Hope you enjoyed part 6 on copyright infringement precedents featuring the concept of implied contracts, and the expectation of good faith dealing in our series on Idea Theft . Welcome to Part 7 on Damages.
Estimating Damages in an Injunction
When I wrote that I am a legal geek, I was not kidding. In 2006 I successfully defended against a frivolous injunction against News Corporation, whose Fox Interactive Media had acquired IGN Entertainment, which had bought my old company, AskMen. News Corp/IGN/AskMen claimed I was violating my non-competition agreement by launching WatchMojo. I was not. They knew they would likely not prevail at the merits stage, so they sought an injunction.
A bit like Basic Instinct screenwriter Joe Eszterhas’ stand against the establishment’s bullying, I did not tolerate the attempts of intimation, so I studied the law, then showed up to represent myself and the company. Sure, on day 1, I may have made arguments that were reminiscent of an episode of Mr Bean Goes to Court, but in that short, lightning strike combat, I ultimately dismantled the aggressors using their own weapons against them. It was a classic example of David vs Goliath!
There, I had to study the concept of damages. In an injunction, one of the tests a plaintiff must demonstrate is that the defendant’s actions cause irreparable damages, meaning damages so large and immeasurable that no amount of money can remedy the harm, and thus, requiring an injunction from preventing said damage. The more nebulous, the better.
I prevailed, the lawyer I took on is a judge today. No need to name him. He appeared tough as nails and scared the living daylights out of me on that first day, but perhaps because he was the president of the bar association at the time, he wasn’t sneaky and never threatened me personally.
Estimating Damages in Copyright Infringement Case
Throughout the 2010s, I then set my sights on copyright and fair use.
If I told you then that we’d launch a media company that used third-party rights and I would over time not only tame those media behemoths’ objections but bring them on board as partners, clients and allies, you would say that would sit somewhere between the improbable and the impossible, to quote Jeffrey Katzenberg, but that’s what I did.
Indeed, I laid out the plan starting in a series of articles in 2011 in my Mediapost columns – the concept, cases and precedents, the commercial applications and limitations, common sense (which I ultimately centralized with my subsequent writings and research on the Context Is King website) – and proceeded to implement said plan and ultimately prevailed. Throughout, I also managed to convince the mighty Google/YouTube empire to more accurately reflect copyright law. It caused me tremendous anxiety and stress.
In any case, with fair use, the matter of copyright infringement is a first step before determining whether damages were incurred. In the context of copyright, conversely, you need to be able to measure damages to the underlying work being infringed upon. In this matter, damages cannot be nebulous but clear and quantifiable.
A Two Step Adventure: Lack of Good Faith Dealing
Hollywood thinks it’s the center of the world, while Silicon Valley claims to be the center of the universe. Steve Jobs objected to Google’s Android on grounds that it allegedly copied its operating system; Google then objected to Uber’s self-driving car unit.
Inasmuch as Hollywood outsiders are reminded constantly of the Establishment’s written and unwritten rules of engagement, then as productions continue to become more global, Hollywood needs to respect local laws, in return. What’s at stake is a fundamental question of how society expects businesses to operate and conduct themselves. If this is legal, ethical and accepted, then Mad Max may be the best case scenario for the future, and I don’t want any part of it!
In Quebec, one of the distinctions of the civil code is an expectation that parties will act in good faith. Akin to that “implied contract” concept in California case law, in instances where a party acts in bad faith, then it does amplify claims of infringement. Say for example
– Party A approaches Party B, offers X (say financing to develop or produce a show)
– Party B discloses a project
– Party A no longer offers X (in fact, wants Party B to offer X)
– The parties don’t reach an agreement
– Party A pursues the project by itself or with another group.
What grounds does Party B have to object, file a claim, and seek relief?
Can the lack of good faith dealing serve as a bridge to the tougher claim to prove; that of copyright infringement? Going back to the historian in me, that two-step approach is reminiscent of Alexander the Great’s epic siege of Tyre, where in order to reach the island fortress, he had to first build a bridge from modern day Lebanon well into the Mediterranean sea. If you want to read “Alexander’s take” on that assault, read the excerpt from my second book, The Confessions of Alexander the Great: 33 Lessons in Greatness, where I chronicled one of the greatest exercises in maritime combat.
Assessing Damages in Idea Theft Cases
Demonstrating copyright infringement is not a fait accompli.
Indeed, one reason why copyright infringement cases don’t make it to court – let alone end up with a verdict – is the difficulty and inability to estimate damages. Judges are sensible people who want to get things right, but you have to help them deliver the right judgment. If you cannot demonstrate the value of damages, a court will not do it for you. Pleading with emotions gets you nowhere, you have to provide clear rational thought with the cold-blooded disposition that would make a sociopath envious.
This presents another paradox. Say you learn of a project early enough in development and object on moral grounds that the idea or concept was yours. If the project is not yet in production, it may be more difficult to assess damages. But the more you wait, the more the project takes shape and you are detached from it. Do you speak up early or bide your time and pounce once the matter is more ripe, particularizing damages down the road?
Indeed, once there is what I call a “Triggering Event” and the matter is ripe from a legal perspective – such as Netflix paying $400 million for Knives Out – and the project moves into production, then damages are easily to tabulate.
Suppose HBO orders the show and pays $1,000,000 per episode, you can now rely on expert feedback and industry standards and tabulate damages. Let’s say for purposes of illustration that the industry standard for being attached would be $10,000 per episode as an executive producer fee and/or 1% of the production budget (so $10,000 based on the $1M episodic budget), then it becomes quite easy to nail damages down to a precise dollar amount.
When lawyers advise their clients that they “have nothing to worry about,” it’s over this inability for claimants to calculate damages. This is particularly true with “Hollywood Accounting.” Indeed, in the Buchwald vs. Paramount precedent:
“the decision was important mainly for the court's determination in the damages phase of the trial that Paramount used ‘unconscionable’ means of determining how much to pay authors, which is widely called ‘Hollywood Accounting.’ Paramount claimed, and provided accounting evidence to support the claim, that despite the movie's $288 million in revenues, it had earned no net profit, according to the definition of ‘net profit’ in Buchwald's contract, and hence Buchwald was owed nothing.”
The Inverse Rule
As I alluded to in the previous instalment on previous court cases, copying involves 1) proving access and 2) similarities between the works.
According to The Hollywood Reporter, in Dan Rosen / Shame on You v. Elizabeth Banks, the courts relied on the inverse ratio rule which says that when the showing that the defendant had access to plaintiff’s work is very strong, the bar for showing similarity between the works is correspondingly lower. In addition, when the showing similarity between the works is very strong, the bar for showing that the defendant had access to plaintiff’s work is correspondingly lower. Not all circuits follow this rule. For instance, the Second Circuit has rejected it. The Ninth Circuit does follow the inverse ratio rule. It is a part of the extrinsic analysis in the extrinsic-intrinsic test.