Showing posts with label damages. Show all posts
Showing posts with label damages. Show all posts

Sunday, September 11, 2022

Most Favored Nations Provisions & Damages

What is a "most favored nations" provision in a contract? Why are they important? What happens if they're violated? These are questions that many attorneys may be asking themselves, and for good reason. Most favored nation provisions can have a significant impact on royalty and profit participation calculations, especially in entertainment and intellectual property licensing deals, as well as investment deals and international treaties, to name a few examples. In this blog post, we'll take a closer look at what most favored nation provisions are and how they can lead to audit or other damages claims.

What is a "Most Favored Nations" Provision in a Contract? 

A "most favored nation" provision (also known as an "MFN") is a clause that is included in contracts to ensure that one party receives the same treatment as other parties which may have leverage to negotiate more favorable terms. The "most favored nations"  provision in a contract is based on the principle of equality. It is designed to promote fairness and to prevent one party from taking advantage of parties that may not know the extent of the most favorable terms it can negotiate. MFNs are commonly used in international trade agreements, but can also be found in other types of contracts, such as investment agreements, licenses, and other agreements covering for musical works and sound recordings.

With respect to licensing transactions, the MFN clause protects a licensor from receiving less favorable terms than other licensors. For example, if Licensor A has an MFN clause in its contract with Licensee B, and Licensee B separately gives Licensor C more favorable terms, then Licensor A is entitled to receive the same, more favorable terms as Licensor C. The same principles can be applied to other sorts of transactions including investment agreements and treaties between nations (from where the term "Most Favored Nations" originates).

Why are Most Favored Nations Clauses Important?

By requiring that all parties be treated equally, the most favored nation provision helps to level the playing field and to protect the interests of all involved.

The purpose of most favored nation provisions is to encourage free and fair trade - and encourage parties to feel comfortable signing off on a license or other contract - by ensuring that all trading partners are treated equally and by mitigating the risk that a more favorable deal could have been negotiated. Most favored nations clauses can also be used as a tool to pressure licensors to lower their royalty rates (or pressure countries to lower their trade barriers, such as tariffs, and improve their labor and environmental standards). Most favored nation provisions are an important part of the global trading system and help to promote free and fair trade.

What Happens if The MFN Clause is Violated? 

When a most favored nations clause is contravened, it can have a number of serious consequences. First, it can damage the relationship between the parties involved, creating an atmosphere of suspicion and mistrust, making future agreements more difficult to negotiate. It can even lead to economic retaliation.  As an example concerning treaties between nations, countries who discover a counterparty failed to honor the MFN provision in a treaty may impose punitive tariffs or other trade barriers in response to such breach. As another example, music publishers may refuse to grant reduced rate licenses - or any licenses - to a licensee who is found to have double crossed the licensor by failing to increase royalty rates in accordance with the terms of the MFN clause.

Second, when a "most favored nation" provision is contravened, the party (e.g., a licensor or country) which suffered less favorable terms than agreed is damaged and can bring a law suit, enforce contractual trade sanctions, or take other enforcement measures to claim actual and possibly penalize the licensee or other party that did not honor the MFN agreement. (Actual damages are amounts to make a party "whole" for the injuries it sustained as a result of a contractual violation. In addition, sometimes courts award punitive damages to punish or penalize the party responsible for the violation, and many contracts provide for penalties in the event of a breach).

How to Enforce "Most Favored Nations" Provisions

MFN clauses are typically identified through an audit process (one reason why it is important to carefully negotiate the audit clauses in your agreements), although violations can be disclosed in other ways.  For example, if two parties are in litigation, as part of the discovery process documents produced by a party may disclose the terms of its agreements with other parties, allowing MFN clause compliance to be evaluated. As another example applicable to international trade agreements between nations, a government official or designated third party reviews individual countries' customs data to ensure that it is providing the same benefits to all trading partners with MFN status. 

If an audit finds non-compliance with an MFN provision, or such non-compliance is disclosed in another way, I find in my experience working with legal counsel that the best approach is to first try to settle the claims through diplomacy and/or the audit and breach notice provisions set forth in the agreement. For example, as an auditor, my audit report will disclose my findings and the legal team will demand payment for the damages I identify in the audit report.  Given that may failures to comply with most favored nations clauses are the result of inadequate royalty reporting systems, non-compliance is often unintended, and this gives the parties a chance to fix the problem and maintain a business relationship.

