Wednesday, February 17, 2010

Reality TV, Contracts and Confidentialy Clauses.

The way my mind operates is to consider the mechanics of what's going on behind the scenes. (It's probably why Logistics/Supply-Chain Management is a perfect career for me.) For example, when I'm watching an awards show, I'm curious about all of the details--and no, not the dresses or fashion. Instead, I want to know which company was selected for the lighting, and what the contract entailed. I want to know who decides what style of carpet to use, and why they selected it.

So when I watch reality TV shows, although I'm enjoying what's going on, I'm reviewing the business behind them, such as the product placement, the contracts with corporate sponsors and of course, the contracts with the contestants. I'm curious to how they live their lives between the time they're kicked off and the time their final episode airs. Do they live in seclusion so they don't let the cat out of the bag? Or do they remain working with the show, although not actually on it? In a world of Facebook and Twitter, how easy it would be for a contestant to slip-up and let the winner be known, and subsequently, owe the producers millions-upon-millions.

A very non-thorough search of Google yielded me this article which goes over the contracts and liabilities of Reality TV shows. It's a cool Contracts Blog by Contracts Law Professors. The article is from 2005, but still, it seems to raise some serious questions.

Like most (all?) "reality" TV shows, the Apprentice TV show imposes a contractual gag order on participants covering every aspect of the participant's experience. The contract couples that covenant with a liquidated damages clause requiring participant-breachers to pay $5 million plus attorneys' fees and disgorge their profits.

In 2001, a similar clause was invoked in a Survivor dispute (Survivor and Apprentice are both produced by Mark Burnett). Then, last week, this clause was invoked again agaist two Apprentice participants (Markus and Jennifer W.) due to their public claims that the show's editing is misleading and that The Donald is sexist.

I've always found the gag order + liquidated damages clause in these reality TV show agreements problematic for three reasons:

1) The $5M liquidated damages should be prima facie unenforceable because it does not vary with the type of breach. There's a wide range of public disclosures that might occur, some significant (blowing the entire season by preannouncing the winner) and some trivial (such as a snarky comment about Trump's choice of ties). A one-size-fits-all liquidated damages clause does not appear to represent a reasonable estimate of the damages in these different contexts.

Even if the clause is not a penalty, I wonder if it violates public policy. There's no question that the agreement could protect the producers' trade secrets, but the clauses often go far beyond that, limiting participants' abilities to discuss their experiences, criticize the show or even enforce their legal rights. At some point, extensive gag orders violate public policy. See, e.g., People v. Network Associates, Inc., 195 Misc. 2d 384 (N.Y. Sup. Ct. Jan 6, 2003) (enjoining the use of a clause prohibiting product reviews and product comparisons of anti-virus software).

2) Liquidating the damages has the perhaps-unintended consequence of capping the TV show producer's damages. If a participant disclosure really blew the entire season, would $5M be enough?

3) I believe that liquidating damages significantly reduces the likelihood of getting injunctive relief. (After all, it's hard to argue that damages are insufficient if the parties have agreed upon damages in the contract). So, if the TV show producers ever tried to stop publication of unwanted disclosures, I wonder if the liquidated damages clause would sink any chance of equitable relief.

For these reasons, I would think the TV show producers (and their lawyers) would know better than to include such a high-risk clause in their contracts. On the other hand, despite its legal shakiness (and its even-more-dubious prospects for producing judgments that could be collected), the clause nevertheless may be effective at deterring unwanted behavior. After all, what participant wants to test the clause at the peril of being wrong and on the hook for $5M?

Recently American Idol contestant Michael Lynche was booted from the Top 24 because his father broke loose the news he had made it to the Top 24. Can you imagine family dinners after your father ruined your one shot at stardom? AWKWARD...