Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Blurred Lines or Fuzzy Math: Damage Calculations in the Music Industry

1,051 views

Published on

Copyright infringement is a “strict liability tort,” which means the defendant doesn’t have to have intended to infringe to prove liability. A plaintiff must only demonstrate that the defendant had access to the allegedly infringed song, and that the two songs in question have substantial similarity.

Substantial similarity: whether or not the average listener can tell that one song has been copied from the other. This is the “ordinary observer test” - the hallmark of copyright infringement. The more elements two works have in common, the more likely they are to be ruled substantially similar. Essentially, the jury must decide whether the copying of protected elements was “too much.”

Proving substantial similarity in music cases is complicated by the fact that all songs carry two kinds of copyright, for composition and sound recording, that have to be evaluated independently.

Innocent or Willful Infringement? Factors into statutory damages, and whether expenses can be deducted from profits in determining profits awards.

Published in: Law
  • Be the first to comment

  • Be the first to like this

Blurred Lines or Fuzzy Math: Damage Calculations in the Music Industry

  1. 1. BLURRED LINES OR FUZZY MATH How Did They Come Up With $7.3 Million? Or Was It $5.3 Million DAMAGE CALCULATIONS IN THE MUSIC INDUSTRY Moderator: Robert S. Meloni, Esq., Partner, Meloni & McCaffrey Speakers: Doug Bania, CLP, Principal, Nevium Intellectual Property Solutions Matt Greenberg, Ritholz Levy Sanders Chidekel & Fields Bruce Kolbrenner, CPA, Partner, Prager Metis
  2. 2. THE BASICS Elements Needed to Prevail on Copyright Infringement Claim OWNERSHIP + COPYING (ACCESS/SUBSTANTIAL SIMILARITY) ¨ Copyright infringement is a “strict liability tort,” which means the defendant doesn’t have to have intended to infringe to prove liability. A plaintiff must only demonstrate that the defendant had access to the allegedly infringed song, and that the two songs in question have substantial similarity. ¨ Substantial similarity: whether or not the average listener can tell that one song has been copied from the other. This is the “ordinary observer test” - the hallmark of copyright infringement. The more elements two works have in common, the more likely they are to be ruled substantially similar. Essentially, the jury must decide whether the copying of protected elements was “too much.” ¨ Proving substantial similarity in music cases is complicated by the fact that all songs carry two kinds of copyright, for composition and sound recording, that have to be evaluated independently. ¨ Innocent or Willful Infringement? Factors into statutory damages, and whether expenses can be deducted from profits in determining profits awards.
  3. 3. DEFENSES ¨ Ownership ¨ Scènes à faire ¨ Fair use ¨ Statute of limitations ¨ De minimis ¨ Independent creation
  4. 4. IDEAS VS EXPRESSION CONCEPT & FEEto L: “Pharrell and I were in the studio and I told him that one of my favorite songs of all time was Marvin Gaye’s Got Give It Up. I was, like, Damn, we should make something like that, something with that groove. Then he started playing a little something and we literally wrote the song in about a half hour and recorded it.” CONSIDER THESE VISUAL IMAGES USING SAME IDEA, BUT DIFFERENT EXPRESSIONS OF THAT IDEA
  5. 5. ¨ Asserting claims ¨ Handling those claims ¨ Settlement designed to avoid litigation ¨ Artist indemnities ¨ What are typical parameters of settlement? ¨ How do they compare with results obtained if litigation ensues? Concluded? 5
  6. 6. ¨ Musicologists are often called as expert witnesses to assist the fact finder. A musicologist for the plaintiff will underscore the similarities between the two songs as written, while the defendant’s musicologist will stress the differences. ¨ Damages Experts such as accountants and economists are also called to assist the fact finder by providing opinions as to damages (actual damages, profits, deductible expenses) 6