However, if the party that failed to comply with an MFN clause is uncooperative, enforcement can be challenging.  Generally, the damaged party will need to pursue legal action such as arbitration or a trial in court or a tribunal in order to procure a legal order to the violating party to pay damages and, potentially, other consequences (e.g., termination of the underlying contract).

Actions for Attorneys to Take to Help Clients:

If you have a client who has suffered damages as the result of an MFN violation, please call my consulting and forensic accounting firm, Boschan Corp., at (424) 248-8866. We have experts on staff who can help you determine (based on the available information or through auditing or litigation support) whether your client may have a viable damages claim and, if so, what that claim might be worth. Better yet, when you are negotiating your clients' contracts, it can be prudent to get our feedback on some of the language including the audit provision and definitions. Please don't hesitate to contact us to take advantage of our expertise in most favored nations provisions, audits and damages claims. Thank you for reading.

Monday, April 4, 2022

Copyright Infringement Claims Step #1: Identify the Works Infringed

Copyright infringement is a serious offense that can result in significant damages. One common mistake in copyright cases is that a complaint has not properly identified all of the works infringed, or the complaint identifies a plaintiff who has no standing to bring a claim. Further, in order to estimate your or your client's potential liabilities or amount of money a client may be entitled to receive, counsel should first identify the copyrighted works that have been infringed. This can be tricky, but with the help of this post, you should be able to do it. 

Counsel should consider the multiple categories copyrights that may or may not have been infringed. For example, in a music case, a complaint may focus on a singular claim, but reference multiple copyrights (e.g., "song" and "record" - which are separate works), including:

  1. The specific underlying musical or literary work (i.e., the composition, song, or words)
  2. Sound recordings of the underlying work
  3. Audiovisual recordings of the underlying music or literary work and/or sound recordings
  4. Album artwork
  5. Trademarks and/or rights of publicity (we won't get into this because it is beyond the scope of copyright infringement damages, but at times there are other damages of concern which are in addition to copyright infringement claims).

Given that separate rights are accorded to each of the above examples, the parties will need to investigate authorship and ownership of all of the potential rights infringed before concluding to which works the plaintiff has standing to bring damages and other legal claims. At minimum:

  • Procure or create a list of works potentially copied, including dates of creation, publication, renewal/extension, grant termination notification and grant termination, if applicable (to make sure the rights have not fallen into the public domain and in fact the chain of title supports the plaintiff's standing to make a claim)
  • Obtain a copy of the infinged work(s) that were potentially copied (besides understanding what category of work(s) were copied, it may be useful later, in investigating whether the nature of an infringement was willful, to note whether the original work bore any copyright notices)
  • Examine examples of the potentially infringing copies to identify which works were in fact copied (for example, in a musical case, were both the composition and the recording copied, or was it solely the composition which was re-recorded?)
  • Obtain copies of all available agreements covering and notices of intent to use the works potentially copied.  If the agreements were verbal, ask questions to understand the intention of the agreement and what consideration was exchanged and actions were taken to support the claims of such intentions.
  • If the agreement mentions that the work is a "work-for-hire," analyze whether the legal criteria were technically met for the work to be deemed a work for hire as defined in 17 U.S.C. § 101 (because it is not a work-for-hire merely because an agreement states so). 
  • Search the Internet to identify prior public copyright claims and uses
  • Search for and obtain records of copyright registration, copyright grant termination notices.  In the United States, the Copyright Office this year launched the Copyright Public Records System (CPRS) pilot, which will provide enhanced search capabilities as part of its modernization efforts. To participate in the pilot program and gain access to the latest search tools, users must attend a webinar, which can be found here.

While we do frequently assist legal counsel with such investigation, there are legal experts in chain-of-title research, so this may be something best outsourced to a specialist if you are unfamilliar with it.

If you are counsel to one or more plaintiffs, list the correct entities as the plaintiffs in your complaint, including any companies owned by your client(s), which may hold some of the relevant rights. Unfortunately for plaintiffs with loan-out companies, there may be certain drawbacks if the plaintiff is an entity as opposed to an individual.

Typically, either our engagement stops here because we learn that a plaintiff has no standing to make a copyright infringement claim, or the scope of the matter multiplies if we determine that the number of works infringed was greater than the plaintiff originally identified.

