Corporate Finance Law Blog : Corporate Finance Lawyer & Attorney : Davis Wright Tremaine Law Firm

 Although the rules implementing adult-entertainment recordkeeping laws historically had been limited to “hard core” material, the new regulations for the first time applied to media that depict only “simulated” sex and/or, in some cases, nudity. The DOJ scaled down its approach significantly from original proposals, which could have imposed cumbersome new burdens on broad categories of “mainstream” content. As now adopted, the rules do not impose recordkeeping or certification requirements on the vast majority of broadcast or cable programming. Where the rules do apply, the final regulations streamline compliance in a number of important ways.

Also, in revising its preexisting rules governing “actual” sexually explicit conduct, i.e., adult entertainment, the DOJ relaxed existing recordkeeping and labeling obligations somewhat to afford new flexibility on regulations the adult industry has long found unduly burdensome. However, commentary accompanying the rules raises questions as to whether there will be new burdens for entities with “back catalogs” that they may wish to exploit in the future.

Specifically, in adopting the new rules the DOJ has:

• Effectively exempted mainstream love/sex scenes, so that fewer producers will be required to go through certification (or to keep records and label products), by adopting a far narrower definition of “simulated sex.” 
   
• Clarified that new regulations that apply to certain depictions of nudity will be applied prospectively only, and will become effective 90 days following adoption. 
   
• Streamlined the certification procedure for producers of material involving only simulated sex and/or nudity by eliminating the proposal to require biannual certification and to submit lists of titles covered by the rules. 
   
• Clarified that the exemption from the statute and rules for those who only “distribute” covered works applies to any dissemination of the material that does not entail creating or altering its content.

In addition, the DOJ:

• Agreed to allow third-party custodians of records required for depictions of sexually explicit conduct.
   
• Streamlined the information that must appear on the labels that must be affixed to depictions of sexually explicit conduct.

The DOJ declined to adopt an exemption to the rules for news and documentaries. On balance, however, the reduced scope of the rules should come as a relief to many media industry players who faced the prospect of having to grapple with a new regulatory regime.

Section 2257 requires producers of images depicting “actual sexually explicit conduct” to keep records identifying and verifying the ages of performers and to label the resulting visual works. The purpose of the law is to deter child pornography by ensuring that the performers used for such materials are adults. The new rules implement the Adam Walsh Child Protection and Safety Act of 2006. Among other things, the Act broadened the scope of Section 2257, which traditionally governed only adult entertainment. It also added the new Section 2257A to extend the law to depictions involving only simulated sex and in some cases, nudity.

To ensure “mainstream” materials were not subject to the more burdensome recordkeeping and labeling requirements, the Act established a process by which producers could certify to the attorney general that they keep identifiable records for employees that show their names, addresses and dates of birth. Unfortunately, the rules the DOJ initially proposed to implement the certification requirement were so detailed as to nearly approximate full-blown recordkeeping.

However, the final rules are substantially narrower. In addition to the modifications outlined above, highlights of the new DOJ rules include:

• The DOJ will allow one-time certification by any executive officer rather than only CEOs, declined to impose proposed extra burdens on “secondary” producers, and substantially reduced the extra steps that had been proposed for foreign-produced material. 
   
• The DOJ declined to adopt a proposed rule change that would have required 2257 records to be kept in hard copy, and instead left intact existing rules allowing electronic retention. 

• The DOJ dropped requirements for 2257 labels to list the “date of original production” of depictions, eliminated and/or simplified the other information that must appear in the label, and clarified how the label must appear on DVDs. 
   
• The DOJ clarified that Web site operators who are “producers” must affix 2257 statements, but not if their conduct is only “distribution” as that term was newly clarified. 
   
• The DOJ also clarified how the rules apply to social networking sites, confirming that operators of such sites would not be subject to the rules if they do not select or alter the content posted.

The new rules will be effective Jan. 17, 2009. The compliance date for depictions of lascivious exhibition and/or simulated sex (i.e., the creation date for covered depictions) will be March 18, 2009, and the deadline for certifications will be June 16, 2009. Davis Wright Tremaine filed extensive comments throughout this rulemaking and has a wealth of experience with the rules generally.