  7. 7. ¨ Over the past fifty years there has been an inexorably growing number of music copyright infringement claims. ¨ Between 1950 - 2000 U.S. courts issued more than twice the number of opinions in this area than they did between 1900 and 1950. ¨ Since 2000 courts have issued over 50% of opinions published between 1950 and 2000. Source: “I Hear America Suing: Music Copyright Infringement in the Era of Electronic Sound” (USC Gould School of Law, Legal Studies Research Papers Series No. 14-6, March 2014) 7
  8. 8. 15 10 7 8 15 31 35 34 1940-1949 1950-1959 1960-1969 1970-1979 1980-1989 1990-1999 2000--2009 2010-2013 Music Copyright Cases Filed 1940-2013 Source: Music Copyright Infringement Resource (USC Gould School of Law) 8
  9. 9. ¨ Judicial opinions represent only a small portion of music copyright infringement claims; most are settled long before trial.* ¨ Settlements – typically a “get lost” payment to the plaintiff – keeps disputes off court dockets, but may promote attenuated claims by plaintiffs seeking similar payoffs based on convenience and economic expediency. ¨ Predilection towards settlement, however, ultimately reflects its chariness of the unpredictable results of litigation (particularly jury trials) and expense of litigation. *Source: “I Hear America Suing: Music Copyright Infringement in the Era of Electronic Sound” (USC Gould School of Law, Legal Studies Research Papers Series No. 14-6, March 2014) 9
  10. 10. 10 • Most copyright infringement cases (80.15%) terminated voluntarily - through settlement, agreed judgment, or voluntary dismissal. • In contrast, very FEW terminated via trial (2.87%) or by dispositive motion or other dismissal (16.98%). • In an overwhelming majority of cases (85.41%) the case was dismissed with neither party winning an adversarial judgment over the other (although roughly 20% of those cases involved a consent judgment filed with the court). • Of the 16.18% of cases in which there was an explicit winning party, the defendant won a little more than half (54.10%) and the plaintiff a little less (45.90%).* Source: “Copyright’s Topography: An Empirical Study of Copyright Litigation,” Christopher A. Cotropia & James Gibson, Texas L. Rev. [Vol. 92:1981].
  11. 11. ¨ Between 1960 and 2010 over 40 music copyright infringement cases turned on summary judgment motions. ¨ Invariably the defendant sought summary judgment at the district court; in several instances appeal courts overturned the district court’s granting of defendant’s motion. ¨ In 16 of 42 cases the courts denied defendants’ motions for summary judgment . Source: “I Hear America Suing: Music Copyright Infringement in the Era of Electronic Sound” (USC Gould School of Law, Legal Studies Research Papers Series No. 14-6, March 2014) 11
  12. 12. ¨ Daubert standard: Rule of evidence regarding the admissibility of expert witness testimony in federal courts. Experts are only permitted to testify when their testimony is (1) based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case. ¨ Nature of retention: It is necessary for the damage expert to receive a complete understanding of the assignment from Client Counsel? ¨ Qualifications: Necessary for the damage expert to have a thorough knowledge of music industry. ¨ Information Considered: Relevance and reliability - Damage expert must compile information from various sources to determine Damages. ¨ Methodology used in determining Damages: The calculations in the Blurred Lines case were different from most others. ¨ Expert Reports: Jury decision of damages and how they relate – or NOT – to damage reports prepared by damage experts for the respective parties. 12
