Article written by:
Mallory Ashbrook, CPA, CVA, JD
Manager, Forensic & Dispute Advisory Services
There seems to be a recent trend of copyright infringement lawsuits in the music industry. Recently, Katy Perry was sued for her song “Dark Horse”, Spotify was sued for streaming Eminem’s music without a license, and even the famous “Baby Shark” song has recently come under attack for potential copyright infringement. While you may not have a song in danger of copyright infringement, something as simple as using someone’s photo on your website without permission can land you in the middle of a copyright infringement lawsuit.
It’s about the cost
In the news you frequently hear about whether it was copyright infringement or not – did the song sound “substantially similar,” or what was Spotify required to do in order to obtain the proper license? While that is interesting, in the forensic accounting world, we want to know how much the lawsuit is worth or how much it could cost you.
How is it calculated
In a copyright infringement lawsuit, the copyright owner has the right to recover their actual damages, any additional profits of the infringer or statutory damages. Actual damages could be lost sales, lost licensing revenue or any other provable financial loss directly related to the infringement. In the cases mentioned above, it would most likely be lost licensing revenue. Essentially, the actual damages would be determined based on a hypothetical situation – had you asked to use my copyrighted material, and I granted you permission to use such material, it would have cost X percent of your total revenue related to the song as a result of using the copyrighted material. While that may seem simple enough, the issue is what percentage of sales is “reasonable” as a licensing fee. The reasonable licensing fee may be determined in a number of different ways, including what a hypothetical willing licensor and willing licensee would have negotiated to pay for the license and actual prior licensing of the copyrighted material to another party.
In addition to the actual damages suffered, the copyright owner may recover the infringer’s profits related to the infringement to the extent such profits exceed the amount of actual damages. For example, in the Spotify case, if the actual damage to the copyright owner was $100,000 but Spotify made an extra $200,000 in profit because they were streaming the copyrighted Eminem songs at issue then the additional $100,000 between the actual damages and the infringer’s profit may also be awarded to the copyright owner.
Recovery for damages
Both actual damages and the infringer’s profits can be difficult to prove in copyright cases. That is why the Copyright Act also provides for specific monetary damages as set by law. However, this statutory damages only apply if the copyright owner has registered their work with the U.S. Copyright Office. If the copyright owner has access to the statutory damages then they are allowed to elect if they want actual damages or the statutory damages, but they may not recover both.
If you have questions about copyright infringement, damages or need other forensic accounting assistance, GBQ can help. For additional information call us at (614)221-1120 or click here to contact us.