10:12am PT by Eriq Gardner
Talent Agencies Fight Allegations of Herding TV Clients By Deception
A top talent agency is speaking up in court that actors, directors and writers in television should have the right to pick their negotiators. But does the freedom to associate include being snookered?
That's what's being discussed in an ongoing antitrust lawsuit against United Talent Agency and ICM Partners brought by the boutique firm Lenhoff & Lenhoff. In the past couple of weeks, both sides have submitted filings discussing whether the legal action should move any further.
Charles Lenhoff's agency filed the lawsuit in February with word that two of its prized TV clients were poached by the larger firms. The plaintiff smells something rotten. An amended complaint suffers from some focus problems, but if there's one issue that's been put on a pedestal, it's how the so-called "uber agencies" (including William Morris Endeavor and Creative Artists Agency) are inducing clients to sign up by waiving 10 percent commissions in favor of deceptive "package" arrangements.
In industry parlance, packaging means that agencies line the key talent for a project before bringing it to a studio. The top agencies may be fine with forgoing commissions if it means earning fees and back-end profit participation on a lucrative TV show. Lenhoff argues that the big agencies have thus become de facto employers and what's happening might not have survived scrutiny had it not been for the end of Rule 16(g) of the franchise agreement between the Screen Actors Guild and the Association of Talent Agents. The rule required agents "to be independent" and not "possess any financial interest in a production or distribution company or vice versa."
The lawsuit suggests that top officials at the big agencies conspired to bring the demise of Rule 16(g) and then, aided by the influx of outside private equity, aggregated their market power to monopolize television. It's said that UTA, ICM, WME and CAA now control 76 percent of scripted series staffing and a 91 percent share of term deals at the studios and networks.
But in a motion to dismiss filed on August 11 (here), ICM wants to remind the judge this all began over a poached client.
ICM says the plaintiff is using the guise of an antitrust lawsuit "to complain about the freedom of television industry artists— directors, writers, and actors—to exercise their individual rights to choose the talent agencies that will represent them; express frustration in its inability to prevent clients from choosing to leave its agency for other agencies; and articulate its own social policy observations about the television industry that Plaintiff speculates are somehow connected to its criticisms about competition."
The bid to have the case thrown out continues by faulting Lenhoff for failing to present an allegation that competition has been reduced and consumers are being harmed. If Lenhoff is complaining about being disadvantaged, "that is a common refrain heard from competitors in every industry whenever rival firms compete for customers by offering lower prices or other benefits, and, in fact, is the very nature and goal of fair competition and a free market economy."
Lenhoff isn't letting this go, and on Monday, the boutique firm responded in California federal court.
Typically, the reply brief to a motion to dismiss presents legal theories, but in this instance, Lenhoff aims (here) to add more allegations about the harm incurred by "customers," or actors, directors and writers.
"Should this court permit leave to amend, Plaintiff would be able to allege the following about packaging fees and their anticompetitive effects on both studios/producers (buyers) and talent (customers)," writes the plaintiff. "Packaging fees are considered a marketing cost. In other words, talent bears the expense of the agency's packaging fees as a cost, instead of that expense being absorbed by the employer, who agrees to pay the package fee. In effect, the agency is charging talent an imputed commission, even though the agent advised talent that would not be charging any commissions. Apart from their anticompetive effect, packaging fees inherently present a conflict of interest (and disguise the true price to the consumer): the more the agency negotiates for itself, the more the client is disadvantaged."
The recognition that agents are moving away from the commissions model and allegedly leading clients into less advantageous arrangements has been spoken by others. In fact, producer/director Gavin Polone wrote a THR column in March titled "Your Agent Gets Money for Nothing," which is the first citation in Lenhoff's amended complaint. The gist of the article — and even the specific math that $30,000 in deferred fees per episode amount to more than a 10 percent commission — has now become a federal case.
In UTA's own motion to dismiss (here), the agency argues Lenhoff hasn't adequately pled an antitrust injury, that talent "can actually benefit" from packaging practices as they "can forgo paying the traditional commission." It's said that Lenhoff complains of UTA's "lower prices," to which Lenhoff responds, "But this 'lower' price is illusory. The true cost, i.e., net computation, to talent is higher."
U.S. District Judge Beverly Reid O'Connell will deliver word if the allegations towards conspiracy, injury to competition and harm to consumers is enough to drive this lawsuit past the initial roadblock into the discovery phase. A hearing is scheduled for September 21.