  13. 13. ¨ Plaintiff's Actual Damages (e.g., lost license revenues). ¨ Defendant’s Profits Not Attributable to Actual Damages (e.g., revenues from sale of records, concert and merchandise profits, TV or movie synchronization fees). ¨ Plaintiff required to present proof only of the infringer’s gross revenue, and Defendant required to prove his or her deductible expenses and the element of profit attributable to factors other than the copyrighted work. 13
  14. 14. ¨ Both sides in Blurred Lines case gave estimation of potential damages. ¨ The Gaye family claimed Thick and Williams' profits from the track totaled roughly $40 million and that according to general practices for licensing, they are due about half of that. ¨ Williams/Thicke responded that Blurred Lines was not nearly that profitable, arguing that the track's success wasn't due entirely to the music -- noting that the racy video and social media promotions should also be considered. 14
  15. 15. ¨ Gayes sought an award of actual damages under a “HYPOTHETICAL LICENSE THEORY”. ¨ “Market value of the injury”: based on a hypothetical-license theory - amount a willing buyer would have been reasonably required to pay a willing seller at the time of the infringement for the actual use made by the infringer of the plaintiff's work. ¨ Gayes’ damages expert, Nancy Stern, testified that appropriate license for the portions of GOT TO GIVE IT UP copied by BLURRED LINES would have been 50% percent of publishing revenue if the license had been obtained before the release of BLURRED LINES, and 75% to 100% percent if it were obtained afterwards. ¨ “Reasonable market value” of a hypothetical license may be determined by reference to similar licenses that have been granted in the past or evidence of benchmark licenses in the industry approximating the hypothetical license in question. 15
  16. 16. ¨ Every piece of recorded music has two copyrights: (i) the sound recording; and (ii) the underlying composition. The Gaye family only had legal rights to a portion of the profit the composition copyright generated. ¡ Based on typical industry custom and practice, Thicke/Williams argued the Gaye family is only entitled to 25% of profit generated if infringement is determined. ¡ Based on the 25%, there are other factors that contributed to the success of Blurred Lines. ¡ Difficulties when the infringing work inextricably intermingles non-infringing material with the plaintiff’s protectable material. ¨ Sales of Blurred Lines as reported by SoundScan was used as a reasonable indicator of the success of Blurred Lines at different points in time following its release. ¨ Factors Contributing to the Success of Blurred Lines: ¡ The musical elements ¡ Celebrity and star power ¡ Awareness related to the videos ¡ Marketing activities undertaken by UMG ¡ Social media activities 16
  17. 17. A recorded song sitting on a desk is not going to generate revenue on its own Present Value of Expected Future Benefits Value of Business Intangible Assets Tangible Assets Copyrights Patents Intangible Assets Tangible Assets Trademark INTELLECTUAL PROPERTY DEPENDS ON OTHER ASSETS AND RESOURCES IN ORDER TO GENERATE ECONOMIC BENEFITS
  18. 18. EVERY SONG HAS TWO COPYRIGHTS
  19. 19. 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 SoundScan/Week Single Blurred Lines Album THE SUCCESS OF BLURRED LINES WAS DEFINED BY THE SOUNDSCAN DATA
  20. 20. 0 5 10 15 20 25 30 35 40 45 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 Number of Marketing Events During the Week SoundScan/Week SoundScan Events THE VOLUME OF MARKETING EVENTS AND SOUNDSCAN DATA
  21. 21. SoundScan/Week MARKETING EVENTS AND SOUNDSCAN DATA
