Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Top talent agencies allegedly poached talent, conspired to offer package deals, (Feb 17, 2015)

By Linda O’Brien, J.D., LL.M.

Two leading talent and literary agencies have engaged in anticompetitive conduct and unfair business practices by soliciting clients from smaller agencies with package deals that are unavailable to the smaller talent agencies and by terminating industry prohibitions against financial investment opportunities in production, distribution, and advertising activities, according to a complaint filed in the federal district court of Los Angeles (Lenhoff Enterprises, Inc. v. United Talent Agency, February 13, 2015).

United Talent Agency (UTA), founded in 1991, and International Creative Management Partners LLC (ICM), founded in 1975, are two of the largest talent and literary agencies in the world. Lenhoff Enterprises is a talent agency, established in 1997, and franchised with the Screen Actors Guild (SAG), Writers Guild of America, and Directors Guild of America (DGA). Lenhoff represents writers, directors, producers, and cinematographers, and is a member of the Association of Talent Agencies (ATA). Lenhoff is a boutique agency consisting of two agents, who represent clients on an exclusive basis.

The complaint alleges that, in May 2012, Lenhoff learned that an agent employed by UTA had contacted a client of Lenhoff’s and attempted to induce that client to sever its relationship with Lenhoff and let UTA represent him exclusively. Lenhoff contacted UTA and requested that the solicitations cease. In March 2014, Lenhoff was informed that a UTA agent contacted a second client of Lenhoff’s and offered the client employment on a television series. Lenhoff contacted ATA and requested that UTA’s solicitations cease. In April 2014, Lenhoff learned that a UTA agent contacted a third client of Lenhoff’s and attempted to induce that client to sever its relationship with Lenhoff. Lenhoff contacted ATA and requested that UTA’s solicitations cease. UTA responded that its solicitation activities were legitimate. Lenhoff provided UTA with its client list and continued to request that UTA cease its predatory practices.

In November 2014, a four-year client of Lenhoff informed the agency that she no longer wanted to be represented by Lenhoff. Within one month, the client listed UTA as her agent on the DGA website. The client was induced to sever her contract with Lenhoff by UTA’s promise that she would be included in a “package” and not have to pay the customary ten percent commission. Instead, UTA would earn a packaging fee, which includes six percent of the television license fees, ten percent of the modified gross receipts, 15 percent share of publication rights, 20 percent stage rights, and 25 percent share of merchandising. Similarly, in June 2014, ICM allegedly poached client of Lenhoff’s, who within 24 hours of terminating his exclusive contract with Lenhoff, entered into a multi-year deal on a television series, the complaint states.

According to the complaint, the packaging fee allows the largest talent agencies—UTA, ICM, Creative Artists Agency (CAA), and William Morris/Endeavor (WME)—to unfairly compete with smaller agencies for talent by offering to waive the ten percent commission. Since 2002, approximately 39 talent agencies have disappeared, either through consolidation or by moving to talent management. As a result, many talented individuals are finding it more difficult to find representation. They are either not working or find that their work is stifled because they are not the marquee element driving the package, Lenhoff claimed. Because the large talent agencies stockpile talent and exercise control the development, production, financing, distribution, and advertising, artists that want to get their idea financed, produced, and distributed must agree to give the agency a packaging fee.

The complaint also alleged that SAG’s agency regulation, Rule 16(g), an agreement between SAG and ATA, prohibited talent agencies from having any financial interest in a production or distribution company, as such an interest would result in self-dealing. In April 2000, the ATA sought the right to have such financial interests and negotiated to allow Rule 16(g) to expire. Unknown to other ATA members, the large talent agencies allegedly conspired amongst themselves to terminate Rule 16(g), so they could enjoy vertical integration of their businesses, more concentration of market power, and more control over production and distribution.

The termination of Rule 16(g) has allowed the enormous flooding of outside funding, primarily private equity, into the large talent agencies, according to the complaint. As a result, these agencies have expanded their businesses into production, advertising, and distribution. Based on a 2014 survey of scripted television talent production deals, the four largest talent agencies control 92 percent of the television market talent deals with the Association of Motion Picture and Television Producer Employers. This domination of the television market would not have been possible without the agencies’ ability to package a group of major talent components of a television series. Also, the monopolization was made possible by the choreographed termination of Rule 16(g) and the financial investment opportunities that UTA and ICM can now participate in, the complaint charges.

Lenhoff asserts claims for unfair business practices, intentional interference with contract, intentional interference with prospective economic advantage, and violations of Section 2 of the Sherman Act and California’s Unfair Competition Law. The action seeks declaratory and injunctive relief, actual and treble damages, disgorgement, pre-judgment interest, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 2:15-cv-01086.

Attorneys: Philip J. Kaplan (Law Offices of Philip J. Kaplan) for Lenhoff Enterprises, Inc.

Companies: Lenhoff Enterprises, Inc.; United Talent Agency; International Creative Management Partners LLC.

News: Antitrust CaliforniaNews