cornyn, Tillis, and Whitehouse introduced legislation on March 16 to ensure copyright protection and public access to safety standards. The Protecting and Enhancing Public Access to Codes (Pro Codes) Act of 2023 ensures safety standards do not lose copyright protection when they are incorporated into law by name, as long as they are accessible for free on a publicly available website. “Standards development organizations (SDOs) draft important safety standards that protect the American people from things like fire and electrical hazards, and their standards should continue to be eligible for copyright protection,” said Senator Tillis. “I believe the Pro Codes Act strikes the right balance to ensure those developing safety standards are able to afford to do their crucial work, while providing the public with free digital access to these standards.”

Music licensing given second thoughts by social platforms. You may recall in previous newsletters I shared about TikTok’s experimentation in Australia with the removal of major label music catalogs. The practice is now expanding. According to the New York Times reporting by Ryan Mac, Ben Sisario and Kate Conger, “Twitter’s Talks Over Licensing Music Are Said to Stall Under Musk”. Twitter didn’t move forward with the music licensing deals because of costs, people with knowledge of the matter said. Music Business Worldwide is also reporting the Italian Society of Authors and Publishers (SIAE) press release expressing concerns over Meta’s decision to withdraw from negotiations for licenses that would cover Italian music for Instagram and Facebook. Can the platforms really survive without music licensing deals? These experiments may have a long-lasting impact on the music industry, especially if the practice becomes more widespread. Bloomberg published an article reporting that TikTok usage in Australia fell following the platform’s decision to limit the music catalog available to users for including in a post. Perhaps it’s a sign that music licensing adds immense value to the user experience?

FTC warns generative AI companies. The FTC put out a warning to companies that offer generative AI technologies. They note, “The FTC Act’s prohibition on deceptive or unfair conduct can apply if you make, sell, or use a tool that is effectively designed to deceive – even if that’s not its intended or sole purpose.” They go further to showcase four questions that should be asked:

  1. Should you even be making or selling it?
  2. Are you effectively mitigating the risks?
  3. Are you over-relying on post-release detection?
  4. Are you misleading people about what they’re seeing, hearing, or reading?

In short, tech companies need to slow down. The FTC warns “Commission staff is tracking those concerns closely as companies continue to rush these products to market and as human-computer interactions keep taking new and possibly dangerous turns.”

In August, Delaware updated its laws that allowed corporations to expand liability protections for their senior offices for breaches of the fiduciary duty of care. Bloomberg Law reports that the first of such moves are now being challenged by shareholders under alleged violations of state shareholder approval requirements before any such changes could have been made.

Other News

Learn With Me

We’re doing Creator Economy Law… LIVE!

What’s a better way to earn CLE credit than while also hanging out with some of the coolest IP, media, and technology attorneys and legal professionals in the world? Don’t miss the American Bar Association’s Annual IP Conference in Washington, D.C., April 12th – 14th. There is a lot more programming in addition to the Creator Economy Law panel. 

🔥 Check it out and register today!

AIPLA Spring Meeting 2023

Come join me in attending the American Intellectual Property Law Association (AIPLA) Spring Meeting! I’ll be there joining a panel to talk #copyright and #TradeSecrets 🥳

It’s actually been a minute since I made it out to the West Coast, so I’m super excited! It’s also my first time in Seattle 👏🏻 and also my first AIPLA conference.

Let me know if you’ll be there or in the area. Would love to plan a time to meet up!

🔥 More details about the conference.

Music Video of the Week

Earlier this week, I was listening in on a legislative update (one of the fantastic benefits I have of being a member of the ABA’s Section of Intellectual Property Law, which I highly recommend you also consider joining). I learned during the call that Rep. Darrell Issa (R-CA) had a connection to Viper car alarms. My mind, being the way that it is, immediately started going through Missy Elliott’s song lyrics for Pass That Dutch:

“who touched my car alarm?

Break in my car, you will hear ‘Viper armed’”

Here we are! This week’s music video is from Missy Elliott. Watch on YouTube.

Editor's Notes

Affiliate Links. As an Amazon Associate, I earn from qualifying purchases. I have noted above where links to products on Amazon may earn me a commission if you make a purchase. Thanks for supporting my work!

Not Legal Advice. This newsletter is published solely for educational and entertainment value. Nothing in this newsletter should be considered legal advice. If you need legal assistance or have specific questions, you should consult a licensed attorney in your jurisdiction. I am not your attorney. Do not share any information in the comments you should keep confidential.

Personal Opinions. The opinions and thoughts shared in this newsletter are my own, and not those of my employer or any of the third parties mentioned or linked to in this newsletter. No affiliation or endorsement is implied or otherwise intended with third parties that are referenced or linked.

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