  22. 22. Event Description Date Event Description Date A Video Sneak Peak 3/19/2013 P BET Awards Performance 6/30/2013 B Youtube Unrated Video Release 3/26/2014 Q Interviews with VH1, FUSE & Music Choice 7/18/2013 C Unrated Video pulled from YouTube 3/29/2013 R Twitter Chat, #ASKTHICKE Debacle 7/23/2013 D Beats Commercial Aired 4/28/2013 S Interviews with Ryan Secreast, Vanity Fair, Howard Stern and SIRIUS between 7/24/13 and 7/29/2013 E Video added to Fuse Pop & VHI 4/29/2013 T Album Released in US 7/30/2013 F NYC Promo: Power 105, GQ, VH1, HOT 97 5/1/2013 U The Today Show, BETY 106, PARK, America's Got Talent Performances 7/30/2013 G The Voice Performance with Thicks, Pharrell and T.I. 5/14/2013 V The View and Jimmy Fallon Performances 8/2/2013 H Interviews with Kiss FM & Power 106 5/15/2013 W Thicke Appears on The Colbert Show 8/6/2013 I Ellen Performance 5/16/2013 X The MTV Video Music Awards Performance with Miley Cyrus 8/25/2013 J Le Grand Performance & Interviews with Madmoizelle and Paulette Mag 5/18/2013 Y Oprah Show Appearance 10/14/2013 K Interviews with Metro, Booska, Purecharts and Skyrock 5/20/2013 Z 12 Live Shows in Major Markets between 12/2/2013 and 12/29/2013 L Graham Norton Performance 6/6/2013 AA Ryan Secreast Rockin' Airs 12/31/2013 M NYC Promo: Z100, WTKU, Hot 97, CBS Online, WNOW and WBLS 6/10/2013 AB Performance at the Grammy's 1/26/2014 N Jimmy Kimmel Performance 6/13/2013 AC ESPN Superbowl Party Performance 1/31/2014 O Interview with Centric 6/27/2013 LIST OF MARKETING EVENTS
  23. 23. $0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000 $900,000 $1,000,000 0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 1,800,000 2,000,000 Marketing Spend SoundScan/Month Marketing Expense SoundScan GROSS MARKETING EVENTS AND SOUNDSCAN DATA
  24. 24. 0 10 20 30 40 50 60 70 80 90 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 Radio Stations SoundScan/Week SoundScan Radio Stations 0 100 200 300 400 500 600 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 Market Size in Millions SoundScan/Week SoundScan Market Size Number of radio stations in which “Blurred Lines” was first played. Combined size of audience in which “Blurred Lines” was first played on the radio. FIRST RADIO SPIN HISTORY AND SOUNDSCAN DATA
  25. 25. 86% 14% March 2013 Male Female 88% 12% “Blurred Lines” Video Male Female 0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 1,800,000 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Views 54% 46% All Other Months Male Female ROBIN THICKE’S YOUTUBE CHANNEL DATA
  26. 26. 0 10 20 30 40 50 60 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 iTunes Video Reviews SoundScan/Week SoundScan Reviews NUMBER OF ITUNES VIDEO REVIEWS AND SOUNDSCAN DATA
  27. 27. 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 1,800,000 2,000,000 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Retweets SoundScan/Month T.I. Pharrell Thicke SoundScan 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 1,800,000 2,000,000 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Favorites SoundScan/Month T.I. Pharrell Thicke SoundScan TWITTER ACTIVITY AND SOUNDSCAN DATA
  28. 28. 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000 0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 1,800,000 2,000,000 Likes on Posts Mentioning Blurred Lines SoundScan/Month Likes SoundScan Posts mentioning “Blurred Lines” NUMBER OF LIKES ON ROBIN THICKE’S FACEBOOK POST AND SOUNDSCAN DATA
  29. 29. 0 20 40 60 80 100 120 140 160 180 200 0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 1,800,000 2,000,000 Media Mentions SoundScan/Month Media Mentions SoundScan The Voice Performance NUMBER OF MEDIA MENTIONS AND SOUNDSCAN DATA
  30. 30. 0 50,000 100,000 150,000 200,000 250,000 0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 1,800,000 2,000,000 smartURLClicks SoundScan/Month smartURL Total Clicks SoundScan SMARTURL CLICKS AND SOUNDSCAN DATA
  31. 31. TOTAL PROFITS - ARTIST/PRODUCER/LABEL: Combined (Net) Publishing (writer splits) Artist Producer Found Liable? Thicke: $ 5,658,214 1,404,569 (23%) 4,253,645 YES Williams: $ 5,153,457 4,293,124 (64%) 860,333 YES Harris (TI): $ 704,774 679,362 (13%) 25,412 _______ NO Total: $11,516,445 $6,377,055 (100%) $4,279,057 $860,333 Interscope: $ 1,343,674 NO UMGD: $ 217,150 NO Star Trak: $ 3,598,412 NO Total: $16,675,690 TOTAL PROFITS - PUBLISHING: Thicke: $1,404,569 $5,697,693 Williams: $4,293,124 Harris: $ 679,362 Total: $6,377,055 31
