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MPAA Document Appears to Bolster Case Against VFX Subsidies (Analysis)

The filing in a non-entertainment trade case has ramifications for an effort to end foreign subsidies that benefit the major studios.

In a presumably unintended outcome, an advisory document filed by the MPAA in a trade dispute involving 3D printers and Invisalign dental braces may come back to bite the studios in a trade clash of their own. The filing, which argues that “electronic transmissions” are “articles” for purposes of tariff law, appears likely to boost a case against foreign VFX subsidies that activists have been working towards filing.

Those activists are smiling because they need to argue that electronic transmissions are “merchandise” for purposes of subsidy law. It’s a different section of the statute books, but it’s all part of trade law.

“It’s all rooted in how Customs deals with it,” said David Yocis of Picard Kentz & Rowe LLP. “This has never really come up before. Commerce and the (U.S. International Trade Commission) will have to decide if the law applies.”

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He added that because of precedent and the relation between the two different statutes, “the case (for including electronic transmissions) would seem even stronger” in the realm of subsidy law than tariff law.

The terminology is different too – “articles” as opposed to “merchandise” – but the MPAA filing actually encompasses both terms: “In both ordinary usage and in precedents interpreting statutory language, the terms ‘goods,’ ‘products,’ or ‘merchandise’ are not confined to physical objects,” says the Association’s document.

A 2013 “feasibility study” by Yocis actually anticipated the MPAA’s position. “Any subsidy beneficiaries who might oppose a (countervailing duties) petition would face interesting risks if they objected to these conclusions,” the document said. “For example, major U.S. film distributors clearly have an interest in ensuring that U.S. laws fully apply to online imports of digital products that violate U.S. copyright laws.”

Countervailing duties are taxes that can be slapped on imported goods that were improperly subsidized by their home countries. The intent is to level the playing field and counteract an unfair advantage that keeps prices artificially low.

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Yocis’s client for the study was Daniel Lay, who blogs as VFXSoldier. Lay opposes foreign VFX subsidies because of the effect on the domestic VFX business. Under pressure from subsidized work overseas, domestic houses such as Rhythm & Hues have gone bankrupt, and VFX workers have become itinerants, forced to migrate in some cases from country to country to follow the available jobs.

Whether a countervailing duties action will be filed in unknown. “We’re still in the early stages of the CVD effort,” Lay told The Hollywood Reporter. “The bigger task is organizing the industry to get behind the effort. If we are successful with that I'm pretty confident we will go forward with the case.”

As part of that endeavor, Lay is spearheading a rally to be held this Sunday during the Oscars at Hollywood & Vine. A similar rally attracted 500 people a year ago.

But why did the MPAA weigh in on a dental dispute? It turns out that the incisors at issue are digital. The Invisalign complaint, filed with the U.S International Trade Commission by Align Technology, Inc. against Clearcorrect Pakistan (Private), Ltd. and Clearcorrect Operating, LLC, alleges that the Clearcorrect entities are importing digital models, digital data, and treatment plans for clear dental braces that infringe Align Technology’s patents. The complaint is getting a bit long in the tooth – it was filed in 2012 – but the MPAA document is just a couple weeks old. The possible use of the document by CVD supporters was first publicly discussed Tuesday on PandoDaily.

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Thus, quite apart from the need to keep discovering actors with perfect smiles, the Association is apparently concerned that if digital files aren’t protected by trade laws, antipiracy efforts will suffer. “To effectuate Congressional intent to protect domestic industries, the Commission can and must construe the term ‘articles’ to include imported electronic transmissions,” the filing says.

So what’s MPAA’s out? “We have also always maintained that the production work done overseas is not governed by rules related to foreign subsidies because foreign production work is a service, not a good, and therefore not merchandise under the relevant provisions,” an Association spokesperson told THR. “Comparing that issue with the issue at hand in MPAA’s recent ITC filing is comparing apples – goods – to oranges – services.”

That distinction is not as clear cut as it might seem. After all, while VFX workers do perform a service, they also produce a thing – a finished VFX shot. It's a murky area.

Still, even if the MPAA’s filing turns out to help the VFX workers’ position, they’re not home free. Yocis pointed to a host of other questions that would need to be addressed: What is the relevant merchandise? Who is the domestic industry? Is there sufficient support for an action? Are the products subsidized? How do you demonstrate injury? And how would you enforce a CVD on digital transmissions?

All of that translates into complexity, time and, ultimately, money – meaning that it’s still uncertain whether or when an action will ultimately be filed.

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Email: jhandel99 at gmail dot com
Twitter: @jhandel