Tuesday, February 22, 2022

Most Favored Nations Damages Claims

During my decades of experience, I have made thousands of audit claims in connection with so-called “MFN” (i.e., Most Favored Nations) clauses.

As examples, many mechanical reproduction licenses for musical works and film profit participation agreements with talent contain MFN clauses, as do many licensing and other agreements.  As part of certain royalty audits, it is my job to quantify damages for non-compliance with this standard agreement provision.

Although counterparties cooperate to various degrees, my approach is generally to request the information – such as agreements with third parties, rate files and accountings - in order to ascertain whether a counterparty has complied with its commitment to pay rates to our firm's client(s) that are equally favorable compared to those agreed or paid to other relevant parties. If my team and I find that a counterparty failed to comply with a most favored nations provision, we utilize actual or estimated rates to quantify reportable royalties from which we deduct royalties reported (or claimed elsewhere in our audit or expert report).

Tuesday, May 23, 2017

The Beverly Hills Bar Association has invited our founder, Cedar Boschan, to speak about copyright damages at its upcoming May 31, 2017 program.  Click the link below to sign up:

Cedar plans to share her experience and insights about topics such as:

- How how she renders an opinion regarding actual damages suffered by a Plaintiff as a result of infringement
- Factors she considers when it comes to apportionment (i.e., allocating profits derived from the infringement)
- How she has been able to show that an infringer’s gross revenue is or is not reasonably related to infringement
- Document requests and interrogatory questions she suggests attorneys make in order to help prove damages

See you there!

Friday, January 1, 2016

2015 Year-In-Review: Damages

 What We Learned About Damages from Blurred Lines + Howard King Talk

What We Learned about Damages from 'Blurred Lines' in 2015
+ January 2016 Howard King Talk

Do you think Hollywood power litigator Howard King regrets his strategy to not present an alternate damage theory for jurors - and the judge - to consider when defending his clients Pharrell and Robin Thicke in the so-called "Blurred Lines" lawsuit brought by the family of Marvin Gaye?

With great deference to Mr. King, I think more defendants should consider including alternate damage theories in their defense strategy because of cases like this, where hiring the right damages expert could drastically change the outcome.

* * * * * * * *

You might find a chance to ask Mr. King a question about damages if you attend The Copyright Society of the USA's "Copyright Conversation with Howard King" in Los Angeles on January 21.  (Register and view who else registered here. Note that the AIMP members save $10 on registration - just log in to the AIMP site and then visit this page to see your discount code.)

* * * * * * * *

In any case, the below 2015 articles may interest those who wish to learn more about the damages aspects of the Blurred Lines matter:

Saturday, March 28, 2015

Introducing Boschan Corp.

Dear readers,

It is my great pleasure to announce that audit and forensic expert services successfully launched this week at Boschan Corp., the sister company of Auditrix, Inc.

Boschan Corp. is dedicated to empowering attorneys to optimize client claims / counterclaims through:

  • Contract and royalty audits
  • Damages, property and restitution valuation

Personally speaking, I am thrilled to return to an entrepreneurial role focused on music, IP, interactive and other select clientele, not to mention a commute that saves hundreds of hours!

Please update your contact records as follows:

Cedar Boschan
President & CEO

Boschan Corp. & Auditrix, Inc.
8383 Wilshire Blvd.
Suite 800
Beverly Hills, CA 90211

Tel: 424-248-8866

I hope to hear from and see you soon!

Have a wonderful week ahead,

Friday, January 9, 2015

Five Things to Consider Before Filing a Music Copyright Case

By Gerard P. Fox, Esq.

Gerard P. Fox, Esq. and his firm
handle general business, contract
and IP litigation across the
entertainment industry and

Attorney Gerard P. Fox has acted as lead trial counsel for corporate clients such as Vivendi and Clear Channel. Mr. Fox has also represented high profile entertainers including Madonna, Anita Baker and the Isley Brothers.  

From hiring experts to damage awards, in his post below, Mr. Fox shares some very useful tips from his years of copyright litigation experience.  For a personalized consultation, contact the Law Offices of Gerard Fox and also check out his Fox's Litigation Strategies Blog.