  32. 32. ¨ Overhead (Blurred Lines) - Gayes maintained should not be deducted Interscope/UMGD: $7,373,616 ¨ Thicke Tour Income (Blurred Lines) - Gayes maintained should be included Thicke Tour Revenues: $11,792,000 32
  33. 33. ¨ During deliberations, the jury posed a written question to the Court that read: “Q: Can you clarify or explain the intentions of what this sentence means? ‘You may not include in an award of profits any amount that you took into account in determing [sic] actual damages.’” ¨ Counsel agreed to the following written response to be presented by the Court: “The parties agreed that approximately $8 million was received by the writers of 'Blurred Lines' in publishing revenue. In calculating actual damages, it is the $8 million you should take into consideration. If you decide to consider awarding profits, you should not take into consideration the same $8 million.” Post-Trial Motion: Counsel for Thicke Parties argued this instruction was a “mistake,”, and that “[t]he Court’s reference to “approximately $8 million” was “grossly inaccurate,” because “the stipulated amount of publishing revenue was $6,377,055 for all three writers. 33
  34. 34. 34 Jury Verdict Form
  35. 35. ACTUAL DAMAGES (LOST LICENSING INCOME - PUBLISHING): Jury Awarded: $4,000,000 as against Thicke/Williams ONLY ► Parties stipulated gross publishing revenues for Blurred Lines totaled $8 Million (did not account for commissions to managers/accountants/lawyers). ►Jury award of $4 Million consistent with theory jury applied 50% licensing fee about which Stern testified. ►Thicke/Williams argued that the award of profits as to both Thicke and Williams should be remitted to “no more than 5% of the actual non-publishing profits” of Thicke and Williams stipulated to at trial . This position premised on testimony of Sandy Wilbur that “the handful of elements in GOT TO GIVE IT UP claimed to be copied in BLURRED, even if credited, amount to no more than 5% of BLURRED.” 35
  36. 36. HOWEVER, jury award for actual damages (publishing) was later remitted (lowered) by Court to $3,188,527. ►”Remitter”: If the amount of damages awarded by a jury is excessive, trial judge required order a new trial OR remittitur (reduced amount of damage which the court considers just). ►Court determined that $4 Million award “not reasonably supported by the evidence.” ►Remitted amount of $3,188,527 = 50% of $6,377,055 (total publishing profits for Thicke & Williams net of commissions to lawyers/accountants/managers). 36
  37. 37. PROFITS (NOT COUNTED IN CALCULATING ACTUAL DAMAGES:PROFITS (NOT COUNTED IN CALCULATING ACTUAL DAMAGES): ¨ Jury found that Williams received profits of $1,610,455.31, and that Thicke had received profits of $1,768,191.88, which were not taken into account in calculating actual damages. ¨ Reverse engineering – figuring out basis jury award: AWARD AGAINST THICKE: $1,768,191 = 41.5689% of $4,253,645 Thicke artist royalties AWARD AGAINST WILLIAMS: $1,610,455 = 187% of $860,333 Williams’ producer royalties ¨ $1,768,191.88 ÷ 4,253,645 = 41.5689% ¨ Williams profits-to-damages ratio of 187% was 4.7 times GREATER than the 41.5689% ratio used to calculate damages re Thicke profits. 37
  38. 38. Artist royalties: $4,253,645 Producer royalties: $ 860,333 Total: $5,133,978 38 Total Profits (Artist + Producerroyalties) Jury Award Ratable share of total profits (Thicke + Williams) $5,033,978 1,768,182 (Thicke) 35.12% $5,033,978 1,610,455 (Williams) 31.99%
  39. 39. ¨ The award of Williams’ profits was remitted from $1,610,455.31 to $357,630.96. ¨ Court applied 41.5689% - what jury applied to award of Thicke profits - to the $860,333 in producer royalties paid to Williams. ¨ 41.5689% of $860,333 = $357,630.96 ¨ Total reduction: $1,252,824.44 39

×