1.      In my opinion the Federal District Courts have been improperly applying a quantitative and not qualitative copyright analysis in music and film cases. This means that they take the totality of your copyrighted work which you claim has been infringed, and hold it up against the totality of the infringing work and actively look for dissimilarities.  This is incorrect under the law because in truth a song often includes many small, integrated and unique copyrightable works. Unfortunately, because the courts are taking this approach, it is much harder to win a copyright case in district court.  I tried one of the last published wins where I represented an artist claiming a part of their song was infringed. See Three Boys Music (Ronald Isley) v. Michael Bolton.  It’s not common.
2.     You will need to hire a musicologist up front.  If you want to have any chance of negotiating an early settlement or defeating an early motion for summary judgment (see below), you will need to retain an accomplished and respected musicologist. First, you should secure their independent opinion as a consultant, then if their opinion is one you respect and one that supports your contentions you should retain them as a formal expert.  Good musicologists, who are respected by defense counsel and the court, will usually ask for an up front retainer of no less than $5,000 or $10,000. Keep in mind that this retainer is not a cap of their total billings.  If the case proceeds through to depositions, summary judgment and trial, the musicologist would likely charge you upwards of $25,000. 
3.     Another consideration is that the defendants will most assuredly make an early motion for summary judgment wherein they will argue that the infringed elements of your song are common and not unique, and that the two musical works are not substantially similar.  They may make other arguments that are common to these type cases, but these are the two most likely arguments.  In making these arguments, they will put forth cases that move away from the proper application of Copyright law to a quantitative analysis of the works.  It is imperative that you retain attorneys who have a deep and up to date understanding of the case law, legislative history and this process to have any chance of defeating this type of motion.  This is no area for a general practitioner.  Defeating this summary judgment motion is essential, because if you do, which is rare in these cases, you will have all the leverage, as the defendants would be left to face a public jury trial.
4.     The prevailing party may be awarded their attorney’s fees under Copyright law.  Under 17 U.S.C. § 505 “the court may also award reasonable attorney’s fees to the prevailing party” in a copyright infringement case.  This is a huge issue to consider if you are the artist because if you lose, you could be ordered to pay hundreds of thousands of dollars of defense fees.  Now, awarding attorney’s fees and costs is discretionary with the district court judge, and many of these judges will NOT award the defendants their fees even if they win, on account of their very human concern about the financial devastation such an award would cause the artist, but this is a risk.
5.     Finally, when it comes to estimating your damages, you will not be awarded all of the infringing defendants’ net profits from the infringing distribution and use of the song, but an apportioned amount.  17 U.S.C. § 504(b) provides that the defendants are entitled to prove that certain elements of the profits are “attributable to factors other than the copyrighted work.” See Mackie v. Rieser, 296 F.3d 909, 915–16 (9th Cir.2002) (In the Ninth Circuit, on a claim to recover profits that are attributable to the copyright infringement, a plaintiff must show that the infringement itself, that is, the use of the plaintiff's work, was causally linked to the gross revenue claimed.).  This means that the defendants will argue that their notoriety, other songs on an album, the marketing behind them and their songs, the market that pre-exited for their music and other non-infringing parts of the song at issue were responsible for most of the profits earned, and that you should only be awarded a small apportioned amount of the net profits.  Of course, most defendants are not truthful about their actual net profits and will try to hide the true amount of their profits. To combat this it is important that you hire a forensic accountant who is knowledgeable about the music industry, such as Green Hasson Janks, to figure out the actual net profits, and then use your musicologist and maybe another music industry expert to argue that the piece of music stolen from you drove the sales and as a result defendants’ profits.
# # #

Gerard ("Gerry") Fox graduated from Georgetown Law School, magna cum laude, and earned an accounting degree from the University of Richmond. Mr. Fox acted as lead trial counsel for clients such as Vivendi, Clear Channel and Dow Chemical.

Gerry started his career at Covington & Burling, followed by Kaye, Scholer, before forming Fox & Spillane, where Mr. Fox honed his trial skills for twelve years. Four years ago, Gerry began the Law Offices of Gerard Fox.

Gerry handles General Business Litigation, Contract Litigation and Intellectual Property Litigation across the entertainment industry and beyond.

Gerry is admitted to practice in Maryland, Washington, D.C., California, has served as a media commentator, and wrote the book “Sue the Bastards.”